Deere & Company (NYSE:DE) is scheduled to report second quarter, fiscal year (FY) 2014 sales and earnings before the opening of financial markets on Wednesday, May 14, 2014. The company will webcast a call with financial analysts and investors that day at 9:00 AM CT.
Wall Street anticipates that the agriculture machinery maker will earn $2.48 per share for the quarter, which is $0.28 less than last year's profit of $2.76 per share. iStock expects DE to run by Wall Street's consensus number, the iEstimate is $2.61.
Revenue, like earnings, is expected to slip, decreasing 6% year-over-year (YoY). Deere's consensus revenue estimate for Q2 is $9.65 billion, more than a half-bill less than last year's $10.26 billion.
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Deere & Company operates in three segments: agriculture and turf, construction and forestry and financial services.
The John Deere agriculture and turf segment manufactures and distributes a line of agricultural and turf equipment and related service parts. John Deere construction segment makes earthmoving, material handling and forestry equipment i.e. backhoes. The financial services segment primarily finances sales and leases by John Deere dealers of new and used agriculture and turf equipment and construction and forestry equipment.
According to Wall Street Cheat Sheet, DE's "whisper number" is $2.49, a penny more than expected. He site reports that DE has topped the "whisper" 28 quarters, missed 13 quarters and never hit the number on the nose.
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Exceeding Wall Street's outlook is nothing new for the machinery maker. DE's EPS topped the consensus 12 of the last 13 quarterly checkups and usually by wide margins. On average, Deere earned 22.15% more than projected profits per share with a range of 3.03% to 100% above the street's view. Meanwhile, the lone miss was a shortfall of -7.69%.
Although Deere's EPS track record is just one shy of perfect in the last 13 quarters, earnings-driven price-sensitivity has been mixed. Investors greeted shares with gains eight of the last 13 announcements, gaining anywhere from 0.16% to 9.39% in the days surrounding the profit news. On five occasions, which includes the lone miss, the stock dropped an average of -4.22%.
For the most part, Deere's financial statements appear to be in order; although, there is room for improvement. According the first quarter's 10-Q, total sales increased 3.13% with other income (crop insurance premiums) and finance and interest income delivering the fastest growth rates, 36.36% and 6.09%, respectively. Meanwhile, total expenses were in-line, moving higher by 3.30%. The difference may not sound like much, but it works out to more than $1 million, which is a rounding error on the income statement.
The most concerning issue we see is inventory rising at almost 5.5 times the rate of equipment sales. Inventory increased 12.56% versus revenue growth of 2.29%. If demand doesn't meet the extra-supply, then discounts may be necessary to move machines. It may not be a concern this quarter, but will become one if the trend persists.
Overall: Deere & Company's (NYSE:DE) recent history, whisper number, and iEstimate strongly suggests another bullish surprise. At the same time, investors might be wise to pay attention to DE's inventory. If the line-item continues to grow faster than revenue, it could be a warning that demand is slowing and downward revisions/guidance coming.
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