Shares of Deere & Company (DE) have gone up since the completion of its acquisition of Paton, Iowa-based Bauer Built Manufacturing Inc. on Sep 30. The bullish sentiment is mostly based on expectation that the acquisition will accelerate the growth of its planter business worldwide.
Deere had announced its intentions to acquire Bauer in early September in order to expand its portfolio of agricultural equipment and enhance its ability to serve larger farms in key markets globally.
Since 2002, Bauer had manufactured John Deere and Bauer co-branded planters under a design and manufacturing partnership with Deere. The deal includes the designs, intellectual property, inventory and equipment, along with Bauer’s manufacturing facility in Paton with a workforce of 150 people. Deere will continue to manufacture the 44- to 120-foot ultra-wide DB Series planters at the facility.
In the third quarter of fiscal 2013, Deere’s worldwide total sales increased 4% year over year to $10 billion, beating the Zacks Consensus Estimate of $9.3 billion. Agriculture and Turf equipment sales increased 8%, but were offset by an 11% dip in Construction & Forestry.
Deere expects equipment sales to decrease around 5% year over year for the fourth quarter of fiscal 2013. Agriculture and Turf equipment sales is expected to grow 7% in fiscal 2013 aided by higher commodity prices, strong farm incomes, global expansion and new lines of advanced equipment.
Region-wise, Deere expects industry farm machinery sales in the U.S. and Canada to increase 5% year over year in 2013. In Europe, sales are projected to be down 5% due to continued deterioration in the overall economy and a poor harvest in the U.K. last year.
Global sales for Construction & Forestry equipment may fall about 8%, reflecting a cautious outlook for the U.S. economic growth. Global forestry sales are expected to be higher as improved U.S. demand more than offset weakness in European markets.
Deere’s growth in the US is mostly expected to stem from Brazil. However, the IMF has recently reduced its outlook for Brazil's economic growth by cutting its GDP growth rate for 2013 and 2014. This remains a concern for Deere. Furthermore, the uncertainty in the construction sector will weigh on its results.
Deere currently retains a Zacks Rank #3 (Hold). Other stocks in the same industry that are worth a look include Alamo Group, Inc. (ALG) and Kubota Corp. (KUBTY), which retain a Zacks Rank #1 (Strong Buy) and Lonking Holdings Ltd. (LONKF) which carries a Zacks Rank #2 (Buy).
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