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Deere & Co performing well but headwinds loom

  • By: "Prime" Ag News
  • May 21, 2019

This article is bought to you by Orange Truck & Ag

* Deere just released its second quarter results, which revealed strong sales and earnings growth.
* The problem is that construction and agricultural headwinds continue to pressure the company's outlook as problems like tariffs are still far from over.
* Nonetheless, as soon as the economy bottoms, this stock becomes a great long-term investment.

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John Deere (DE), the world's second largest producer of farm and construction machinery, just reported its second quarter earnings. I was eager to both study the financials and listen to what managers had to say due to the current situation the company is in.

Global economic growth has weakened with agricultural prices being in a long-term decline. On top of that, we are dealing with a trade war and agricultural production recovery in large parts of the world, which caused the company to be somewhat pessimistic when it comes to earnings and sales growth. All things considered, one should stay on the sidelines for a bit longer to buy this dividend generating stock at hopefully better entry levels.

Sales & Earnings Were Fine
Adjusted EPS came once again in below expectations. The company has not beaten expectations once since Q2 of the 2018 fiscal year. This time, EPS reached $3.52 which is slightly below expectations of $3.57. Nonetheless, with the global economy being in a slow-down since the end of last year, it's a good sign that EPS growth continues to be positive at 12%. Actually, every single quarter since Q1 of 2017 has been a quarter of double-digit EPS growth which is not something a lot of machinery companies were able to accomplish.

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Even more importantly, margins improved across the board. Gross margins improved from 23.4% to 24.4% with EBIT margins going up to 11.6% from 10.9%. Net margins hit 8.5% compared to 5.5% in Q2 of 2018.