Update Deere (DE)

02/17/2010 3:44 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Deere (DE) is both a stock and one of the most reliable indicators of the fortunes of the agricultural sector.

No matter whether you own Deere (the shares are a member of the Jubak Picks 50 long-term portfolio) or are waiting for a turn in the sector as a whole, you should be very happy with the earnings, revenue, and guidance that Deere reported this morning, February 17.

For the fiscal first quarter, Deere reported earnings of 57 cents a share, a mere 38 cents a share better than Wall Street projected. Revenue fell by 7.1% from the year-earlier quarter but at $4.24 billion still came in above projections of $4.19 billion.

And then Deere topped that good news with even better guidance.

CEO Samuel Allen said the company expects sales to grow by 4% to 6% in the second quarter. That would produce revenue of $6.43 billion to $6.56 billion. Wall Street had been projecting second quarter revenue of $6.14 billion.

For the entire fiscal 2010 year, Deere expects sales by grow by 6% to 8% yielding revenue of $22 billion to $22.4 billion. Wall Street had been looking for $21.2 billion.

There’s really good news for other global agriculture stocks, say fertilizer stocks, for example, in these numbers since Deere’s sales historically closely track farm incomes.

The company’s best growth prospects are in the North American and Brazilian markets. The company is projecting growth in sales volume in both markets and a pickup in market share in Brazil. The weak market, as you might expect given recent anemic economic growth, remains Western Europe.

I don’t want to make too much of Deere as an indicator but there is good news in these numbers for the economy in general. One question about the current economic recovery has been When will companies increase production? For Deere the answer is Now.

Inventories have fallen to extraordinarily low levels—combine inventories, for example, were just 6% of sales in the fiscal first quarter. Looking at projected demand and inventories Deere says that it has significantly increased projected production for both combines and large tractors.

As I said, lots of good news no matter your investment exposure to the stock, sector or general economy.
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