Evidence of Credit Decay in Deere

For Rothbort's preview heading into the Deere conference call, please click here.

I surmised in my preview that Deere would be feeling the impact of the strengthening U.S. dollar. This foreign exchange effect is going to be more apparent in the next quarter and year as opposed to the most recent quarter. Also, the company confirmed my suspicion that North America remains strong, while Latin America is a source of weakness.

While the credit portfolio appears to be in good shape, there is evidence of credit decay. This is the source of my skepticism for investing in Deere. I think the company has far too much debt for my liking in this environment.

Deere is a super company, and I think that it is poised for stock price appreciation, but we have to get through the credit, economic and housing crises before I would entertain a meaningful investment in the stock. That being said, the stock is acting well in midday activity after selling off over 12% in early trading. This leads me to believe that Deere might be good for a trading bounce.

The company reported fourth-quarter 2008 EPS of 81 cents on revenue of $7.4 billion. For the full year, Deere earned $4.70 per share on revenue of $28.44 billion. In 2007, Deere earned $4.00 per share on revenue of $24.08 billion. Excluding credit and other revenue (which is the basis for analysts' estimates), sales of $6.734 million were recorded in the quarter and $25.80 billion for the full year. In 2007, sales of $21.49 billion were generated. Excluding the impact of a factory closing in Canada, Deere earned 89 cents per share in the quarter.

Citing the sharp economic downturn, management lowered guidance for 2009. Equipment sales are expected to be flat for the full year and up 7% for the first quarter vs. analysts' expectations for sales to rise 6% for the full year and 15% in the first quarter. The strengthening U.S. dollar is expected to negatively impact sales by 6% in first quarter and full year 2009.

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At the time of publication, Rothbort had no positions in the stocks mentioned, although positions can change at any time.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational Web site TheFinanceProfessor.com.

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.