By Tim Seymour
Deere (DE) reported a solid beat ($1.65 vs. $1.40 consensus) in fiscal Q1 while raising its outlook on FY 2013. The agriculture and turf business is better than expected and will continue to be as long as soft prices stay in this range.
Farmers as a group in the U.S. have never made more money ($219.6 billion, according to Department of Agriculture). Agriculture and turf sales rose 16% year over year and operating margins rose 180bp, or 14.0%, year over year. The company forecasts 6% growth in agriculture and turf sales for 2013 (was +4%), driven by strength in South America with industry sales of +10%-15% (it was ~10%).
The company is taking market share in Brazil and is seeing massive investments in capacity, at a time when South America looks to have the best growth in the world. Deere still has plenty of room to grow in South America in terms of overall global revenue mix. The stock has had a good run into these numbers, and none of this is a terrible surprise. With multiples also fairly priced at 11.5 times P/E, there's no need to rush in.