Deere & Company (DE) earnings preview: Demand, weather to determine Q4 outcome

The ongoing slowdown in the demand for agricultural equipment, amid market uncertainties and bad weather, has been a drag on the business of Deere & Company (NYSE: DE), which will be publishing fourth-quarter results Wednesday at 6:45 am ET.

Farmers continue to be cautious in their spending, concerned about the decline in the market price of their produces, mainly corn. Sales have been impacted by trade-war related uncertainties as China remains a key market for farm implement manufactures in the US. These factors, combined with high operating costs and unfavorable weather conditions, might have a negative impact on margins.

What to Look for

On the positive side, the top-line will likely benefit from the stable performance by the Construction & Forestry segment and favorable conditions in the South American market, especially Brazil. The measures being adopted by the management to reduce costs and improve the product portfolio, through the integration of new technology, might offset the pressure on profitability to some extent.

Realted: Deere Q3 2019 Earnings Conference Call Transcript

Market watchers predict a 7% decline in earnings to $2.14 per share for the fourth quarter on revenues of $8.55 billion, which is up 2.5% year-over-year. Earnings missed the Street view in each of the trailing four quarters. Deere executives are expected to drop hints on the long-term growth strategy at the upcoming conference call.

Past Performance

For the third quarter, the company posted stronger-than-expected revenues of $10 million. Though earnings increased annually, they fell short of expectations. The results were negatively impacted by the general softness in the farm sector and unfavorable foreign exchange rates.

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Almost half of the analysts following Deere recommend hold, with a price target of $171. Earlier this month, Deere shares climbed to a record high, continuing the uptrend that started several months ago. The stock advanced 14% so far this year, despite some volatility, and outperformed the market.

Caterpiller Disappoints

Caterpillar (CAT), another leading provider of agricultural equipment, registered lower sales for its key business divisions in the third quarter. The top-line declined 6% to $13 billion and earnings dropped 7% to $2.66 per share. The company also projected flat sales for the fourth quarter.

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