Deere lifts outlook on profit beat, strong demand but shares still skid

By Bianca Flowers and Shivansh Tiwary

(Reuters) -Deere & Co breezed past Wall Street estimates for third-quarter profit on Friday and raised its full-year guidance, but investor concerns over slower sales going forward sent shares down as much as 5%.

The Moline, Illinois-based company posted a 60% rise in quarterly profit, yet investors were seemingly unimpressed as shares slumped for the world’s largest farm equipment maker.

Easing of supply chain bottlenecks has prompted Deere (NYSE:) to boost production to reduce its backlog. While it easily beat profit expectations, Deere’s stock slump is consistent with other cyclical companies that have outperformed estimates.

“This is broadly in line with what we’ve seen this entire earnings season,” said Kristen Owen, executive director at Oppenheimer & Co Inc.

Owen attributed the tepid market reaction to Deere raising its annual forecast to investors projecting lower sales volumes for the fourth quarter, hinting at a potential downturn in demand in 2024.

Deere expects 2023 net income between $9.75 billion and $10.00 billion, up from its previous outlook of $9.25 billion to $9.50 billion.

The company, a barometer for the global economy, has maintained resilient operating profit margins despite volatility in markets worldwide, with demand from farmers looking for new equipment and parts to repair aging fleets, bolstering Deere’s sales.

Executives reiterated on a conference call that order books for North American agriculture equipment remain robust and are largely pre-sold for the remainder of the year.

Analysts, however, have flagged industry-wide, rising levels of used-equipment inventories, which account for the bulk of farm machinery sales.

“On the new equipment side (it’s) balanced but rising for used,” said Jerry Revich, head of U.S. machinery at Goldman Sachs.

Deere’s Chief Financial Officer Joshua Jepsen attempted to quell shareholder concerns, saying the company expects dealer inventories for new and used equipment “to be below historic levels” by year end.

Construction and forestry equipment sales increased 14% on solid demand backdrop fueled by U.S. President Joe Biden administration’s $1 trillion infrastructure deal.

Net income rose to $2.98 billion for the quarter ended July 31. Earnings per share came in at $10.20, outpacing analysts’ forecast of $8.20, according to Refinitiv data.

Sales from equipment operations rose about to $14.28 billion compared to $13 billion a year ago.

Worldwide net sales and revenue rose 12% to $15.80 billion.