John Deere's strategy is to expand revenues and profits aggressively to meet increasing global demand for agricultural and construction machinery throughout the world. It is aiming to achieve $50 billion in annual sales by 2018 representing an increase of almost 40%. Supporting these objectives are two long-term macro-economic tailwinds.
Firstly, the world’s population continues to grow, adding many thousands of new mouths to feed every day. It is widely believed that agricultural output will need to double by mid-century to satisfy demand– and do so from essentially the same amount of land, requiring further advances in farming mechanization and productivity. Of equal importance, rising prosperity, particularly in developing economies such as China and India, is leading to a greater need for food and energy. As a result, worldwide stocks of key farm commodities have fallen near historic lows in relation to use. Grain prices have risen in response, propelling farm incomes to unprecedented levels. The combination of low grain reserves and higher global demand bodes well for crop prices over the long term. This, in turn, should help sustain customers’ profitability and support further profitable growth for John Deere.
Secondly, more people are moving from rural areas to cities, increasing the need for infrastructure development. Today, more than half of the world’s population resides in urban areas. That percentage is expected to reach 70% in the next 40 years– meaning that more people could be living in cities by 2050 than now make up the world’s entire population. Such a migration will lead to tremendous demand for roads, bridges and buildings– and for the equipment needed to construct them.
To support the objectives the company has been pouring profits back into research and development, new facilities and hiring. Including new plants in Russian, China, India and Germany.
Deere has seen strong growth over the past ten years as revenues increased from $15.5 billion in 2003 to $34.0 billion in 2012. Net income increased from $631 million to $3.065 billion. Growth has continued in recent quarters with record breaking sales and income in the second quarter of 2013.
"After a record-setting second quarter, John Deere is well on its way to another year of strong performance," said Samuel R. Allen, chairman and chief executive officer. Second-quarter sales and income were the highest for any quarterly period in company history, he pointed out. "Deere's results are a reflection of positive conditions in the global farm economy, which continues to show impressive strength. The company's performance also offers further proof of the adept execution of our operating and marketing plans, which are aimed at expanding our global market presence."
The powerful trends of population growth and urbanization are expected to sustain demand for innovative farm, construction, forestry and turf-care equipment for years, if not generations, to come boosting analyst earnings forecasts.
Warren Buffett is reported to have bought into the company in September 2012 at an average price of $78.18. At its Friday close of $84.05, representing less than 10 times 2013 forward EPS forecasts, other value investors may still be tempted.
If you enjoyed this article then please visit www.surgingearnings.com.
Risk Disclaimer: This article does not constitute a recommendation to buy or sell. Investing in stocks or other securities and derivatives is a high risk activity and not suitable for everyone. It is strongly recommended that individuals should consult with a SEC registered investment advisor prior to making any investment decisions.
Disclosure: The author holds no positions in the above mentioned stocks
Firstly, the world’s population continues to grow, adding many thousands of new mouths to feed every day. It is widely believed that agricultural output will need to double by mid-century to satisfy demand– and do so from essentially the same amount of land, requiring further advances in farming mechanization and productivity. Of equal importance, rising prosperity, particularly in developing economies such as China and India, is leading to a greater need for food and energy. As a result, worldwide stocks of key farm commodities have fallen near historic lows in relation to use. Grain prices have risen in response, propelling farm incomes to unprecedented levels. The combination of low grain reserves and higher global demand bodes well for crop prices over the long term. This, in turn, should help sustain customers’ profitability and support further profitable growth for John Deere.
Secondly, more people are moving from rural areas to cities, increasing the need for infrastructure development. Today, more than half of the world’s population resides in urban areas. That percentage is expected to reach 70% in the next 40 years– meaning that more people could be living in cities by 2050 than now make up the world’s entire population. Such a migration will lead to tremendous demand for roads, bridges and buildings– and for the equipment needed to construct them.
To support the objectives the company has been pouring profits back into research and development, new facilities and hiring. Including new plants in Russian, China, India and Germany.
Deere has seen strong growth over the past ten years as revenues increased from $15.5 billion in 2003 to $34.0 billion in 2012. Net income increased from $631 million to $3.065 billion. Growth has continued in recent quarters with record breaking sales and income in the second quarter of 2013.
"After a record-setting second quarter, John Deere is well on its way to another year of strong performance," said Samuel R. Allen, chairman and chief executive officer. Second-quarter sales and income were the highest for any quarterly period in company history, he pointed out. "Deere's results are a reflection of positive conditions in the global farm economy, which continues to show impressive strength. The company's performance also offers further proof of the adept execution of our operating and marketing plans, which are aimed at expanding our global market presence."
The powerful trends of population growth and urbanization are expected to sustain demand for innovative farm, construction, forestry and turf-care equipment for years, if not generations, to come boosting analyst earnings forecasts.
Warren Buffett is reported to have bought into the company in September 2012 at an average price of $78.18. At its Friday close of $84.05, representing less than 10 times 2013 forward EPS forecasts, other value investors may still be tempted.
If you enjoyed this article then please visit www.surgingearnings.com.
Risk Disclaimer: This article does not constitute a recommendation to buy or sell. Investing in stocks or other securities and derivatives is a high risk activity and not suitable for everyone. It is strongly recommended that individuals should consult with a SEC registered investment advisor prior to making any investment decisions.
Disclosure: The author holds no positions in the above mentioned stocks
