Deere & Co. is scheduled to release its fiscal second-quarter earnings before the market opens Friday. Here's what you need to know.
EARNINGS FORECAST: Wall Street analysts expect earnings per share of $1.67, up from $1.56 of actual earnings last year, according to Thomson Reuters. The farm and construction-equipment maker didn't provide second-quarter profit guidance, but in February predicted profit for year ending Oct. 31 would be $1.5 billion, up 1.5% from 2016. Analysts expect the company to earn $4.92 a share this year, up from $4.81 in 2016.
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REVENUE FORECAST: Second-quarter equipment sales of $7.3 billion are expected, up from $7.1 billion last year. Deere predicted in February that sales of farm and construction equipment would climb about 4% in fiscal 2017. Analysts anticipate sales will rise 3.9% to $24.3 billion.
WHAT TO WATCH:
PROFIT SEASON: The spring quarter is typically Deere's best of the year as farmers purchase equipment or replacement parts in advance of the spring planting season. Industrywide retail sales of high-horsepower, two-wheel-drive tractors are showing signs of improvement in the U.S. and Canada, falling 1% during Deere's second quarter. Industrywide sales of harvesting combines rose 18% during the quarter. But sales volumes remain anemic. Unit sales of tractors above 100 horsepower in April were the smallest since 2003. Deere's revenue from Latin America should be solid as factory shipments of tractors in Brazil were up 28% from last year.
GREEN SHOOTS: Deere's proceeds from the sale of its SiteOne Landscape Supply distribution business in will continue to percolate through Deere's results. Deere's gross proceeds from the sale are about $184 million, according to J.P. Morgan, which expects the company to raise its profit outlook for 2017 to reflect the gain.
A BETTER TOMORROW?: Deere in February said it was seeing signals that the three-year-long slide in farm equipment sales was starting to ease. Deere is producing equipment in line with the retail demand for it after underproducing for the past couple of years to work down inventories. That alone should generate sales growth this year, even if equipment demand remains tepid. Conditions in the farm economy don't appear strong enough yet to support the robust bounceback recovery the investors are looking for.
Deere's stock is up 10% this year compared with about 7% for the broader-market S&P 500 index. Low commodity prices, high costs for rented land and elevated debt levels are keeping many farmers from turning a profit and buying new equipment. Moreover, the duration of the equipment-market recovery in Brazil remains an issue amid plans for reducing government subsidized lending for equipment purchases.
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(END) Dow Jones Newswires
May 18, 2017 11:28 ET (15:28 GMT)