Why Deere Stock Is Caught in the Headlights Today

The quarter was strong, but the outlook is uncertain.

Agriculture equipment manufacturer Deere (DE -3.25%) reported better-than-expected quarterly results but trimmed its full-year forecast for the second time. Investors are focused on what is to come, sending Deere shares down 3% as of 11 a.m. Eastern.

Strong quarter, uncertain outlook

Deere earned $8.53 per share in its fiscal second quarter ending April 28 on revenue of $15.24 billion, easily surpassing Wall Street’s $7.86 per share on sales of $13.3 billion estimate. Revenue was down 12% year over year and net income fell by 17%, reflecting lower shipment volumes and higher production costs.

CEO John C. May called the results “noteworthy in light of continued changes across the global agricultural sector.” High interest rates are pressuring farmers at a time when farm income is expected to fall due to lower commodity prices and higher production costs.

Domestic farm income could fall as much as 25% in 2024 compared to 2023, according to the U.S. Department of Agriculture.

Deere does not expect farmers to be in a buying mood anytime soon. The company now expects full-year net income of about $7 billion, down from previous guidance of $7.5 billion and before that $7.75 billion.

Is Deere stock a buy?

Investors shouldn’t have been caught totally off guard by the forecast cut, as Caterpillar painted a similar picture last month during its earnings call. Still, the size of the cut is a surprise. And it indicates that a quick turnaround is unlikely.

Deere CEO May said, “we are proactively managing our production and inventory levels to adapt to demand changes and position the business for the future.” But there is only so much the company can do to fight the economic cycle. Deere’s tractors and other equipment are big-ticket expenses that are typically deferred when times are tight.

For long-term focused investors, Deere remains a category leader with significant investments in technology. But those buying in today will likely need to wait patiently for the cycle to turn and orders to pick up again.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Deere & Company. The Motley Fool has a disclosure policy.

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