“Deere earnings out, had the conference call. The story is pretty simple. They’re expecting break-even earnings in this quarter. We were expecting a gain of 35 the reason is, sales are going to be down 34%. They still can’t get equipment sales up, because demand is good top line, good management for the company. But still, poor sales. We’re hearing that a lot.” — CNBC’s Power Lunch 8/19/2009
Even though Deere & Company (DE) reported a better than expected quarter, their shares are pointed lower halfway through the trading day. The company’s fiscal third quarter exceeded analysts estimates on both the top and bottom lines, but the guidance for the fourth quarter was much weaker than expected.
Over the last quarter, sales for Deere came in at $5.89 billion which was better than the consensus estimate of $5.27 billion. Profit of $.99 per share came in well ahead of expectations of around $.56 per share. The results were aided by about 20 cents in one-time events mostly attributed to tax benefits, but the operational results were still quite impressive. 
Management said that demand for large farming equipment was strong in the United States market. Furthermore, the company cut costs as well, and reported that 800 employees had accepted voluntary buyout offers.
The trouble is that Deere management said that they expected full year net income of about $1.1 billion, which is exactly the amount that they had made through the first three quarters of the year. The implication is that the 4th quarter will be just about break even, or not far from it. This is a major disappointment as analysts had expected profit of about $.35 cents per share; a slower quarter but certainly better than break even. The company continues to anticipate slow sales from outside of North America, and a drop off in demand for lawn and garden equipment. Furthermore, the company’s construction and forestry divisions should remain weak, as sales in the past quarter were down 47% year over year.
This very cautious outlook has dominated the market’s perception of an otherwise strong report. We are reaffirming our Fairly Valued rating on DE as of this report, and we would not advise buying at any price above $36. It is a difficult to be bullish about a company when it is anticipating such a drop off in net income, especially after outperforming in the past quarter.
