Deere Stock Tumbles as Earnings Miss Expectations

Full year earnings guidance was trimmed to a midpoint of $7.1 billion from prior guidance of $7.2 billion that had been given back in May.

Sales seems to be the reason. Deere expects slower growth in its construction equipment business. What’s more, foreign currency impacts are growing. The U.S. dollar has been strong and that makes Deere sales in foreign countries worth less when converted back into its home currency. Overall, equipment sales are still expected to rise in the range of 20% year over year.

Shares are down about 6.5% in premarket trading. S&P 500 and Dow Jones Industrial Average futures are down about 1% and 0.8%, respectively.

Higher costs hit profit margins a little. “Our results reflected higher costs and production inefficiencies driven by the difficult supply-chain situation,” said CEO John May in the company’s news release.

Total operating profit came in a hair under Wall Street projections at $2.65 billion. Deere earned $2.24 billion in the year ago quarter.

Despite the earnings “miss,” the company expects demand to remain strong in 2023. That’s a bit of good news for investors to hold on to. “Looking ahead, we believe favorable conditions will continue into 2023 based on the strong response we have experienced to early-order programs,” added May.

Deere will host a conference call beginning at 10 a.m. ET. Investors will be looking for an update about how food and crop pricing will impact Deere results in coming quarters.

As most U.S. consumers probably already realize, food inflation has been running north of 10% year over year for the past three months. Drought, Covid-19, the war in Ukraine and even oil prices have all moved prices higher. (Rising oil prices raise the costs for truckers delivering food to local stores.)

But prices have started to fall. Benchmark wheat prices are down more than 40% from March highs. And the U.N. World Food Price Index is down about 11% from its all-time high, set back in March. That index is still up about 13% year over year and about 48% from the onset of the Covid-19 pandemic.

Options markets imply the stock will move about 5%, up or down, following earnings. That’s similar to the post-earnings stock volatility over the past four quarterly reports.

Coming into Friday trading, Deere stock is up about 7% year to date, while the S&P and Dow are down about 10% and 6%, respectively.

Write to Al Root at allen.root@dowjones.com