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Deere’s (NYSE: DE) Q3 Earnings Miss & Lower FY22 Projections Upset Investors

Story Highlights

Deere’s stock fell in the pre-market trading session on Friday as investors reacted to the company’s Q3 earnings lag and lowered projections for Fiscal 2022.

Illinois-based Deere & Company (NYSE: DE) has delivered mixed results for the third quarter of Fiscal 2022 (ended July 31, 2022). The company’s earnings surprise was (7.4%), while revenues surpassed the consensus estimate by 9.6%. In addition to the earnings miss, the company’s lowered projections for Fiscal 2022 seem to have disappointed investors.

Shares of the $111.5-billion company declined 5.4% in the pre-market trading session (at the time of writing) on Friday.

It is worth noting that Deere specializes in the manufacturing of agriculture and heavy construction equipment. Also, the company provides machinery used in forestry, turf care, and road building. Its popular equipment brand is John Deere.

Highlights of Deere’s Q3 Results

  • Earnings stood at $6.16 per share, below the consensus estimate of $6.65 per share.
  • The bottom line advanced 15.8% year-over-year.
  • Net sales and revenues rose 22% year-over-year to $14.1 billion, above the consensus estimate of $12.87 billion.
  • Total costs and expenses increased 23.3% year-over-year.

The company noted that its bottom-line performance (year-over-year) was driven by a 24.1% rise in sales from equipment operations and a 2.2% surge in sales from financial services.

On a segmental basis, revenues grew 43% year-over-year for Production and Precision Agriculture, 16% for Small Agriculture and Turf, and 8% for Construction and Forestry. Financial services revenues in the quarter inched up 0.1% year-over-year.

However, cost inflation and supply-chain issues played spoilsports in the quarter. The company’s Chairman and CEO, John C. May, said, “…our results reflected higher costs and production inefficiencies driven by the difficult supply-chain situation.”

Capital Allocation by Deere

Exiting the first three quarters of Fiscal 2022, Deere had cash and cash equivalents of $4,359 million, down 45.6% from the end of Fiscal 2021 (ended October 31, 2021). This included the impact of $418 million generated from operating activities and $596 million spent on purchasing property and equipment. Also, the company used $488 million on acquisitions.

Further, the company rewarded shareholders with $971 million of dividends and $2,477 million worth of share buybacks. It lowered its long-term debts by $6,578 million, with the balance of the long-term borrowings being $32,132 million at the end of the third quarter.

Deere’s Projections for Fiscal 2022

For the Fiscal Year 2022 (ending October 2022), the company forecasts net income to be within the $7-$7.2 billion range. This projection is lower than the $7-$7.4 billion range stated earlier.

Net sales are anticipated to grow 25-30% for the Production and Precision Agriculture segment, 10-15% (versus 15% expected earlier) for the Small Agriculture and Turf segment, and roughly 10% (versus 10-15% stated earlier) for the Construction and Forestry segment.

Net income for Financial Services is forecast to be $870 million.

“Looking ahead, we believe favorable conditions will continue into 2023 based on the strong response we have experienced to early-order programs,” said John C. May.

Is Deere Stock a Buy Now?

The equipment maker could be a good investment option for long-term investors. Also, risk-takers, who are willing to overlook the impacts of any near-term headwinds (including supply-chain issues and cost inflation) and lowered projections for Fiscal 2022, could invest in the stock.

It is worth mentioning here that bloggers are 90% Bullish on DE stock versus the sector average of 67%.

Meanwhile, analysts are both cautious and optimistic about the growth prospects of Deere, which commands a Moderate Buy consensus rating based on 12 Buys and five Holds. DE’s average price forecast of $396.13 suggests 7.65% upside potential from the current level.

Finally, the company’s fundamental strength is visible in the chart below and, a ‘Perfect 10’ Smart Score highlights its potential to outperform the broader market.

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