Deere & Company (DE)’s Weak Earnings a Reflection of Struggling Grain Complex

Deere & Company (NYSE:DE) announced their third quarter earnings today, for the period ending July 31, and they were not favorable. The agricultural equipment company’s earnings fell 15 percent from a year ago, and the company had to adjust their year end earnings downward as a result.

Deere & Company (NYSE:DE)

Jim Cramer, of CNBC’s ‘Squawk on the Street’ chalked Deere & Company (NYSE:DE)’s woes up to the fact that it’s intrinsically tied to a grain complex that is struggling in the absence of higher ethanol mandates.

“Deere is just a serial disappointer. AGCO had come on Mad Money recently and said ‘listen, this is just a terrible market for ag equipment’. Now the price of land is not down, which usually puts a floor underneath Deere,  so I don’t think Deere is going to implode, but look, Deere is still a function of the grain complex, and the grain complex is no longer boosted by ethanol,” Cramer exclaimed.

Deere & Company (NYSE:DE)’s earnings of $850.7 million, or $2.33 per share, actually beat the estimates of analysts polled by Factset earlier this year, who anticipated just $2.20 per share in earnings. Either way, they were well off the year ago period’s earnings of $996.5 million, or $2.56 per share. Overall, the revenue of Deere & Company (NYSE:DE) from farm equipment sales for the quarter shrank to $8.72 billion, from $9.32 billion a year ago.

The much weaker demand for farm equipment despite the gradually improving economy can be directly blamed on the leveling off of the farm sector after furious activity in corn farming throughout much of the past decade, thanks to generous ethanol subsidies that totalled as much as $6 billion annually.

While equipment sales at Deere & Company (NYSE:DE) were down by 8% in Canada and the U.S during the quarter, construction and forestry sales were up a strong 19%, which could herald a new growth market for Deere.

Disclosure: none

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