Deere drops despite Q2 beat as margins fall in two of three units

May 20, 2022 7:53 AM ETDeere & Company (DE)By: Carl Surran, SA News Editor13 Comments

John Deere Tractors

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Deere (NYSE:DE) -3.2% pre-market on Friday despite reporting better than expected FQ2 adjusted earnings and revenues, as operating margins fell in the Production and Precision Agriculture and Small Agriculture and Turf segments.

Deere (DE) raised full-year guidance for net income of $7B-$7.4B, but the raise includes a $220M gain from special items in Q2, from $6.7B-$7.1B previous guidance.

Q2 net income increased to $2.1B, or $6.81/share, from $1.79B, or $5.68/share, in the year-earlier quarter.

Q2 revenues rose 10.9% Y/Y to $13.37B, while cost of sales jumped 12.5% to $8.92B, lowering gross margin to 33.3% from 34.3% a year ago.

Q2 sales by segment: Production and Precision Agriculture +13% Y/Y to $5.12B, Small Agriculture and Turf sales +5% to $3.57B, Construction and Forestry +9% to $3.35B.

Q2 operating profit by segment: Production and Precision Agriculture +5% Y/Y to $1.06B, Small Agriculture and Turf sales -20% to $520M, Construction and Forestry +66% to $814M.

Q2 operating margin by segment: Production and Precision Agriculture 20.7% vs. 22.2% in the prior-year period, Small Agriculture and Turf 14.6% vs. 19.1%, Construction and Forestry 24.3% vs. 15.9%.

Deere (DE) forecasts sales growth by segment of 25%-30% for Production and Precision Agriculture, ~15% in Small Agriculture and Turf, and 10%-15% in Construction and Forestry.

"We believe demand for farm equipment will continue benefiting from positive fundamentals in spite of availability concerns and inflationary pressures affecting our customers' input costs," Chairman and CEO John May said.

Deere's (DE) stock price return shows gains of 6% YTD and less than 2% during the past year.

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