Shares of agricultural, forestry and construction equipment
Deere & Company
) fell 1.2% after it announced mixed retail sales for May.
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In the agriculture and turf segment, Deere's U.S. and Canada
utility tractor sales growth were flat in May, compared to the
industry wide sales growth of 4%. Deere's inventory was reported
to be lower than the industry wide inventory of utility tractors,
which stood at 49% of the previous 12 months sales.
However, sales of row crop tractor outperformed the industry
growth rate of 27% during the month. The industry inventory of
row crop tractors were 33% of previous 12 months sales and
Deere's inventory of row crop tractors was lower than the
industry inventory. Sales of four-wheel drive tractor sales
decreased in double digits in May, in stark contrast to the 8%
growth witnessed across the industry during the month. Deere's
inventory for the four-wheel drive tractor was in line with the
industry inventory at 23% of the previous 12 months sales.
Combine sales fared better, pitted against 18% growth in the
industry. Deere's inventory for the combines was slightly lower
than the industry inventory at 20% of the previous 12 months
sales. Retail sales of selected turf and utility equipment were
up in double digits. In Europe, retail sales of tractors were up
in low double digits, while combine sales went down by double
digit. Coming to the Construction and forestry segment, sales
went up in single digits.
Compared with the company's performance in April, sales for
utility tractor remained the same while row crop tractors fared
better. Sales for four-wheel drive contracted by double digits in
May as compared with low double-digits decline in April. In
Europe, tractor sales were up in low double digits as against
single-digit contraction in April. Combine sales contracted in
double digits versus flat sales in April.
Deere's performance was better than that of
). Sales growth for the construction and mining equipment
continued to be in the red with a decline of 7% in May, the sixth
consecutive month of decline.
Earnings and Expectations
Deere reported record second quarter 2013 earnings of $2.76 per
share, up 6% year over year. Quarterly sales also increased 9% to
$10.9 billion. Both were ahead of the respective Zacks Consensus
Estimates. The Agriculture & Turf segment sales increased 12%
to $8.69 billion, attributable to higher shipment volumes and
improved price realization, partially offset by a negative
currency translation. Construction & Forestry experienced a
6% year-over-year decline in sales to $1.57 billion, due to lower
Deere expects equipment sales to grow around 3% in the third
quarter of fiscal 2013 and 5% for the full year. Segment-wise,
Deere expects worldwide sales of Agriculture and Turf equipment
to grow 7% in fiscal 2013. Higher commodity prices and strong
farm incomes are expected to boost demand for farm machinery
during the year. Furthermore, Deere's sales are expected to
benefit from global expansion and new lines of advanced
Construction & Forestry equipment are expected to decline 5%
in 2013, driven by cool, wet weather conditions in North America,
flat sales in world forestry markets and reflecting a cautious
outlook for the U.S. economic growth. Weakness in the European
markets will continue to affect the forestry markets.
Deere will benefit from recovery in construction sector and
strength in Brazil. However, continued weakness in the European
markets, additional import duty imposed in Russia, Kazakhstan and
Belarus, margin headwinds that include higher production costs
associated with interim Tier 4 as well as global growth expenses
Deere currently retains a Zacks Rank #3 (Hold). Other stocks in
the same industry that are worth a look include
), which retains a Zacks Rank #1 (Strong Buy), and
), which carries a short-term Zacks Rank #2 (Buy).