MOLINE, ILL. — Deere & Co. posted higher profits in the fourth quarter, driven by a surge in construction equipment sales. But Wall Street analysts were disappointed by the results, citing global trade disputes and rising costs.
The Moline-based agriculture and construction equipment manufacturer reported net income of $784.8 million for the final quarter of the year, which ended Oct. 28. On a per-share basis, the company had profit of $2.42. Earnings, adjusted for pretax gains, were $2.30 per share.
The fourth-quarter results compare to net income of $510.3 million, or $1.57 per share, for the same quarter last year. The company boasted fourth-quarter earnings increased 54 percent, and net sales rose 18 percent, to $8.3 billion.
“John Deere has concluded another solid year in which the company benefited from a further improvement in market conditions and a favorable customer response to its lineup of advanced products,” Deere CEO and chairman Samuel Allen said in the report.
But, the earnings results missed Wall Street expectations, with analysts surveyed by Zacks Investment Research estimating, on average, earnings of $2.44 per share.
The agricultural equipment manufacturer posted revenue of $9.42 billion, a 17 percent over-the-year increase, with adjusted revenue reported at $8.34 billion, which also fell short of forecasts.
For the fiscal year, Deere reported profit of $2.37 billion, or $7.24 per share. Net sales were reported as $33.35 billion.
Despite Deere posting strong equipment sales and demand uncertainty regarding global trade and rising costs has caused stock market volatility, said Mark Gyrwacheski, investment adviser with Quad-Cities Investment Group.
“There’s a broader theme we’re seeing with concern in the market right now, not just with Deere, but we’ve seen it with Caterpillar and others in the sector,” Grywacheski said. “Deere has had some very good quarters this past year. But instead of focusing on this, the concern is on the rising inflation, rising interest rates, trade disputes and a weakening global economy. They worry that will start to impact future corporate revenues and profits.”
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Deere, and others in the agriculture and manufacturing sector, have been hit this year with new tariffs on steel and aluminum, leading to higher raw material costs.
“For the past few quarters, a way for Deere to counter these high costs is they are implementing cost-cutting measures, and they’ve been raising prices and passing on higher costs to consumers,” Grywacheski said. “Consumer demand remains strong but higher costs are hurting profitability and causing them to miss their earnings per share mark.”
During its Wednesday earnings call with shareholders, Investor Relations Director Josh Jepsen said Deere expects higher steel prices to continue into next year.
“We see a bigger impact in 2018 than we do in 2019,” he said. “In the fourth quarter we saw a higher level of steel pricing, and it was actually what we forecast as we look into 2019, an elevated steel level. As it comes down from the forecast, that would be beneficial.”
Deere executives said increased demand for replacement equipment and new precision agriculture technology drove sales growth in the fourth quarter.
“It is still a replacement market, and that’s because the fleet age has reached its highest point since 2013,” said John Lagemann, senior vice president of agriculture and turf sales. “And we see evidence that replacement demand is amplified by the latest precision technology.”
Agriculture and turf sales rose 3 percent for the quarter and 15 percent for the year, due to higher shipment volumes and prices. Construction and forestry sales surged 65 percent for the quarter and 78 percent for the year.
Construction sales were boosted by the acquisition of Wirtgen Group, the world’s largest manufacturer of road construction equipment, according to the report.
Deere employs 68,000 people worldwide, and operates facilities in Waterloo and the Quad-City region.