In this article, I will take a look at Deere & Company’s (NYSE:DE) most recent earnings update (29 October 2017) and compare these latest figures against its performance over the past few years, along with how the rest of DE’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. View our latest analysis for Deere
How Well Did DE Perform?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This blend allows me to examine different companies in a uniform manner using new information. For Deere, its latest earnings (trailing twelve month) is US$2.16B, which, in comparison to the prior year’s level, has increased by 41.64%. Since these figures are fairly nearsighted, I have computed an annualized five-year figure for Deere’s net income, which stands at US$2.60B This means though earnings growth from last year was positive, over the past couple of years, Deere’s earnings have been waning on average.
Why is this? Well, let’s take a look at what’s going on with margins and whether the rest of the industry is facing the same headwind. Although revenue growth over the past couple of years, has been negative, earnings growth has been deteriorating by even more, meaning Deere has been increasing its expenses. This hurts margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the US machinery industry has been growing its average earnings by double-digit 19.22% over the previous year, and a more subdued 3.51% over the past five years. This suggests that any tailwind the industry is enjoying, Deere is able to amplify this to its advantage.
What does this mean?
Deere’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Recent positive growth isn’t always indicative of a continued optimistic outlook. There could be factors that are impacting the entire industry thus the high industry growth rate over the same period of time. You should continue to research Deere to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for DE’s future growth? Take a look at our free research report of analyst consensus for DE’s outlook.
- 2. Financial Health: Is DE’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 29 October 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.