has been around
since Andrew Jackson was president, it seemed a fair bet that the company had implemented a modern system of financial reporting at some point in the last 50 years.
But the modernization bet started looking less sure Thursday. How else to account for that mysterious $63 million jump in the Moline, Ill., tractor maker's fourth-quarter earnings expectations?
Deere's Thursday press release offered no reason for this sweet upside surprise, which boosted EPS guidance for the quarter ended on Halloween to 26 cents from break-even just three months ago. When asked to explain where the extra profits came from, company representative Greg Derrick replied: "We really don't know." He added that the company would know by the time earnings are scheduled for release on Nov. 19.
Well, that's a relief. Apparently the market couldn't care less about the vagueness: Investors bid Deere stock up $1.58, or 3.4%, to $48.52, on a day when most other stocks were down.
Indeed, the market has been remarkably sanguine about Deere's prospects, even as a soft agricultural economy continues to weigh on sales. The company trades at 21 times analysts' expectations for fiscal 2003 earnings, which is high for an Old Economy manufacturer in a stagnant market.
Bucking the Trend
All the same, the lack of detail should be disturbing for investors, and it could suggest the stock's gains are vulnerable. Massively positive preannouncements with little detail were de rigeur back when Bill Clinton was president and the
was above 3000.
But the lack of strong profits and a sprinkling of sobriety in investor-relations departments since the stock market crash had more or less done away with the practice. To be sure, health insurer
did a big one recently. But it at least gave investors some idea
how it was achieved.
So what might've given Deere such a nice ride this quarter? Surely the company would have duly noted any high-quality reason for a boost in its bottom line, such as higher-than-expected sales. Out of all components on the income statement, sales can be the easiest to track.
The fact that 2003 guidance given Thursday wasn't far off analyst expectations also suggests that recurring operational improvements weren't the reason, unless Deere took some larger-than-usual gains on the loans it sells. Deere has a lending arm that finances the purchase of its products by dealers and consumers.
Or maybe the earnings surprise is related to the whopping $344 million restructuring charge that Deere took in the fiscal fourth quarter of 2001. Often, big one-time charges can temporarily boost bottom-line numbers by pushing operating costs below expectations. But the good performance tends to be short-lived -- unless more charges follow. And it does seem from Deere's quarterly 10-Q filing that the company took $58 million of restructuring charges in the nine months through July 31.
No wonder some investors have this Deere in their sights.