Earnings: Focus On Deere's Strategy Fix As Revenue A Rare Commodity

Down on the farm things aren’t exactly sprouting and we’ll see how that plays out when Deere & Company DE —the world’s largest maker of the tractors and other agriculture machinery that helps get food on our table — reports quarterly results on Friday.

A plunge in commodities prices, including corn and soybeans, is sapping industry spending on pricey equipment and investor enthusiasm for machinery makers of late, although DE shares are still up some 7 percent year-over-year, outpacing the S&P 500’s (SPX) 3.1 percent (see figure 1).

Check out other hot earnings names here.

Managing Expectations

Large horsepower tractor sales, for example, are down 19 percent since January mostly because farmers aren’t so anxious to beef up their machinery when crop prices are so low. Considering ag and turf equipment make up some 78 percent of Deere’s revenue, that could impact results.

Let’s not forget about the strong dollar. Like other multinationals, Deere will likely get hit by currency translations and by tough economic conditions abroad and even in markets like Canada where sinking tractor sales led to layoffs. Its biggest revenue-generating markets are the U.S. and Canada.

Still, many analysts are confident that Deere can handle the trouble, commenting that it has managed its way out of this type of situation before and its balance sheet is strong.

The company has also reported making strategic adjustments, adding financial services for instance, to help offset revenue loss to weaker spending on equipment.

Wall Street is looking for a per-share profit of $1.42 on topline sales of $7.21 billion. That’s down 39 percent and 17 percent, respectively, from last year’s results when Deere earned $2.33 a share on revenues of $8.72 billion. But Deere has a history of outpacing analysts’ seemingly conservative expectations.

Wall Street’s Collective Shrug?

Deere beat Street expectations with quarterly sales in all but two quarters since Q3 2013 and it beat the Street consensus for EPS in every quarter across the same stretch. But shares have closed higher following that news only three times.

Short-term options positioning tracked on TD Ameritrade’s thinkorswim® platform reveals traders are priced for a 3.5 percent move in either direction for DE shares around the earnings release.* Options volatility is in a relatively high 85th percentile for DE.

More earnings reports here.

What’s most interesting is put open interest (the total outstanding contracts that have not been settled) tops call open interest 2:1.That's an unusual ratio for any stock, honestly. Puts contracts represent the right, but not the obligation, to sell the underlying shares at a set date and price; call contracts represent the right, but not the obligation, to buy the underlying shares at a set date and price.

*Probability analysis results are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.

amtd_0.png

*Probability analysis results are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2015 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
Date
ticker
name
Actual EPS
EPS Surprise
Actual Rev
Rev Surprise
Posted In: EarningsPreviewsTrading IdeasJJ KinahanJohn Deere
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!