Continued Growth Opportunities for Deere

We are reiterating our

Fundamentally, we view Deere as a beneficiary of the several green shoots that have been spurred in the agricultural market as worldwide economic growth continues. We believe our view is supported by the United States Department of Agriculture’s recently published report that shows a 2.3% year-over-year increase in U.S. farm real estate prices and from the Aug. 18 Deere earnings call where management raised fourth-quarter revenue guidance for equipment sales. From a worldwide perspective, export data from Latin America and the Black Sea region shows that those areas are witnessing record crop production despite recent political turmoil.

Third-quarter equipment sales increased 16.8% to $6.8 billion from the prior-year period. Agricultural & turf segment grew 13.5% to $5.3 billion as the company benefited from strong demand in farm machinery sales in South America. The construction segment grew sales by 29% to $1.5 billion on higher volumes as North America construction spending continued its growth from 2016 levels. Equipment operating margins were slightly higher as the company benefited from the construction & forestry division's incremental margin gains that were partially offset by greater production and warranty costs in the agricultural & turf segment.

Financial services net income modestly increased 4% year over year to $131 million as the segment benefited from lower loses on lease residual values. We expect this trend to continue given the recent stabilization in used equipment pricing and as inventory channels continue to improve.

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