Earnings Preview: Deere's Report Will Reveal Farm Sector Clues
Deere is part of an earth-moving dynamic duo that gives institutional investors a pretty good idea about the state of infrastructure and agriculture development around the globe. Caterpillar (CAT) has a business model weighted toward construction equipment, while Deere tilts toward farming/agriculture equipment. With that in mind, Wall Street will want to see more signs of increasing demand in Deere's Latin America, Asia and Eastern European agriculture markets. Developed markets count too, but emerging markets offer the greatest sales growth potential.
In addition to scrutinizing Deere's numbers for savings from cost cuts and production schedule adjustments, Wall Street will also focus on the company's orders and its outlook for agricultural equipment sales in the year ahead.
Providing an Accurate Snapshot
Deere's construction equipment business (particularly its U.S. sales) should show signs of firming on continued residential construction stabilization. But again, the company's performance in construction equipment won't sway investors nearly as much as agriculture equipment will. That category includes tractors, combines, cotton/sugar cane harvesters, seeding and soil preparation machinery, material handling and agricultural management systems. In short, you can obtain an accurate snapshot of where the global agriculture sector in headed in the quarters ahead from Deere's performance, orders and outlook on the industry.
Technically, Deere's stock pulled back recently, roughly in sync with the Dow's late January/early February sell-off, after an impressive gain from about $25 to roughly $55 in 2009, then to $60 in early 2010. During the retreat, Deere's stock dipped below the key 50-day moving average and is now straddling that average. This is a sign that institutional investors are awaiting Deere's quarterly report and outlook for clues regarding the strength of the global agriculture sector and, by extension, Deere's bottom line for the year ahead.