Thanksgiving is nearly here and autumn is almost over. That means food and football for many Americans, plus an earnings report from agricultural equipment maker
Deere.
Investors will be thankful for fourth-quarter numbers. They will feel differently about guidance though. It didn’t live up to expectations.
Deere’s fiscal year ended in October when the harvest in the U.S. and the Northern Hemisphere is wrapped up.
Deere (ticker: DE) reported fiscal fourth-quarter earnings per share Wednesday of $8.26 from sales of equipment sales of about $13.8 billion. Wall Street was looking for earnings per share of $7.46 from machinery sales of about $13.6 billion. A year ago, Deere reported EPS of $7.44 and $14.4 billion in equipment sales.
Deere stock was down 5.6%. Earnings didn’t do it. It was the guidance.
Looking ahead to fiscal year 2024, Deere expects to generate a net income of between $7.75 billion and $8.25 billion. Wall Street is projecting a net profit of $9.3 billion.
Wall Street expected a decline from 2023 full-year net income of $10.2 billion, reflecting concern that farm incomes and prices for agricultural products have hit their peak. A decline appears to be coming and guidance wasn’t able to live up to analysts’ expectations.
Corn and soybean prices are down about 29% and 4%, respectively, over the past year. Farm income is projected to be $141 billion in 2023, according to the U.S. Department of Agriculture, down from $183 billion in 2022.
Falling commodity prices and income aren’t good for equipment demand or pricing, but farm income is still at a healthy level. The $141 billion figure would be the second-highest reading on record.
“Most dealers expect 2024 to be a down year,” wrote
Citi
analyst Timothy Thein in a Sunday report.
He visited several Deere dealers recently. “All-in, the takeaways were largely consistent with our expectations. There is more caution in the outlook, but it resembles more of a ‘soft landing’ at this point.”
A soft landing is still possible. Deere tends to guide conservatively. A year ago, at the start of fiscal year 2023, Deere told the market to expect net income of $8 billion to $8.5 billion, but management raised that call a couple of times throughout the year. Deere now expects to make net income of between $9.75 billion to $10 billion, while Wall Street is projecting $10 billion.
Deere management hosts a conference call at 10 a.m. Eastern time to discuss results. Investors will want to hear about dealer inventories and ordering patterns.
Options markets imply Deere stock will move about 4%, up or down, following the earnings. Shares have moved an average of about 5%, up or down, following the past four quarterly reports. Shares have risen twice and fallen twice over that span.
Thein rates Deere shares Buy and has a $475 price target for the stock. Overall, about 60% of analysts covering the stock rate it at Buy, while the average Buy-rating ratio for stocks in the
S&P 500
is about 55%. The average analyst price target is about $440 a share.
Deere stock trades for about 11.5 times at the estimated calendar year 2024 earnings. The S&P 500 trades for about 18 times. The discount exists because investors believe things are getting harder down on the farm.
As of the close of trading on Tuesday, Deere stock was down about 8% over the past 12 months while the S&P 500 and
Dow Jones Industrial Average
were up about 13% and 3%, respectively.
Caterpillar
(CAT) was down 2.6% after Deere’s earnings report.
Write to Al Root at allen.root@dowjones.com
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