Deere's Earnings Are Dropping. The Next Results Are Due Thursday. -- Barrons.com

Al Root

Thanksgiving is almost here, at the end of the U.S. harvest season. That means it is the end of Deere's fiscal year as well.

The tractor maker will give an outlook for 2025 when it reports its quarterly financial results on Thursday morning. Investors shouldn't expect much.

For its fiscal fourth quarter, Deere is expected to report earnings per share of $3.87 from equipment sales of $9.2 billion, according to FactSet. A year ago, Deere reported EPS of $8.26 and sales of $13.8 billion.

The numbers are declining because conditions have been harder in farming lately. U.S. net farm income hit a record $182 billion in 2022, when benchmark corn prices averaged close to $6 a bushel. They have averaged closer to $4 in 2024: The Department of Agriculture projects net farm income of about $140 billion.

Lower crop prices mean less income for farmers to spend on tractors and harvesting combines.

"Expectations are low for several reasons," wrote J.P. Morgan analyst Tami Zakaria in a preview report. Earnings at peers AGCO and CNH Industrial fell short of expectations, industry data show declining sales, and inventories at dealers are high.

The positive is that expectations are low for Deere's guidance for fiscal 2025. Zakaria is looking for earnings per share of $18.34, while the consensus call on Wall Street is for $21.58, according to FactSet.

That consensus EPS estimate corresponds to net income of $5.8 billion, down from the $7 billion expected for fiscal year 2024. Sales for fiscal 2025 are expected to be about $45 billion, down from estimated 2024 sales of $55.6 billion.

Wall Street isn't forecasting a recovery yet. When things turn around might depend on the weather next year.

Zakaria rates shares Hold and has a $420 price target for the stock, while Deere shares gained 1.2% to close at $404.96. The S&P 500 was flat and the Dow Jones Industrial Average gained 0.3%.

Deere management has scheduled a conference call at 10 a.m. Eastern to discuss results. Analysts and investors will want to hear more details about the outlook as well as costs, capital returns, and competition.

Coming into Thursday trading, Deere stock was up about 1% year to date, trailing behind the S&P 500 by about 23 percentage points.

The stock sells for about 19 times the per-share earnings expected over the coming 12 months. They traded for closer to 15 times earnings at the end of 2022.

That is typical for stocks exposed to cyclical forces, which typically trade for low valuations when earnings are high, and high multiples when profits are down. Deere earned almost $35 a share in fiscal 2023. It is expected to report about $25 for fiscal 2024.

Write to Al Root at allen.root@dowjones.com

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November 20, 2024 17:27 ET (22:27 GMT)

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