Earlier today, Deere reported fourth-quarter net income of $649 million, or $1.83 a share, compared with $806.8 million, or $2.11 a share in the year earlier quarter. That said, Deere's earnings exceeded Wall Street's expectation of $1.57 a share even as the Moline, Ill-based company blamed the slowdown in the farm economy for net sales of $8.9 billion that were 5% lower than for the same period a year earlier.
But it was the profit guidance for next year that spooked Wall Street. Deere forecast net income of $1.9 billion, below consensus expectations, with company equipment sales projected to fall 15% in 2015 and down 21% in the first quarter compared to last year.
The stock was down 0.87% to $87.03 at last check. Here's what analysts said.
Andrew Casey, Wells Fargo Securities (Underperform; $72-$75 PT)
DE beat short-term expectations (higher operating profit, credit contribution, and lower share count that offset higher tax rate), but its outlook suggests continued large farm equipment demand compression in FY2015. Management provided beneath-consensus FY2015 net income guidance (i.e., $1.9 billion versus consensus $2.18 billion--estimate implied FY2015 EPS guidance of approximately $5.50 per share versus consensus' FY2015E $6.36). We expect the stock to have a negative reaction, and the outlook likely will also be a negative read-through for other agricultural equipment manufacturers (i.e., Underperform-rated AGCO, 44.66).
Our thesis that DE's earnings power will be pressured by a multiyear demand decline remains intact. Without good visibility on when a demand trough will happen makes a positive investment case in DE difficult, in our view.