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What Really Hurt Deere’s Earnings in Fiscal 2Q16?

Shannon Black

Deere's Fiscal 2Q16 Results Are Out, but No One's Celebrating

Deere’s earnings in 2Q16

Deere & Company (DE), the world’s largest manufacturer of tractors and harvesting combines, released its fiscal 2Q16 earnings before markets opened on May 20, 2016. This 2Q16 earnings release will serve as a snapshot of the company’s operating performance in the three-month period between February and April. Deere’s earnings release resulted in a price action of -5.5%. The stock closed at $77.72 on May 20.

In fiscal 2Q16, Deere reported diluted EPS (earnings per share) of $1.56, as compared to estimates of $1.48. These fiscal earnings reflect a decline of 23.1% over fiscal 2Q15’s diluted EPS of $2.03. The decline in diluted EPS was due to across-the-board declines in operating margins and sales, which led to a 28% drop in net income. Declining farm incomes contributed to weak demand for agriculture equipment whereas excess used equipment inventory led to a slump in the construction and forestry segment.

Declining farm incomes contributed to weak demand for agriculture equipment, whereas excess used equipment inventory led to a slump in the company’s Construction & Forestry segment.

Among competitors in the agriculture (DBA) and construction (ITB) equipment space, AGCO (AGCO) and Caterpillar (CAT) declared their 1Q16 earnings on April 27 and April 22, respectively. The earnings declared by CAT and AGCO were for the quarter that ended March 31.

Management commentary

On the recent quarterly performance call, Samuel R. Allen, Deere’s Chairman and Chief Executive Officer, noted that “John Deere’s second-quarter performance reflected the continuing impact of the downturn in the global farm economy and further weakness in the construction equipment sector.”

Allen added that “in the face of challenging market conditions, Deere’s businesses benefited from the sound execution of operating plans, the strength of a broad product portfolio and our success creating a more flexible cost structure.”

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