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Can Deere’s Adjusted EPS Beat Wall Street Estimates This Time?

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Deere’s adjusted EPS expectations

Deere (DE) is expected to post adjusted EPS of $2.45 for the fourth quarter, an increase of 56% on a YoY basis. In the fourth quarter of fiscal 2017, Deere reported adjusted EPS of $1.57. In the past two quarters, Deere has failed to meet analysts’ expectations.

Deere’s projected adjusted EPS could be driven by lower SG&A (selling, general, and administrative) expenses as a percentage of equipment sales. Analysts have estimated Deere’s SG&A expenses to be at $877.5 million in the fourth quarter, which represents 10.2% of the projected equipment revenues. In the same quarter last year, SG&A expenses were 11.9% of the revenues, which indicates an improvement of 170 basis points on a YoY basis. Further, higher sales are also expected to help to improve DE’s adjusted EPS.

On the other hand, the continued increase in raw materials could increase Deere’s cost of goods sold as a percentage of sales. Analysts expect Deere’s cost of goods sold to be at $6.62 billion, which represents 77.3% of the projected equipment revenue. In the fourth quarter of 2017, the cost of goods sold was 76.5%, which implies an increase of 80 basis points YoY.

Share repurchases

So far in its fiscal 2018, Deere has spent little on share repurchases, indicating that it is not a top priority for Deere. It is expected that at the end of fiscal Q4 2018, DE’s outstanding shares could be at 325.15 million, which is almost the same as Q4 of 2017. Thus, share buybacks likely won’t be a major factor to influence Deere’s adjusted EPS.

Investors can hold Deere indirectly by investing in the First Trust Indxx Global Agriculture ETF (FTAG), which has 10.3% of its portfolio in Deere. FTAG’s other holdings include DowDuPont (DWDP), CNH Industrial (CNHI), and FMC (FMC) with weights of 8.9%, 3.1%, and 2.6%, respectively, as of November 19.

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