Deere Moves Higher Early Friday After Boosting Earnings Outlook

Shares of agricultural and construction equipment maker Deere NYSE: DE were trading higher Friday morning after the company reported a triple-digit earnings increase for the second quarter. Deere also boosted its full-year outlook.

Analysts were looking for earnings per share of $4.31; the company reported net income of $5.68 per share, up 169% from the year-ago quarter.

Earnings growth accelerated in the past two quarters. 

Revenue was $12.1 billion, a 30% increase. That topped analysts' expectations for $10.44 billion in sales. 

Drilling down, the company reported net sales of its equipment operations clocked in at  $10.998 billion in the quarter, compared to $8.224 billion in the year-earlier quarter.

Deere also lifted its 2021 earnings outlook to a range between $5.3 and $5.7 billion. It was the second time the company lifted earnings guidance. In February it boosted the earnings outlook to a range of $4.6 billion to $5.0 billion, higher than an earlier forecast of a $3.6 billion $4 billion range.

In the statement accompanying the report, CEO John May said, "With another quarter of solid performance, John Deere closed out the first half of the year on a highly encouraging note. Our results received support across our entire business lineup, reflecting healthy worldwide markets for farm and construction equipment.”

He added, “Our smart industrial operating strategy is continuing to have a significant impact on performance while also helping customers do their jobs in a more profitable and sustainable manner."

Supply-Chain Bottlenecks

It’s been well documented that the global economic recovery is happening at a faster pace than anyone - including economists and other professional forecasters - expected a year ago. It’s also well known that the unanticipated pace of the recovery is contributing to widespread supply-chain bottlenecks and shortages. 

Pretty much every company that is reporting lately mentions how it’s experiencing effects of the globally supply-chain slowdowns.

Deere joined that chorus. 

"While the company is clearly performing at a high level, Deere expects to see increased supply-chain pressures through the balance of the year," May said. "We are working closely with key suppliers to secure the parts and components that our customers need to deliver essential food production and infrastructure. Despite these challenges, Deere is on track for a strong year and we believe is well-positioned to unlock greater value for our customers and other stakeholders in the future."

Deere rival Caterpillar NYSE: CAT also cited supply-chain concerns when it reported quarterly results in late April. 

In an interview following the report, Caterpillar chief financial officer Andrew Bonfield said the semiconductor shortage might affect production this year. He also said raw materials prices, particularly for steel, would have an impact. 

However, the global increase in commodity prices was resulting in greater equipment orders from companies engaged in iron-ore mining. 

Investors can reasonably expect some of the same conditions to affect Deere throughout 2021. 

Outpacing the S&P 500

Year-to-date, Deere has returned 32.36%, as compared to the S&P 500’s return of 10.73. Deere comprises 0.316% of the S&P 500, so its movements don’t have much, if any, effect on the broader index. 

The stock cleared resistance above $392.42 in tepid volume on May 7. However, the fledgling uptrend broke down as the broader market weakened. Earlier this week, shares gapped down more than 3%, and have been trading below their 50-day moving average. 

Deere initially gapped up at the open Friday, but retraced those gains within minutes before rallying along with the broader market. 

About 30 minutes into the trading day, shares of Deere advanced 2.56%, or $9.67, to $364.37. Volume was more than 600% above average for that point in the session. Monster volume is a good sign when a stock is trading higher. That indicates institutional investors are piling in.  

Deere was outpacing the S&P 500 as a whole, which was up 0.57% in volume 7% higher than normal.