Evidence of Credit Decay in Deere

U.S. and Canadian agricultural equipment sales are expected to remain strong, and there is no evidence of unusual order cancellation. South American sales are expected to be down 10% to 20% in 2009 as a result of tightening credit conditions in Brazil and drought conditions in Argentina. In Western Europe, the industry outlook is down 5% to 10% for 2009, while in Central Europe (including Russia), sales are expected to decline moderately. In the aggregate, farm machinery and service sales are expected to rise 5% in 2009, factoring in negative currency translation of 8%.

Commercial and consumer equipment net sales are expected to decline 6% in 2009. Construction and forestry sales are expected to decline 12% in 2009, factoring in 600,000 to 700,000 of housing starts and non-residential spending declines of about 15%.

As for the company's credit portfolio, 75% of it is U.S.-based, 60% is in installment financing. In the ag portfolio, write-offs averaged 12 basis points over the last 10 years and are currently running below historical averages. The construction and forestry portfolio is 60-plus past due, and write-offs are rising but remain below the 10-year average.

Deere has had no problems accessing the commercial paper markets. The company repurchased 5 million shares in the quarter but is not currently doing so and did not provide repurchase guidance for 2009.

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Know What You Own: Deere operates in the farm and construction machinery industry, and some of the other stocks in its field include Caterpillar (CAT - commentary - Cramer's Take), Hitatchi (HIT - commentary - Cramer's Take), CNH Global (CNH - commentary - Cramer's Take), Agco (AG - commentary - Cramer's Take), Joy Global (JOYG - commentary - Cramer's Take) and Bucyrus International (BUCY - commentary - Cramer's Take). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

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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.