LONDON, UK / ACCESSWIRE / August 25, 2016 / Active Wall St. announces its post-earnings coverage on Deere & Company (NYSE: DE). The company reported third quarter fiscal 2016 results on August 19th, 2016. The farm and heavy equipment maker reported its 10th consecutive quarterly decline in revenues and profits as farmers continue to curb spending, although earnings per share improved on y-o-y basis. Register with us now for your free membership at: http://www.activewallst.com/register/.

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Earnings Reviewed

For the three months ended on July 31, 2016, Deere reported net income of $488.8 million, down 4.5% from net income of $511.6 million in the corresponding year ago period. On a per-share basis, earnings rose to $1.55 from $1.53 primarily attributed to a much lower share count as a result of stock repurchase. Analysts had expected earnings of $0.94 per share. Revenue declined 11% to $6.72 billion. Analysts were expecting $6.09 billion in revenues.

The company's CEO Samuel R. Allen stated:

"John Deere's performance in the third quarter reflected the continuing impact of the global farm recession as well as difficult conditions in construction equipment markets. All of Deere's businesses remained profitable with the Agriculture & Turf division reporting higher operating profit than last year. As in past quarters, our results benefited from the sound execution of our operating plans, the impact of a broad product portfolio, and our success keeping a tight rein on costs and assets."

Equipment Overview

During Q3 FY16, Deere's worldwide equipment operations net sales declined 14% on y-o-y basis to $5.86 billion. Net sales in the United States and Canada dropped 16% in Q3 FY16, and 12% outside the US and Canada. Currency exchange rates had a negative impact of 4% on revenues.

The equipment operations reported operating profit of $625 million compared to $601 million last year, primarily driven by price realization, lower production costs and a decrease in selling, administrative and general expenses.

Deere's Agriculture & Turf sales fell 11% for Q3 FY16, primarily due to lower shipment volumes and the unfavourable effects of currency translation. Nonetheless, the division posted operating profit of $571 million compared to $472 million in Q3 FY15 driven by price realization, lower production costs, and lower selling, administrative, and general expenses.

In its Construction and forestry segment, sales plunged 24% and profit slumped 58% to $54 million as a result of lower shipment volumes.

Lay Off to Manage Tough Market Condition

The US agricultural economy is struggling from a third consecutive year of downturn. In June 2016, the US Department of Agriculture had forecasted a 3% drop in nationwide farm income to $54.8 billion in 2016. Bumper harvest weak grain prices and slowing global demand has squeezed agriculture farm incomes and made farmers reluctant to purchase new machinery. In response to the continued slowdown Deere has planned reduce production of its trademark green tractors.

Meanwhile, Deere is trying to overcome these challenges by disciplined cost management. The company is trying to offset declining sales by slashing costs. In Q3 FY16, cost of sales fell 16% on y-o-y basis, while overall expenses declined 12% from Q3 FY15, as lower overhead costs accounted for much of the improvement.

On July 22, 2016, Deere announced the lay off 120 employees from its East Moline, Illinois, plant, out of total workforce of 1,050. The company has also kept around 2,000 employees in its Midwestern factories on indefinite layoff since 2014. The company said production hours at its East Moline, Illinois, combine factory will decline 60% in Q4 FY16. In March 2016, Deere had announced layoffs of 125 employees at two other Iowa plants. The company has let go of approximately 1400 employees since the beginning of 2015.

Outlook

Deere is forecasting net income of $1.35 billion for FY 2016, up from a prior estimate of $1.2 billion. The company expects net sales to fall about 10% for the year compared to the prior forecast of a 9% drop. Analysts will be looking for earnings of $3.87 per share on revenues of $23.61 billion.

Stock Performance

At the close of trading session on August 24, 2016, shares of Deere declined slightly by 0.76% to close at $87.42, with a total of 3.8 million shares changing hands. The company's stock price has advanced 16.35% since the beginning of the year and 11.48% in the last six months.

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SOURCE: Active Wall Street