A strong US dollar will hurt overseas tractor sales. And that has investors crying, “Oh, Deere!”
By all accounts, Deere & Co. had a pretty good quarter. Revenues and earnings both came in above expectations.
But, it’s the future that Deere and its investors are worried about. The company cited a long, cold winter in North America as a reason they expect future profits to be lower than previously forecasted. But is it the cold weather or the hot US dollar that really is biting into Deere’s prospects?
Last year, 46% of Deere’s sales were outside the United States. In other words, Deere has a dollar problem.
"Deere's near-term forecast is being tempered by lingering economic concerns in many parts of the world, which are restraining business confidence and growth," state Chairman and CEO Samuel R. Allen. Equipment sales both in North America and globally was up 9% for the quarter. However, translating those global sales back to US dollars were 4% negative for the company.
While the company touted South American sales as being up a healthy 15% to 20%, that market comprised of less than 10% of the company’s overall revenue.
As well, the Deere’s stock’s decline today also has a relationship to commodity prices, many of which are negatively related to the US dollar, according to Enis Taner, Global Macro Editor at RiskReversal.com and Talking Numbers contributor. “Deere is going to continue to struggle on translation weakness as well as commodity weakness,” he says.
As commodity prices decline with the stronger dollar, notes Taner, farmers will be less likely to plant more crops. That, in turn, lowers the demand for farming equipment.
The technical are also a tough row to hoe, thinks Richard Ross, Global Technical Strategist at Auerbach Grayson and also Talking Numbers contributor. The recent rise above $92 per share was a false breakout, according to Ross. The disappointing announcement means one thing for Ross. “There’s nowhere to go but down. “
Ross sees a test down towards the 200-day moving average of around $85. The 200-day moving average is a popular indicator in technical analysis. “I’d still be a seller here,” says Ross.
“It’s deteriorating on both a technical and a fundamental level,” says Taner. “I’d stay far away from Deere.”