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26 November 2020

John Deere Outperforms Expected Q4 Earnings

John Deere, the US-based manufacturer of agricultural, construction, and forestry machinery, has considerably beaten consensus Q4 earnings estimates and expects these gains to carry on and translate into strong profits in 2021, the company has reported.

Deere is expecting higher world crop prices which would result in a positive outlook for the agricultural sector. This may result in higher margins for agricultural businesses, providing room for increased investment into farming equipment which would prove a strong catalyst for Deere’s 2021 profits.

The Illinois, US-headquartered company announced earnings for the last quarter ending in October (which is the group’s final fiscal quarter) of US$2.39 per share, which is up 5.3% from the same quarter a year before. This result strongly beat analysts’ expectations of US$1.49 per share. However, as earnings beat estimates, sales fell short of estimates. The group’s global sales fell by 2% from last year to US$9.73bn; analysts expected US$9.89bn.

During the fiscal year 2021, John Deere is making some positive estimates on sales. The company expects the sales of agriculture and turn equipment to rise by 10-15% on 2020 levels. Deere also expects construction and forestry equipment sales to rise by 5-10%. Since the drearier earnings announcement of the third quarter back in August, Deere has revised its net income forecast upwards, in the best case by 100%. The company, as of last quarter, expected a net income of US$1.6-2bn, but is now expecting this to be as high as US$4bn.

Restaurants and pubs have experienced extreme financial and operational hardship this year due to Coronavirus restrictions, primarily due to lockdowns restricting their operating hours, therefore putting a pressure on profit margins. 72% of restaurants and bars fear of closure due to the increasing financial stress. Because of this, the demand for agricultural produce from the hospitality sector has understandably fallen. However, demand for agriculture during lockdowns has derived from supermarkets, as many people transition away from eating in bars and restaurants to making home cooked meals. Therefore, although the production of goods has taken a hit, farming has come out relatively unscathed relative when compared to manufacturing due to the nature of the products being different in terms of necessity.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
John Deere Outperforms Expected Q4 Earnings

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