DE’s Second-Quarter Revenue Rise Marginally Misses Expectations

Deere’s fiscal second-quarter revenue

In the fiscal second quarter, Deere & Company (DE) reported total revenue of $10.7 billion inclusive of financial services and other revenue, implying a 29.3% rise over the same quarter of the previous year, during which it reported revenue of $8.3 billion.

Deere’s revenue from equipment operations came to $9.8 billion in the quarter compared to $7.3 billion in the corresponding quarter of the previous year—a rise of 34.3% YoY (year-over-year).

DE’s Second-Quarter Revenue Rise Marginally Misses Expectations

Deere’s equipment business growth was primarily driven by its acquisition of Wirtgen Group. Note that Deere completed its acquisition of Wirtgen Group in December 2017. Wirtgen Group added 12% to Deere’s revenue. Higher shipments also pushed its revenue. Finally, DE’s hedging strategy resulted in favorable foreign currency exchange and increased its sales by 3%. Both DE’s reporting segments witnessed double-digit growth. We’ll discuss the segments’ performances in detail in the upcoming articles.

Geographically, sales in America and Canada rose 27%, while sales outside the United States and Canada rose 45%.

Samuel R. Allen, chair and CEO of Deere, said, “John Deere reported another quarter of strong performance helped by a broad-based improvement in market conditions throughout the world and favorable customer response to our lineup of innovative products. Farm machinery sales in both North and South America are making solid gains and construction equipment sales are continuing to move sharply higher.”

He continued, “During the quarter, Deere made significant progress working with its suppliers to ramp up production and ensure that products reach customers in a timely manner. At the same time, we are experiencing higher raw-material and freight costs, which are being addressed through a continued focus on structural cost reduction and future pricing actions.”

Outlook

The expectation of pricing actions and the positive outlook for the economy is a positive for Deere. As a result, Deere expects growth of 30% in equipment sales in fiscal 2018 and growth of 35% in the fiscal third quarter. This projected growth is expected to be supported by the contributions from the Wirtgen Group acquisition. The dollar has also shown signs of stabilization and could limit the headwinds from the favorable foreign currency hedge.

Investors can indirectly hold Deere by investing in the VanEck Vectors Agribusiness ETF (MOO), which has invested 6.2% of its portfolio in Deere. The fund also provides exposure to Monsanto (MON), Tractor Supply Company (TSCO), and AGCO (AGCO) at weights of 8.2%, 2.2%, and 1.2%, respectively, as of May 18.