Market Overview

Deere is in Decline


Deere & Co. (NYSE: DE) revealed on Wednesday that it fell the most that it had in three months after lowering its forecast for farmer revenue in the U.S.

According to Bloomberg, the largest manufacturer of agricultural equipment fell 3.2 percent to $86.21 on Wednesday morning in New York. Earlier, the shares had declined 3.8 percent, which marks the biggest intraday drop since November.

U.S. farm receipts will total $371.9 billion this year, down from the forecast back in November of $374.2 billion. This is partly due to the prices of corn, wheat and soybean being in a seemingly constant state of decline. If production is down, it stands to reason that the demand of the equipment will fall too. Nobody wants to see a shiny new tractor that isn't being used.

“There is concern about moderation, if not peak, in agricultural equipment,” Larry De Maria, a New York-based analyst for William Blair & Co., said to Bloomberg in an interview today.

DE's biggest market is still the U.S., and it is predicted that farm income will fall a further 6.5 percent this year, on top of 2011's record $98.1 billion. This is due to rising crop acreage and costs continuing to slash at profits. The demand for combines in America has slowed dramatically, with sales falling a full 50 percent since January 2011.

Deere reported on Wednesday 1Q profit and forecast 2012 earnings that has topped the analyst's estimates. The company is obviously suffering right now, so it will be interesting to see if it is just being optimistic or if it can see a slight upturn this year.

Net income rose 3.7 percent to $532.9 million, or $1.30 per share, from $513.7 million, or $1.20. DE the raised its fiscal forecast to approximately $3.28 billion from $3.2 billion. The consensus among analysts was $3.18 billion. De stated firmly that it believes sales of farm, forestry and construction machines will increase 15 percent in 2012.

Overall, the farm equipment sales industry will rise approximately 10 percent this year, which sits at the higher end of Deere's forecast.

In a Wednesday research report, Piper Jaffray said that, despite lifting FY12 earnings guidance by ~10%, DE shares are trading lower as investors remain fixated on any hint of cycle peak and/or lower grain (corn) prices. “Given the strength of pre-order programs and DE's market share opportunity globally, we believe DE's guidance is likely to prove conservative but we continue to forecast EPS to decline in FY13.”

Bank of America Merrill Lynch said that DE reported a solid 1Q12 EPS, which beat its and consensus estimates. Meanwhile, Citi said that currency headwinds and lower production tonnage were offset by better operating leverage, leading to the beat. J.P. Morgan said that DE reported FQ1 equipment sales of $6.12B (vs. JPMe $6.17B) and EPS of $1.30 vs. consensus $1.23 (JPMe $1.24).

In a conference call, DE manager Susan Karlix said that, “Second-quarter net sales are forecasted to be up about 15% compared with the second quarter of 2011.This includes about 4 points of positive price realization and about 3 points of negative currency translation. For the full year, net sales are expected to be up about 15% versus 2011.This includes about 3 points of negative currency translation, which is a negative swing in currency translation of 4 points from our previous forecast. So effectively, forecast volumes have increased by 4 points, all of which have been offset by exchange.”

Posted-In: Earnings News Analyst Ratings Best of Benzinga


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