Deere's Surprising Quarterly Results & Forecast

Deere & Co.'s pre-opening earnings announcement sent S&P futures up by about 3 points. The online Wall Street Journal article concerning Deere's results contained these passages,

"Chairman and Chief Executive Samuel Allen said economic conditions "remain stubbornly weak." However, "We are clearly seeing benefit from efforts to win customers with advanced new products while taking cost and asset discipline to an even higher level."

Deere, often viewed as a bellwether of U.S. agriculture, had seen earnings socked as farm-equipment sales dropped by double digits in the U.S. and Canada segment and elsewhere. But the declines mitigated in the latest period, falling 8% in the U.S. and Canada and 6% in the rest of the world. International results were boosted by 12 percentage points from currency changes.

For the quarter ended Jan. 31, the world's biggest farm-equipment producer by sales reported a profit of $243 million, or 57 cents a share, up from $204 million, or 48 cents, a year earlier.

Revenue dropped 6% to $4.84 billion, with net sales down 7.1% to $4.24 billion. Sales were boosted by five percentage points from currency fluctuations.

Analysts polled by Thomson Reuters had most recently forecast earnings of 19 cents on $4.18 billion of net sales."

Essentially, Deere's stunning earnings results were the result of cost-cutting and, to some extent, overseas demand. Not US sales growth.

For some perspective, here's a price chart for the past five years for Deere, Caterpillar and the S&P500 Index.

Both companies, based not far from each other in central Illinois, track the index fairly closely, having crested somewhat higher during the beginning of the recent financial sector troubles in late 2007-08.

Is Deere the bellwether for US economic recovery that so many investors apparently hoped, as today's equity markets opened, retaining the pre-open gain?

Well, Cat, a more diversified earth-moving equipment manufacturer than Deere, despite talk of its order book, remains flat. Deere, primarily an agricultural equipment producer, is benefiting from the constant need of people to eat, and global population growth.

If its recent results are based on overseas demand and internal cost management, that doesn't really seem to bode well for US recovery, does it?

And, in fairness, today's S&P gains are relatively small. Yesterday, the index rose nearly 20 points on, well, who knows exactly what?

In contrast, Deere's unexpected earnings surprise isn't really igniting the broader market.