U.S. corn and soybean crops are on track to be so large for the 2013-2014 harvest year that farm income will climb 8.6% to $131 billion from the $121 billion forecast in August even though grain prices have declined, according to the U.S. Department of Agriculture. That new projection is a 15% increase from the 2012-2013 harvest year.
U.S. farmers are projected to produce a record 14 billion bushels of corn this harvest year and 3.6 billion bushels of soybeans. (That would be the third largest soybean harvest on record.) Corn prices on the Chicago Board of Trade are down 39% this year.
The higher than expected farm income is good news for companies that sell to farmers, which have been forecasting slower sales in 2014 on lower grain prices. Read more
It’s not frequently that investors hear a company beat earnings estimates by 47 cents a share and then see its shares fall, but that’s exactly what we’re seeing today with Deere (DE).
Today before the open the company reported earnings for the third quarter of fiscal 2013 of $2.64 (adjusted for one-time items). Wall Street had been expecting earnings of $2.17 a share. Operating margins rose to 15.5% for the quarter. That was a big improvement from the 12.6% operating margin in the fiscal second quarter and about 2 percentage points above what Wall Street expected.
And that may indeed be the root of the stock’s problem today. Although the company crushed earnings estimates, it didn’t do nearly as well on revenue. Net sales rose just 4.3% in the quarter year over year to $9.32, just a tad ahead of the Wall Street estimate at $9.28 billion. For the full 2013 fiscal year Deere kept to its guidance of a 5% increase in revenue but for the fourth quarter the company said it expects a 5% drop in revenue to $8.59 billion. That’s below Wall Street projections
Think about the implications of that. Read more
Deere’s (DE) first quarter fiscal 2013 earnings announced this morning before the market open in New York and the guidance for the rest of the year reminds me—in direction if not in degree–of the earnings Cummins (CMI) reported on February 6. Like Cummins, Deere announced a substantial 25 cents a share earnings surprise—15 cents for Deere if you back out lower than expected tax rates for the quarter. As at Cummins, sales growth didn’t keep up with the earnings surprise. Revenue climbed 11% year over year to $6.79 billion, just slightly ahead of the $6.74 billion Wall Street consensus.
And then, following the earnings announcement, Deere, like Cummins, lowered guidance for the next quarter. Not as drastically as Cummins, which talked of weakness in the first half, but Deere did guide down for the second quarter. The company lowered sales guidance for the next quarter to $9.78 billion from the Wall Street consensus of $9.83 billion. For the full 2013 fiscal year, Deere told analysts to expect 4% revenue growth to annual sales of $35.5 billion. The Wall Street consensus before the call was $35.3 billion. Deere also raised its forecast for 2013 net income to $3.3 billion from the consensus $3.2 billion.
The increase in full-year guidance is pretty much a reflection of the just announced first quarter surprise. Read more
If you’ve been looking for an opportunity to pick up shares of Deere (DE) on a dip, keep your eyes on Wednesday, November 21. The company is scheduled to report earnings for last quarter of its 2012 fiscal year (which ended on October 31) on that date.
The Wall Street consensus calls for earnings of $1.88 a share and revenue of $8.93 billion.
But there’s a decent possibility of negative news in the conference call. Last August, Deere warned that it was having problems manufacturing a new, more complex combine. Delays in delivering machines had reached 14 days, the company said, and some customers had begun to cancel orders. At the time Deere said that it believed it could make up for lost production in the fourth quarter that ended in October.
Are the problems fixed? Did Deere make up for lost production? Did the company’s inventory continue to swell in the fourth quarter?
Investors will want to know.
At a November 19 close of $86.35, Deere is trading near its November 1 high of $86.87. That’s a long way from the stock’s $70.59 low on June 4.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Deere as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
Short-term bad news from Deere’s (DE) report yesterday of earnings for its fiscal third quarter.
Mid-term bad news from Deere’s forecast today of earnings for the fiscal year that ends on October 31.
For the quarter Deere reported earnings of $1.98 a share. That was well below the $2.32 consensus estimate from Wall Street analysts. The miss was the first in 11 quarters, according to Bloomberg. (Deere is a member of my Jubak Picks 50 long-term http://jubakpicks.com/jubak-picks-50/ )
Equipment sales rose 16% year over year, but that trailed Deere’s May forecast of a 25% increase. Revenue of $8.93 billion fell well short of forecasts for $9.53 billion.
Problems came on two fronts. First, sales in international markets—especially China, India and Argentina–came in well short of expectations. Second, delays in new products—in particular on manufacturing and delivery of a new combine—cost Deere sales in all markets and lowered margins. Operating margins for the agricultural unit came in at 14% for the quarter, short of the 15% forecast. In the construction unit margins of 6.8% missed the company’s forecast of 8%.
In the conference call Deere said about 50% of the problem was softer than expected demand and about 50% internal execution on manufacturing and delivery.
For the fiscal year—which essentially means the company’s next quarter since the fiscal year ends in October—Deere said revenue would grow by 13% year over year to $8.93 billion versus the $8.98 expected by Wall Street analysts. For the full year, the company said net income will be $3.1 billion versus analyst estimates of $3.3 billion.
The company maintained a positive forecast for fiscal 2013, saying that it expects to fix its manufacturing and supply-chain problems in short order—These are the kind of problems Deere knows how to fix, said CEO Sam Allen—and the global droughts that have caused slowdowns in farm equipment sales this year will yield to higher sale of farm equipment in 2013 as farmers try to expand production to make up for this year’s bad harvests.
I’d say that Deere faces one or two more tough quarters as the current droughts play out in lower harvests and lower equipment sales. I’d be looking to buy at a low sometime during those quarters for the forecast recovery in 2013.
We’ll get more detail on the extent of the drought in the United States and the effects on farm production when the U.S. Department of Agriculture updates its crop forecasts on August 28.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Deere as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/