Deere & Company (DE)’s Q3 Drop In Profit Caused by a Slump In Farm Economy

Deere & Company (NYSE:DE) the American heavy equipment manufacturer released its third quarter earnings report today. The net income for the quarter that ended on July 31, 2014, was $850.7 million, which was considerably lower than last year’s result of $996.5 million. Revenue from worldwide sales for Q3 amounted to $9.5 billion, which showed a decline of 5% compared to the same quarter for the fiscal year 2013.

Deere & Company (NYSE:DE)

Earlier, senior research analyst Michael Cox from Piper Jaffray gave his prediction on Deere & Company (NYSE:DE)’s performance on CNBC’s Earnings Central. Cox stated that Deere & Co’s numbers will not offer any surprises. He said that the key to their growth in the agricultural equipment industry will depend on the farming scene in North America. “John Deere certainly has a very strong market position in North America”, he said. The situation should become clearer once the pre order for combines, to be delivered by 2015, start over the next few weeks.

Talking about Deere & Company (NYSE:DE)’s increased sales of construction equipment over farm equipment, Cox said,“The construction piece to the Deere story is much smaller. So I think investors will remain focused on the Agri equipment side”. While that remains to be seen, the report implies that agricultural equipment sales showed a mediocre performance with profits falling to $941 million from $1.336 billion for the same quarter last year, whereas construction equipment and forestry sales presented a better outlook with profits at $194 million this quarter which is an improvement over last year’s $107 million.

Worldwide forecast for Deere & Company (NYSE:DE)’s agricultural equipment sales for the fiscal year 2014 is dismal as it is expected to go down by 10%. This fall can be attributed to the fall in commodity prices, which translate into decreased farm income and reduced demand for farm equipment. Forecast from Construction & Forestry remains hopeful and is expected to increase by 10%, which will largely be fueled by higher housing starts in the US.

Piper Jaffray has a ‘Neutral’ rating on Deere & Company. Cos pointed out that they have considered the results for the next fiscal year to be below the consensus estimate and added that the Street should reconsider its outlook for the company.

Disclosure: none

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