Deere’s (DE) third quarter earnings report on August 19 confirmed what the company forecast in its second quarter report: forget about 2009.
In the quarter earnings per share fell by 25% to 99 cents from $1.32 in the third quarter of 2008. Revenue dropped 24% to $5.89 billion.
The drop in quarterly sales—the second consecutive year-to-year drop in quarterly numbers—came as the global recession continued to reduce demand for construction, forestry, and home lawn equipment.
The next quarter isn’t going to be any better either, the company said. Deere forecast that fourth–quarter sales will tumble 34% from the fourth quarter of 2008.
Now the question is When do things start to look better? Â
The company’s forecast of a 21% drop in sales for all of 2009 is down slightly from its May 20 estimate of a 19% drop in 2009 results.
Farm equipment sales have held up reasonably well in the United States thanks to big harvests of corn, forecast by the U.S. Department of Agriculture to increase by 5.5% from 2008 levels, and soybeans, forecast up 8.1%.
But investors shouldn’t expect an increase in sales in this sector unless commodity prices pick up. Deere’s sales of farm equipment closely track farm incomes and in this quarter’s conference call Deere lowered its 2009 and 2010 forecasts for U.S. farm cash income. In 2009 cash income is expected now expected to be about $5.5 billion less—or about 1.7% lower—than Deere’s earlier forecast. The company also reduced its 2010 forecast for farm cash income to $309.3 billion from the earlier $315.9 billion.
The forecasts are based on a projected decline in corn prices in 2009-2010 to $3.40 a bushel from an earlier estimate of $3.80.
But the key to 2010 is stabilization in the lawn and garden, and construction and forestry segments. Â Construction and forestry sales fell 47 percent to $632 million in the quarter.
I still think those markets will show much more modest declines in 2010 and could even register year-to-year increases in the second half on very weak comparisons to the year earlier quarters.
As of August 25 I’m leaving my target price at $56 but stretching out the schedule to July 2010 from June.
(Full disclosure: I own shares of Deere in my personal portfolio.)
Mr. Jubak,
I’ve been reading the Jubak Picks 50 as a list of ways to exploit the global, long-term trends which you discuss in your book. Would it be possible, when publishing updates, to also discuss the way in which the trends are developing in relation to that stock? For example, in updating MON or POT, could you discuss something like whether the recent flight back to the farm in China and the recent increase in the doubts we’ve always had about the Chinese numbers affect the long-term trend towards more expensive food?
Thanks again.
C.
When I update a stock that’s already in the portfolio, the recommendation is at least a hold. (Otherwise instead of an update, I would have published a sell.) You can create your own buy recommendations by looking at the difference between my target and the current price. It’s a buy the return projected by that price is attractive to you versus all the other buying opportunities you see in the market.
Jim,
It will be nice to have your buy/hold/sell recomendation when you provide an update on a stock. Thanks
Is it time to buy more DE the man asks.
I have been reading charts… for about 7 months, just long enough to make me dangerous.
DE on the daily chart:
Volume is flat last two days.
Today’s candle shows positive sentiment, though not hugely.
The 10 day, and 20 day are converging, tightly, with the 10 day just above the 20 day looking like it will cross under.
xxxxxx
IWM shows us that any momentum upward will be slight from the SnP 500 index.
For what it’s worth, the stochastics on DE and IWM are both at the top of the daily, and weekly, showing buying momentun has slowed dramatically.
My bet on DE ( deer ) is a fall in the next few days to somewhere between 45.00 and 44.70 per share. Support being the top of the Aug 18 candle, and next support the convergence of the 10 day, and the 20 day moveing averages.
So my bet, DE will fall from 46, to around 45.
If it drops below 44.75, then next support is 42.50, then 41.60 .
I am just a student of TA so don’t take my word on this.
The economy seems to be getting better, more jobs, housing prices are up. these are fundamental numbers, not just equities. Is it time to start buying some more?