Deere & Company reported lower but better-than-expected fiscal first-quarter earnings after a labor strike in October and November compounded the agricultural equipment maker's supply chain challenges. Deere stock is just below a buy point.
Deere's tech-infused tractors and other farm and construction equipment make it a bellwether for the ag sector. Heavy equipment rival Caterpillar warned Jan. 28 that its margins in the current quarter could take a hit from higher production and labor costs.
Deere Earnings
Estimates: Wall Street expected Deere earnings to slide 41% year over year to $2.27 per share. Revenue was seen growing 0.9% to $9.195 billion, according to FactSet.
Results: Deere earnings came in at $2.92 a share with revenue rising to $9.57 billion.
Outlook: Deere now sees full-year sales of $6.7 billion to $7.1 billion, up from its late November guidance of $6.5 billion-$7 billion. Before the Q1 earnings report, analysts forecast 2022 revenue of $6.869 billion, FactSet shows.
IBD Live: A New Tool For Daily Stock Market Analysis
Deere Stock
Shares of the tractor maker rose 0.1% in early Friday stock market trading. On Thursday, Deere stock fell 2.6% to 380.53, back below a a 388.20 cup-with-handle buy point.
Among other machinery stocks, Dow Jones stock Caterpillar lost 4.4% on Thursday. CAT stock undercut the 50-day moving average after its Jan. 28 warnings and remains below that support level. Smaller rival AGCO gave up 3.1% Thursday, after a beat-and-raise last week.
The relative strength line for DE stock has risen sharply this year after a slide for much of last year. The rising RS line still is well below its March 2021 peak, but it could be a positive indicator as Deere stock attempts to break that long-term resistance and move higher. Deere stock has consolidated since marking a record high in May 2021.
Market Sells Off On 'Very High' Risk Of Russia Invasion
Industrial Stocks Shining
On Jan. 4, Deere unveiled an autonomous tractor at the CES show. Baird analyst Mircea Dobre wrote that the tractor could revolutionize farming and lead to a multiyear cycle of equipment upgrades.
Deere stock surged on the news. It was IBD's Stock of the Day on Feb. 8.
More generally, DE shares have consolidated amid a labor strike and supply-chain challenges. Now the strike is over and the agricultural outlook continues to look strong.
Last week, AGCO said industry demand is trending positively. Earlier, in November, Deere said that its production was basically sold out through fiscal Q3, while warning that supply constraints continue.
In addition, industrial stocks are outshining pricier growth stocks in a rising interest-rate environment. Deere also is benefiting from a product upgrade cycle.
After a labor strike and supply-chain constraints, Deere faces potential margin pressure from a more generous labor contract. But some analysts say the tractor maker may get relief from falling steel prices this year.
Both Caterpillar and Deere stock soared in 2020 on infrastructure spending hopes. The expected ramp of infrastructure spending later in 2022 and into 2023 will further support potential for growth for them.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
