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Deere Missed Fiscal Q3 2018 Earnings, but Stock Moved Up

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Deere’s fiscal Q3 2018 earnings

Deere & Company (DE) announced its fiscal third-quarter earnings before the market opened on August 17. Its reported adjusted EPS was $2.59, an increase of 31.5% YoY (year-over-year).

However, it has failed to beat analysts’ consensus EPS estimate for two consecutive quarters. Analysts expected Deere to post adjusted EPS of $2.75. It excluded a gain of $0.19 per share due to tax reforms.

The growth in Deere’s adjusted EPS was primarily driven by increased revenue, higher shipments, lower warranty expenses, and a reduction in SG&A (selling, general, and administrative) expenses as a percentage of its equipment sales. Its SG&A expenses were $912.7 million, representing 9.8% of its equipment revenue. That compares to 11.7% in the third quarter of the previous fiscal year, implying a reduction of 190 basis points YoY.

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However, rising raw material and freight costs increased DE’s COGS (cost of goods sold) as a percentage of equipment sales. Its COGS in the second quarter represented 77% of its equipment operations revenue, and its COGS in the corresponding quarter of the previous year represented 76.8% of its equipment operations revenue. The change represented an increase of 20 basis points YoY.

Stock price reaction

On the day the earnings were announced, DE stock rose 2.35% and closed at $140.59. Although the stock failed to meet Wall Street’s expectations, its adjusted EPS has shown significant growth and a record third quarter. As a result, investors cheered DE’s fiscal Q3 2018 earnings. That same day, peers Caterpillar (CAT), AGCO (AGCO), and CNH Industrial (CNHI) rose 2.3%, 3%, and 3.4%, respectively.

Investors can indirectly hold Deere by investing in the iShares MSCI Global Agriculture Producers ETF (VEGI), which has invested 13.2% of its portfolio in Deere as of August 20.

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

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