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Why Is Deere (DE) Stock Up Despite Missing Earnings?


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Deere & Company DE released its third-quarter earnings on August 17 before the market opened.  The major farm and construction equipment manufacturer missed profits for the quarter due to higher costs, but shares are still up 3.25% through late-afternoon hours Friday.

Deere & Co reported earnings of $2.59 per share, missing the Zacks Consensus Estimate of $2.77 per share. The company also stated it would deliver adjusted net income of $3.1 billion in the fiscal 2018. JP Morgan analysts said that would translate into an EPS of $9.45, lagging the current Zacks Consensus Estimate of $9.69.

Earnings were hurt by increased costs for raw materials and freight due to tariffs on steel and aluminum imports. In the post-earnings news release, CEO Samuel R. Allen mentioned the rise in costs.

"We have continued to face cost pressures for raw materials and freight, which are being addressed through a combination of cost management and pricing actions," he said. "Other manufactures like Caterpillar CAT have also been affected by higher material costs.

Typically, missing earnings estimates would drive share prices down. However, that hasn't been the case so far as other aspects of the report seem to have overshadowed the miss for investors.

To start, earnings of $2.59 per share did miss expectations, but it was the all-time highest third-quarter EPS for the company. Further, earnings grew 31% year-over year. That growth was driven by higher revenues from a year ago, despite the increased costs. Net Sales totaled nearly $9.3 billion, up 36% from one year ago. That beat the Zacks Consensus Estimate of $9.17 billion.

Deere & Co. specifically benefited from its construction and forestry division, which reported $2.9 billion in net sales, doubling the sales from the same quarter in 2017. Favorable market conditions, like higher housing starts in the United States, bode well for the construction and forestry industries as demand for equipment is elevated.

Moreover, the company acquired Wirtgen in December of 2017, a leading global road-construction equipment maker. Wirtgen added a significant 77% in construction and forestry sales for the quarter.

In addition to the growing construction division, the agriculture segment has a promising outlook as farmers continue to buy equipment, according to the company. CFO Raj Kalathur said Friday on the earnings call that overall global demand for grain is still growing and that the farm economics picture for 2019 may "actually be stronger" than realized.

Deere & Co. did miss its earnings expectation, but the overall picture appears to be positive. The market shares that optimism for now. 

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Earnings
Referenced Symbols: CAT , DE



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