Deere highlights improving agricultural environment in improved 2021 outlook

By: Jayson Derrick
Jayson Derrick
Jayson lives in Montreal with his wife and daughter, loves watching hockey, and is on a lifelong quest to perfect the… read more.
on Nov 25, 2020
  • Deere reported a fiscal fourth quarter EPS and revenue beat.
  • Management said it ended the year on a "solid" note.
  • Management also guided net income to increase from $2.75B in 2020 to $3.6B to $4B in 2021.

Agricultural, construction, and forestry machinery company Deere & Company (NYSE: DE) reported fiscal fourth quarter results Wednesday morning that prompted management to revise its 2021 outlook higher.

Q4 and full-year recap

Deere said it earned $2.39 per share in the fiscal fourth quarter on revenue of $9.73 billion versus expectations of $1.49 per share and revenue of $9.89 billion. Net income for the quarter rose 5% year-over-year to $757 million due to what management described as strong execution and disciplined cost management.

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Encouragingly, Agriculture & Turf sales rose from $5.76 billion to $6.2 billion in the fourth quarter due to price realization and higher shipment volumes. Profit improved from $527 million to $860 million due to similar price realization, lower research and development expenses, reduced SGA expenses, improved shipment volumes and mix, and lower warranty expenses.

Elsewhere, Equipment Operations sales fell 1% year-over-year to $8.7 billion, Construction & Forestry sales fell 16% to $2.5 billion and Financial Services sales rose 107% to $186 million.

Here is a recap of how Deere performed in its fiscal third quarter.

Revenue for the full-year fell from $39.26 billion to $35.54 billion, net income fell from $3.25 billion to $2.75 billion and EPS dipped from $10.15 to $8.69. Management noted it considers its full-year performance to be “solid” as it was up against challenges associated with navigating through the COVID-19 pandemic.

Improved 2021 outlook

In conjunction with Deere’s fiscal fourth quarter report, management said it expects total net income to improve from $2.75 billion to a range of $3.6 billion to $4 billion. Management singled out improving fundamentals in the agricultural sector for lifting demand in the coming year.

Specifically, management expects global sales of its agricultural and turf equipment to increase at least 10% from 2020 and as much as 15%. By region, U.S. and Canadian sales are expected to rise 5% to 10% due to demand for larger models. 

Sales across the European Union and South America are each expected to rise 5%. But the Asian region is likely to see a “slightly lower” pace of growth.

A dry weather spell across the U.S. during the summer months resulted in a less robust harvest than expected. At the same time, demand for wheat, soybeans, and corn rose higher as consumers demand to stockpile food amid the COVID-19 pandemic. This resulted in lower grain stockpiles and high crop prices and contributed to management’s bullish outlook.

“Higher crop prices and improved fundamentals are leading to renewed optimism in the agricultural sector and improving demand for farm equipment,” Deere CEO and Chairman John May said in the earnings release. “At the same time, we are looking forward to realizing the benefits of our smart industrial operating strategy, which is designed to accelerate the delivery of solutions that will drive improved profitability and sustainability in our customers’ operations.”

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