Although dip-buying (which is dead, by the way) and sellers’ fatigue may ultimately support the broader market on Wednesday, folks don’t look particularly enamored with Deere’s guidance.
The company forecast 2019 net income of $3.6 billion which looks shy of estimates (~ $3.7 billion). Sales growth is expected to be 7% in 2019.
Q4 adjusted EPS was $2.30 and Q4 net sales came in at $8.34 billion – that looks like a miss on both counts to me.
I’m no Deere expert, but I’d be willing to bet it’s the guidance and margin headwind commentary that everyone will focus on. Just scanning this 8K for the usual buzzwords produces the following excerpt:
In the fourth quarter, farm machinery sales in the Americas made further gains while construction-equipment sales continued to move higher, helped in part by our Wirtgen road-building business, whose financial contribution has exceeded our original forecasts. At the same time, the company has continued to face cost pressures for raw materials such as steel, which are being addressed through pricing actions and ongoing cost management.
So there’s a reference to rising input costs (one of the things nobody wants to hear) and also to the company mitigating that by raising prices.
Again, I’m no Deere analyst, but this looks to me like a top and bottom line current quarter miss paired with slightly disappointing year-ahead guidance coupled with a mention of rising costs for metals and other inputs which the company is trying to mitigate by passing along the pain via “pricing actions.”
In other words, this looks like it checks all the boxes when it comes to what everybody is looking for in terms of warnings.
Obviously, Deere goes out of their way to emphasize how strong their performance has been and you can read the filing for yourself (linked above), but the shares are down pretty handily in thin pre-market trading, so the initial read from investors appears to be negative.