Although we have long viewed Deere (DE) as a dividend name, we believe the stock will continue to offer capital appreciation from present levels. In this column, we discuss the segment-specific performance, growth of the name, and offer projections for 2018.
Sales were strong for the company in the most recent quarter, and both agriculture and turf equipment, as well as Construction and forestry, saw sales improve. The majority of the company’s sales are in agriculture and turf equipment. Net sales here were $4.24 billion, up 18% from $3.59 billion in the comparable period last year.
Construction and forestry sales moved higher in the quarter, in part due to acquisitions and in part due to strong organic sales. Sales in this segment were up 57% to $1.73 billion, rising from $1.1 billion last year. We would be remiss if we did not mention that the recent purchase of The Wirtgen added 23%, while 34% were organic sales.
Equipment net sales in the United States and Canada were up 24% in the quarter relative to last year. What’s most important to note is that this is almost all organic growth. The Wirtgen group only contributed 1% to these results.
We were very pleased to see that international net sales were strong. International sales were up a strong 33%, with Wirtgen adding 12%. But what about profit?
Well, expenses rose because sales were up so dramatically. Cost of sales were $4.7 billion vs. $3.8 billion last year while research and development spending increased to $356 million. Further, selling, general, and administrative expenses rose to $705 million, while “other” expenses rose to $343 million. The 20% increase in expenses to $6.395 billion from $5.3 billion last year was a bit of a shock. That said, revenue growth of 27% outpaces this expenditure growth so this is acceptable.
Taking it all in, earnings were up to $430 million or $1.31 per share. This surpassed our expectations by $0.12. Combining all of the changes we have seen from the company and now that tax reform is complete our opinion is that 2018 will be strong.
