John Deere reports record earnings

John Deere reports strong growth and record earnings

August 19, 2013

John Deere recently reported a 26.0% increase in third quarter EPS as the company continued to benefit from positive conditions in the global farm economy.  The result represents the eighth consecutive quarter of record earnings.


Worldwide net sales and revenues increased 4 percent, to $10.01 billion, for the third quarter.  While net income attributable to Deere & Company was $0.996 billion, or $2.56 per share, compared with $788.0 million, or $1.98 per share, for the same period last year.

"John Deere is well on the road to another year of impressive performance after reporting record third-quarter results," said Samuel R. Allen, chairman and chief executive officer. Sales and income for the period were higher than in any prior third quarter, he pointed out. "Deere's success is a reflection of considerable strength in the farm sector, especially in North and South America. We also are making further progress executing our wide-ranging operating and marketing plans, which call for expanding our global market presence while keeping a close watch on costs and assets." 

Deere's equipment operations reported operating profit of $1.443 billion for the quarter up from $1.127 billion. The improvement was due to better pricing and higher volumes.  

Company equipment sales are projected to be up about 5 percent for fiscal 2013 and to decrease by about 5 percent for the fourth quarter compared with the year-ago periods. For the full year, net income attributable to Deere & Company is anticipated to be about $3.45 billion.

According to Allen, Deere is poised for a very successful 2013. "Last year's fourth-quarter sales were particularly strong, in part because our factories were running at a high rate to catch up with customer orders. Even with this difficult comparison, our financial guidance implies a healthy level of income for the coming quarter and a third consecutive year of record results."

Longer term, Allen said he remains quite optimistic about the company's prospects. "We continue to believe our investment in new products and capacity will allow Deere to be the provider of choice for a growing global customer base in the years ahead," he said. "In our view, broad trends based on a growing, more affluent, and increasingly mobile population have ample staying power and should help the company deliver substantial value to its customers, investors and other stakeholders in the future."  

Rising emerging market incomes, particularly in Asia, have caused a shift in the demand curve for food and agriculture and mean that strong yields are expected to continue.  This would continue to benefit Deere as farmers are incentivised to invest in new machinery to increase productivity.  Whilst spectacular growth rates are not expected to last forever neither is a slump in global demand.  Given the unchallenging valuation, with a historic PE multiple of less than 10,  a company like Deere and Company, that is well run and has a record of over-delivering, looks well placed to deliver decent returns.


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Disclosure:  The author holds no positions in the above mentioned stocks