It appears that Deere and Company (DE) had a good sales month in March, growing across the board and beating the industry average. Here is the performance by segment:
- Agriculture and turf segment: Deere's U.S. and Canada utility tractor sales growth was in the double digits in March. The industry only grew by 8%.
- Sales of row crop tractor were also higher than the industry growth rate of 28% during the month.
- Sales of four-wheel drive tractor sales increased by a single digit in March, while the industry declined by 5%.
To balance the good news, let me remind you that certain parts of the globe are not doing as well which is no surprise. Retail sales of "select turf and utility equipment" were down in double digits and tractor sales were down the same in Europe. It appears people like Deere combines because it growth rate was in triple digits compared to 67% for the industry as a whole.
From a global perspective, the company's total worldwide sales increased 10% year-over-year and one of the best segments was the "agriculture and turf segment" that increased by 16%. Even though there was a negative currency translation, which other companies dealt with, the higher shipment volumes and improved pricing helped overcome that.
What is in store for Deere and Company the rest of 2013? In this next quarter growth is expected to be around 4% and for the full year about 6% and the segment that it did so well recently - "agriculture and turf segment" - is also expected to see growth about 6%.
This could be a very good year for Deere and a great opportunity for investors. Residential and nonresidential construction recovery is well underway. A report earlier this year projected nonresidential construction will increase by 5% this year and there is a sense that the increase is fairly level and steady which gives people a little bit more security that the economy is improving. Hotels are expected to grow by 15.7%, retail and office space by 7% and healthcare facilities themselves are expected to grow by 4.4% in 2013. Residential is even doing better, but I must throw in my word of caution. The federal budget uncertainty is still floating around out there as well as debt issues that need to be resolved. At any time construction products can be put on hold or even canceled because of developments with these two issues, so I believe it's important just to keep this in mind.
Not only is the construction sector showing signs of recovery which is good for Deere, but strong farm income should also boost sales for Deere farm machinery. In fact, the US Department of Agriculture is optimistic of a strong fiscal agricultural year in 2013. This year the forecast is for $128.2 billion in farm income because forecasters are expecting a year of record crop production which should translate into a great year for crop inventory. If this comes to fruition, it will be the highest since 1973.
So in the US, it looks like a great year. There are some headwinds the company is going to be facing. Expect Europe to continue to be weak because of the economy. This will offset some of the higher demand from the United States. Also, through the first half of 2013 import duties of a total of 27.5% are going to be slapped on all combines going into Russia, Kazakhstan and Belarus which is going to bring the total import duty to an eye-popping 32.5%. Needless to say, I would expect this to have an adverse affect upon sales.
Since the stock peaked in early February it has been in a bearish peak and valley trading pattern. The recent run-up has been very steep so I would expect the stock to pull back before it has the chance to define a bottom. With the recent news on sales possibilities for 2013 I would expect the bottom to be identified. Both the RSI indicator and the MACD indicator are well entrenched in bearish territory, for this reason the bottom my take a bit to define.
My observations conclude that Deere and Company should have a bright 2013 if the agricultural and construction sectors continue to pan out as forecasters predict. With the recent pullback we have seen for the last three months I believe investors might find a good point of entry here in the next couple months if they are interested in putting money into the company, so put this on your watch list.