Stock of Deere Plunges After Disappointing Earnings and Sales Outlook

Shares of Deere & Co. (DE) plunged to their lowest levels in months on Wednesday after the manufacturer of agricultural, construction, and turf equipment provided an earnings and sales outlook for the next year that fell well below Wall Street expectations.

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For fiscal 2024, Deere anticipates net income in the range of $7.75 billion to $8.25 billion, a notable decline compared to the current FactSet consensus of $9.31 billion. The company attributes this shift to a return to mid-cycle levels in volumes, marking a departure from its outlook three months ago. At that time, Deere had expressed optimism that government spending on megaprojects would benefit 2024 and possibly extend into 2025, supporting an elongated cycle for construction equipment sales.

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In response to the revised outlook, Deere's stock dropped 6.3% in morning trading, putting it on track for the lowest close since June 1. This also represented the largest one-day selloff since June 23, 2022, when it declined by 6.4%.

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Analyst Michael Shlisky from D.A. Davidson maintained his buy rating, suggesting that the stock's selloff might make it more attractive to investors as the term "mid-cycle" gradually resonates with them. Shlisky maintained his stock price target at $493, implying a potential 38% upside from recent levels.

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For the fiscal fourth quarter ending on October 29, Deere reported a rise in net income to $2.37 billion, or $8.26 per share, compared to $2.25 billion, or $7.44 per share, in the same period the previous year. While sales slipped by 0.8% to $15.41 billion, it exceeded the FactSet consensus of $13.64 billion.

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Breakdowns by segment revealed that production and precision agriculture sales fell 6.3% to $6.97 billion, surpassing the FactSet consensus of $6.6 billion. Small agriculture and turf sales declined by 12.7% to $3.09 billion, slightly below forecasts of $3.17 billion. However, construction and forestry sales experienced growth of 10.9% to $3.74 billion, exceeding expectations of $3.70 billion.

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Looking ahead, Deere projects fiscal 2024 sales for production and precision agriculture and small agriculture and turf to decline by 10% to 15%, with construction and forestry sales expected to decrease by approximately 10%. These estimates contrast with the FactSet consensus, which anticipates a 5.6% decline in production and precision ag sales, a 6.0% decline in small ag and turf sales, and a 2.1% increase in construction and forestry sales.

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Matt Elkott from TD Cowen maintained a neutral stance on Deere's stock following the "worse than expectation" guidance. He suggested that the outlook might be incorporating a significant degree of conservatism to account for various scenarios arising from heightened macroeconomic uncertainty. Elkott conveyed this perspective in a note to clients, indicating that Deere may be incorporating a conservative approach to its guidance due to the elevated level of macro uncertainty.

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Over the past three months through Tuesday, Deere's stock has declined by 7.0%, while the S&P 500 has gained 3.9%.

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