Deere Sells Crop Insurance Unit to Focus on Core Businesses - Analyst Blog

In order to focus on its core businesses, Deere & Company (DE) announced that it has entered into an agreement to sell its crop insurance unit to West Des Moines, Iowa-based Farmers Mutual Hail Insurance Company. This does not come as a surprise as the company had earlier, in September, had announced that it was reviewing strategic options for the unit. Share of Deere thus edged up 0.6% on the news.

The crop insurance business unit of John Deere Financial comprises John Deere Insurance Company and John Deere Risk Protection, Inc. Deere has been involved in the crop insurance business for nine years. The business underwrites policies through John Deere Insurance Company, a business unit within John Deere Financial. However, price declines and falling demand have made the business less profitable in recent years.

The transaction is expected to close in the first quarter of thecalendar 2015 calendar year. Deere will continue to design, manufacture and offer technology, equipment and services in its precision agriculture offerings. Notably, effective risk management remains an important factor for the company's operations.

Founded in 1893, Farmers Mutual Hail Insurance Company, is a provider of comprehensive risk management solutions for America's heartland, including private and federal crop insurance, reinsurance products and services, as well as farm and ranch insurance that includes auto, property, and liability coverage.

Deere's fourth-quarter earnings per share declined 13% year over year to $2.11. Deere's while worldwide total sales also dipped 5% year over year to $8.97 billion. The manufacturer provided a bearish fiscal 2015 outlook due to falling crop prices and farm income. Deere expects equipment sales to decrease around 21% in the first quarter and 15% year over year in fiscal 2015 because of weak demand for agricultural machineries. The company projects net income of $1.9 billion for fiscal 2015, down from $3.16 billion in 2014 and $3.54 billion in 2013.

Segment-wise, Deere estimated Agriculture and Turf equipment sales for fiscal 2015 to decline 20% for fiscal 2015 as a result ofowing to weaker conditions in the global farming economy. On the contrary, global sales for Construction & Forestry equipment is expected to advance about 5% for 2015.

Long-term outlook for Deere remains strong on the back of increased global demand for food, shelter and infrastructure. While, in the near term, even though net farm income remains at high levels, farmer sentiments regarding capital goods purchases are becoming more conservative due to lower commodity prices.

Moline, IL-based Deere is engaged in the production and distribution of agricultural and forestry equipment, construction equipment and engines worldwide. The company sells products in the U.S. and Canada through branch offices as well as through distributors and operates through dealers to resell products internationally.

Deere currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Alamo Group, Inc. (ALG), Lindsay Corporation (LNN) and Blount International  Inc, (BLT). All of these stocks sport a Zacks Rank #1 (Strong Buy).