For the most part, Deere & Co (DE) had the early morning stage to itself. There were no other major corporations reporting quarterly financial results on Wednesday morning.
For Seere's fiscal fourth quarter, which ended October 30, Deere posted net income of $2.246B for GAAP EPS of $7.44. They did this on $15.536B in revenue. That's earnings growth of 75% on revenue growth of 37%. Oh, and FYI... Deere crushed Wall Street's expectations for both the top and bottom lines. Cost of sales plus all other expenses prior to tax came to $12.65B, which was up 30.2%.
Segment Performance
Production & Precision Agriculture drove net sales of $7.434B (+59%), producing an operating profit of $1.74B (+124%) for an operating margin of 23.4% (up from 16.7%).
Small Agriculture & Turf drove net sales of $3.544B (+26%), producing an operating profit of $506M (+46%) for an operating margin of 14.3% (up from 12.3%).
Construction & Forestry drove net sales of $3.373B (+20%), producing an operating profit of $414M (+53%) for an operating margin of 12.3% (up from 9.6%).
Financial Services drove net income of $232M, up 2%.
John Deere Capital Corporation (subsidiary) drove revenue of $776M (+15%), producing net income of $184M (+2%), ending the quarter/year with a portfolio balance of $47.228B (+14%).
Outlook
Net income attributable to the firm for fiscal 2023 is forecast to be in a range of $8B to $8.5B. At the mid-point, this would be up 15.6% from $7.131 for fiscal 2022. CEO John May commented in the press release, "Deere is looking forward to another strong year in 2023 based on positive farm fundamentals and fleet dynamics as well as an increased investment in infrastructure. These factors are expected to support healthy demand for our equipment."
Segment Outlook...
- Production & Precision Agriculture is expected to drive 15% to 20% sales growth.
- Small Agriculture & Turf is expected to drive sales that are flat to up 5% from 2022.
- Construction & Forestry is expected to drive sales growth of roughly 10%.
- Financial Services is seen contributing net income of $900M.
Balance Sheet
Deere ended the quarter with a net cash position of $5.508B and inventories of $8.495B. This brings current assets up to $72.098B. Current liabilities amount to $33.62B, including $18.303B in short-term borrowings. This puts the firm's current ratio at 2.14 and the quick ratio at 1.89. These are very healthy looking ratios.
Total assets add up to $90.03B including $4.905B in "goodwill" and other intangibles, which is perfectly acceptable. Total liabilities less equity comes to $69.673B, including $33.596B in long-term debt. You already know what I am going to write.
Sure, the ratios look good. The firm is managing their current situation well. That said, more than $18B in short-term debt with another $33B+ in long-term debt? With a rough $5.5B in cash on hand? I would really like to see the firm work on that debt-load. Perhaps push out maturities on what's due this year.
My Thoughts
This is one heck of an impressive earnings report. The guidance is just as impressive. It's easy to see why Chris and Bob over at Action Alerts PLUS have been all over this one since way back. The stock is trading 6% higher Wednesday morning. The question now is... would we buy it here? The stock trades at 18 times forward-looking earnings, which is not expensive, nor is it inexpensive. Deere also pays shareholders $4.52 a year to stick around, which is nice, but really only works out to a yield of little more than 1%.
This is a tough stock to buy going into a recession. Then again, the firm's guidance was strong and the economy is suddenly looking quite robust at the present. Q4 GDP is running above 4% annualized growth according to the Atlanta Fed. Yet, the yield curve is screaming about as loud as it can that something awful comes our way. That leaves me no choice but to trade DE for the short to medium-term rather than invest for the long-term. That's if I want to be involved.
The stock is still breaking out from the $494 pivot created by the April through September "cup with handle" pattern. The shares have been riding the 21 day exponential average (EMA) higher and now stands well above the 50-day and 200-day simple moving averages (SMAs). This morning's pop will likely push the Relative Strength Index (RSI) into technically overbought territory. It's been knocking on that door for a month.
If I were long DE, which I am not, my price target based on this chart would have been $452. That said, my feeling is that the last sale will be drawn toward the 50-day SMA than it is now.
My plan would be to start adding in smallish increments at the 21-day EMA and add down to that line. For day-traders, I think the shares are short-able above $430 as long as one does not get extended and covers that short today. No carrying the position into Friday.
(Deere is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells DE? Learn more now.)
