What To Expect From Deere’s Fiscal Q4

by Trefis Team
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Deere (NYSE: DE) is scheduled to report its fourth quarter fiscal 2018 earnings on November 21. We expect the company’s overall sales to increase solidly this quarter, owing to continued momentum in the agricultural and construction equipment market. Deere’s profits are also likely to increase in double digits this quarter due to the expected sales growth and Deere’s cost-cutting measures. Solid replacement demand for large agricultural equipment, coupled with improved investment by farmers into upgrading their crop spraying equipment, should drive growth for the Agriculture and Turf segment. Further, increased investment in oil & gas, transportation, and housing, coupled with the contribution from its acquisition of Wirtgen, should drive growth for the Construction and Forestry segment. Below we take a look at what to expect when the company reports earnings.

We have a $177 price estimate for Deere, which is ahead of the current market price. Our interactive dashboard analysis on whether the Agriculture & Construction division can drive growth for Deere in Q4 details our expectations for the quarter. You can modify the different driver assumptions, and gauge their impact on the company’s earnings and valuation.

Agriculture & Construction To Drive Growth 

Deere’s construction and forestry division accounts for nearly 26% of the company’s overall revenue and has seen robust growth in the first three quarters of 2018, as a result of increased investment in oil & gas, housing, and transportation coupled with the contribution from Wirtgen. We expect robust construction spending to continue into Q4, as a result of strengthening of the U.S. economy, which should boost the U.S. housing market and construction spending. This, coupled with the Wirtgen acquisition, should boost Deere’s Construction business in the near term. As a result, we expect the above factors to drive Deere’s construction sales this quarter. The implementation of tariffs on steel and aluminum will no doubt increase the costs for Deere’s Construction Industry segment, which is heavily reliant on steel. This should put some pressure on margins, though price hikes as a consequence will help to offset this.

Deere’s Agriculture and Turf segment, which accounts for nearly two-thirds of its overall revenue, enjoyed a strong first three quarters of 2018, as margins improved due to a recovery in commodity prices and a favorable sales mix. Further, we expect increased demand for its agriculture equipment, as a result of agricultural mechanization in developing countries and higher demand for food due to a rising population. Additionally, Deere’s multiple acquisitions – Blue River Technology, King Agro, and PLA – should not only enable Deere to provide cost-effective equipment, technology, and services to farmers but also expand its market position. We have a positive outlook for Deere in the near term, driven by improving conditions in the agriculture market, and increased global food consumption, which will likely spur demand for its agriculture products.

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