Deere & Company
), producer of agricultural and forestry equipment and
construction equipment, went up 1% following the announcement of
above-industry March sales growth across the board.
To elaborate, in the agriculture and turf segment, Deere's U.S.
and Canada utility tractor sales growth were in the double digits
in March, outperforming the industry wide sales growth of 8%.
Deere's inventory was reported to be lower than the industry wide
inventory of utility tractors, which stood at 50% of the previous
12 months sales.
Sales of row crop tractor were also higher than the industry
growth rate of 28% during the month. The industry inventory of
row crop tractors were 30% 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
increased by a single digit in March, in stark contrast to a
decline of 5% witnessed across the industry during the month.
Deere's inventory for the four-wheel drive tractor was in line
with the industry inventory at 21% of previous 12 months sales.
Combine sales recorded an impressive growth in triple digits
pitted against 67% growth in the industry. However, retail sales
of selected turf and utility equipment were down in the double
digits. In Europe, retail sales of tractors were down double
digits while combine sales went up by a single digit.
Compared with the company's performance in February, sales for
utility tractor, row crop tractors and combines fared better
while sales for four-wheel drive declined. In Europe, tractor
sales declined given a single digit increase recorded in the
previous month while combine sales fared better than the decline
in low double digits last month.
Coming to the Construction and forestry segment, sales went up in
the double digits, much better than single digit growth in Feb.
In the first quarter of fiscal 2013, Deere's worldwide total
sales increased 10% year over year to $7.42 billion. The
Agriculture & Turf segment's sales increased 16% to $5.49
billion, attributable to higher shipment volumes and improved
price realization, partially offset by a negative currency
translation. Construction & Forestry experienced a 7%
year-over-year decline in sales to $1.3 billion, due to lower
Deere expects equipment sales to grow around 4% in the second
quarter of fiscal 2013 and 6% for the full year. Segment wise,
Deere expects worldwide sales of Agriculture and Turf equipment
to grow 6% 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
lines of advanced new equipment. Both the non-residential and
residential construction sectors are showing signs of a much
awaited recovery. This, in addition to the new highway bill, will
improve demand for construction equipment in the U.S. market.
On the flipside, Deere's agriculture and turf sales in Europe
will continue to remain affected due to weakness in the overall
economy and poor harvest in the U.K last year. In the forestry
sector, further weakness in the European markets is expected to
offset higher demand in the U.S.
Effective Feb through Jul 2013, an additional 27.5% import duty
has been placed on all imported combines going to Russia,
Kazakhstan, and Belarus, thus bringing the import duty to 32.5%.
This is expected to have an adverse impact on sales of imported
combines in these countries.
Furthermore, Deere expects lower manufactured volume in the
second quarter compared with last year. Higher production costs
associated with interim Tier 4 as well as global growth expenses
will negatively impact margins in the quarter. We maintain our
long-term Neutral recommendation on the stock.
Deere currently retains a Zacks Rank #2 (Buy). Other stocks in
the same industry are
Alamo Group, Inc.
) which carry a short-term Zacks Rank #2 (Buy).
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