Construction & Forestry segment

In the fiscal third quarter, Deere’s (DE) Construction & Forestry segment reported revenue of $3 billion, a 100% rise compared to fiscal Q3 2017 when it reported revenue of $1.5 billion. The quarter saw the segment’s highest second-quarter revenue.

Deere’s Construction & Forestry Segment Revenue Doubled in Q3

The segment’s revenue growth was mainly driven by the company’s acquisition of Wirtgen Group, which was completed in December. Wirtgen contributed 77% to the segment’s growth. Higher shipping volumes also drove the segment’s revenue. However, the segment didn’t have any foreign currency influence during the quarter.

The segment reported an operating profit of $281 million in the fiscal third quarter, a rise of 153.1% from the corresponding quarter of the previous year when it reported an operating profit of $111 million. Wirtgen Group’s contribution, higher shipments, and lower warranty expenses helped the segment’s operating profit grow. However, higher raw material costs and sales expense had an adverse impact on its operating profit. As a result, the segment reported an operating margin of 9.4% compared to 7.4% in the previous year, a gain of 200 basis points year-over-year.

Outlook

Wirtgen Group will continue to have a positive impact on the Construction & Forestry segment with a ~ 55% contribution. Apart from that, strong growth in the housing and oil and gas sectors in the United States is expected to drive growth. Economic growth around the world is also expected to push up revenues.

Investors looking to hold Deere indirectly may want to opt for the First Trust Indxx Global Agriculture ETF (FTAG), which has invested 9.7% of its portfolio in Deere. The fund’s other holdings include DowDuPont (DWDP), Bunge (BG), and CF Industries Holdings (CF), with weights of 10.7%, 2.1%, and 2.7%, respectively, as of August 20.

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