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Performance of Deere’s Construction & Forestry Segment in 3Q17

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Construction & Forestry segment

In fiscal 3Q17, Deere’s (DE) Construction & Forestry segment reported revenue of $1.5 billion, a 29.0% rise on a year-over-year basis. In fiscal 3Q16, the segment reported revenue of $1.2 billion. The segment’s revenue growth was driven by higher volumes.

The Construction & Forestry segment reported an operating profit of $110.0 million in 3Q17, a 103.7% rise on a year-over-year basis. In fiscal 3Q16, the segment reported operating profits of $54.0 million. Its 3Q17 margin stood at 7.3% compared to 4.7% in 3Q16, implying an increase of 265 basis points on a year-over-year basis. The segment’s growth in operating profit and profit margin was driven by higher volumes but was limited due to higher SG&A (selling, general, and administrative) expenses, higher sales incentives, and increased production costs.

Outlook

DE expects the Construction & Forestry segment to continue its robust growth and rise 15.0% in fiscal 2017. The segment will be driven by the worldwide economic growth rate led by construction investments, which are expected to rise 3.0% in the United States. However, government construction investments might slow down and are expected to fall 1.5% for fiscal 2017.

Financial Services segment

Deere’s Financial Services segment reported operating income of $131.2 million in fiscal 3Q17 compared to $125.9 million in 3Q16, implying a 4.2% rise on a year-over-year basis. Deere continued to maintain the operating income from this segment at $475.0 million for fiscal 2017. Now Deere expects the credit loss from the segment to be 27 basis points for fiscal 2017 against the earlier guidance of 28 basis points.

Investors looking to hold Deere indirectly can invest in the First Trust Indxx Global Agriculture ETF (FTAG), which has invested 6.4% of its portfolio in Deere. The other holdings of the fund include Dow Chemical (DOW), DuPont (DD), and Monsanto (MON) with weights of 10.3%, 10.2%, and 9.0%, respectively, as of August 18, 2017.

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