Deere & Company (DE)’s Q3 Net income and Outlook Affected by Weakened Global Farm Sector

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Deere & Company (NYSE:DE) announced its third-quarter results today. The company made $850.7 million in earnings or $2.33 per share, which is 14.6% lower than in the previous quarter, when it earned $ 996.5 million or $2.56 per share. The revenue was $9.5 billion, down 5% from the previous quarter.

Eli Lustgarten, senior analyst from Longbow Research, discussed the results and the near term outlook for Deere & Company (NYSE:DE) in an intervention on CNBC. Lustgarten noted that Deere & Company (NYSE:DE) is a great company with great execution, but that it is facing significant sector-related turbulences in the quarters ahead.

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“[…] Farm numbers had now began to deteriorate – now, this is 80% of the company – as we expected, setting up for a much weaker fourth quarter, and clearly a much weaker 2015. You can’t fight weak commodity prices, with now $3.65 corn,” he said.

Samuel R. Allen, chairman and chief executive officer of Deere & Company (NYSE:DE), said that “[…] the company will be scaling back production in line with demand for our agricultural products”. Lustgarten pointed out that the company was unable to cut back the production before, because it had to meet its pre-existing order book. He says he knew that the results for the first half of the year would be strong, due to the order book, with the company now being in the process of cutting back. Cuts are going to come “fast and furious, and a lot more for next year than most people are anticipating.”

Lustgarten said he does not expect the bonus depreciation and tax credits to “matter that much” to Deere & Company (NYSE:DE) and other companies in the sector, even though it will help on the margin, because, he stressed, the fundamentals of the sector are so much weaker than almost any other sector. “You can’t fight low commodity prices”, he concluded.

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