The Rising Influence of Rising Affluence

[DewDiligence]

DE—After fifteen consecutive record quarterly results, DE finally had a down quarter during FY2Q14 (ending 4/30/14). EPS was $2.65, -4% YoY, and revenue was $9.95B, -9% YoY. Part of the cause was a sales shortfall in Ukraine (a significant ag market), where geopolitical tensions have made it harder for farmers to get credit for equipment purchases.

These results were announced on 5/14/14, and the share price has fallen 4% since then (including a 2% drop on the day of the announcement). The reason the drop hasn’t been more severe is that DE had previously told investors that US farm income—a major driver of ag-equipment sales—would be down slightly from the record level of 2013 (#msg-97190334). Moreover, DE is maintaining its EPS guidance of $8.64 for the full fiscal year (based on 380M diluted shares).

At the current share price of $89.99, the P/E ratio based on FY2014 EPS is only 10.4x, which means I consider DE a strong buy!

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DE’s own FY2Q14 PR:
http://www.sec.gov/Archives/edgar/data/315189/000110465914038394/a14-12564_1ex99d1.htm

CC slides:
http://www.sec.gov/Archives/edgar/data/315189/000110465914038394/a14-12564_1ex99d3.htm

Bloomberg:
http://www.bloomberg.com/news/2014-05-14/deere-cuts-sales-forecast-after-decline-in-equipment-volumes.html

Reuters:
http://finance.yahoo.com/news/deere-posts-higher-expected-profit-114550173.html