Deere Expected to Stay on Growth Course -- Earnings Preview

By Bob Tita Features Dow Jones Newswires

Deere & Co. is scheduled to release its fiscal third-quarter earnings before the market opens Friday. Here's what you need to know:

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EARNINGS FORECAST: Wall Street analysts expect earnings per share of $1.95, up from $1.55 last year, according to Thomson Reuters. The farm and construction-equipment maker didn't provide third-quarter profit guidance, but in May raised its profit forecast for the year ending Oct. 31 to $2 billion, which would be 33% above 2016's profit. Analysts expect the company to earn $6.42 a share this year, up from $4.81 in 2016.

REVENUE FORECAST: Third-quarter equipment sales of $6.9 billion are expected, up from $5.9 billion last year. Analysts anticipate sales of farm and construction equipment will climb about 9% in fiscal 2017 to $25.5 billion, in line with the company's forecast in May.

WHAT TO WATCH:

MIXED MARKET:

Industrywide retail sales of high-horsepower tractors in the U.S. and Canada reported by the Association of Equipment Manufacturers were down 20% in Deere's fiscal third quarter, compared with a year earlier. Weak commodity prices and farmers' reluctance to take on equipment debt are holding down equipment purchases. Tractor demand in Brazil fared better in the quarter. Factory shipments of new tractors industrywide rose 7% from last year, according to trade association figures. Rebounding demand for machinery in Brazil lately has some analysts wondering whether farmers have simply moved up next year's purchases to 2017 to take advantage of government-sponsored financing for farm equipment. If that's indeed the case, a market slump could follow next year.

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STILL GREEN SHOOTS: For the third straight quarter proceeds from the sale of Deere's SiteOne Landscape Supply distribution business are expected to boost earnings. The sale has added about 75 cents to earnings per share this year, according to J.P. Morgan, noting the SiteOne proceeds will make a tough comparison for 2018's earnings.

DEAL UPDATE: Expect analysts on the conference call to probe Deere executives for details about the purchase of Germany's Wirtgen Group in June for about $5 billion. The road paving equipment manufacturer is the largest acquisition in Deere's history. The deal, which Deere nurtured for a decade, expands the geographic reach and product lines of the company's construction equipment business, which accounts for about a fifth of Deere's sales. Deere is attempting to complete the purchase by the end of December.

BULL RUN: Deere's stock price is up 21% since the start of the year, more than double the growth rate of the broader market S&P 500 index. Since the company's fiscal second-quarter report in May, the stock is up 13%. Investors have been piling into Deere as the company continues to report that the three-year-long slump in farm equipment sales is starting to ease. It's unclear though whether the farm economy is strong enough for a full-scale rebound in equipment demand. Farmers remain cautious about capital purchases and Deere's sales in recent years have been helped by aggressive use of equipment leasing.

Write to Bob Tita at robert.tita@wsj.com

(END) Dow Jones Newswires

August 17, 2017 12:54 ET (16:54 GMT)