Deere & Co. (DE, Financial) released its first-quarter results before the opening bell on Feb. 21. The company registered stronger-than-expected earnings and revenue for the quarter as the slowdown in the construction division was more than offset by stabilization of the U.S. farm sector.
Snapshot of the quarter
The euipment company recorded adjusted earnings of $1.63 per share, surpassing analysts' projections of $1.25 per share. Revenue of $6.53 billion declined 6% year over year, but edged past expecations of $6.409 billion.
Reflecting on the company's performance, CEO John C. May said:
“John Deere’s first-quarter performance reflected early signs of stabilization in the U.S. farm sector. Farmer confidence, though still subdued, has improved due in part to hopes for a relaxation of trade tensions and higher agricultural exports. At the same time, activity in the construction sector has slowed leading to lower sales and profit for our Construction & Forestry division.”
Segment performance
The agriculture and turf division recorded a 4% sales decline to $4.49 billion. The decrease was attributed to lower shipment volumes as well as an unfavorable impact from currency translations, which was partially offset by price realization. By contrast, operating profit grew 7% to $373 million thanks to improved production expenses and lower warranty-related costs, which was partially offset by lower shipment volume and expenses associated with voluntary employment separation.
In the construction and forestry segment, sales dipped 10% to $2.04 billion in the reported quarter on the back of lower shipment volume and unfavorable impact of foreign currency exchange. The operating profit was down 59% to $93 million.
The financial services business' net revenue came in at $931 million, reflecting 9% growth from the prior year. Operating profit stood at $179 million, down 4%.
Key insights
The ongoing trade war between the U.S. and China has adversely affected Deere’s agricultural exports to China since it is one of the biggest export markets for American farmers.
In response to a respite in China’s trade war with Washington, China on Friday announced that it would stop imposing more punitive tariffs on U.S. imports of industrial goods for a temporary period. The trade tensions between the countries are expected to wane, thereby ensuring higher U.S. agricultural exports in the future.
However, Deere predicts that the outbreak of coronavirus in China will weign down on the company’s results in the second quarter.
Outlook
The largest farm equipment maker predicts fiscal 2020 net income to be between $2.7 billion and $3.1 billion. Sales are expected to dip 5% to 10% for the agriculture and turf euipment division and 10% to 15% for the construction and forestry equipment division.
Disclosure: I do not hold any positions in the stocks mentioned.
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