Deere & Company
(
DE
) is scheduled to announce its fourth quarter and fiscal 2011
results on November 23, 2011. The current Zacks Consensus Estimate
is $1.44 for the fourth quarter and $6.44 for fiscal 2011,
projecting year-over-year growth of 34.1% and 38.5%,
respectively.
With respect to earnings surprise, over the trailing four
quarters, Deere outperformed the Zacks Consensus Estimate. The
average earnings surprise was 9.04%, implying that Deere has
surpassed the Zacks Consensus Estimate by the same magnitude over
the last four quarters.
Previous Quarter Recap
Deere's third-quarter EPS of $1.69 beat the Zacks Consensus
Estimate and climbed 17% year over year, largely driven by strong
demand for farm machinery and improved conditions in the
construction and forestry markets.
Deere's worldwide total sales increased 22% year over year to
$8.4 billion, beating the Zacks Consensus Estimate of $7.7 billion.
Net sales of equipment operations (which comprise Agriculture and
Turf, Construction and Forestry) were $6.4 billion, a 22%
year-over-year increase including favorable currency translation
effect of 6% and a price increase of 3%. On a geographic basis,
equipment net sales were up 10% in the United States and Canada and
49% in the rest of the world.
Looking Forward
Deere expects equipment sales to grow 20% in the fiscal fourth
quarter and about 25% for fiscal 2011. The guidance includes a
favorable currency-translation impact of 4% in both the fourth
quarter and fiscal year. Full year guidance includes an adverse
effect of about $70 million in sales and $10 million in operating
profit from the earthquake and tsunami in Japan. Net income is
estimated at $2.7 billion for 2011.
Segment wise, Deere expects worldwide sales of Agriculture and
Turf equipment to grow by 21% for full year 2011, benefiting from
favorable global farm conditions. Construction and Forestry
equipment sales are expected to improve 45% for 2011.
Net income from Financial Services is estimated to be $460
million, reflecting continued growth in the portfolio.
Region wise, Deere expects industry farm-machinery sales in the
U.S. and Canada to grow 5% to 10% for 2011. Western and Central
Europe is expected to increase 10% to 15% while sales in the
Commonwealth of Independent States are expected to see moderate
gains.
Industry sales of turf and utility equipment in the U.S. and
Canada are expected to be flat with the 2010 level. However, in
South America, the company expects industry sales to decline 5%
over 2010.
Estimate Revision Trend
For the fourth quarter, none of the analysts out of 14 covering
Deere have revised their estimates over the past 30 days. For
fiscal 2011, only one estimate out of 16 has been raised
for Deere.
The limited number of estimate revisions indicates the absence
of any major catalyst driving the quarterly results. Consequently,
most of the analysts are abiding by their estimates projected
during the third quarter results.
Magnitude of Estimate Revisions
Over the past 30 days, consensus earnings estimate for the
fourth and final quarter of fiscal 2011 inched up a cent to $1.44.
For fiscal 2011, there has been no change to the consensus of $6.44
over the past 30 days. There has been an utter lack of movement in
the past 7 days.
Our Take
Farm cash receipts are the best gauge for farm machinery sales.
Farm cash receipts reflect levels of farm commodity prices, acreage
planted, crop yields and government policies, including the amount
and timing of government payments. Deere's forecast for farm cash
receipts for 2011 stands at $378 billion compared with $321 billion
in 2010. The forecast exceeds the previous record of $330.5 billion
in 2008 by almost 14%.
The USDA forecasts net farm income to reach $103.6 billion in
2011, up nearly 31% year over year, the highest inflation-adjusted
value for net farm income since 1974. This will drive farmers to
invest in the latest machinery to maximize their productivity,
thereby benefiting the company.
Deere has been growing its manufacturing footprint overseas in
markets such as Brazil, Russia and India. The expansion into the
emerging markets should provide long-term growth opportunities.
Brazil is among the world's largest producers and exporters of
sugar, soybeans, corn and cotton. The company is the second leading
producer of ethanol. Global population growth and rising living
standards in the emerging markets are fueling growth in global food
demand.
On the flipside, margin expansion will be constrained in 2011
given the increased costs for New Tier 4 products as well as raw
material inflation, higher overhead associated with new facilities
and SAP implementation costs. Furthermore, production
inefficiencies associated with the transition to the initial Tier 4
products as well as heightened R&D expense will also affect
margins.
The company currently retains a Zacks #3 Rank (short-term Hold
recommendation).
Illinois-based Deere & Co. is engaged in the production and
distribution of agricultural and forestry equipment, construction
equipment and engines worldwide. The company sells products in the
U.S. and Canada through branch offices as well as through
distributors and dealers for the resale of products
internationally. Deere competes with
Caterpillar Inc.
(
CAT
),
CNH Global NV
(
CNH
) and
Kubota Corporation
(
KUB
).
CATERPILLAR INC (
CAT
): Free Stock Analysis Report
CNH GLOBAL NV (
CNH
): Free Stock Analysis Report
DEERE & CO (
DE
): Free Stock Analysis Report
KUBOTA CORP ADR (
KUB
): Free Stock Analysis Report
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