Deere Gets Tax Break for its Waterloo Engineering Center - Analyst Blog


Deere & Company 's ( DE ) $27.8 million expansion of the John Deere Product Engineering Center in Waterloo has received a five-year partial property tax abatement from the Waterloo City Council. 75% of the project's taxable value would be exempt from taxation for the first year, decreasing by increments of 15% over the five years until the full valuation comes on the tax rolls.  

Earlier in May, Deere announced plans to invest approximately $28 million in expansion of the tractor testing laboratories of its Product Engineering Center in Cedar Falls. The expansion involves nearly 62,000 square feet of additional space and improvements to the existing engineering center's infrastructure. The project has been designed to meet the demand for larger agricultural equipment.

The announcement of Deere's expansion plans came shortly after the Iowa Economic Development Authority approved job-retention incentives for the project. The expansion allows Deere to retain 29 full-time positions at its Cedar Falls location instead of transferring them to other tractor testing facilities. Positions retained are in the areas of engineering and product development.

Given the increasing global demand for food, shelter and infrastructure, we believe that the long-term outlook for Deere remains strong. However, in the near term, despite high levels of farm income, farmer sentiment regarding capital goods purchase is getting more conservative due to lower commodity prices.

Going forward, Deere expects equipment sales to decrease around 4% year over year. For fiscal 2014, Deere revised its forecast to a 4% decline from the previous expectation of a 3% dip. The company, however, maintained its net income projection of $3.3 billion for fiscal 2014.

Segment-wise, Deere projects Agriculture and Turf equipment sales to decline 7% for fiscal 2014, wider than the previous expectation of a 6% fall. This includes a negative currency translation effect of about 1%. Farm income is expected to be lower than 2013, which will likely dampen demand for large farm equipment.

Deere will nevertheless benefit from a recovery in the construction sector and stabilization in the European economy. Furthermore, given its strong balance sheet, the company can maintain its commitment toward shareholders by increasing dividends and repurchasing shares.

Moline, IL-based Deere is engaged in the worldwide production and distribution of agricultural and forestry equipment, construction equipment and engines. The company sells products in the U.S. and Canada through branch offices as well as distributors and operates through dealers to resell products internationally.

Deere currently holds a Zacks Rank #3 (Hold). Some better performing stocks worth considering in the sector include Blount International Inc. ( BLT ), EnPro Industries, Inc. ( NPO ) and Altra Industrial Motion Corp. ( AIMC ). While Blount International and EnPro sport a Zacks Rank #1 (Strong Buy), Altra Industrial Motion carries a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: DE , AIMC , NPO , BLT

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