Lower Commodity Prices To Negatively Impact Deere’s Q3’16 Earnings Report

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Deere and Company (NYSE: DE) will report its Q3’16 earnings on the 19th of August, prior to the market opening. We expect results were negatively impacted by lower commodity prices  and competitive pricing pressure, albeit in a fairly stable market.  Lower commodity prices and farm incomes worldwide likely continued to negatively impact Deere’s agricultural equipment sales in Q3’16. Global economic uncertainty continues due to Britain’s vote in favor of Brexit. Also, China has not recovered completely from its economic slowdown which may well have resulted in weak construction equipment sales of Deere in Q3’16.

 

Lower commodity prices to negatively impact agriculture equipment sales in near term

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The fall in crude oil prices worldwide since mid-2014 has led to lower commodity prices resulting in lower farm incomes. However, crude oil prices increased almost 16% since Q1’16, due to a range of factors that include production cuts in the U.S., geopolitical disturbances in Venezuela and Nigeria, and a wild-fire in Alberta, Canada. China, one of the biggest oil consumer in the world, witnessed a slowdown in their oil demand in the last couple of years.  This is expected to continue for the next few quarters. The improved prices in 2016 have led to stable energy prices, but they are still at a lower level as compared to 2014 and 2015. We believe that low commodity prices will continue to negatively impact company’s Agriculture equipment division sales in Q3’16, which comprised about 68% of Deere’s revenues in 2015.

[trefis_forecast ticker=”DE” driver=”2127″

 

Construction equipment sales may decline in near term due to steady market and price pressure

United Kingdom’s vote in favour of Brexit added some amount of uncertainty in the construction industry, which declined by more than 10% in 2015. China still has not recovered from its ongoing economic slowdown.  As a result, the construction industry is steady as of now, although Deere and its competitors are facing price pressure. Used equipment prices are also low, which is discouraging the sale of used equipment and the consequent purchase of new alternatives. We believe that because of the above factors Deere’s construction equipment sales is likely to decline in near term.

For more information, please refer to our complete analysis for Deere & Company

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