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DE’s Agriculture & Turf Revenue Reverses the Trend in Fiscal 1Q18

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Deere’s Agriculture & Turf segment

Deere & Company’s (DE) Agriculture & Turf segment is its largest revenue generator. It reported revenue of $4.2 billion in fiscal 1Q18, a 17.8% rise compared to fiscal 1Q17, when it reported revenue of $3.6 billion.

In the past four years, this is the first time that the segment’s first-quarter revenue has shown growth—a welcome sign for Deere. The segment’s revenue growth was primarily driven by higher shipment volumes. Favorable currency exchange resulting from the continued weakness in the US dollar has also pushed the segment’s revenue.

In 1Q18, the Agriculture & Turf segment’s operating profit was reported to be $387 million compared to $218 million in 1Q17, a rise of 77.5% on a YoY (year-over-year) basis. The growth in DE’s operating profit was driven by higher shipment volumes and lower warranty costs.

However, the segment’s cost of production had an adverse impact on its profit. As a result, the segment’s operating margin was reported to be 9.1% compared to 6.0% in fiscal 1Q17, an expansion of 310 basis points YoY.

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Outlook

For fiscal 2018, the segment’s revenue is projected to rise 15%. Its projected growth is expected to be led by higher demand for large equipment in the United States and Canada. The increase in dairy and livestock demand in the European Union is expected to push the region’s growth by 5%. South America and Asia are expected to remain flat.

Investors can gain indirect exposure to Deere by opting for the VanEck Vectors Natural Resources ETF (HAP), which has invested 7.2% of its portfolio in Deere. The fund also provides exposure to Monsanto (MON), ExxonMobil (XOM), and CNH Industrial (CNHI) with weights of 7.1%, 3.6%, and 1.9%, respectively, as of February 20, 2018.

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