Not only did Deere & Co. fourth quarter earnings disappoint analysts, its fiscal year 2013 outlook came in lower than market expectations. At the same time, the company reported that its early order program for combines and other equipment is progressing nicely.
According to various reports, the company is expecting to raise equipment prices by about 3% for its new ag and turf equipment, particularly large machinery.
Despite the early positive signals, Deere still expects its overall ag and turf equipment sales for fiscal 2013 to come in flat compared with the prior year.
During a conference call with analysts on November 21, the company indicated that its early order combine program is now by quarter and it has booked all of its available combine production for the first and second quarters of fiscal 2013. Reportedly, dealers began placing combine orders for the third quarter in early November.
“In aggregate, the other seasonal programs for planters, sprayers, drills, air seeding and tillage are all up double digits,” says Eric Crawford, analyst for UBS. “Of note, sprayer production is almost full, even with additional capacity available this year. Our 2013 outlook is supported by this promising early order activity.”
According to JP Morgan analyst Ann Duignan, “The company now provides guidance for gross margin, which is expected to be about 26% in fiscal 2013 vs. 25.2% in fiscal 2012, suggesting an incremental gross margin of 39%. This seems a little aggressive given the past few quarters’ performance,” says Duignan. “The livestock industry has already begun to be affected by the drought and conditions are likely to deteriorate before they improve, in our view, yet management’s outlook for livestock receipts in 2013 is for 4% growth.”
Deere has hired 5,000 people over the past three quarters and the additional costs suggest margin headwinds into early fiscal year 2013, according to Duignan.
“The company is covering 90% of its cost for T4i in ag and turf, and in construction and forestry the company is 75% covered. With a 3% price increases in ag and turf, management expects to offset ~100% of the incremental costs in 2013.”
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