One of the Week's Few Winners
It's been a week to forget for many investors. The Dow Jones Industrial Average (INDEX: ^DJI) has been down every day this week after the super failure of the "supercommittee" on Monday. However, one company is bucking that trend in a big way, up almost 4% during the day today.
That company is Deere (NYS: DE) , which knocked earnings out of the park this morning, beating analyst expectations for both revenue and profit.
Fourth-quarter revenue increased for the company to $8.6 billion from $7.2 billion a year ago, a 20% over last year. Likewise, net income also grew, up a whopping 47% to $670 million. That was good for $1.62 earnings per share, handily beating the $1.43 per share that analysts were expecting.
On top of that, Deere also said that high demand will lead to even better results in 2012, and the company raised its next-year guidance. This is especially noteworthy, considering that the company is often conservative in its guidance.
So what drove Deere's monster earnings? Equipment sales were huge for the company, jumping 20% in the quarter from last year. Deere also said that it expects full-year equipment sales to be up 15%.
The company was also able to increase overall sales volume and equipment prices in the fourth quarter, which were necessary to help Deere offset higher research and development expenses and increased investment costs in new products in 2011 to comply with new EPA pollution standards.
But what did everyone else do?
Competitor Caterpillar (NYS: CAT) also posted impressive quarterly results. Earlier this month, the equipment giant reported a 58% increase in earnings in its third quarter over the previous year. Importantly, the company saw a 55% increase in Asia/Pacific revenue growth and said it's finally regaining market share in China, the country that accounts for more than half of the world's total demand for construction equipment.
PACCAR (NYS: PCAR) also posted an excellent third quarter, with net income increasing by an incredible 135% from the previous year. Revenue was up 67%, helped by increased truck deliveries and aftermarket sales.
But not all construction and farm-machinery companies were quite as impressive. Engine maker Cummins (NYS: CMI) saw a solid 60% increase in its third-quarter profit but lowered its projected sales for the full year to a range of $17.5 billion to $18 billion, down from its $18 billion July estimate.
The whole picture
Beyond Deere, the company's earnings and optimistic guidance are also good news for the agricultural sector as a whole. Farmers are continuing to see strong demand for agricultural commodities. This is one of the sectors that has best been able to better weather the economic standstill, and Deere's numbers show that. As the agricultural sector continues to see strong demand, farmers are more and more likely to order new equipment, and that's good news for Deere and all the companies mentioned here.
So what does this mean for investors? Well, we saw an excellent quarter from a relatively solid dividend producer (yielding 2.3%) that sports a return on equity of 43% and has encouraging growth prospects for the future. Obviously, investors liked what they saw from Deere, sending the stock up on a day in which the major indices were down across the board.
I'm impressed by the company's emerging-market growth potential and the continued strength of the agriculture sector. That's why I'll be watching Deere closely as we head into 2012. If you'd like to keep tabs on Deere or any of these companies, simply follow the links below to add them to your Watchlist.
- Add Deere to My Watchlist.
- Add Caterpillar to My Watchlist.
- Add Cummins to My Watchlist.
- Add PACCAR to My Watchlist.
At the time this article was published Brendan Byrnes owns none of the companies mentioned here.Motley Fool newsletter serviceshave recommended buying shares of Cummins and PACCAR. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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