Earnings Preview: Deere - Analyst Blog

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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
 
Zacks Investment Research



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: CAT , CNH , DE , KUB

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