Deere & Co. (DE, Financial) released third-quarter financial results before the opening bell on Aug. 16. The company’s earnings and revenue missed expectations due to bad weather and the U.S.-China trade war, which severely reduced sales of its farm equipment.
Earnings highlights
The equipment company recorded adjusted earnings of $2.71 per share, missing analysts' projections of $2.85. Revenue of $8.97 billion declined 3% year over year and fell short of expectations of $9.39 billion.
Reflecting on the company's performance, Chairman and CEO Samuel R. Allen said:
“John Deere’s third-quarter results reflected the high degree of uncertainty that continues to overshadow the agricultural sector. Concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases. At the same time, general economic conditions remain positive and are contributing to strong results for Deere’s construction and forestry business.”
Effect of trade war
The ongoing trade war between the U.S. and China has adversely affected Deere’s earnings since China is one of the biggest export markets for American farmers.
As per the American Farm Bureau, China bought $9.1 billion worth of U.S. farm produce in 2018 as compared with $19.5 billion in 2017.
Shipments of soybeans (one of the U.S.'s most important farm exports) to China dropped to a 16-year low as China bought from Brazil instead.
Segment details
The agriculture and turf division recorded a 6% sales decline to $5.95 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. The segment’s operating profit plunged 24% year on year to $612 million on the back of lower shipment volumes, mounting production expenses and an adverse impact on foreign currency translation that was only partly offset by price realization.
The construction and forestry segment's sales grew 1% in the reported quarter to $3 billion thanks to price realization, which was only partially offset by an unfavorable impact on foreign currency exchange. Operating profit surged 35% to $378 million.
The financial services business' net revenue came in at $910 million, reflecting 10% growth from the prior year. Operating profit stood at $204 million, up 4%.
Guidance
The company projects full-year net income of $3.2 billion, while sales growth is estimated to be 4%. This is lower than its previous forecasted net income of $3.3 billion on 5% sales growth.
Disclosure: I do not hold any positions in the stocks mentioned.
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