Deere's stock slides after agriculture equipment maker again lowers guidance

By Ciara Linnane

Deere is expecting its business segment sales to underperform the broader industry in fiscal 2024

Deere & Co. Inc.'s stock (DE) tumbled 3.5% Thursday, after the maker of agricultural and construction machinery posted better-than-expected earnings for its fiscal second quarter but offered guidance that fell short of estimates.

Moline, Illinois-based Deere had net income of $2.370 billion, or $8.53 a share, for the quarter to April 28, down from $2.860 billion, or $9.65 a share, in the year-earlier period.

Sales fell 12% to $15.235 billion from $178.387 billion a year ago.

The FactSet consensus was for EPS of $7.86 and sales of $13.291 billion.

Chief Executive John C. May said the number came in light of "continued changes across the global agricultural sector."

The company is now expecting fiscal 2024 net income of about $7.0 billion, which is down from the $7.5 billion to $7.75 billion it was guiding for in February, when it posted first-quarter earnings. The FactSet consensus is for net income of $7.5 billion.

"We are proactively managing our production and inventory levels to adapt to demand changes and position the business for the future," May said in prepared remarks. "Despite market conditions, we are committed to our strategy and are actively investing in and deploying innovative technologies, products, and solutions to ensure our customers' success."

Among Deere's business segments, production and precision agriculture sales fell 16% to $6.58 billion and small agriculture and turf sales tumbled 23% to $3.19 billion, as price increases failed to offset lower shipment volumes. Construction & forestry sales fell 7% to $3.844 billion.

The company said the large agriculture industry is currently expected to decline 15% in the U.S. and Canada and the small agriculture and turf industry is seen down 10%, while the construction and equipment industry is expected to be flat to down 5%.

For Deere, production and precision agriculture sales are expected to fall about 20% to 25%, small agriculture and turf sales are projected to be down 20% to 25% and construction and forestry sales are expected to decline 5% to 10%.

Oppenheimer analysts said the company is facing a steep deceleration in the second half as it manages production to right-size inventories. The biggest change to the outlook is in the small agriculture and turf industry, with margin guidance now some 150 basis points below previous guidance.

"While the beat-and-lower will likely be the headline takeaway, line-of-sight to peak decrementals/trough margins could prove positive asinvestors digest the print," analysts led by Kristen Owen wrote in a note to clients.

Oppenheimer has an outperform rating on the stock, the equivalent of buy.

The stock is down 3.5% in the year to date, underperforming the S&P 500 which has gained 11.3%.

-Ciara Linnane

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05-16-24 1304ET

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