Deere & Company, doing business as John Deere, is an American corporation that manufactures agricultural machinery, heavy equipment, forestry machinery, diesel engines, drivetrains (axles, transmissions, gearboxes) used in heavy equipment, and lawn care equipment. It also provides financial services and other related activities.
Deere & Co. (DE), a current holding within the value component of the US Growth portfolio, has announced its latest earnings for Q4 2023, with shares falling -5.20% on the back of the company announcing weaker guidance for the next fiscal year.
For the first fiscal quarter, Deere has reported an -11% fall in net income to $1.75 billion, with the figure exceeding analyst expectations of $1.49 billion. Earnings per share also topped forecasts of $5.248 at $6.230, however, decreased from the previous reading of $6.55. The company recorded net sales of $10.486 billion for the quarter, above estimates of $10.339 billion, but below the previously recorded $11.402 billion. Furthermore production & precision agriculture sales came in above forecasts of $4.62 billion at $4.85 billion, with an operating profit of $1.05 billion compared to estimates of $974.2 million.
However, weighing on the share price was lower guidance for the full year, with net income projected between $7.5 billion and $7.75 billion, while analysts had estimated a net income of $7.75 billion. This adjustment from the previously anticipated $7.75 billion to $8.25 billion underscores the impact of a weakening demand in Europe, among other factors. The company also revised its production & precision agriculture sales to decrease by 20%, compared to initial forecasts of -15% to -20%. The company also announced that it shipped fewer tractors globally as higher prices weighed down volume, with lower US farm income adding to the current headwinds in the agricultural industry. Given the current farmer protests in Europe, DE anticipate a 10% to 15% drop in sales in the region.
In an attempt to uplift consumer demand, Deere is counting on product advancements, such as crop sprayers that use artificial intelligence to identify weeds and fully autonomous tractors. The company announced a partnership with Elon Musk’s SpaceX to connect its farm equipment to the internet through Starlink satellites, allowing DE to generate recurring revenue through subscriptions even when equipment sales slow, with Deere CEO John May adding, “Customers are wanting higher levels of technology, and they want us to rapidly accelerate that in markets where they don’t have the infrastructure to support it.”
On the back of the news Deere shares were -5.23% weaker with the stock down 9% year to date, with this downturn reflecting broader concerns in the agriculture industry, where declining crop prices and agricultural incomes are dampening demand for tractors and other machinery. However, an increase in the global population and a heightened focus on food security may drive long-term equipment demand higher.
As a reminder, Deere’s inclusion in the US Growth portfolio is based on the value component of the portfolio with fundamentals such as profitability and valuation key in determining its selection. Its inclusion will depend on how the stock trades between now and the next rebalance date of March 1st, 2024.
