Company Reports

Deere reported fiscal first-quarter earnings largely in line with our expectations. Global ag demand continues to cool. Equipment sales were down 8% year on year to approximately $10.5 billion, while diluted EPS was down 5% year on year. Looking at the segments, lower ag volumes sent the production and precision ag segment down 7% year on year, while small ag and turf fell 19% year on year.

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

The ag slowdown has been the story for the past couple of quarters. Ag demand in South America has been weaker than ag manufacturers were expecting. Europe has also been challenged, while North America remains constructive, though U.S. corn supplies have started to tick up lately, pressuring U.S. corn prices.

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

The key takeaway from earnings was management’s weaker 2024 guidance. The company called out moderating commodity prices and higher interest rates as key drivers to weakening ag fundamentals. That said, management continues to point to the replacement cycle as a near-term driver. However, this isn’t enough to drive sales and margin growth in 2024. As a result, we’ve lowered our 2024 sales and margin estimates. We now expect equipment sales to decline by 12%, while operating margins decrease over 300 basis points to 19.7%. These changes led to a 5% decrease in our fair value estimate, which now sits at $360 per share (from $379 previously).

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

Deere reported strong fiscal third-quarter results, as ag demand continues to run strong. Construction is also shaping up to be a strong contributor to earnings growth in 2023. After taking stock of the quarter, we raised our fair value estimate by $2 to $379. We tweaked our near-term sales and margin expectations after management raised its 2023 guidance. That said, the stock was down nearly 5% in intraday trading. We believe the market may be starting to think the ag cycle is getting close to peaking. We don’t disagree with this sentiment, but there’s still room for sales and earnings growth if we take into consideration the replacement cycle of ag equipment, especially in large ag.

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

Deere reported strong earnings to close out its fiscal second quarter. After adjusting our near-term sales and margin forecast, we raised our fair value estimate to $377 from $369 previously. So far, 2023 is shaping up to be another strong year for the ag leader. Through the first two quarters, equipment sales have increased by nearly 32% on average, running at a similar level to how Deere closed fiscal 2022. There are a couple of factors driving the company’s strong performance. First, the company has benefited from strong price realization. Most of the price increases have been a result of cost inflation, but the company continues to call out that new technology features will be a key driver to pricing in the future. Deere’s strong brand and competitive positioning leads to pricing power, in our view.

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

Deere reported strong fiscal first-quarter results to start 2023. For us, the key takeaway was that demand will continue to outpace supply throughout the year. Deere pointed to solid ag fundamentals, elevated fleet ages, and low dealer inventories as key near-term demand drivers. The current ag cycle is running longer than average, but the industry has been working through numerous extraordinary items over the past few years, namely significant supply chain disruptions. While raw materials and freight costs are starting to ease, management is still calling out purchase components, labor, and energy costs as near-term headwinds. Even so, the company’s ability to main positive price/cost levels has been impressive over the past couple of years. We expect equipment pricing to expand by a low-double-digit rate in 2023.

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

Deere reported strong fourth-quarter earnings, leading us to raise our fair value estimate to $354 from $332 previously. Global ag demand remains strong and crop supplies are still tight, evidenced by the low stocks/use ratios for corn and soybeans. Management believes it will take a couple of growing seasons to replenish supply shortages, meaning, demand for ag equipment will remain strong in 2023. Furthermore, the replacement cycle in large ag equipment is still underway. Deere commented that large ag volumes in 2023 will likely be 20%-25% below the five-year average volume in the last replacement cycle (2010-14). To us, this shows volume growth still has room to increase from current levels.

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

The attractive precision agriculture opportunity has led us to raise our fair value estimate for Deere to $332 per share from $297. We also raised our fair value estimate for CNH to $15.60 per share from $14.10 and for Agco to $133 per share from $127. These players possess automation technology for one or more farming production steps, which we think increases the likelihood of leveraging the technology across the farming production cycle in the next decade.

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

Deere reported solid results to close out its fiscal third quarter, leading us to raise our fair value estimate to $297 from $294 previously. Equipment sales grew by 25% year on year, as agriculture fundamentals remain positive. Management highlighted its order book for early 2023 is shaping up well, showing demand for agriculture equipment is solid. That said, supply headwinds continue to be a challenge for the agriculture industry. Some key callouts on this front for Deere was continued cost inflation (material and freight), in addition to production inefficiencies. Combining these factors, segment operating margins declined by nearly 50 basis points to 17.8% in the third quarter.