Deere & Co. reported stronger-than-expected earnings Friday yet saw its stock drop significantly amid concerns that the ag equipment industry may have peaked.
The stock fell more than 5%, to about $397 per share, on more than double the normal trading volume Friday.
Investors are questioning “how much longer the boom in sales of tractors and other farm machinery can last amid slumping crop prices,” Bloomberg reported, but Deere executives said on an earnings call Friday that they are confident in the fundamentals of the agriculture market.
The company beat analysts’ estimates by posting earnings of $10.20/share in Deere's third quarter, well beyond the consensus estimate of $8.14/share. It reported net income of $2.978 billion, 58% above last year’s figure, on sales of $15.8 billion, which were 12% above last year’s third quarter.
In its Production and Precision Ag segment, Deere reported $6.86 billion in net sales for the third quarter, 12% higher than the same quarter a year ago. Operating profit for the segment soared to $1.78 billion, a 37.8% jump from 2022’s third quarter.
The equipment maker also raised its full-year outlook for net income to $9.75 billion to $10 billion, up from $9.25 billion to $9.5 billion.
“Ag fundamentals continue to remain healthy, with a full order book and positive customer sentiment supporting a strong finish to fiscal year 2023,” said Josh Rohleder, manager of investor communications.
And Director of Investor Relations Brent Norwood said that despite “a large amount of volatility” in grain prices, “equipment demand has remained strong.”
“While down year over year, crop prices are forecast to be the third highest in over a decade,” he said. “And in North America, farmers are projected have another year of healthy net income.”
Norwood also said lower input prices would boost next year’s margins for row crop farmers, “as grain production remains subject to ever-volatile weather patterns and adverse geopolitical events.”
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He said the company expects ag revenues to be flat to down in the company's fourth quarter, which ends Oct. 31.
He attributed that to “normal seasonality,” as the company plans to reinstitute “normal factory shutdowns” that had not taken place in 2021 or 2022.
“We haven't done that the last couple of years, as we've been running behind on delivering machines to customers, late in ’21 and then all the way really through 2022.”
He also said there would be an uptick in spending on research and development in the fourth quarter.
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