Deere & Co (DE) -) posted stronger-than-expected fourth quarter earnings Wednesday but forecast disappointing fiscal 2024 profit, echoing Caterpillar's (CAT) -) indication late last month that international demand was slowing.
Deere said earnings for the three months ending in October, the group's fiscal fourt quarter, came in at $8.26 a share, an 11% increase from the same period last year and well ahead of the Wall Street consensus forecast of $7.47 a share. Group worldwide sales, Deere said, slipped 1% from last year to $15.41 billion, but topped analysts' estimates of $13.58 billion.
Looking into its coming fiscal year, Deere estimated net income of between $7.75 billion and $8.25 billion, firmly shy of the LSEG forecast of around $9.33 billion.
"Deere's fourth-quarter and full-year results can be attributed to the successful execution of our Smart Industrial Operating Model and the value that customers recognize in our industry-leading products and solutions," said CEO John May said in a statement.
"We must also recognize and credit our dedicated employees, dealers, and suppliers, whose hard work and focus have been instrumental to our overall success," he added.
Deere shares were marked 5.55% lower in early Wednesday trading following the earnings release to change hands at $361.88, a move that would erase most of the stock's gains for the past six months.
“Historically, Deere weathers down-markets better than peers like CNH Industrial (CNH) -) and AGCO Corp. (AGCO) -) because of their inventory management and closeness to dealers,” said Third Bridge analyst Ryan Keeney. "However, a normalization of demand could surface in 2024 that won’t inhibit Deere’s growth but could soften volumes up to ~10%.”
"Deere’s strong results are a good benchmark for the cadence of how equipment demand will normalize in 2024 due to high interest rates and the historically strong replacement cycle Deere has experienced in the last several years," he added. “Our experts caution that as supply chains normalize and Deere works through its backlog, higher inventories are to be expected, but should not warrant an adverse reaction as Deere is prepared for a normalization of farmer spend.”
CAT: 'Continued weakness in China'
Late last month, larger rival Caterpillar noted ongoing weakness in China, as well as a shrinking order book. The factors offset solid September-quarter earnings.
"As we have mentioned during previous earnings calls, we anticipate continued weakness in China, and expect it to remain well below our typical range of 5% to 10% of enterprise sales," CEO Jim Umpleby told investors on Oct. 31.
"In [Europe-Africa-Mideast] we anticipate the region will be slightly down as weakness continues in Europe, partially offset by continuing strong construction demand in the Middle East. Construction activity in Latin America is expected to be about flat versus strong 2022 performance."
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