Agricultural, forestry and construction equipment manufacturer
Deere & Company
) announced mixed retail sales for August. Sales in row crop
tractors and combines outperformed the industry, while sales for
utility tractors and four-wheel drive failed to match the
industry performance. Deere's reported inventory levels were
lower than the industry for all its product segments.
August Retail Sales Performance in Detail
In the agriculture and turf segment, Deere's U.S. and Canada
utility tractor sales growth went up by double digits in August,
but remained lower than the industry-wide sales growth of 12%.
Deere's inventory was reported to be lower than the industry-wide
inventory of utility tractors, which stood at 47% of the previous
12 months sales.
Sales of row crop tractor outperformed the industry growth rate
of 16% during the month. The industry inventory of row crop
tractors were 34% of previous 12 months sales and Deere's
inventory of row crop tractors was lower than the industry
Sales of four-wheel drive tractor sales decreased in double
digits in July, in stark contrast to the 1% growth witnessed
across the industry during the month. Deere's inventory for the
four-wheel drive tractor was lower than the industry inventory at
25% of the previous 12 months sales.
Combine sales dipped in single digits, but fared better when
compared to the 16% decline across the industry. Deere's
inventory for the combines was lower than the industry inventory
at 22% of the previous 12 months sales.
Retail sales of selected turf and utility equipment were up in
double digits. In Europe, retail sales of tractors were up in
single digit, while combine sales were flat year over year.
Coming to the Construction and forestry segment, sales went down
in single digits on a "First in Dirt" basis (retail sale of a new
unit plus first use of a new rental unit). However, on a
settlement basis (retail sale of a new unit plus conversion of
rental unit to a retail sale), sales were up in single digits.
Deere's Q3 Sales Performance and Expectations
Deere's worldwide total sales increased 4% year over year to $10
billion, beating the Zacks Consensus Estimate of $9.3 billion.
Agriculture and Turf equipment sales increased 8%, but were
offset by an 11% dip in Construction & Forestry.
Deere expects equipment sales to decrease around 5% year over
year for the fourth quarter of fiscal 2013. Agriculture and Turf
equipment sales is expected to grow 7% in fiscal 2013 aided by
higher commodity prices, strong farm incomes, global expansion
and new lines of advanced equipment.
Region-wise, Deere expects industry farm machinery sales in the
U.S. and Canada to increase 5% year over year in 2013. In Europe,
sales are projected to be down 5% due to continued deterioration
in the overall economy and poor harvest in the U.K. last year.
However, global sales for Construction & Forestry equipment
may fall about 8%, reflecting a cautious outlook for the U.S.
economic growth. Global forestry sales are expected to be higher
as improved U.S. demand more than offset weakness in European
Deere's performance was better than that of
). According to the last published data, sales growth for the
construction and mining equipment continued to be in the red with
a decline of 9% in July, the eight consecutive month of decline.
The U.S. Department of Agriculture is forecasting a record net
farm income of $120.6 billion in 2013. Increased farm incomes
have compelled farmers to continually upgrade and expand their
fleet; thus leading to increased revenue prospects for Deere.
Deere will benefit from recovery in construction sector and
strength in Brazil.
However, weakness in European markets, soft conditions in the
U.K. farm sector, rising competition, weaker US outlook and
government spending, additional import duty on all combines going
to Russia, Kazakhstan, and Belarus and higher production costs
and research and development costs associated with interim Tier 4
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Deere currently retains a Zacks Rank #3 (Hold). Other stocks in
the same industry that are worth a look include
Alamo Group, Inc.
), which retain a Zacks Rank #1 (Strong Buy).