Deere’s Construction and Forestry Segment Was Strong

Construction and Forestry segment

In the fourth quarter, Deere’s (DE) Construction and Forestry segment reported revenues of $2.74 billion—an increase of 65.2% compared to the fourth quarter of 2017 when it reported revenues of $1.66 billion. In the fourth quarter, the segment posted its highest fourth-quarter revenues.

Deere’s Construction and Forestry Segment Was Strong

The segment’s revenue growth was mainly driven by Deere’s acquisition of Wirtgen Group, which was completed in December 2017. Wirtgen Group contributed 45% to the segment’s revenue growth. Higher shipping volumes also drove the segment’s revenues. However, the segment was impacted negatively by unfavorable foreign currency.

The segment reported an operating profit of $295 million in the fourth quarter—an increase of 243.0% from the fourth quarter of 2017 when it reported an operating profit of $86 million. Wirtgen Group’s contribution, higher shipments, and lower warranty expenses helped the segment’s operating profit growth. Higher raw material costs increased production and had a negative impact on the operating profit.

Riding on the Wirtgen Group’s contribution, the segment reported an operating margin of 10.8% compared to 5.2% in the previous year, which was a gain of 560 basis points year-over-year.

Outlook

The segment’s revenues are expected to grow 15% for fiscal 2019 due to Wirtgen Group’s fiscal sales. For fiscal 2018, Wirtgen Group contributed for ten months since it was acquired in December 2017. The continued growth in US housing demand will likely be one of the key factors for the segment’s revenue growth.

Investors looking to hold Deere indirectly might want to consider the First Trust Indxx Global Agriculture ETF (FTAG), which has invested 9.8% of its portfolio in Deere. The fund’s other holdings include DowDuPont (DWDP), Bunge (BG), and CF Industries Holdings (CF) with weights of 8.7%, 2.0%, and 2.5%, respectively, as of November 21.