Deere Falls on Sales Miss, JPMorgan Sees 'Aggressive' Guidance and Downside Risk

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Deere Falls on Sales Miss, JPMorgan Sees 'Aggressive' Guidance and Downside Risk
Credit: © Reuters.

By Senad Karaahmetovic

Shares of Deere & Company (NYSE: DE ) are down nearly 6% in premarket trading Friday after the company reported lower-than-expected FQ2 net sales.

Net sales came in at $12.03 billion in FQ2, missing the consensus estimates of $13.23 billion. DE reported an EPS of $6.81 to top the analyst estimate of $6.71.

Looking ahead, Deere expects FY net income in the range of $7 billion to $7.4 billion, up from the previous forecast range of $6.7 billion to $7.1 billion and above the analyst consensus of $6.99 billion. The FY net income guidance includes a $220 million gain from special items, the company said.

Deere boosted its net income guidance for the full year; the guidance beat the average analyst estimate.

"Looking ahead, 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,” the company said.

The company said its exposure to the Russia-Ukraine conflict totaled $454 million as of May 1.

J.P. Morgan analyst Tami Zakaria sees “risk-reward skewed to the downside as guidance may prove aggressive unless supply chain dramatically improves in the back half.”

“We believe the stock will be met with investor skepticism and risk-reward is skewed to the downside in the near term,” Zakaria added.

Goldman Sachs analyst Jerry Revich is more positive on DE shares.

“We maintain our Buy rating on the stock given accelerating precision ag adoption and ag machinery share of farmer capex that is approaching normalized levels this year following an extended capital stock reduction cycle.”

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