Key Takeaways From Deere’s Q1
Deere (NASDAQ: DE) announced its Q1 fiscal 2018 earnings on February 16th, comfortably beating earnings estimates while missing on revenue. The company reported revenue of nearly $6 billion (+27% y-o-y) and its diluted GAAP earnings fell sharply from profit of 63 cents to a loss of $1.66, primarily due to a $965 million tax charge related to the recent U.S. tax reform. Strong performance in key segments such as Agriculture and Turf, Construction and Forestry, and Financial Services propelled Q1 earnings.
Our price estimate for Deere is slightly lower than the current market price. We have also created an interactive dashboard where you can change the company’s expected revenue, margins, and other key drivers to gauge how they would impact expected earnings for the year.
Improvement In Agriculture And Construction Market Set To Propel Top Line
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Deere’s Agriculture segment accounts for nearly 68% of its overall revenue, and was up 18% year-on-year to $4.2 billion in Q1’18. The better-than-expected performance was primarily due to increased demand in the agriculture industry. For 2018, Deere expects to further improvement in the agriculture segment driven by increased replacement demand and need for new equipment. We expect the positive outlook for Deere to continue into 2018 driven by improving conditions of the agriculture market, and increased global food consumption, which will likely spur demand for its agriculture products.
The Construction segment saw consistent revenue growth throughout the year and rose sharply by 57% in Q1’18 to $1.7 billion. The better-than-expected performance of this segment was primarily due to the higher shipment volumes and its acquisition of Wirtgen Group. The industry is expected to grow further in 2018 which, coupled with the Wirtgen acquisition, should boost Deere’s construction business.