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Earnings: How Has DE Held Up in Q4 Amid Ongoing Ag Slump

November 22, 2016
Earnings: John Deere
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Deere and Company (DE) has been weathering one of the toughest slumps in agricultural prices since the Great Depression, analysts say, but its perseverance in protecting profit margins has helped it continue to plow ahead through three challenging years.

Among the world’s largest makers of agricultural, construction and forest machinery, diesel engines and drivetrains used in heavy equipment, as well as lawn-care gear, DE is reporting Q4 and full-year earnings results ahead of the market’s open Wednesday.

In the previous quarter, DE soundly outstripped Wall Street’s expectations despite double-digit declines in net sales and revenue, as the global markets for farm and construction equipment continued to drag overall results. Some 70% of its revenue is gleaned from agriculture and turf equipment operations, according to the company; its second-largest division is construction and forestry machinery.

“John Deere’s performance in the third quarter reflected the continuing impact of the global farm recession as well as difficult conditions in construction equipment markets,” Chief Executive Samuel Allen said in the Q3 earnings release. “All of Deere’s businesses remained profitable with the agriculture and turf division reporting higher operating profit than last year.

“As in past quarters, our results benefited from the sound execution of our operating plans, the impact of a broad product portfolio, and our success keeping a tight rein on costs and assets,” he added.

Analysts say they want to know how well those strategies worked in Q4. Allen said in Q3 that DE was “continuing to focus on ways to make our operations more efficient and achieve further structural cost reductions.”   

Analysts say they’re also looking for an update on DE’s efforts to acquire Precision Planting, a maker of high-speed planting equipment. They’ll also be interested in any forecasts DE might give for Q1 and the next fiscal year, as well as company executives’ thoughts on how a ramping up U. S. infrastructure construction might impact its business.

At Thomson Reuters, analysts are forecasting, on average, earnings of $0.40 a share, representing a 63% drop from the year-ago profit of $1.08 per share. Revenue also is projected to slip roughly 8% to $5.38 billion from $5.86 billion last year.

DE has a long track record of outpacing Wall Street’s expectations, having done so for 15 straight quarters, and mostly by double-digit percentages. In the most recent quarter, DE beat projections by more than 64%, enough to allow the company to up its full-year guidance at the time.

Short-term options traders have priced in a potential share price move of 4% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform from TD Ameritrade.

Recent option activity has been concentrated at the 93-strike calls and the 88-strike puts. The implied volatility is at the 32nd percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time. 

DE, 6m, Jun-Nov 2016


DE shares surged better than 13% after the farm-and-construction machinery maker outpaced Wall Street’s Q3 expectations in mid-August. The stock is up over 20% this year. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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