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What Investors Need to Know About Deere & Co.'s 4th-Quarter Earnings

- By Mayank Marwah

Deere & Co. (DE) delivered its fiscal fourth-quarter earnings on Nov. 21. Though the company's earnings and revenues missed estimates, it had a solid quarter as its equipment market and financial service group flourished.

Earnings and revenue for the quarter

The tractor maker reported fourth quarter adjusted earnings per share of $2.30, up 46% from the same period last year. Revenue during the same period came in at $9.42 billion versus $8.02 billion reported in the year-ago quarter. The robust sales were attributable to strong replacement demand in agricultural market. At the same time, construction equipment sales also increased during the quarter to $8.3 billion due to a healthy order book.


Rising cost and trade war

The company witnessed mounting transportation and material costs during the quarter. To tackle this, the company adopted several cost-cutting measures and also raised the price. Despite putting in such efforts, now the company has to face the wrath of a trade war with China.

Per Bloomberg, the Trump administration is now preparing to tax the remaining Chinese imports worth $257 billion by early December in case trade talks fail. In fact, Trump tariffs are set to jump from 10% to 25% by the end of the year. In response to this, China would tax American imports, particularly U.S. soybeans and other agricultural goods. The biggest loser in the battle of the trade war happens to be Deere & Co.

Further, Trump tariffs have increased steel costs, which is the key input for the company. In a nutshell, the company will not only have to deal with rising freight and logistics costs but also with the ongoing trade war between the two nations.

Looking ahead

The Illinois-based company said its net sales would slow down in fiscal 2019 on account of a strong U.S. dollar and slower global demand. The company projects its net income to be around $3.6 billion for fiscal 2019 as compared to $3.073 billion in 2018. Sam Allen, CEO of Deere & Co., commented:

"The replacement cycle for farm machinery is very much alive, despite tensions over global trade and other geopolitical issues. In addition, we are experiencing a strong response to the advanced features and technology found in our new products, which are helping attract customers throughout the world."

Disclosure: I do not hold any position in the stock mentioned.

This article first appeared on GuruFocus.


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