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Deere's (DE) Earnings and Revenues Beat Estimates in Q2

Zacks Equity Research

Deere & Company DE posted second-quarter fiscal 2020 (ended May 3, 2020) earnings of $2.11 per share, beating the Zacks Consensus Estimate of $1.94. The reported figure slumped 40% from the prior-year quarter’s earnings per share of $3.52.

Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) came in at $8.22 billion, down 20% year over year. Revenues, however, surpassed the Zacks Consensus Estimate of $8.01 billion. Total net sales (including financial services and others) came in at $9.3 billion, down 18% year over year.

Operational Update

Cost of sales in the reported quarter was down 19% year over year to $6.3 billion. Total gross profit for the reported quarter fell 18%, year over year, to $2.96 billion. Selling, administrative and general expenses dipped 4% to $906 million from the prior-year quarter. Equipment operations reported operating profit of $890 million in the quarter compared with the $1,366 million witnessed in the prior-year quarter. Total operating profit (including financial services) plunged 37% year over year to $965 million in the fiscal second quarter.

Deere Company Price, Consensus and EPS Surprise

Deere Company Price, Consensus and EPS Surprise

Deere Company price-consensus-eps-surprise-chart | Deere Company Quote

Segment Performance

The Agriculture & Turf segment’s sales dipped 18% year over year to $5.97 billion, primarily due to lower shipment volumes and unfavorable currency-translation impact, partly offset by price realization. Operating profit in the segment decreased 22% year over year to $794 million, resulting from lower shipment volumes / sales mix, along with the unfavorable effects of foreign-currency exchange. However, this was offset by price realization, lower production and operational costs.

Construction & Forestry sales slid 25% to $2.26 billion from the year-earlier quarter, on lower shipment volumes and unfavorable foreign currency, partly negated by price realization. This segment’s operating profit plummeted 72% year over year to $96 million, mainly due to lower revenues, partially muted by lower production costs and price realization.

Net revenues in Deere’s Financial Services division came in at $875 million in the reported quarter, down 1% year on year. The segment’s operating profit came in at $75 million, down 56% year over year.

Financial Update

Deere reported cash and cash equivalents of $8.9 billion at the end of the fiscal second quarter 2020 compared with the $3.5 billion recorded at the end of the prior-year quarter. Cash generated from operating activities were $776 million in the six-month period ended May 3, 2020 compared with the cash outflow of $1.5 billion witnessed in the prior-year comparable period. At the end of the reported quarter, long-term borrowing was $34 billion, up from the $28 billion witnessed at the year-ago quarter’s end.

Deere has undertaken significant actions also to strengthen the company’s financial position and preserve liquidity. This includes raising $4.5 billion in medium- to long-term funding, lowering operating expenses and reducing capital spending.

Outlook

Net income for fiscal 2020 is projected at $1.6-$2 billion. However, the company has stated that uncertainties regarding the effects of the COVID-19 pandemic might affect the company's results.

Deere expects Agriculture and Turf equipment sales to be down 10-15% for fiscal 2020. The Construction and Forestry equipment segment’s sales are expected to plunge 30-40% for the fiscal year.

Price Performance

Deere’s shares have depreciated 17.6% over the past year compared with the industry’s decline of 19.7%.

Zacks Rank & Stocks to Consider

Deere currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Industrial Products sector are Silgan Holdings Inc. SLGN, Ampco-Pittsburgh Corporation AP and Energous Corporation WATT. While Silgan sports a Zacks Rank #1 (Strong Buy), Ampco-Pittsburgh and Energous carry a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Silgan has a projected earnings growth rate of 11.3% for 2020. The company’s shares have gained 6% in the past three months.

Ampco-Pittsburgh has an expected earnings growth rate of 2.70% for the current year. The stock has appreciated 4% over the past three months.

Energous has an estimated earnings growth rate of 17.3% for the ongoing year. The company’s shares have rallied 17% in three months' time.

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