Better-Than-Expected Results Vindicate BMO's Outlook On Deere

Analyst Joel Tiss believes there was nothing to suggest any changes looking toward the next fiscal year, although he was surprised by the resiliency shown by Deere. However, the analyst boosted his EPS estimates for the next year from $3.55 to $3.75. For the current year, the brokerage lifted the EPS projection from $3.85 to $4.35.

The company continues to illustrate its capacity to bend expenses and fuel favorable pricing to control the falling margins below the previous cycle.

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In a research note to clients, Tiss said, "Management mentioned another potential $500 million of cost reductions by fiscal 2018 on flat-to-down markets, driven by several initiatives that include the following: 1) better purchasing negotiations (more efficient supply base and favorable contracts, not declining raw-material prices); 2) redesigning products to help lower R&D and production costs and increase profitability per machine; and 3) pushing down SA&G and R&D expenses in line with sales declines."

BMO Capital thinks Deere is producing less by 15–20 percent in its ag-equipment business compared to the retail demand.

At time of writing, Deere was up 0.85 percent on the day at $88.05.

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