Deere (DE) Rides on Solid Agriculture & Construction Demand
Deere & Company’s (DE) results in the first quarter of fiscal 2023 have been impressive, considering the ongoing supply-chain and inflationary pressures. Deere reported first-quarter fiscal 2023 (ended Mar 31, 2023) earnings of $6.55 per share, which marked a 124% surge from the prior-year quarter. Higher shipment volumes and price realization helped offset the steep production and other expenses. DE witnessed strong demand for farm and construction equipment.
Deere’s orders are already booked till the fourth quarter of fiscal 2023. This reflects improved demand in its markets and will support its results in the forthcoming quarters. Also, the need to replace aging equipment will support Deere’s top-line performance. Deere expects net income for fiscal 2023 between $8.75 billion and $9.25 billion, whereas it reported $7.1 billion in fiscal 2022. The company had earlier provided guidance between $8 billion and $8.5 billion.
Deere expects the Production and Precision Agriculture segment’s sales to be up 20% in fiscal 2023 on positive price/cost. The segment’s operating margin is expected between 23.5% and 24.5%, suggesting a solid financial performance across various geographical regions. The Small Agriculture and Turf segment’s net sales are expected to be up flat to up 5%, while its operating margin is forecast between 14.5% and 15.5% in fiscal 2023.
The company expects industry sales of large agricultural equipment in the United States and Canada to be up 5-10% for fiscal 2023, reflecting strong farm fundamentals. In South America, industry sales of tractors and combines are likely to be flat to up 5%. Strong commodity prices, record production and a favorable currency environment continue to boost farmers’ income leading to improved orders.
Deere is also witnessing a steady improvement in the Construction & Forestry segment. Sales for the segment are projected to be up 10-15% in fiscal 2023 and the operating margin is likely to be 17-18% in fiscal 2023. In the United States and Canada, industry sales for both construction and compact construction equipment are expected to be flat to up 5% in fiscal 2023.
End markets are expected to remain steady as oil and gas, U.S. infrastructure spending, and capital expenditure programs from the independent rental companies offset a moderation in the residential sector. The U.S. Infrastructure Investment and Jobs Act earmarking $110 billion to fund road repairs and other transformational projects over the next five years is a massive opportunity for the segment.
Price Performance
Shares of Deere have gained 15.2% in the past six months compared with the industry’s 18.1% growth.
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Zacks Rank & Other Stocks to Consider
Deere currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Some other top-ranked stocks from the Industrial Products sector are OI Glass OI, Alamo Group ALG and Illinois Tool Works ITW. OI and ALG sport a Zacks Rank of 1 at present, and ITW has a Zacks Rank #2 (Buy).
OI Glass has an average trailing four-quarter earnings surprise of 16.4%. The Zacks Consensus Estimate for OI’s 2023 earnings is pegged at $2.57 per share. This indicates an 11.7% increase from the prior-year reported figure. The consensus estimate for 2023 earnings has moved 16% north in the past 60 days. OI’s shares gained 74% in the last six months.
Alamo has an average trailing four-quarter earnings surprise of 6%. The Zacks Consensus Estimate for ALG’s 2023 earnings is pegged at $9.79 per share. This indicates a 13.6% increase from the prior-year reported figure. The consensus estimate for 2023 earnings has moved north by 7.5% in the past 60 days. Its shares gained 46% in the last past six months.
The Zacks Consensus Estimate for Illinois Tool Works’ fiscal 2023 earnings per share is pegged at $9.61, suggesting an increase of 4.8% from that reported in the last year. The consensus estimate for fiscal 2023 earnings moved 4% upward in the last 60 days. ITW has a trailing four-quarter average earnings surprise of 0.9%. Its shares gained 23% in the last year.
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