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Deere & Company stock pops on strong earnings beat

Yahoo Finance Live anchors discuss fourth-quarter earnings for Deere & Company.

Video Transcript

[AUDIO LOGO]

BRIAN SOZZI: [LAUGHS]

JULIE HYMAN: All right, let's talk about Deere because that's one of the other movers that we're watching. Following a fourth quarter earnings beat on the top and bottom lines, the stock is up about 4 and 1/2% here this morning.

The company posted a revenue increase of 37% year-over-year and issued some strong sales guidance for fiscal year 2023 as well. 2023, the company says, net income is going to be $8 to $8 and 1/2 billion. That is ahead of estimates here.

And if you look across their different segments, they're looking for further gains after seeing some big gains in the fourth quarter production. And precision agricultural net sales will be up 15% to 20%. Small ag and turf net sales will rise 0% to a 1/2%. Construction of forestry sales will be up about 10%. You see how they did in the fourth quarter in those various segments.

And basically, you know, people couldn't get their tractor, maybe, during the pandemic, right? And now, they're working on the supply chain. And they're able to get the tractor. What are you guys--

BRIAN SOZZI: You're the lawn expert. Take it away.

JULIE HYMAN: What are you guys laughing at?

BRIAN SOZZI: Take it away, Brad.

BRAD SMITH: I am the lawn care expert. Guess what? I had a very strong lawn business during my high school years. I did not have a John Deere, though. I couldn't get one. I had to use what we had. I had a Toro. But anyway that aside--

[LAUGHTER]

John Deere, actually for what we had seen in these results specifically-- and there was one worldwide net sales number that I highlighted, tried to find. OK, here we go. That increased 37% worldwide net sales so that was up.

You look across though where-- and this comes back to the replenishment rate. Where some of their wholesale partners are actually going to, perhaps, need to pull back on the orders that they have with John Deere. That's going to play through in a company like Lowe's, in a company like Home Depot because if you've already got a lawnmower, you don't need another one.

BRIAN SOZZI: Yeah, no, [? grain ?] prices have been hot. I'm looking at the production and precision ag segment. And really this segment, how it performed the quarter, really says it all about the overall state of this company's business. Operating profits up 124% against a sales increase of 59%.

That is a darn near perfect result for a company like this. And any time you see profits rise faster than sales, that means margins are up significantly, as they were in this quarter here. A real good quarter for John Deere.

JULIE HYMAN: I mean, it's also interesting because it's been pushing ahead. You know, we talk about self-driving cars all the time. Tractors is actually where that technology has really gotten [? far away. ?]

BRIAN SOZZI: You don't want a self-driving mower. There's no way. Do you want to be attacked by a mower off somebody's lawn?

JULIE HYMAN: If you are-- if you are a professional. It's not for you mowing your own lawn, it's for professional farmers.

BRIAN SOZZI: So OK. Oh, all right. I thought you were talking about like a riding mower.

BRAD SMITH: Yeah, no.

JULIE HYMAN: No, no, no, no.

BRIAN SOZZI: I don't want to be watching a driverless mower on my neighbor's lawn.

JULIE HYMAN: You're talking about acreage, right?

BRAD SMITH: Right.

JULIE HYMAN: You're talking about a big field--

BRIAN SOZZI: OK.

BRAD SMITH: This is not for us 1 acre people.

JULIE HYMAN: --and a self-driving tractor.

BRIAN SOZZI: I don't want blades coming towards me.

JULIE HYMAN: No, no, no.

BRIAN SOZZI: OK.

JULIE HYMAN: It's because you're not on a road where there are things coming at you, right?

BRIAN SOZZI: OK.

JULIE HYMAN: Where there are variables. You're in a situation like--

BRIAN SOZZI: Oh, those are fine.

JULIE HYMAN: --that. Yes.

BRIAN SOZZI: I don't live near a farm so that's fine.

JULIE HYMAN: Yes. That's what we're talking about.

BRIAN SOZZI: All right, let them do their thing out there.

JULIE HYMAN: One more small thing I wanted to mention. And again, this goes to the professional farmer, not to you mowing your lawn. And that's to do with interest rates. In other words, if there are farmers who are financing their tractor and equipment purchases, higher interest rates could start to potentially have an effect. So that's something to keep an eye on. The company did increase its provision for credit losses for 2023 in part as it's watching higher interest rates.

BRAD SMITH: My next lawn care business will be called Blades Of Glory.

BRIAN SOZZI: [LAUGHS]

JULIE HYMAN: Nice.