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Deere Stock Is on Fire after Strong Guidance, Missed Estimates

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Deere’s fiscal second-quarter earnings

Deere & Company (DE) announced its fiscal second-quarter earnings before the market opened on May 18. DE reported adjusted EPS (earnings per share) of $3.14, a 26.1% rise YoY (year-over-year).

However, DE failed to beat analysts’ consensus EPS estimate of $3.31. Its adjusted EPS excluded a favorable net adjustment of provisional income tax worth $174 million. On a reporting basis, DE reported EPS of $3.67.

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The growth in Deere’s adjusted EPS was primarily driven by increased revenue, higher shipments, and a reduction in its SG&A (selling, general, and administrative) expenses as a percentage of its equipment sales. DE reported fiscal second-quarter SG&A expenses of $939.2 million, representing 9.6% of its equipment revenue compared to 11.8% in the second quarter of the previous fiscal year, implying a reduction of 120 basis points YoY.

On the other hand, DE mulled about the increase in material and freight costs, which was reflected in its increase in its cost of goods sold (or COGS) as a percentage of its equipment operations revenue. Its COGS in the second quarter represented 75.3% of its equipment operations revenue, while its COGS in the corresponding quarter of the previous year represented 74.8% of its equipment operations revenue. This change represented an increase of 50 basis points YoY.

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Stock price reaction

DE said that it would be increasing the prices of its products to cover material and freight costs and that it would be upwardly revising its earnings for fiscal 2018. Following this announcement, its stock saw a boost and closed at $155.25, a rise of 5.8%. On the same day, peers Caterpillar (CAT), AGCO (AGCO), and CNH Industrial (CNHI) rose 1.3%, 1.2%, and 3.4%, respectively.

Earnings outlook

DE has made an upward revision to its adjusted net income to $3.1 billion compared to its earlier guidance of $2.85 billion for fiscal 2018.

Investors can indirectly hold Deere by investing in the iShares MSCI Global Agriculture Producers ETF (VEGI), which has invested 10.7% of its portfolio in Deere as of May 18.

In this series, we’ll take a look at Deere’s fiscal second-quarter earnings in detail along with its segment-by-segment revenue.

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