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Investors Gush about Deere's Massive Earnings Surprise

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Investors Gush about Deere's Massive Earnings Surprise PART 1 OF 7

How Did Deere Perform in 3Q16?

Deere’s 3Q16 earnings

Deere & Company (DE), the world’s largest manufacturer of tractors (DBA) and harvesting (MOO) combines, released its fiscal 3Q16 earnings before markets opened on August 19, 2016. The 3Q16 earnings release is a snapshot of the company’s operating performance in the three-month period between May and July. Deere’s earnings release resulted in a massive 13.5% rise to close at $87.32 on August 19.

Deere reported adjusted earnings per share (or EPS) of $1.55, which crushed consensus Wall Street estimates by 61 cents. The 3Q16 adjusted EPS was 1.3% higher compared to the figures in 3Q15. The company lowered material costs and cut selling, general, and administrative expenses by ~10% to expand its operating margins. Adjusted EPS was also aided by the 4.2% year-over-year decline in share count. Operating margin performance is discussed in detail in part three of this series. In the past month, we have also discussed the earnings results of some of Deere’s competitors such as AGCO (AGCO) and Caterpillar (CAT).

How Did Deere Perform in 3Q16?

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Management commentary

On Deere’s first quarter earnings, Deere’s management said, “John Deere’s first-quarter results reflected the continuing impact of the downturn in the global farm economy as well as weakness in construction equipment markets,” said Samuel R. Allen, chair and chief executive officer. He further added, “At the same time, all of Deere’s businesses remained solidly profitable, benefiting from the sound execution of our business plans and the success of actions to develop a more responsive cost structure.”

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