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Deere (DE) Q4 Earnings & Revenues Beat but Decline Y/Y


Deere & Company’s DE fourth-quarter fiscal 2016 (ended Oct 31, 2016) earnings declined 17% year over year to 90 cents per share. However, earnings beat the Zacks Consensus Estimate of 36 cents by a wide margin of 150%. Global farm recession and weak construction-equipment markets affected both the top and the bottom line of the company.

Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) came in at $5.65 billion, down 5% year over year. Revenues surpassed the Zacks Consensus Estimate of $5.354 billion.

Price realization had an impact of 3% in the quarter and favorable currency-translation impact was 1%. Region-wise, equipment net sales decreased 14% in the U.S. and Canada and 11% in the rest of the world. Total net sales (including financial services and others) were $6.5 billion, down 3% year over year.

Cost of sales in the quarter decreased 6% year over year to $4.38 billion. Gross profit in the quarter came in at $1.27 million, down 6% year over year. Selling, administrative and general expenses increased 4% to $747 million. Operating profit improved 2% year over year to $633 million.

Operating income from equipment operations increased 6% year over year to $354 million driven by price realization, partially offset by lower shipment volumes, an impairment charge for international construction and forestry operations as well as higher production costs.

Segment Performance

Agriculture & Turf segment’s sales declined 5% year over year to $4.44 billion. Revenues were impacted by lower shipment volumes and price realization, partly compensated by favorable effects of currency translation. However, operating profit at the segment went up 37% year over year to $371 million aided by price realization, lower production costs and lower selling, administrative and general expenses. These were negated by lower shipment volumes, unfavorable effects of foreign-currency exchange and a less favorable product mix.

Construction & Forestry sales went down 5% year over year to $1.21 billion, impacted by lower shipment volumes. The segment reported operating loss of $17 million compared with an operating profit of $64 million in the prior-year quarter. The significant decline was mainly due to higher sales-incentive expenses, an impairment charge for international operations and higher production costs.

Net revenues at Deere’s Financial Services division totaled $740 million in the reported quarter, a rise of 13% year over year. The segment’s operating profit was $164 million, compared with $226 million in the prior-year quarter. Net income at the segment was $109.8 million compared with $153 million in the year-ago quarter. This decline was due to less-favorable financing spreads, higher losses on lease residual values and a higher provision for credit losses.

DEERE & CO Price, Consensus and EPS Surprise

DEERE & CO Price, Consensus and EPS Surprise | DEERE & CO Quote

Fiscal 2016 Performance

Deere reported earnings per share of $4.81 in fiscal 2016, down 17% year over year but ahead of the Zacks Consensus Estimate of $4.26. Revenues dropped 9% year over year to $23.4 billion but beat the Zacks Consensus Estimate of $23.05 billion. Worldwide net sales in fiscal 2016 were $26.6 billion compared with $28.9 billion in fiscal 2015.

Financial Update

Deere reported cash and cash equivalents of $4.34 billion at the end of fiscal 2016 compared with $4.16 billion at the end of the prior fiscal. The company reported cash from operations of $3.76 billion for fiscal 2016 compared with cash usage of $3.74 billion in fiscal 2015. As of fiscal 2016-end, long-term borrowing totaled $23.8 billion, flat compared with the prior-year fiscal end.

Looking Ahead

Deere projects total equipment sales to decline 4% in first-quarter fiscal 2017 and 1% in fiscal 2017, both on a year-over-year basis. The projection includes a positive currency-translation effect of about 2% for the quarter and 1% for the full year. Deere estimates net sales to dip 1% in fiscal 2017, while net income is expected to be about $1.4 billion.

Segment-wise, Deere anticipates Agriculture and Turf equipment sales to decline 1% in fiscal 2017, including a favorable currency-translation impact of about 1%. Industry sales for agricultural equipment in the U.S. and Canada are expected to be down 5−10% in fiscal 2017 owing to low commodity prices and stagnant farm income that will continue to dent equipment sales.

In the EU28 region, sales will be down 5% due to low commodity prices and farm income. In South America, industry sales of tractors and combines are likely to rise 15% on the back of improving economic and political conditions in Brazil and Argentina. Sales in Asia are projected to be flat to up slightly, triggered by higher sales in India. Deere expects sales growth of turf and utility equipment in the U.S. and Canada to remain flat year over year.

The company foresees global sales for Construction & Forestry equipment to edge up 1%, including a favorable currency-translation effect of about 1%. The outlook for net income from Financial Services has been set at $480 million for fiscal 2017. Lower losses on lease residual values will be partially offset by less-favorable financing spreads and an increased provision for credit losses.

Zacks Rank

At present, Deere carries a Zacks Rank #2 (Buy). Some other similarly ranked stocks in the same sector include ACCO Brands Corporation ACCO, EnerSys ENS and John Bean Technologies Corporation JBT. ACCO Brands Corporation witnessed a 4% increase in earnings estimates in the last 30 days. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

EnerSys also sports a Zacks Rank #1 and its earnings estimates have also gone up 4% in the last 30 days while John Bean Technologies, another Zacks Rank #1 stock, has seen earnings estimates move north by 2%.

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