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What to Expect from Deere’s Adjusted Earnings

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Updated

Deere’s adjusted EPS expectations

Deere (DE) is expected to post an adjusted EPS of $2.75 for the third fiscal quarter—an increase of 44% on a YoY (year-over-year) basis. In the third fiscal quarter of 2017, Deere reported an adjusted EPS of $1.91. Deere didn’t meet analysts’ expectations in the previous quarter. Investors will have to wait and see if Deere beats analysts’ estimates in the third quarter.

Deere’s projected adjusted EPS could be driven by lower SG&A (selling, general, and administrative) expenses as a percentage of sales. Analysts have estimated Deere’s SG&A expenses to be $848.4 million in the third quarter, which represents 9.2% of the projected revenues. In the same quarter last year, the SG&A expenses were 11.6% of the revenues, which indicates an improvement of 240 basis points on a YoY basis.

In the previous quarter, Deere mentioned that it will increase the prices of several products to overcome the challenge of rising raw material and fuel costs. Analysts expect Deere’s cost of goods sold to be at $7.05 billion, which represents 76.6% of the projected revenues. In the third quarter of 2017, the cost of goods sold was 81.6%, which implies an improvement of 500 basis points YoY.

Share repurchase

At the end of the second fiscal quarter, Deere was left with $3.2 billion under its share repurchase program. In the previous quarter, Deere bought back 342,000 shares. Share buybacks don’t seem to be a top priority for Deere. However, the stock option issues could increase the outstanding shares. Deere’s outstanding shares at the end of the third fiscal quarter could be ~$328.53 million—compared to $325.1 million in the third quarter of 2017. Higher outstanding shares could have a negative impact on the adjusted EPS, but the impact would be negligible.

Investors can hold Deere indirectly by investing in the First Trust Indxx Global Agriculture ETF (FTAG), which has 9.4% of its portfolio in Deere. FTAG’s other holdings include DowDuPont (DWDP), CNH Industrial (CNHI), and FMC (FMC) with weights of 10.2%, 3.6%, and 2.7%, respectively, as of August 14.

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