Deere & Company’s stock saw an early rise after the company reported better-than-expected earnings for its fiscal third quarter. Deere announced earnings per share (EPS) of $6.29 from equipment sales of $11.4 billion, surpassing Wall Street’s expectations of $5.68 EPS from $10.9 billion in sales. Despite these positive results, Deere’s earnings and sales have declined compared to the previous year, where EPS was $10.20 from $14.3 billion in sales.
This earnings beat led to a 5% increase in Deere’s stock price in premarket trading. However, the broader agricultural market remains challenging. Lower crop prices, driven by higher inventories, have reduced farmers’ incomes, limiting their ability to purchase new equipment. As a result, farm equipment demand has weakened, and inventories at U.S. dealers have risen, indicating a mismatch between production and sales. This surplus has led to discounted prices and increased reliance on auctions to clear excess stock, further complicating the market dynamics for new equipment sales.
Analysts expect a continued decline in farm equipment demand, potentially leading to production cuts at Deere and other manufacturers. Deere’s operating profit margin is projected to slightly decrease to around 19% for fiscal year 2024.
The agricultural sector’s struggles have already impacted Deere’s peers, such as AGCO and CNH Industrial, both of which have lowered their financial guidance and seen stock price declines this year. Despite the positive earnings report, Deere’s stock is still down about 12% for the year, underperforming the broader market.
Investors will closely watch Deere’s conference call for any announcements about production cuts and their potential impact on profit margins, as the agricultural market’s weakness could continue to pressure the company’s stock. The company stated that “global ag fundamentals are expected to remain weak as construction moderates,” and it noted the “employee-separation plans that it put in place in the third quarter for salaried employees which were “largely involuntary.” The company said they expect pre-tax expenses of $150 million from the effort with $124 million recorded in its third quarter with the rest to come in 2025.
Looking forward, Deere’s fiscal 2024 net income is projected to be around $7.0 billion, unchanged from previous forecasts despite the challenging environment.
