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Deere’s Fiscal 1Q18 Revenue Rises but Falls Short of Estimates

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Deere’s fiscal 1Q18 revenue

In fiscal 1Q18, Deere & Company (DE) reported total revenue of $6.9 billion inclusive of financial services and other revenue, implying a 23.0% rise over 1Q17, in which it reported revenue of $5.6 billion.

Deere’s revenue from equipment operations was $6.0 billion in the quarter compared to $4.7 billion in the previous year—a rise of 27% on a year-over-year basis.

Deere’s revenue growth was primarily driven by higher growth in the United States and Canada, which saw combined sales growth of 24%. Sales outside the United States and Canada grew by a whopping 33%. The other major contribution came from the company’s acquisition of Wirtgen Group. The acquisition was completed in December 2017 and helped to increase Deere’s revenue by 5%.

Deere’s revenue also received a boost from the continued weakness in the US dollar. Favorable currency translations increased DE’s revenue by 3%. On the other hand, supply chain and logistical constraints had an adverse impact on DE’s revenue.

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Samuel R. Allen, chair and CEO of Deere, said, “Deere has continued to experience strong increases in demand for its products as conditions in key markets show further improvement. Sales gains for the quarter, however, were moderated by bottlenecks in the supply chain and logistical delays in shipping products to our dealers. In line with strengthening conditions, we have raised our sales and adjusted-earnings forecasts for 2018 and have confidence we will be able to fulfill the needs of our customers over the course of the year.”

Outlook

Deere expects strong demand to continue driving volumes up. As a result, it projects growth of 29% in equipment sales for fiscal 2018 and growth of 30%–40% in fiscal 2Q18. The projected growth will be supported by the contribution from the Wirtgen Group acquisition and a favorable currency hedge.

Investors can indirectly hold Deere by investing in the Agribusiness ETF (MOO), which has invested 8.8% of its portfolio in Deere. The fund also provides exposure to Monsanto (MON), CNH Industrial (CNHI), and FMC (FMC) with weights of 8.0%, 3.8%, and 2.6%, respectively, as of February 20, 2018.

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