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How Deere’s Agriculture & Turf Segment Performed in Fiscal 3Q17

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Agriculture & Turf segment

Deere’s (DE) Agriculture & Turf segment is the company’s largest revenue generator. It reported revenue of $5.3 billion in 3Q17, a 13.6% rise on a year-over-year basis. In fiscal 3Q16, the segment reported revenue of $4.7 billion. This is the first time in five years that the segment’s third-quarter revenue has shown growth, stopping the declining trend. The segment’s revenue grew primarily on higher volumes and price increases.

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In 3Q17, the Agriculture & Turf segment reported operating profits of $685.0 million, a rise of 20.0% on a year-over-year basis. In fiscal 3Q16, the segment’s operating profit stood at $571.0 million. In terms of margins, its 3Q17 margin stood at 12.8% compared to 12.1% in fiscal 3Q16, implying an increase of 70 basis points on a year-over-year basis. The increases in the segment’s profit and margin are driven by higher volumes, price increases, and gains from the sale of its remaining interest in SiteOne Landscape Supply (SITE). However, higher SG&A (selling, general, and administrative) expenses and increased production and warranty costs acted as a drag.

Outlook

With the US net cash farm income below the ten-year average for the second consecutive year, the United States and Canada regions are expected to decline approximately 5.0% for 2017. A similar story is emerging across Europe. The brightest spot for DE will continue to be South America. The region is expected to grow 20.0% from the optimistic political stability in Brazil and Argentina.

Investors looking to hold Deere indirectly can invest in the VanEck Vectors Agribusiness ETF (MOO), which has invested 7.8% of its portfolio in Deere. The other holdings of the fund include Monsanto (MON) and FMC (FMC) with weights of 7.8% and 2.8%, respectively, as of August 18, 2017.

In the next part of this series, we’ll look at the performance of Deere’s Construction & Forestry segment in fiscal 3Q17.

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