Deere & Co. (DE, Financial) reported impressive second-quarter earnings and revenue last week and raised its full-year outlook.
Bird’s-eye view
The tractor manufacturer posted net income of $1.208 billion for the second quarter, which is a record. The company recorded adjusted earnings of $1.03 billion, or $3.14 per share. Analysts had expected adjusted earnings per share to be $3.30. Quarterly revenue for the company rose 29.3% on a year-over-year basis to $10.72 billion. The strong revenue growth was attributed to higher equipment sales, which jumped 34% year over year to $9.747 billion. Chairman and CEO Samuel Allen was very pleased with the company’s performance, saying:
"John Deere reported another quarter of strong performance helped by a broad-based improvement in market conditions throughout the world and a favorable customer response to our lineup of innovative products."
The company also discussed the impact of its acquisition of global road construction equipment manufacturer Wirtgen. Wirtgen contributed 12% to the company’s net sales during the quarter and made an operating profit of $41 million. The company posted an operating loss of $51 million year to date.
Mounting costs a concern for Deere
By contrast, Deere could not surpass its second-quarter profit estimates due to increase in material and freight costs. This is evident from the fact its selling expenses soared 35% during the quarter. President Donald Trump recently imposed tariffs on steel and aluminum imports, which hurt the company’s bottom line.
In order to curb costs, the company will focus on structural cost reductions and future pricing actions. Currently, the company has made considerable progress with its suppliers to increase production and ensure timely product delivery.
Guidance
The company expects full-year adjusted earnings to be $3.1 billion, which is higher than its previous estimate of $2.85 billion. In addition, Deere projects net sales and revenue will climb approximately 26% this year. Furthermore, equipment sales are estimated to rise by 30%. Allen commented:
"We are encouraged by strengthening demand for our products and believe Deere is well-positioned to capitalized on further growth in the world's agricultural and construction equipment markets."
Stay tuned for third-quarter financial figures.
Disclosure: I do not hold any positions in the stocks mentioned in this article.
