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Deere (DE) to Report Q3 Earnings: What's in the Offing?

Deere & Company DE is scheduled to report third-quarter fiscal 2018 results on Aug 17, before the market opens.

In the last reported quarter, Deere posted earnings of $3.14 per share, which missed the Zacks Consensus Estimate by around 6%. The company delivered an average positive earnings surprise of 4.21% over the trailing four quarters.

Let’s see how things are shaping up for this announcement.

Deere & Company Price and EPS Surprise

 

Deere & Company Price and EPS Surprise | Deere & Company Quote

Key Factors to Consider

For the fiscal third quarter, Deere expects sales to be up around 35% year over year. The forecast includes a positive foreign-currency translation impact of about 1%. The Zacks Consensus Estimate for the to-be-reported quarter’s sales is pegged at $9.17 billion, reflecting year-over-year growth of 34%. This upbeat projection reflects global economic growth, including higher housing starts in the United States, and an improved oil and gas sector.

In addition, Deere stated that the Wirtgen acquisition will contribute about 18% to net sales for the quarter to be reported. Moreover, economic environment for the construction, forestry and road building industries bodes well. It will spur demand for new and used equipment and in turn, support the sales outlook of the company for the fiscal third quarter.

Our Consensus Estimates indicate that net sales of Deere’s Agriculture and Turf equipment segment will reach $6.13 billion in the quarter to be reported, rising around 15% year over year. The Zacks Consensus Estimate for Construction & Forestry equipment sales is pegged at $3.07 billion for the quarter, reflecting year-over-year surge of 106%. The estimate for the Financial Services segment’s sales is $831 million, reflecting year-over-year increase of 12%.

Notably, the Zacks Consensus Estimate for earnings per share is pegged at $2.77 for the quarter, indicating year-over-year growth of 41%. Improved operational performance resulting from disciplined cost management, and continued investment in innovative technology and solutions will drive the company’s performance.

However, Deere’s earnings will be dampened by elevated expenses. The company believes an unfavorable product mix, higher overhead spending and elevated incentive compensation will inflate the cost of sales. Furthermore, rising raw material prices, higher freight cost and emissions costs remain headwinds. Additionally, weakness in Deere’s agriculture business and drought conditions in Argentina are expected to thwart its performance.

Earnings Whispers

Our proven model does not conclusively show that Deere is likely to beat on earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. This is not the case here as you will see below:  

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate Estimate of $2.74 and the Zacks Consensus Estimate of $2.76, is -0.70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Deere currently carries a Zacks Rank of 3. While this increases the predictive power of ESP, we also need to have a positive ESP to be confident about an earnings surprise.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Share Price Performance

Deere’s shares have outperformed the industry it belongs to over the past year. The stock has gained 7% compared to 3% growth recorded by the industry.



Stocks Worth a Look

Here are a few stocks worth considering as these have the right combination of elements to post an earnings beat this quarter.

American Eagle Outfitters, Inc. AEO, with an Earnings ESP of +2.09% and a Zacks Rank #2. Its shares have appreciated 149% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy Co., Inc. BBY, with an Earnings ESP of +0.55% and a Zacks Rank #2. The company’s shares have gained 27% during the past year.

Catalent, Inc. CTLT, with an Earnings ESP of +1.92% and a Zacks Rank #3. The company’s shares have been up 16% over the past year.

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Deere & Company (DE): Free Stock Analysis Report
 
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