Deere stock ate dirt early Wednesday after the agricultural machinery giant mowed down fiscal fourth quarter earnings estimates, but warned of a double-digit-percentage drop in sales in the new fiscal year.
Deere guidance dragged down Caterpillar and AGCO in early stock market action.
Citing a return to "mid-cycle" sales levels, Deere's outlook calls for a sharp drop in profitability in fiscal 2024.
"While our end markets will fluctuate, we remain focused on disciplined execution and strategically investing in solutions that drive customer value," CEO John May said in the earnings statement. "As evidenced by our guidance for 2024, we are demonstrating higher levels of through-cycle structural profitability while making our company more resilient and better equipped for the future."
Minutes from the Federal Reserve's Oct. 31-Nov. 1 meeting released on Tuesday included commentary that higher interest rates were affecting the agricultural sector. Members of the Fed's policy committee said their contacts noted that "high financing costs were likely weighing on purchases of heavy agricultural equipment."
Deere also is likely seeing the same kind of shift visible in Caterpillar's Q3 earnings report, which indicated a sharp decrease in its order backlog. That comes as equipment dealers no longer need to build up their inventories. With supply chains normalizing, there's less urgency to brace for unexpectedly strong demand.
Deere Earnings
Deere posted Q4 earnings per share of $8.26, up 11% from a year ago and 80 cents ahead of estimates, according to FactSet. Revenue dipped 1% to $15.41 billion, a smaller decline than analysts expected.
Fiscal 2024 net income rose 43% to $10.166 billion in fiscal 2023, with a more modest 5% rise in fiscal Q4. But Deere's outlook puts net income between $7.75 billion and $8.25 billion in fiscal 2024, a drop of 19% to 24%.
Deere expects the U.S. market for large agricultural equipment to fall between 10% and 15% in the coming year, with a 5% to 10% drop in smaller equipment. Yet Deere expects its own sales will fall at least that much: 15% to 20% for production and precision equipment, with a 10% to 15% fall in sales of smaller equipment.
Deere's outlook for the construction sector isn't as gloomy, with an overall market pullback of 5% to 10%.
DE Stock
Deere stock slid 5.8% to 360.55 on Wednesday morning. That leaves Deere just above a six-month low and about 20% below its recent high in late July.
CAT stock fell 2.2%, while AGCO lost 1.7%.
