DE’s Construction and Forestry Segment Reports Expanded Q2 Margin

Construction and Forestry segment

In the second quarter of fiscal 2019, Deere’s (DE) Construction and Forestry segment reported revenue of $2.99 billion, an increase of 10.9% compared to the second quarter of fiscal 2018, when it reported revenue of $2.70 billion. The segment posted its highest second-quarter revenue in the second quarter of fiscal 2019.

DE’s Construction and Forestry Segment Reports Expanded Q2 Margin

The segment’s revenue growth was mainly driven by a two-month contribution from the Wirtgen acquisition. Higher shipping volumes and higher price realizations also helped grow the segment’s revenue. However, the segment was negatively affected by an unfavorable foreign currency exchange.

The segment reported an operating profit of $347 million in the second quarter, an increase of 34.0% from the second quarter of fiscal 2018, when it reported an operating profit of $259 million. Wirtgen Group’s contribution, higher shipments, and higher price realizations helped the segment’s operating profit to grow. On the other hand, higher raw materials costs and an unfavorable product mix had negative effects on the company’s operating profit.

As a result of its higher operating profit, the segment reported an operating margin of 11.6% compared to 9.6% in the previous year, reflecting a margin expansion of 200 basis points year-over-year.

Outlook

Deere expects the segment’s revenue to rise 11% in fiscal 2019 compared to its earlier guidance of 13%. This downward revision is primarily the result of an unfavorable foreign currency exchange.

Investors looking to hold Deere indirectly might want to consider the First Trust Indxx Global Agriculture ETF (FTAG), which holds 9.1% of its portfolio in Deere. The fund’s other holdings include DowDuPont (DWDP), CNH Industrial (CNHI), and CF Industries Holdings (CF) with weights of 6.1%, 3.2%, and 2.4%, respectively, as of May 17.