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How Did Deere’s Agriculture and Turf Segment Perform in Q2?

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May. 21 2019, Published 9:27 a.m. ET

Agriculture and Turf Equipment segment

Deere’s (DE) Agriculture and Turf Equipment segment forms the largest portion of its revenue. The segment reported revenue of $7.28 billion in the second quarter of fiscal 2019, a 3.3% rise compared to the second quarter of fiscal 2018, when it reported revenue of $7.05 billion. The segment’s second-quarter revenue indicates the prevailing upward trend in the segment.

The segment’s revenue growth was mainly driven by higher shipment volumes and higher price realizations. However, the strong US dollar had a negative impact on the segment’s revenue.

In the second quarter, the segment reported an operating profit of $1.02 billion compared to $1.06 billion in the second quarter of 2018, signifying a decline in the company’s operating profit by 3.5% YoY (year-over-year).

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The decline in Deere’s operating profit was driven by an increase in its cost of production due to higher raw materials prices. More research and development and an unfavorable foreign currency exchange also dented the segment’s operating profit. However, higher shipment volumes and higher price realizations partially covered the increased costs. As a result, the segment’s operating profit margin contracted to 14% in the quarter compared to 15% in the second quarter of fiscal 2018, a contraction of 100 basis points YoY.

Outlook

For fiscal 2019, the Agriculture and Turf Equipment segment’s revenue is expected to rise 2%. On a geographical basis, the United States and Canada are expected to grow 5%, and the 28 members of the European Union are expected to be flat. South America is likely to grow 5%, and Asia is expected to remain flat. An unfavorable foreign currency exchange could have a negative impact on the segment to the extent of 3%.

Investors can gain indirect exposure to Deere by opting for the VanEck Vectors Natural Resources ETF (HAP), which has invested 7.4% of its portfolio in Deere. The fund also provides exposure to ExxonMobil (XOM), the Mosaic Company (MOS), and CF Industries Holdings (CF) with weights of 3.1%, 1.3%, and 1.6%, respectively, as of May 17.

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