Deere’s adjusted EPS expectations
Deere (DE) is expected to post an adjusted EPS of $1.76 for the first quarter of fiscal 2019—an increase of 34.3% on a YoY basis. In the first quarter of fiscal 2018, Deere reported an adjusted EPS of $1.31. In the past three quarters, Deere hasn’t met analysts’ expectations. We’ll have to see if Deere starts fiscal 2019 by beating analysts’ estimates.
Deere’s projected adjusted EPS could be driven by lower SG&A (selling, general, and administrative) expenses as a percentage of equipment sales. Analysts expect Deere’s SG&A expenses to be $687.8 million in the first quarter, which represents 10.1% of the projected equipment revenues. In the same quarter last year, the SG&A expenses were 11.8% of the revenues, which indicates an improvement of 170 basis points on a YoY basis. Higher sales are also expected to help to improve Deere’s adjusted EPS. The company’s strategy to increase the product price to overcome higher raw material prices will likely improve Deere’s cost of goods sold as a percentage of sales. Analysts expect Deere’s cost of goods sold to be $5.33 billion, which represents 78.2% of the projected equipment revenues. In the fourth quarter, the cost of goods sold was 78.8%, which implies a decrease of 60 basis points YoY.
In fiscal 2018, Deere didn’t spend much on share repurchases, which indicates that share repurchases aren’t a top priority. At the end of the first quarter, Deere’s outstanding shares could be at 322.3 million—marginally lower by 0.5 million compared to the first quarter of 2018. Share buybacks probably won’t be a major factor influencing Deere’s adjusted EPS.
Investors could hold Deere indirectly by investing in the First Trust Indxx Global Agriculture ETF (FTAG), which has 10.7% of its portfolio in Deere. FTAG’s other holdings include DowDuPont (DWDP), CNH Industrial (CNHI), and FMC (FMC) with weights of 9.6%, 3.4%, and 2.7%, respectively, as of February 13.