Deere & Company's Stock Climbs 8% on Surprising Earnings Beat Despite Downbeat Outlook
1min read On November 21, Deere & Company (NYSE: DE) surged by 8.05%, recording its second consecutive day of gains and reaching its highest price since July 2023. This comes amid the recent release of its fourth-quarter financial results, which surpassed market expectations despite a challenging environment.
In its latest earnings report, Deere announced a 27.7% decrease in Q4 revenue to $11.14 billion, although this figure exceeded analysts' forecasts. The company's earnings per share of $4.55 also outperformed the anticipated $3.93. The company, however, anticipates a dip in profits for the upcoming year due to decreasing farmer incomes and inflationary pressures impacting demand for its agricultural machinery.
The agricultural machinery sector has witnessed a downturn in sales following the peak levels seen in 2022 when geopolitical tensions drove up crop prices, providing farmers with additional capital for equipment purchases. Concern over supply chains and the significant increase in demand had previously led dealers to boost inventories considerably, thereby lifting Deere's sales.
Currently, with demand having slowed, skeptical dealers are exercising caution in replenishing stock. Declining agricultural income, coupled with high interest rates and economic uncertainty, prompts farmers to reassess substantial expenditures on agricultural machinery, consequently leading dealers to restrict inventory replenishments. Deere has addressed this weakening demand by revising its performance guidance downward in May and announcing proposed layoffs to align production more closely with demand.
The outlook remains challenging, with corn and soybean prices hovering near four-year lows and U.S. agricultural profits projected to drop for the second consecutive year in 2024. Although the U.S. Department of Agriculture's recent estimation places this year's net agricultural income at $140 billion—a 4.4% decrease from the previous year—there remains cautious optimism within the industry.
Deere's projections for the fiscal year 2025 indicate a net income range of $5 billion to $5.5 billion, markedly lower than analysts’ expectations of $5.83 billion and the approximate $7 billion achieved in the concluded fiscal year 2024. The company foresees a 10% to 15% decline in the net sales of its equipment operations by 2025.
Adding a layer of complexity, the political landscape presents potential uncertainties. Statements from the then U.S. President-elect about imposing tariffs on products manufactured by Deere in Mexico for sale in the U.S. could affect business strategies. Despite these challenges, Deere's CEO, John May, maintains that the company has proactively adjusted its operations to better suit the current market realities.