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What Investors Should Know About Deere's 2nd-Quarter Results

GuruFocus.com

Deere & Co. (NYSE:DE) released its second-quarter results before the opening bell on May 22. The company registered stronger-than-expected earnings and revenue for the quarter, but both numbers were down on a year-over-year basis.

By the numbers

The farm equipment maker recorded adjusted earnings per share of $2.11 in the second quarter, down 40%. Analysts had expected earnings of $1.77 per share. Revenue of $9.25 billion declined 18%, but far surpassed expectations of $7.7 billion.


CEO John C. May had the following to say:


"Deere is well-known for developing strong relationships with a range of stakeholders, which prove extremely valuable in difficult times. We remain committed to offering a full suite of advanced digital tools that give our customers unique capabilities and help them do their work more efficiently and profitably. As a result, we're confident the company will successfully manage the pandemic's effects and strengthen its position serving customers in the future."



Segment performance

The agriculture and turf division recorded an 18% sales decline to $5.97 billion. The decrease was attributed to lower shipment volumes as well as an unfavorable impact from currency translations, which was partially offset by price realization. Operating profit declined 2% to $794 million thanks to lower shipment volume, sales mix and negative foreign currency exchange impact. This was only partly negated by improved production expenses and lower research and development expenses.

In the construction and forestry segment, sales dipped 25% to $2.26 billion in the reported quarter on the back of lower shipment volume and unfavorable impact of foreign currency exchange, which was partially offset by price realization. The operating profit was down 72% to $96 million.

The financial services business' net revenue came in at $875 million, reflecting 1% decline from the prior year. Operating profit stood at $75 million, down 56%.

Financial position and liquidity

At the end of the quarter, the company had cash and cash equivalents of $8.9 billion and long-term borrowing of $34 billion.

To strengthen its liquidity position, the company has raised funds to the tune of $4.5 billion in medium to long-term debt. In addition, the company has taken other actions to preserve liquidity, such as reducing operating expenses and capital spending programs.

Outlook

The company predicts fiscal 2020 net income to be between $1.6 billion and $2 billion. Deere stated that the coronavirus pandemic will weigh down on future results.

Sales are expected to dip 10% to 15% for the agriculture and turf equipment division and 30% to 40% for the construction and forestry equipment division.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.