Shares in John Deere’s parent company, Deere & Co., posted their best daily performance in two years after the farm, construction and forestry equipment maker reported a large first-quarter profit decline. However, there have been some spikes in demand for lawn tractors.
“[W]Help the scenery of big [agriculture] is cheap, low horsepower demand has softened somewhat in the first quarter,” said Rachel Bach, manager of investor communications at Deere, according to an AlphaSense transcript of the post-earnings conference call with analysts.
And for fiscal 2023, Bach said sales of equipment for the small farm and turf industry in the U.S. and Canada are expected to decline about 5%, while sales of large farm equipment are expected to increase 5% to 10%.
“[O]Order books for products associated with agricultural production systems remain robust, while demand for consumer-oriented products such as sub-40hp compact tractors has eased significantly since last year,” Bach said.
Brent Norwood, director of investor relations, explained that demand for lawn and utility equipment is more closely correlated with the broader economy, particularly the housing market, both of which have been weakening. “So we’ve seen a softening there, particularly in compact utility tractors,” Norwood said.
But outside of the small tractor business, Wall Street was pretty happy with Deere’s results.
The stock
EN
,
which closed at a three-month low on Thursday, rose 7.3% in afternoon trade, enough to make the S&P 500
SPX
biggest winners of the day. It is heading for its best daily performance since rising 9.9% on February 19, 2021.
The company reported net income for the quarter ended Jan. 29, ahead of Friday’s opening bell, increasing to $1.96 billion from $903 million, or $2.92 per share, for the same period a year ago or $6.55 per share, more than doubled. That was well above the median analyst estimate for earnings per share of $5.57 compiled by FactSet.
According to FactSet, revenue rose 33.7% to $11.40 billion, beating expectations of $11.34 billion.
Manufacturing and precision ag sales were up 55% to $5.2 billion, construction and forestry sales were up 26% to $3.2 billion, and smallholder agriculture and turf sales were up 26% increased 14% to $3 billion.
For fiscal 2023, the Company has raised its revenue outlook for revenue growth in manufacturing and precision agriculture to approximately 20% from 15% to 20% and for revenue growth in construction and forestry to 10% to approximately 10%.
DA Davidson analyst Michael Shlisky reiterated his buy rating on the stock, praising Deere’s “strong beat-and-raise” results.
“It appears to be another quarter of confirmation that the farming cycle is far from complete, and [Deere] continue to capitalize,” Shlisky wrote in a note to clients.
The stock is up 4.7% over the past three months, while exchange-traded fund Industrial Select Sector SPDR
XLI
is up 4.3% and the S&P 500 is up 3.1%.
