Deere Near New High; Execution Problems Could Be Over

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When a company runs into a problem, only one question matters.

Is it temporary?

Farm equipment makerDeere ( DE ) missed earnings estimates for the fiscal Q3 ended in July, falling short of the Street's earnings number by 14% and revenue by 0.2%.

At the earnings call on Aug. 15, Chief Financial Officer James Field explained why. Half of the shortfall was due to soft market conditions in China, India and Europe; import licensing delays in Argentina; a weaker Brazilian real; and weather in the U.S.

Those difficulties have various shelf lives but none is permanent.

The other half of the shortfall was because of execution problems and an early harvest.

The Street naturally gets nervous when a company talks about execution problems. Deere's stock gapped down 6% in 365% greater volume on the news.

Execution problems are never a good thing but some are less bad than others. Deere's problems were on the manageable side. The company had trouble ramping up production to meet demand for an all new combine line.

"The good news is, we expect to make up the bulk of the sales miss -- related to execution -- during the fourth quarter," Field said.

The market eventually came around to that view. The stock is 3% off its 52-week high.

Analysts expect earnings to rise 16% in fiscal Q4 on a 12% revenue pop.

A harvest that came as much as four or five weeks earlier than normal also was part of Deere's difficulties. Some machines were completed too late for harvest and were canceled.

Dry weather is expected to help Deere. The reduction in grain supplies lifts prices, giving farmers more money for new equipment.

According to the National Climatic Data Center, the first 10 months of 2012 were the warmest on record for the contiguous U.S.

As of early November, the National Weather Service's Climate Prediction Center said, "drought expansion and intensification" is likely.

Deere's quarterly dividend is 46 cents a share, more than double what it was in mid-2007.



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: Personal Finance , Investing Ideas

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