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Shares of Deere & Co. plowed higher Wednesday, after the maker of agriculture, construction and forestry equipment reported blowout fourth-quarter results and an upbeat full-year outlook boosted by continued strong demand, higher pricing and promising spending on infrastructure.
The stock
DE,
shot up 5.2% in afternoon trading, enough to pace all of the S&P 500 index’s
SPX,
gainers. It traded up as much as 7.6% to an intraday high of $448.40 — above the April 18, 2022, record close of $438.45 — before paring back some gains.
The company reported net income for the quarter ending Oct. 30 that rose to $2.25 billion, or $7.44 a share, from $1.28 billion, or $4.12 a share, in the same period a year ago, beating the FactSet consensus for earnings per share of $7.11.
Total revenue grew 37.2% to $15.54 billion, well above Wall Street expectations of $14.40 billion, according to FactSet, with all business segments beating forecasts.
Helping boost results was higher pricing, as price realization was positive by about 19 percentage points to offset a three-point headwind from a higher U.S. dollar.
Operating profit as a percentage of revenue improved to 18.6% from 14.2%.
“Across our businesses, performance was driven by continued strong demand, higher production rates and progress on reducing our inventory in partially completed machines,” said Rachel Bach, manager of investor communications, on the post-earnings conference all with analysts, according to a FactSet transcript.
Inventories were valued at $8.50 billion as of Oct. 30, up 25.3% from a year ago, but a marked improvement from the 42.3% inventory growth seen in the sequential third quarter.
Looking ahead, order books across the company’s business segments are full into the third quarter of 2023, and Bach said dealers “remain on allocation” for the year.
“And it’s important to note that not only do the order books continue to fill when we open them, but the velocity of orders has remained strong,” John May, the company’s chief executive, said on the call.
Helping to keep the books full was the enactment last year of the $1 trillion Infrastructure Investment and Jobs Act.
Brent Norwood, director of investor relations, said on the call that U.S. infrastructure spending was “beginning to show some promise going into 2023.”
For 2023, the company expects sales for its largest production and precision agriculture segment to be up 15-20% from fiscal 2022, for small agriculture and turf sales to be flat to up 5%, and for construction and forestry to be up about 10%. Based on the FactSet sales consensus for those segments, production and precision agriculture is expected to rise 13.4%, small agriculture and turf is forecast to decline 0.5% and construction and forestry is projected to grow 6.1%.
“Broadly speaking, [Deere] is expecting another year of investment in heavy ag and construction, with strong profitability (supply chain isn’t even mentioned),” D.A. Davidson analyst Michael Shilsky wrote in a note to clients, as he reiterated his buy rating.
The stock has run up 16.9% over the past three months, while the SPDR Industrial Select Sector exchange-traded fund
XLY,
has tacked on 3.7% and the S&P 500 has slipped 3.0%.
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