Deere & Co.(NYSE:DE), which raised its 2022 forecast last week, cited a note of caution on its outlook as ongoing supply-chain bottlenecks weigh on the farm-machinery maker's efforts to keep up with robust demand.
On Friday, the company increased its forecast 2022 net income of $6.7 billion to $7.1 billion, up from a prior range of $6.5 billion to $7 billion.
Though analysts, including those at Bloomberg Intelligence, see signs of easing supply-chain snags, Deere executives said that the concerns are likely to persist this year.
"Our supply base will likely remain challenged. Components with heavy labor content remain in tight supply and, of course, semiconductor availability will continue to be limited throughout the year." - Chief Executive John May, Deere
The Illinois-based company predicts sales of large farm equipment to increase by as much as 30% in 2022 as high prices for crops and used equipment stoke farmers' interest in buying new tractors, harvesters, and other equipment.
Moreover, Deere expects sales of its construction and forestry equipment to increase by 10% to 15% this year, propelled by price increases of about 9%.
Q4 RESULTS
Adjusted earnings of $2.92 per share significantly beat analysts' expectations of $2.26 per share but fell short of the adjusted earnings of $3.87 per share reported for the prior-year period.
The increase in revenues reflected a surge in Production and Precision Ag Sales, which increased 9% to $3.35 billion, while Equipment Operations sales grew 6% to $8.5 billion. Overall Net sales for the quarter rose 5% year-over-year from $9.11 billion to $9.56 billion.
Despite DE topping both earnings and revenue estimates, driven by solid execution and strong performance across all segments, shares dropped 3% on Friday to close at $369.10.
THE TAKEAWAY
Demand remains resilient despite rampant price inflation, with DE expecting strong demand throughout FY22. DE also demonstrated its strong brand as its ongoing price increases are not materially impacting demand for its products.
Thus, with a favorable valuation of 17x forward earnings and a consistent dividend yield of 1.1%, analysts remain optimistic about the stock being a solid choice for long-term investors.
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