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Key Takeaways From Deere & Co.'s 4th-Quarter Results

GuruFocus.com
·2 min read

- By Mayank Marwah

Deere & Co. (NYSE:DE) released its fiscal fourth-quarter results before the opening bell on Nov. 25. The company registered stronger-than-expected earnings and revenue for the quarter. Deere credited its cost-cutting efforts and stabilizing farm sales for beating top and bottom line expectations.

The Moline, Illinois-based company recorded adjusted earnings of $2.39 per share in the fourth quarter, which was up from $2.27 reported last year. Analysts had expected earnings of $1.49 per share. Revenue of $9.73 billion declined 2%, but still surpassed expectations of $7.68 billion.


Segment performance

The agriculture and turf division recorded an 8% increase in sales to $6.2 billion. The increase was due to higher shipment volume and price realization, which was partially offset by unfavorable impacts from currency translations. Operating profit rose 63% to $860 million thanks to price realization and lower research and development costs and general expenses. This was only partly negated by a negative foreign currency exchange impact and impairments and closure expenses.

In the construction and forestry segment, sales dipped 16% to $2.46 billion on the back of lower shipment volume and unfavorable foreign currency exchange impacts, which were partially offset by price realization. The operating profit was down 25% to $196 million due to employee-separation expenses.

The financial services business' net income was $186 million, reflecting 107% growth from the prior-year quarter.

The company reported that its commodity prices have dipped following the spread of Covid-19. This has adversely impacted farmers, who were already reeling under the pressure of the U.S.-China trade war. However, farmer sentiment has recovered somewhat thanks to improvement in planting conditions and government support through subsidy payments.

Looking ahead

The farm equipment maker predicts full fiscal 2021 net income to be in the $3.6 billion to $4 billion range. According to Chairman and CEO John C. May, improvement in the farm economy and stability in the construction and forestry market should support Deere's growth in the next year.

"Higher crop prices and improved fundamentals are leading to renewed optimism in the agricultural sector and improving demand for farm equipment," he said. "At the same time, we are looking forward to realizing the benefits of our smart industrial operating strategy, which is designed to accelerate the delivery of solutions that will drive improved profitability and sustainability in our customers' operations."

Sales are expected to rise 10% to 15% for the agriculture and turf equipment division and between 5% and 10% for the construction and forestry equipment division for fiscal 2021.

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

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This article first appeared on GuruFocus.