Deere & Co. (DE) saw its shares rise in pre-market trading after the company released its third-quarter earnings report and reaffirmed its net income outlook for 2024. Despite facing a challenging market environment, Deere managed to surpass analysts’ expectations.
The company’s net sales and revenue for the quarter declined 17% year-over-year to $13.152 billion, outperforming the consensus estimate of $10.944 billion. However, this positive performance was driven by a 21% increase in financial services revenues, reaching $1.489 billion. Meanwhile, net income fell to $153 million, down from $216 million a year ago, primarily due to higher provisions for credit losses and less favorable financing spreads.
Deere’s core business segments experienced significant sales declines: Production & Precision Agriculture net sales dropped 25% year-over-year to $5.099 billion, Small Agriculture & Turf net sales fell 18% to $3.053 billion, and Construction & Forestry revenue declined 13% to $3.235 billion. These declines were attributed to lower shipment volumes.
Despite these challenges, Deere’s CEO, John C. May, emphasized the company’s disciplined execution in a difficult market. Operating profit decreased 34.7% year-over-year to $2.279 billion, and operating margin contracted by 480 basis points to 17.5%. The company reported an EPS of $6.29, exceeding the consensus estimate of $5.85 but significantly down from $10.20 a year ago.
Deere also highlighted its strong financial position, holding over $7 billion in cash and equivalents. The company’s net cash provided by operating activities for the nine months ended July 28 was $4.139 billion, a significant improvement from the cash used of $2.896 billion a year ago.
In response to the challenging market conditions, Deere implemented involuntary employee-separation programs across various regions to streamline operations. These programs incurred $124 million in pre-tax expenses, with an estimated total cost of $150 million.
Looking ahead, Deere reaffirmed its 2024 net income outlook of $7.00 billion. The company expects significant sales declines in its core business segments: Production & Precision Agriculture net sales are projected to decrease by 20% to 25%, with price realization expected to increase by 2%; Small Ag & Turf net sales are expected to fall by 20% to 25% with a 2% price realization increase; and Construction & Forestry net sales are expected to decrease by 10% to 15% with a 0.5% price realization increase. The company anticipates Financial services net income of $720 million for the fiscal year.
Deere’s commitment to cost reduction and strategic production adjustments, coupled with its strong financial position, suggests the company is well-positioned to navigate the current market challenges and achieve its 2024 earnings targets.
