Agricultural, forestry and construction equipment manufacturer Deere & Company (DE) will report its retail sales for September this week following the monthly announcement of industry sales by the Association of Equipment Manufacturers (“AEM”).
As is the practice, Deere will provide its comments about the AEM data and other information regarding retail sales of the company’s farm machinery, selected turf & utility equipment, and construction equipment.
In early September, Deere announced mixed retail sales for August. Sales of row crop tractors and combines outperformed the industry, while sales for utility tractors and four-wheel drive failed to match the industry performance. Deere’s reported inventory levels were lower than the industry for all its product segments.
Deere’s performance was better than that of Caterpillar Inc. (CAT). Sales growth for the construction and mining equipment continued to be in the red with a decline of 10% in August, the ninth consecutive month of decline.
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 as well as the company’s guidance of sales growth of about 3%. Farm equipment manufacturers Alamo Group Inc. (ALG) and AGCO Corp. (AGCO) also delivered record results, beating expectations, reflecting steady demand for its agricultural equipment.
For the fourth quarter of fiscal 2013, Deere expects equipment sales to decrease around 5% year over year. Deere had witnessed strong sales in the fourth-quarter of fiscal 2012 as factories were running full steam to meet customer orders. This puts the fourth quarter of fiscal 2013 against a tough comparison. However, despite this the company expects a third consecutive year of record results.
Before the federal government shut down, manufacturing unexpectedly picked up in September. The Institute for Supply Management’s (“ISM”) factory index rose to 56.2 from 55.7 a month earlier - the strongest growth exhibited since Apr 2011.
As per the ISM, manufacturing had contracted in May, as government spending cuts and weaker global demand caused headwinds for the U.S. companies. However, the manufacturing index has remained above 50 (which indicates expansion) every month since then, kindling hopes in the manufacturing sector.
The recovery in housing is also spurring demand for construction machinery. This suggests positive September results for Deere. Furthermore, Deere’s sales will continue to benefit from investment in new products and capacity as well as continuing strong demand for agricultural machinery.
However, continuing weakness in European markets, soft conditions in the U.K. farm sector and rising competition are expected to remain headwinds. Deere currently retains a Zacks Rank #3 (Hold).