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Will Strong Order Activity Drive Deere's (DE) Q2 Earnings?

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Deere & Company DE is scheduled to report second-quarter fiscal 2018 results on May 18, before the market opens.

In the last reported quarter, Deere posted earnings of $1.31 per share, beating the Zacks Consensus Estimate by around 13%. Moreover, the company’s earnings surpassed estimates in each of the trailing four quarters, recording an average positive earnings surprise of 17.25%.

Let’s see how things are shaping up for this announcement.

Deere & Company Price and EPS Surprise


Deere & Company Price and EPS Surprise | Deere & Company Quote


Key Factors to Consider

For the fiscal second quarter, Deere expects sales to be up 30-40% year over year. The forecast includes a positive foreign-currency translation impact of about 4%. The Zacks Consensus Estimate for the to-be-reported quarter’s sales is pegged at $9.75 billion, reflecting year-over-year growth of 34%. This upbeat projection reflects Deere’s strong order activity.

In addition, Deere stated that the Wirtgen acquisition will contribute about 16% to net sales for the quarter to be reported. Moreover, higher demand for large equipment and the positivity in agriculture-related government-sponsored finance programs supports the sales outlook for the fiscal second quarter.

Our Consensus Estimates indicate that net sales of Deere’s Agriculture and Turf equipment segment will reach $6.73 billion in the fiscal second quarter, rising around 16% year over year. The Zacks Consensus Estimate for Construction & Forestry equipment sales is pegged at $2.58 billion for the quarter, reflecting year-over-year jump of 76%. The estimate for the Financial Services segment’s sales is $806 million, reflecting year-over-year increase of 13%.

Notably, the Zacks Consensus Estimate for earnings per share is pegged at $3.33 for the fiscal second quarter, indicating remarkable year-over-year growth of 34%. Improved operational performance resulting from disciplined cost management, and continued investment in innovative technology and solutions will drive the company’s performance.

However, China's response in retaliation to Trump's tariff plans by proposing duties on key U.S. imports, including soybeans, planes, cars, beef and chemicals remains a concern for Deere. The tit-for-tat retaliatory policies are feared to hit U.S. farm exports and in turn, escalate the troubles of farm-equipment makers like Deere. Further, elevated expenses will impact its results.

Share Price Performance

The company’s price performance has been impressive over the past year. Its shares have rallied 28% in a year’s time, outperforming the industry’s gain of 24%.


Currently, Deere carries a Zacks Rank #3 (Hold).

Stocks Worth a Look

Here are a few stocks worth considering as these have the right combination of elements to post an earnings beat this quarter.

Analog Devices, Inc. ADI, with an Earnings ESP of +0.56% and a Zacks Rank #3. Its shares have gained 16% in a year’s time. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

American Eagle Outfitters, Inc. AEO, with an Earnings ESP of +0.14% and a Zacks Rank #3. The company’s shares have appreciated 62% during the past year.

Applied Materials, Inc. AMAT, with an Earnings ESP of +0.56% and a Zacks Rank #3. The company’s shares have been up 23% over the past year.

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