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Deere (DE) to Report Q2 Earnings: What's in the Offing?

Zacks Equity Research

Deere & Company DE is scheduled to report second-quarter fiscal 2019 results on May 17, before the opening bell.
Past Performance

In the last reported quarter, Deere reported earnings of $1.54 per share, which missed the Zacks Consensus Estimate by around 14%. Notably, the company has missed the Zacks Consensus Estimate in the trailing four quarters.  Deere has an average negative earnings surprise of 8.10% over the trailing four quarters.

Deere & Company Price and EPS Surprise


Deere & Company Price and EPS Surprise

Deere & Company price-eps-surprise | Deere & Company Quote

Let’s see how things are shaping up prior to this announcement.

Key Factors to Consider

Concerns over tariffs and trade policies seem to be weighing on customer sentiment with farmers becoming cautious and subsequently delaying their equipment purchases. Despite this, replacement demand is likely to sustain order activity for the Agriculture and Turf segment, which in turn will aid the upcoming quarterly results. The Zacks Consensus Estimate indicates that net sales of Deere’s Agriculture and Turf equipment segment to reach $7.3 billion in the quarter to be reported, indicating an improvement of 4% from the year-ago quarter. The Agriculture and Turf equipment segment’s operating income is projected at $1080 million, up from the $1056 million reported in the prior-year quarter.
The Construction & Forestry segment will benefit from continued robust demand for equipment, as well as the Wirtgen acquisition. The economic environment for the construction, forestry and road building industries looks solid and continues to support elevated demand for both new and used equipment, which is likely to aid the to-be-reported quarter’s results. The Zacks Consensus Estimate for Construction & Forestry segment sales is pegged at $2.95 billion for the February-April quarter, suggesting an improvement of 9% from the year-ago reported figure. The Construction & Forestry segment is expected to report operating profit of $381 million, indicating a substantial improvement over $259 million in prior-year quarter.
Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) are projected at $10.3 billion, indicating an improvement of 5% from the year-ago quarter.
The Zacks Consensus Estimate for the Financial Services segment’s sales for the to-be-reported quarter is $857 million, suggesting growth of 8% from the year-ago reported figure. The Zacks Consensus Estimate the segment’s operating profit is currently pegged at $200 million, indicating an improvement of 12% prior-year quarter.

Deere’s results will continue to bear the brunt of high costs for raw materials and logistics. The implementation of tariffs has led to a spike in cost of sales for Deere and is consequently hurting its gross margins. Further, selling, administrative and general expenses and R&D expenses are anticipated to be higher owing to strategic investments in precision agriculture and next generation new product development programs for large agricultural product lines. Deere’s pricing actions are likely to somewhat mitigate the impact of cost inflation. Further, improved operational performance, cost management and continued investment in innovative technology and solutions will drive the company’s performance. These factors are likely to aid the upcoming quarterly results.

The Zacks Consensus Estimate for earnings per share is pegged at $3.57 for the to-be-reported quarter, indicating an improvement of 14% from the year-ago quarter.

Earnings Whispers
Our proven model shows that Deere is likely to beat on earnings this quarter because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely positive surprise:
Zacks ESP:
Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate is +0.03%. . You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Deere currently carries a Zacks Rank of 3. The combination of Deere’s Zacks Rank #3 and positive ESP makes us confident of an earnings beat in the upcoming release.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Share Price Performance

Deere’s shares have declined 0.3% over the past year against the industry’s growth of 5%.  
Other Stocks Worth a Look
Here are some other stocks worth considering as these too have the right combination of elements to post an earnings beat this quarter.
Target Corporation TGT has an Earnings ESP of +0.42% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuit Inc. INTU has an Earnings ESP of +0.59% and a Zacks Rank #2.
Costco Wholesale Corporation COST has an Earnings ESP of +1.83% and a Zacks Rank #3.

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