Deere (DE) is gearing up for its fiscal second quarter earnings report on Friday early Friday amid concerns over farm prices and economic growth. DE shares traded higher on Thursday but remain below key technical levels.
The manufacturer of the iconic green and yellow agricultural equipment is considered a leader in the agricultural economy. Deere also produces heavy machinery for the construction and forestry markets.
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Deere earnings
estimates: Deere earnings are projected to increase 26% to $8.58 per share in the second quarter ended April, according to FactSet consensus estimates. Total revenue is up nearly 20% year-on-year to $15.993 billion.
While this is a large jump in earnings, it would mean a sharp slowdown in earnings growth from 124% growth in the previous quarter. This would mean the second consecutive quarter of a slowdown in sales growth.
Results: Check again on Friday before the market opens.
Prospects: According to FactSet, analysts estimate net income for fiscal year 2023 at $9.06 billion. That’s more than $9 billion in the middle of Deere’s February forecast of $8.75-9.25 billion in net revenue for the full year.
DE Warehouse
Deere shares traded down 0.3% today to 366.91, below its falling 50-day moving average.
DE shares peaked last November and are trending downwards, with the 10-week moving average now trading below the 40-week line as the MarketSmith chart shows.
Caterpillar (CAT) i United Rentals (URI) are also heading down and below key levels.
Farm prices, sale of machinery
The World Bank predicts that agricultural commodity prices will fall by 7% this year and are likely to fall again in 2024. Texas farm office he said on May 18, citing the bank’s latest forecasts for commodity markets.
Lower prices of agricultural commodities may affect the demand for agricultural equipment. In April, construction giant Caterpillar also presented poor prospects for equipment sales. United Rentals, which rents out scissor lifts and a range of heavy equipment, made a mixed report at the same time.
Deere Inventory Risks
Downside risks for Deere include “a fall in agricultural commodity prices, which could be pressured by either higher-than-expected yields or trade disagreements with US export partners,” Edward Jones analyst Matt Arnold said in May.
Moreover, “a slowdown in economic growth could hurt Deere’s construction and forestry markets,” added Arnold.
Still, the analyst views DE shares as a buy, citing long-term growth and valuation drivers.
Sam Deere made an optimistic outlook for 2023 in April, citing “healthy demand for agricultural and construction equipment.”
Meanwhile, Deere’s first-quarter earnings showed a marked improvement, with price increases exceeding its product cost inflation.
Fewer supply disruptions and higher production volumes also contributed to Deere’s earnings in the last quarter.
Since the beginning of the year, DE shares are down 14%, while they are almost at the same level over the last year. Agricultural stocks are headed for a sixth consecutive monthly decline in May.
Deere shares pay a dividend of 4.1%.
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