Before the opening bell on Wednesday, the world's largest agricultural equipment maker, Deere & Co ( DE ), reported stronger-than-expected third quarter results but cut its outlook for the full year.
Deere Q3 Results in Focus
The company surpassed our estimates on both the top and the bottom lines. Earnings per share came in at $2.33, comfortably beating the Zacks Consensus Estimate of $2.19 but deteriorating from the year-ago earnings of $2.56. Revenues also fell 5% year over year to $9.5 billion, but strongly beat the Zacks Consensus Estimate of $8.8 billion.
Solid profits at construction and forestry, and financial services were partially offset by sluggish demand for farm machinery that hurt agricultural and equipment business (read: 3 Sector ETFs for This Shaky Market ).
The manufacturer provided a bearish outlook for the full fiscal year. The company expects equipment sales to drop 8% in the ongoing quarter and 6% in fiscal 2014 on weak demand for agricultural machineries. The full-year forecast is down from the previous expectation of a 4% drop.
Segment wise, the company expects global construction and forestry equipment sales to grow about 10% in fiscal 2014 but global sales of agriculture and turf equipment to drop by 10%. Additionally, Deere will scale back its production for the remainder of fiscal 2014 in line with demand for agricultural products.
Further, the company reduced its net income guidance for the full year to $3.1 billion from $3.3 billion on falling farm incomes resulting from bumper crop harvest and falling grain prices (read: 3 Agricultural Commodity ETFs Slumping in July ).
The disappointing guidance pushed the shares of DE down by 2.3% on Wednesday on elevated volumes. Given this, the following two ETFs having the largest allocation to this big agricultural equipment maker would be in focus in the coming days.
Market Vectors Agribusiness ETF ( MOO )
This fund provides exposure to the global agribusiness industry by tracking the Market Vectors Global Agribusiness Index. It is by far the most popular and liquid choice in the space with AUM of over $1.8 billion and average daily volume of nearly 630,000 shares. The ETF is one of the low cost choices in this space, charging 55 bps in annual fees (see: all Materials ETFs here ).
In total, the fund holds 52 securities in its basket. Of these firms, DE takes the third spot, making up roughly 6.8% of the total assets. The product provides nice diversification across business segments with agricultural chemicals accounting for 43% share while farming/fishing (20%), and industrial engineering (19%) rounding off the next two spots.
In terms of country allocation, U.S. (48.4%), Canada (10.8%) and Switzerland (7.8%) occupy the top three spots. The fund lost 1.8% in the year-to-date time frame.
iShares MSCI Global Agriculture Producers ETF ( VEGI )
This fund provides exposure to the firms of developed and emerging nations that are primarily engaged in the agricultural business at or near the initial phase of agricultural input and production. It follows the MSCI ACWI Select Agriculture Producers Investable Market Index and holds 122 securities in its basket.
Here, Deere occupies the fourth position with 7.59% allocation. From a sector look, agricultural chemicals take the largest share at 51%, closely followed by farming/fishing (23%) and industrial engineering (17%). American firms dominate the fund's holding with 48.66% of total assets while Canada, Switzerland and Japan receive modest allocations (read: DuPont and Dow Chemical Earnings Put These ETFs in Focus ).
The ETF is less popular and illiquid with $46 million in its asset base and around 9,000 shares in average daily volume. The ETF charges 39 bps in fees per year from investors. VEGI has delivered almost flat returns in the year-to-date time frame.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.