Deere's stock dives after outlook for earnings, sales disappoint

By Tomi Kilgore

Stock could start looking 'attractive' once the 'mid-cycle' outlook sinks in with investors, analyst says

Shares of Deere & Co. (DE) dropped to the lowest levels seen in months Wednesday, after the maker of agricultural, construction and turf equipment earnings and sales outlook for next year was well below Wall Street forecasts.

For fiscal 2024, the company expects net income of $7.75 billion to $8.25 billion, below the current FactSet consensus of $9.31 billion, "as volumes return to mid-cycle levels."

That marks a change from the outlook provided three months ago, when the company said government spending on megaprojects will benefit 2024 and maybe even 2025, and support an "elongated cycle" for construction equipment sales.

The stock (DE) dropped 6.3% in morning trading, to put it on track for the lowest close since June 1. It was also headed for the biggest one-day selloff since it sank 6.4% on June 23, 2022.

D.A. Davidson analyst Michael Shlisky reiterated his buy rating, saying that stock's selloff could make it more "attractive," as the word "mid-cycle" eventually sinks in with investors.

Shlisky kept his stock price at $493, which implied about 38% upside from recent levels.

For the fiscal fourth quarter to Oct. 29, net income rose to $2.37 billion, or $8.26 a share, from $2.25 billion, or $7.44 a share, in the same period a year ago. The FactSet consensus for earnings per share was $7.46.

Sales slipped 0.8% to $15.41 billion, but was well above the FactSet consensus of $13.64 billion.

Production and precision agriculture sales fell 6.3% to $6.97 billion, above the FactSet consensus of $6.6 billion; small agriculture and turf sales declined 12.7% to $3.09 billion, below forecasts of $3.17 billion; and construction and forestry sales grew 10.9% to $3.74 billion to top expectations of $3.70 billion.

Looking ahead, the company expects fiscal 2024 sales for production and precision ag and small ag and turf sales to be 10% to 15% and construction and forestry sales to be down about 10%.

That compares with the FactSet consensus for production and precision ag sales to fall 5.6%, for small ag and turf sales to decline 6.0% and for construction and forestry sales to increase 2.1%.

TD Cowen's Matt Elkott stayed neutral on Deere's stock following the "worse than expectation" guidance, but implied that outlook may be covering the worst-case scenario.

"We believe the company may be baking in a good deal of conservatism into guidance to account for multiple scenarios created by a higher-than-usual level of macro uncertainty," Elkott wrote in a note to clients.

Deere's stock has shed 7.0% over the past three months through Tuesday, while the S&P 500 has gained 3.9%.

-Tomi Kilgore

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11-22-23 1047ET

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