Deere (DE) easily topped fiscal second-quarter earnings estimates early Friday, despite worries about farm prices and economic growth. DE stock rose early Friday, signaling a move back toward key technical levels.
X
The maker of iconic green-and-yellow agricultural equipment is regarded as a bellwether for the farm economy. Deere also makes heavy machinery for the construction and forestry markets.
Deere Earnings
Estimates: For Q2, which ended in April, Deere earnings were forecast to grow 26% to $8.58 per share, according to FactSet consensus estimates. Total revenue was seen rising nearly 20% vs. a year earlier to $15.993 billion.
Results: Deere earnings jumped 42% to $9.65 a share, though that’s a slowdown from 124% in the first quarter. Revenue swelled 30% to $17.39 billion, though that was the second straight quarter of slowing sales growth. Production and precision agriculture sales leapt 53%. Smaller agriculture and turf sales grew 16%. Construction and forestry sales rose 23%.
“Deere continues to benefit from favorable market conditions and an improving operating environment,” CEO John May said in the Deere earnings release.
Outlook: Deere now sees full-year net income of $9.25 billion to $9.50, billion, vs. its prior target of $8.75 billion to $9.25 billion. Analysts had forecast net income of $9.06 billion, FactSet shows.
DE Stock
Shares of Deere rose 3% in early trading on the stock market today, signaling a move back toward the 50-day moving average and nearing the 200-day.
DE stock peaked last November and is trending lower, with the 10-week moving average now below the 40-week line, the MarketSmith chart shows.
Caterpillar (CAT) and United Rentals (URI) are also heading lower and below key levels.
Farm Prices, Machinery Sales
The World Bank projects agricultural commodity prices will drop 7% this year and will likely fall again in 2024, the Texas Farm Bureau said on May 18, citing the bank’s latest commodity markets outlook.
Lower farm commodity prices could weigh on demand for farm equipment. In April, construction giant Caterpillar gave a lackluster outlook for equipment sales as well. United Rentals, which rents out scissor lifts and a range of heavy equipment, turned in a mixed report at the same time.
Risks For Deere Stock
Downside risks for Deere include “a decline in farm commodity prices, which could be pressured by either stronger-than-expected crop yields or trade disagreements with U.S. export partners,” Edward Jones analyst Matt Arnold said in May.
Further, “slowing economic growth could hurt Deere’s construction and forestry markets,” Arnold added.
Still, the analyst rates DE stock a buy, citing long-term drivers of growth and valuation.
Deere itself gave a bullish 2023 outlook in April, citing “healthy demand for farm and construction equipment.”
At that time, Deere earnings for Q1 showed marked improvement, with price increases exceeding cost inflation for its products.
Fewer supply disruptions and higher production volumes also drove Deere earnings last quarter.
Year to date, DE stock is down 14% while it is just about flat over the past year. The farm stock is heading toward its sixth straight monthly decline in May.
Deere stock pays a 4.1% dividend yield.
YOU MAY ALSO LIKE:
These Are The 5 Best Stocks To Buy And Watch Now
Stocks To Watch: Top-Rated IPOs, Big Caps And Growth Stocks
Find The Latest Stocks Hitting Buy Zones With MarketSmith
Why This IBD Tool Simplifies The Search For Top Stocks
S&P 500 Hits 2023 High As Big Leads Lead. Don’t Do This.
Source: https://www.investors.com/news/deere-earnings-q2-de-stock-caterpillar-outlook/?src=A00220&yptr=yahoo