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Deere (DE) Up 8.4% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Deere (DE - Free Report) . Shares have added about 8.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Deere due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Deere's Earnings And Revenues Beat Estimates In Q2
Deere posted second-quarter fiscal 2020 (ended May 3, 2020) earnings of $2.11 per share, beating the Zacks Consensus Estimate of $1.94. The reported figure slumped 40% from the prior-year quarter’s earnings per share of $3.52.
Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) came in at $8.22 billion, down 20% year over year. Revenues, however, surpassed the Zacks Consensus Estimate of $8.01 billion. Total net sales (including financial services and others) came in at $9.3 billion, down 18% year over year.
Operational Update
Cost of sales in the reported quarter was down 19% year over year to $6.3 billion. Total gross profit for the reported quarter fell 18%, year over year, to $2.96 billion. Selling, administrative and general expenses dipped 4% to $906 million from the prior-year quarter. Equipment operations reported operating profit of $890 million in the quarter compared with the $1,366 million witnessed in the prior-year quarter. Total operating profit (including financial services) plunged 37% year over year to $965 million in the fiscal second quarter.
Segment Performance
The Agriculture & Turf segment’s sales dipped 18% year over year to $5.97 billion, primarily due to lower shipment volumes and unfavorable currency-translation impact, partly offset by price realization. Operating profit in the segment decreased 22% year over year to $794 million, resulting from lower shipment volumes / sales mix, along with the unfavorable effects of foreign-currency exchange. However, this was offset by price realization, lower production and operational costs.
Construction & Forestry sales slid 25% to $2.26 billion from the year-earlier quarter, on lower shipment volumes and unfavorable foreign currency, partly negated by price realization. This segment’s operating profit plummeted 72% year over year to $96 million, mainly due to lower revenues, partially muted by lower production costs and price realization.
Net revenues in Deere’s Financial Services division came in at $875 million in the reported quarter, down 1% year on year. The segment’s operating profit came in at $75 million, down 56% year over year.
Financial Update
Deere reported cash and cash equivalents of $8.9 billion at the end of the fiscal second quarter 2020 compared with the $3.5 billion recorded at the end of the prior-year quarter. Cash generated from operating activities were $776 million in the six-month period ended May 3, 2020 compared with the cash outflow of $1.5 billion witnessed in the prior-year comparable period. At the end of the reported quarter, long-term borrowing was $34 billion, up from the $28 billion witnessed at the year-ago quarter’s end.
Deere has undertaken significant actions also to strengthen the company’s financial position and preserve liquidity. This includes raising $4.5 billion in medium- to long-term funding, lowering operating expenses and reducing capital spending.
Outlook
Net income for fiscal 2020 is projected at $1.6-$2 billion. However, the company has stated that uncertainties regarding the effects of the COVID-19 pandemic might affect the company's results.
Deere expects Agriculture and Turf equipment sales to be down 10-15% for fiscal 2020. The Construction and Forestry equipment segment’s sales are expected to plunge 30-40% for the fiscal year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -17.65% due to these changes.
VGM Scores
Currently, Deere has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Deere has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Deere (DE) Up 8.4% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Deere (DE - Free Report) . Shares have added about 8.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Deere due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Deere's Earnings And Revenues Beat Estimates In Q2
Deere posted second-quarter fiscal 2020 (ended May 3, 2020) earnings of $2.11 per share, beating the Zacks Consensus Estimate of $1.94. The reported figure slumped 40% from the prior-year quarter’s earnings per share of $3.52.
Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) came in at $8.22 billion, down 20% year over year. Revenues, however, surpassed the Zacks Consensus Estimate of $8.01 billion. Total net sales (including financial services and others) came in at $9.3 billion, down 18% year over year.
Operational Update
Cost of sales in the reported quarter was down 19% year over year to $6.3 billion. Total gross profit for the reported quarter fell 18%, year over year, to $2.96 billion. Selling, administrative and general expenses dipped 4% to $906 million from the prior-year quarter. Equipment operations reported operating profit of $890 million in the quarter compared with the $1,366 million witnessed in the prior-year quarter. Total operating profit (including financial services) plunged 37% year over year to $965 million in the fiscal second quarter.
Segment Performance
The Agriculture & Turf segment’s sales dipped 18% year over year to $5.97 billion, primarily due to lower shipment volumes and unfavorable currency-translation impact, partly offset by price realization. Operating profit in the segment decreased 22% year over year to $794 million, resulting from lower shipment volumes / sales mix, along with the unfavorable effects of foreign-currency exchange. However, this was offset by price realization, lower production and operational costs.
Construction & Forestry sales slid 25% to $2.26 billion from the year-earlier quarter, on lower shipment volumes and unfavorable foreign currency, partly negated by price realization. This segment’s operating profit plummeted 72% year over year to $96 million, mainly due to lower revenues, partially muted by lower production costs and price realization.
Net revenues in Deere’s Financial Services division came in at $875 million in the reported quarter, down 1% year on year. The segment’s operating profit came in at $75 million, down 56% year over year.
Financial Update
Deere reported cash and cash equivalents of $8.9 billion at the end of the fiscal second quarter 2020 compared with the $3.5 billion recorded at the end of the prior-year quarter. Cash generated from operating activities were $776 million in the six-month period ended May 3, 2020 compared with the cash outflow of $1.5 billion witnessed in the prior-year comparable period. At the end of the reported quarter, long-term borrowing was $34 billion, up from the $28 billion witnessed at the year-ago quarter’s end.
Deere has undertaken significant actions also to strengthen the company’s financial position and preserve liquidity. This includes raising $4.5 billion in medium- to long-term funding, lowering operating expenses and reducing capital spending.
Outlook
Net income for fiscal 2020 is projected at $1.6-$2 billion. However, the company has stated that uncertainties regarding the effects of the COVID-19 pandemic might affect the company's results.
Deere expects Agriculture and Turf equipment sales to be down 10-15% for fiscal 2020. The Construction and Forestry equipment segment’s sales are expected to plunge 30-40% for the fiscal year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -17.65% due to these changes.
VGM Scores
Currently, Deere has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Deere has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.