Deere & Co. (DE 155.74, +8.93, +6.08%) is trading higher today after reporting 2Q18 (Apr) results this morning. The company has three major business segments:
- Agriculture & Turf (68% of FY17 revenue): This segment makes a full line of agriculture and turf equipment, including tractors, loaders, combines (corn pickers, cotton and sugarcane harvesters),and seeding equipment (sprayers, soil prep machinery, hay equipment).This also includes its turf and utility equipment, includes riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, and commercial mowing equipment.
- Construction and Forestry (19% of FY17 revenue): This segment makes a broad range of machines used in construction, earthmoving, material handling, and timber harvesting. Products include backhoe loaders, crawler dozers, four-wheel-drive loaders, excavators, motor graders, articulated dump trucks, and landscape loaders etc.
- Financial Services (10% of FY17 revenue): This segment finances sales and leases by John Deere dealers of new and used agriculture and turf equipment, and construction and forestry equipment.
Turning to the AprQ results, DE reported non-GAAP EPS of $3.14
while net revenue (excluding finance and interest income and other income) rose
34.3% year/year to $9.75 bln. Both results were below market expectations.
Breaking it down by segment, Agriculture & Turf sales rose 22% due to
higher shipment volumes and the favorable effects of currency translation. Construction
and Forestry sales increased 84% year/year, with its recent Wirtgen acquisition
accounting for a big piece of that.
In terms of Deere's outlook by segment: For Agriculture & Turf, Deere says worldwide sales of agriculture and turf equipment are forecast to increase by about 14% in FY18. Industry sales for agricultural equipment in the US and Canada are forecast to be up about 10%, led by higher demand for large equipment. Full-year industry sales in the EU28 member nations are forecast to be up about 5% due to favorable conditions in the dairy and livestock sectors. South American industry sales of tractors and combines are projected to be flat to up 5% benefiting from strength in Brazil. Asian sales are forecast to be in line with last year.
For its Construction & Forestry segment, Deere expects worldwide sales of construction and forestry equipment to be up about 83% for 2018. Wirtgen is expected to add about 56% to the division's sales for the year. The outlook reflects continued improvement in demand driven by higher housing starts in the US, increased activity in the oil & gas sector, and economic growth worldwide. In forestry, global industry sales are expected to be up about 10% mainly as a result of improved demand throughout the world, led by North America.
DE says its AprQ results were a strong performance helped by a broad-based improvement in market conditions throughout the world and a favorable customer response to Deere' innovative products. Farm machinery sales in both North and South America are making solid gains and construction equipment sales are continuing to move sharply higher. During the quarter, Deere made significant progress working with its suppliers to ramp up production and ensure that products reach customers in a timely manner. At the same time, Deere is experiencing higher raw-material and freight costs, which are being addressed through a continued focus on structural cost reduction and future pricing actions.
In sum, despite the EPS and revenue miss, this was a decent quarter overall. Since DE does not guide on a quarterly basis, investors tend to give companies like Deere a little more leeway on quarterly results. Investors are pleased to see that demand for construction equipment in particular has been robust. And ag equipment is making solid gains. The stock has been trending lower since its $175 high in mid-February, it's now in the $151 range. So this report is being viewed as a positive overall.