Deere’s Agriculture and Turf Segment Grew in 2Q17
Agriculture and Turf segment
Deere’s (DE) Agriculture and Turf segment reported revenue of $5.79 billion in fiscal 2Q17—an increase of 0.9% compared to $5.74 billion in fiscal 2Q16. The segment’s sales rose primarily due to higher price realization, sales mix, and foreign currency exchange.
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The Agriculture and Turf segment reported an operating profit of $1 billion in fiscal 2Q17—an increase of 63.3% YoY (year-over-year) compared to $614 million in fiscal 2Q16. The increase in the segment’s operating profit was primarily due to a gain on the sale of partial interest in SiteOne Landscape Supply (SITE) and higher prices. The segment’s operating profit margin stood at 17.3% in 2Q17, while the operating profit margin in 2Q16 was 10.7%—an increase of 660 basis points on a YoY basis.
Deere expects the segment’s revenue to grow 8% for fiscal 2017—compared to earlier guidance of 3%. The Agriculture and Turf segment’s revenue trend is mainly driven by farm cash receipts. With lower commodity prices, farm cash receipts in the US and Canada are expected to remain flat in fiscal 2017—compared to the previous year. As a result, Deere expects its agriculture equipment sales to be lower—it expects sales to fall 5% in the US and Canada. Europe is expected to follow a similar trend.
On the other hand, improving economic and political conditions in Brazil and Argentina are expected to push the company’s revenue to 20%—compared to earlier guidance of 15%–20%.
Investors can indirectly hold Deere by investing in the Industrial Select Sector SPDR Fund ETF (XLI), which has invested 1.9% of its portfolio in Deere. The fund’s top holdings include General Electric (GE), 3M (MMM), and Boeing (BA) with weights of 8.5%, 5.6%, and 5.1%, respectively, as of May 22, 2017.
In the next part, we’ll look at how Deere’s Construction and Forestry segment performed in fiscal 2Q17.