Deere shares have the best day in 2 years

Shares of Deere & Co., the parent company of John Deere, rose to their best overnight performance in two years after the farm, construction and forestry equipment maker posted a large profit margin in its first fiscal quarter. However, demand for lawn tractors has declined slightly.

“[W]against the backdrop of a large [agriculture] is favorable, demand for low-powered vehicles declined slightly in the first quarter,” said Rachel Bach, investor relations manager at Deere, according to an AlphaSense transcript of a conference call with analysts after the earnings report.

And in fiscal 2023, according to Bach, sales of small farm and lawn equipment in the US and Canada are expected to fall by about 5%, while sales of large farm equipment are expected to rise by 5-10%.

“[O]Order books for products related to agricultural production systems remain robust, while demand for consumer goods such as sub-40 horsepower compact tractors has declined significantly since last year,” Bach said.

Brent Norwood, head of investor relations, explained that demand for turf and utility equipment is more closely linked to the overall economy, in particular the housing market, both of which are weakening. “So we’re seeing a softening here, especially in compact utility tractors,” Norwood said.

But aside from the small tractor business, Wall Street was quite pleased with Deere’s results.

Stock DE,
+7.53%,
which closed on Thursday at a three-month low, rose 7.5% to $433.31 on Friday, enough to enter the SPX S&P 500.
-0.28%
the biggest win of the day. Deere investors enjoyed the stock’s best-ever overnight performance as it surged 9.9% on February 19, 2021.

FactSet, Market Watch

Before the open on Friday, the company reported net income for the quarter ended Jan. 29, which more than doubled to $1.96 billion, or $6.55 per share, from $903 million, or $2.92 per share, in the same period of the year. back. This was well above the FactSet analysts’ average estimate for earnings per share of $5.57.

Sales rose 33.7% to $11.40 billion, beating expectations of $11.34 billion, according to FactSet.

Sales of products and precision farming jumped 55% to $5.2 billion, sales to construction and forestry rose 26% to $3.2 billion, and sales of small-scale agriculture and turf grew 14% to $3 billion.

In fiscal 2023, the company increased its sales growth forecasts for manufacturing and precision farming to around 20% from a range of 15% to 20%, and for sales growth in construction and forestry to a range of 10% to 15%. about 10%.

DA Davidson analyst Michael Schlisky reiterated his buy recommendation for the stock, praising Deere’s results that “hit hard and up.”

“This appears to be another quarter of the confirmation that the agricultural cycle is far from over, and [Deere] continues to capitalize,” Shlisky wrote in a note to clients.

Shares are up 4.6% over the past three months, while the Industrial Select Sector SPDR XLI exchange-traded fund,
+0.65%
added 3.6% and the S&P 500 added 2.9%.

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