Earnings Preview: Deere & Company expected to end FY24 on a mixed note

For Deere & Company (NYSE: DE), 2024 has been a challenging year marked by weak demand amid declining farm income and high interest rates. As the company prepares to report fourth-quarter results next week, analysts remain cautious in their forecasts, indicating that the slowdown persisted through the latter part of the second half.

In the past two months, the agriculture equipment maker’s shares have traded above their 52-week average price of $385.61, recovering from the mid-year lows. The current price nearly matches the stock’s value from about three years ago, reflecting cautious investor sentiment. Considering Deere’s low valuation and strong footprint in multiple industries, it would be wise to keep the stock on the watch list.

Estimates

Deere is expected to publish its fourth-quarter report on Thursday, November 21, at 6:30 am ET. It is estimated that the company generated $9.28 billion in revenues and earned $3.93 per share in the final three months of fiscal 2024. The estimates represent a sharp decline from the $13.8-billion revenue and $8.26 EPS reported in the year-ago quarter. Interestingly, Deere’s quarterly sales and profit mostly beat Wall Street’s expectations in the past five years, and the trend continued in the July quarter.

Commenting on the Q3 results, Deere’s CEO John May said, “Throughout 2024, we’ve prudently and proactively adjusted production schedules in our Large Ag business at a faster pace than ever before in order to reduce field inventory in our end markets. This quarter, we made a similar adjustment for many of our earthmoving product lines in North America in response to signs of moderating demand. We will also continue to focus on reducing used inventory levels, particularly in North American Large Ag for the remainder of the year.”

Headwinds

The management is implementing measures to adapt to market fluctuations amid slowing sales and profitability. The company this year laid off several hundred employees as part of an extensive headcount reduction program. The focus is on reducing costs and streamlining operations while achieving a better production-inventory balance. Recently, Deere faced an investigation by the Federal Trade Commission, to determine whether the company is engaging in unfair practices related to the repair of its agricultural equipment.

The company’s operations span well beyond farming and construction, including areas like forestry, industrial engines, and financial services, enabling it to effectively navigate headwinds in the core business. Deere’s long-term prospects remain intact as the current issues look temporary and there seems to be a demand recovery around the corner, aided by improving economic conditions and interest rate cuts.

Q3 Outcome

In the third quarter, sales & revenues decreased 17% annually to $13.2 billion, with revenue declining across all operating segments except Financial Services. Consequently, Q3 profit decreased sharply to $1.73 billion or $6.29 per share from $2.98 billion or $10.20 per share in the comparable quarter of 2023. For fiscal year 2024, the Deere leadership projects net income attributable to shareholders of approximately $7 billion, which is lower than last year’s profit.

After staying almost flat during the week, Deere’s stock traded higher throughout Friday’s session. It has lost more than 2% in the past 30 days.