reported fiscal second-quarter earnings that beat Wall Street expectations. Full-year earnings guidance was raised too. The stock fell anyway on Friday.
Deere (ticker: DE) reported earnings per share of $6.81 from sales of $13.4 billion. Wall Street was looking for EPS of $6.69 from about $13.2 billion in sales. A year earlier, Deere earned $5.68 a share from $12 billion in sales.
Deere shares are off about 10.4% in midday trading. That’s on pace for the shares’ worst day since March 2020, according to Dow Jones Market Data. The
Dow Jones Industrial Average
were both down 0.7%. Coming into Friday trading, Deere stock had gained about 6% this year.
It looks like a solid earnings report. Pricing, for instance, in Deere’s agricultural division rose 13% year over year. Operating profit margins in the segment, however, declined by almost 2 percentage points to about 20%. Still, overall profit margins in Deere’s equipment segments, which include construction and small agricultural equipment, rose about 0.4% year over year.
The stock is down, perhaps because investors always expect good news from Deere. The quarterly results have now beaten Wall Street’s bottom-line estimates for 11 consecutive quarters now. That goes back to the middle of 2019, before the pandemic. That isn’t bad for a company that is more affected by commodity prices than most.
There is also the issue of back-half-loaded guidance. Investors don’t like it when management teams project improvement. “More back half weighted than we assumed,” wrote Citigroup analyst Timothy Thein in a Friday report. “Forecasting [Deere’s] quarterly results can be difficult in even normal times given how timing of high margin Ag shipments can slide from one quarter to another….and is especially so in the current supply-chain environment.”
Thein didn’t appear all that worried about the quarter, but the stock is down anyway. He rates shares Hold and has a $435 price target for shares.
Looking ahead, full-year earnings guidance looks to have risen by about $100 million on a comparable basis. Deere now expects to earn about $7.2 billion in its fiscal year. The outlook given during its first-quarter earnings report called for $6.9 billion in net income. The new figure, however, appears to include a $220 gain. Wall Street projects about $7 billion in net income for Deere’s fiscal year.
Earnings in Deere’s lending unit are expected to decline a little in 2022 because of higher provision for credit losses and higher expenses. That is one negative from the earnings report.
Prices for farm inputs such as fertilizer have risen and Deere will be boosting its prices too to offset rising costs. That makes things more difficult for farmers. Yet prices for wheat, corn, and soybeans — products that generate sales for farmers— are stronger as well, up about 57%, 32% and 25% year to date, respectively.
Options markets implied the stock will move about 7%, up or down, following earnings. That would be more than in recent quarters, but options traders look prescient. Deere stock has moved an average of roughly 3%, up or down, over the past four quarterly reports.
Earnings have beaten analysts’ estimates each of the past four reports. Shares have gone up twice and down twice.
Write to Al Root at [email protected]