The Moline-based ag and turf equipment maker, John Deere (DE, Financial), will be releasing its fourth-quarter results and that of the 2014 fiscal year on November 26 before the bell. Analysts worldwide are speculating on the stock movement after the earnings release. As crop prices in the USDA are at an all-time low, companies like Deere are bearing the brunt in the ag segment of their business. However, as the company believes in the beauty of diversification, it also has a construction equipment wing which should have performed well as the construction segment in the U.S. is recently picking up momentum. Let’s dive in to find out what the company forecast was for the fourth quarter and what analysts are opining regarding the numbers to be released tomorrow morning.
The company guidance
Deere expects the ag equipment sales to decrease around 8% year over year in the fourth quarter of the fiscal year. For the full year, Deere has trimmed its sales guidance from a 4% dip earlier to a 6% dip after it faced several headwinds preventing the revival of the ag equipment sales. However, the ag equipment honcho did also revise its net income forecast upwards from a decline of $3.3 billion to a decline of $3.1 billion for the entire fiscal year.
Segmentwise, Deere has forecast the ag equipment sales to be down from 7% predicted earlier to 10% for the fiscal year. Region wise, it expects a 10% decline in equipment sales in U.S. and Canada, 5% decrease in Europe and flat sales trend in the Asia Pacific. In South America, industry sales of tractors and combines are expected to dip by 15% year-over-year, and in CIS countries sales are estimated to be significantly lower.
Though there are headwinds that will not allow Deere to flourish in the ag equipment segment, it expects the construction line of business to grow about 10%, partly due to the U.S. economic recovery and the rise in housing starts. Global forestry is also projected to be higher, driven by economic growth and improved sales in European markets.
The analysts’ calculations
On November 24, Barclays has cut Deere’s price target from $97 to $94 and has trimmed the FY15 EPS estimate to $6.00 per share from $6.50 a share. The company’s weekly performance stands at 0.82% while its quarterly performance stands at 4.83%. Deere and Co. is -6.48% away from its 52-week high. Running by the numbers posted in the company’s forecast, the Street is expecting the fourth quarter profit to be around $1.58 a share. During the past four quarters, the company has bested the consensus target by an average of 12%. In fact the EarningsWhsiper.com reports a fourth quarter whisper number of $1.67 per share as earnings for Deere.
But the optimism in the brokerage community just ends here. According to the data from Thomson Reuters, only 4 of 30 analysts have recommended the stock to be a buy as analysts are expecting results to be gloomier than what was posted during the third quarter, which is also indicative in the reduced company forecast.
However, sources have confirmed that Deere has recently announced production cutbacks in line with expected demand. Also to comply with the new emission standards, Deere has been under pressure to implement the Tier 4 engines. Analysts are of the belief that reduction in costs and construction activity revival will aid in reporting a decent overall top and bottom line number by the company. It is to be mentioned that in the three months ended October 31, housing starts have improved about 12% year-over-year and this spells good news for Deere’s construction equipment business which will profit from the U.S. construction activity revival and could partially offset the loss in sales expected in the ag equipment sector.
Last word
Well, the actual results will give a better idea on which segment performed to what level for the equipment honcho. But as the equipment maker faces continuous headwinds in the ag sector, hopefully we should be seeing numbers closer to the company forecast and matching with the analysts’ expectations that is also pretty dim. The bright spot in the report card would be the construction and global forestry division of Deere and let’s stay tuned until the final results are out for better understanding on the same.
