Deere & Co. DE released its fiscal third-quarter results before the opening bell on Aug. 21. The company registered stronger-than-expected earnings and revenue for the quarter, but both numbers were down on a year-over-year basis. The company credited its cost-cutting efforts and stabilizing farm sales for beating top and bottom line expectations.
The Moline, Illinois-based company recorded adjusted earnings per share of $2.57 in the third quarter, down 8.5% year over year. Analysts had expected earnings of $1.25 per share. Revenue of $8.925 billion declined 11% but far surpassed expectations of $6.703 billion.
Segment performance
The agriculture and turf division recorded a 5% sales decline to $5.67 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 rose 54% to $942 million thanks to price realization and lower selling, administrative and general expenses. This was only partly negated by negative foreign currency exchange impact and impairments and closure expenses.
In the construction and forestry segment, sales dipped 28% to $2.19 billion in the reported quarter on the back of lower shipment volume and unfavorable impact of foreign currency exchange, which was partially offset by price realization. The operating profit was down 46% to $205 million.
The financial services business' net income came in at $183 million, reflecting 5% growth from the prior year.
The company reported that its commodity prices have dipped following the spread of Covid-19. This has adversely impacted farmers, who were already reeling under the pressure of the U.S.-China trade feud. However, farmer sentiment has recovered somewhat thanks to improvement in planting conditions and government support through subsidy payments.
Outlook
The farm equipment maker predicts full fiscal 2020 net income to be $2.25 billion. That compares with its previously forecasted range of $1.6 billion to $2 billion. CEO John C. May had the following to say:
"Although unsettled market conditions and related customer uncertainty are expected to have a moderating effect on key markets in the near term, we believe Deere is well-positioned to help make our customers more profitable and sustainable. In addition, we are encouraged by the early benefits we are experiencing from the company's recently launched smart-industrial operating model. We're confident it will help accelerate our ability to deliver differentiated solutions to our customers, while contributing to improved efficiencies across the company."
Sales are expected to dip approximately 10% for the agriculture and turf equipment division and about 25% for the construction and forestry equipment division.
Disclosure: I do not hold any positions in the stocks mentioned.
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