Analyzing Deere’s Construction and Forestry Segment in 2Q17
Revenue in fiscal 2Q17
Deere’s Construction and Forestry segment reported revenue of $1.46 billion in fiscal 2Q17—an increase of 7.4% compared to $1.36 billion in fiscal 2Q16. The segment’s revenue rose primarily due to higher volumes and higher prices.
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The Construction and Forestry segment reported an operating profit of $108 million in fiscal 2Q17—an increase of 45.9% YoY (year-over-year) compared to $74 million in fiscal 2Q16. The increase in the segment’s operating income was primarily due to higher volumes and higher prices. The segment’s profit margin for 2Q17 stood at 7.3% compared to 5.4% in fiscal 2Q16—an increase of 190 basis points on a YoY basis.
Deere expects the Construction and Forestry segment’s revenue to grow 13% in fiscal 2017—compared to earlier guidance of 7%. The revised guidance is primarily due to the expected improvement in US economic indicators. Analysts estimate that US GDP will grow 2.3% for fiscal 2017, which could spur stronger housing demand. President Trump’s big plans to invest in infrastructure development would be positive for the segment.
Deere’s financial services
Deere’s financial services reported net income of $160 million in fiscal 2Q17 and remained flat on a YoY basis. Deere expects financial services’ net income for fiscal 2017 to be at $475—compared to earlier guidance of $480 million. The decline was primarily driven by lower financing spreads and an increase in the provision for credit losses. However, Deere expects the provision for credit losses to be at 28 basis points in fiscal 2017—compared to earlier guidance of 29 basis points.
Investors can invest in the Vanguard Industrials ETF (VIS), which has invested 1.3% of its portfolio in Deere. The fund’s top holdings include General Electric (GE), 3M (MMM), and Boeing (BA) with weights of 9.4%, 4.5%, and 4.1%, respectively, as of May 22, 2017.
In the next part, we’ll discuss analysts’ latest recommendations for Deere after its fiscal 2Q17 earnings release.