Boom In Forestry Equipment Sales Contributes To A Great Q3 For John Deere

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Deere & Company recently released its earnings report for the third quarter of 2018, ending July 29. The firm reported $910.3 million net income, or $2.78 per share, which is a significant increase compared to this time last year, when the company reported a net income of $641.8 million.

The Good News First

According to the company’s latest quarterly report, Deere equipment customers have responded well to the latest products, and favorable market conditions attributed to the tax reform legislation passed in 2017 also helped boost the company’s earnings. Chairman and CEO Samuel R. Allen says the company experienced strong sales of construction equipment thanks largely to the Wirtgen road-building unit, and agriculture equipment also sold well in North America and Europe.

Deere’s Agriculture and Turf equipment enjoyed an 18 percent hike in sales for Q3, and a 19 percent increase in year-to-date sales. The company attributes improved revenues to selling more equipment and a drop in warranty-related expenses and price realization. The Construction and Forestry divisions saw 100 percent increase in sales for the quarter and an 83 percent year-to-date increase.

Outlook For The Rest Of 2018

The bean counters at Deere expect to close out 2018 with a 15 percent increase in sales for the Ag and Turf equipment segments. Deere expects the better-performing Construction and Forestry divisions to realize sales increases to 81 percent for the year. According to the report, reasons for the surge include higher housing starts in the U.S., increased activity in the oil and gas sector, and strong global economic growth. Deere also foresees a thriving Forestry division, which should enjoy a 10% increase in sales for 2018 thanks to higher worldwide demand for equipment.

Uncertainty On The Horizon

Despite the good news, there are a few red flags mentioned in Deere’s report that may temper optimism among analysts and investors. These include higher production costs and research and development expenses, as well as higher costs for raw materials and freight. Deere plans to offset these negative factors with a combination of cost-cutting strategies and price increases.

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Source: Deere & Company