equipment giant Deere (DE 145.04 +5.81) is trading over 4% higher today following its quarterly
results and outlook.
Deere reported its fiscal fourth quarter earnings of $1.57 per share, which came in above expectations. On the top line, revenues rose 25.6% year/year to $7.09 billion, which also came in above expectations.
Deere's equipment operations reported operating profit of $669 million for the quarter and $2.821 billion for the full year, compared with $354 million and $1.880 billion in 2016.
The improvement for the quarter was primarily driven by higher shipment volumes, a favorable product mix and price realization, partially offset by higher production costs, higher selling, administrative and general expenses and an impairment charge for international construction and forestry operations.
In short, improving markets for farm and construction equipment contribute to higher results for both fourth quarter and full year.
In Ag and turf, Sales increased 22% for the quarter and 9% for the year due to higher shipment volumes and the favorable effects of currency translation. Additionally, full-year results benefited from price realization.
Meanwhile, Construction and forestry sales increased 37% for the quarter and 17% for the year on account of higher shipment volumes, price realization and the favorable effects of currency translation.
Looking ahead, the company expects to see first quarter sales rise 38% year/year (including F/X and acquisition benefit -- see below) to approximately $6.48 billion.
For the full fiscal year 2018, the company sees (including F/X and acquisition see below) sales growth of +22% year/year, which calculates to approximately $31.6 billion ($28.5 billion excluding impact from acquisition), may not be comparable to $27.91 billion Capital IQ Consensus Estimate.
Company equipment sales are projected to increase by about 22% for fiscal 2018 and by about 38% for the first quarter compared with the same periods of 2017. Included in the forecast is a positive foreign-currency translation effect of about 2% for the year and about 3% for the first quarter.
Net sales and revenues are projected to increase about 19% for fiscal 2018, with net income attributable to Deere & Company of about $2.6 billion.
The acquisition of the Wirtgen Group, expected to close in December 2017, is forecast to contribute about $3.1 billion in net sales in fiscal 2018. Wirtgen is expected to add about 12% to Deere's sales for the full year and about 6% for the first quarter in comparison with 2017. After estimated expenses for purchase accounting and transaction costs, Wirtgen is expected to contribute about $75 million to operating profit and about $25 million to net income in fiscal 2018.
2017 U.S. farm cash receipts are estimated to be $377 billion about 3% higher than 2016's levels. Given the large crop harvest in 2017 and subsequently the lower commodity prices we're seeing today, the co expects total cash receipts to be ~ $368 billion that's down about 2% from 2017 due to lower livestock and crop cash receipts.
DE forecasts in the EU28 that GDP growth in the region is improving though risks remain.
FY18 Agriculture & Turf Retail Sales Industry Outlook:
- U.S. and Canada up 5-10%, EU 28 Ag up ~5%, South America Ag flat to up 5%, Asia Ag approximately flat
- U.S. and Canada Turf and Utility approximately flat
- Moving to Asia... expected to be unchanged from 2017
- Also, industry retail sales of turf and utility equipment are projected to be flat in 2018 though Deere expects to outpace the industry
Although forecast to be lower in 2018, Ag margins in Brazil are
coming off a record year. Deere's experiencing strong order activity in early
order programs for seasonal products and order book for tractors which are
supportive of the outlook.
The EU28 outlook is forecast to be up 5% in 2018 a result of margin recovery in dairy and livestock as well as improved harvest outlooks in key markets such as France and the U.K. In South America, industry sales of tractors and combines are projected flat to up 5% in 2018. Driven mainly by demand in Argentina which continued to benefit from favorable policy effects, strong fundamentals and pent-up demand.
The economic fundamentals affecting the Construction and Forestry industries in North America continued to be supportive of increased industry demand. GDP growth is forecast to be strong, continuing the positive trend experienced during the past six months in the U.S. and Canada.
Deere has been showing some good fundamentals. At the same time, note that