Deere’s stock is having its best day in 2 years

Shares of John Deere parent Deere & Co. powered up to their best one-day performance in two years after the maker of agricultural, construction and forestry equipment reported a big fiscal first-quarter profit beat. There were some cracks in demand for lawn tractors, however.

“[W]hile the backdrop of large [agriculture] is favorable, demand for low horsepower softened a bit for the first quarter,” said Rachel Bach, manager of investor communications at Deere, according to an AlphaSense transcript of the post-earnings conference call with analysts.

And for fiscal 2023, Bach said sales of small-agriculture and turf-industry equipment in the U.S. and Canada are expected to drop about 5%, while sales of large-agriculture equipment are expected to rise 5% to 10%.

“[O]rder books for products linked to ag production systems remain resilient while the demand for consumer oriented products such as compact tractors under 40 horsepower have softened considerably since last year,” Bach said.

Brent Norwood, head of investor relations, explained that demand for turf and utility equipment is more closely correlated with the general economy, specifically the housing market, both of which have been weakening. “So we’ve seen softening there, particularly in compact utility tractors,” Norwood said.

But apart from the small-tractor business, Wall Street was pretty happy with Deere’s results.

The stock
which had closed Thursday at a three-month low, rose 7.5% to $433.31 on Friday, enough to make it the S&P 500’s

biggest gainer on the day. Deere’s investors enjoyed the stock’s best one-day performance since it ran up 9.9% on Feb. 19, 2021.

FactSet, MarketWatch

The company reported before Friday’s opening bell net income for the quarter ending Jan. 29 that more than doubled to $1.96 billion, or $6.55 a share, from $903 million, or $2.92 a share, in the same period a year ago. That was well above the average analyst estimate compiled by FactSet for earnings per share of $5.57.

Sales climbed 33.7% to $11.40 billion, above expectations of $11.34 billion, according to FactSet.

Production and precision-agriculture sales jumped 55% to $5.2 billion, construction and forestry sales increased 26% to $3.2 billion and small-agriculture and turf sales grew 14% to $3 billion.

For fiscal 2023, the company nudged up its sales outlook for production and precision-agriculture sales growth to about 20% from a range of 15% to 20%, and for construction and forestry sales growth to a range of 10% to 15% from about 10%.

D.A. Davidson analyst Michael Shlisky reiterated his buy rating on the stock, praising Deere’s “strong beat-and-raise” results.

“It appears to be another quarter of confirmation that the ag cycle is far from finished, and [Deere] continues to capitalize,” Shlisky wrote in a note to clients.

The stock has advanced 4.6% over the past three months, while the Industrial Select Sector SPDR exchange-traded fund

has tacked on 3.6% and the S&P 500 has gained 2.9%.