This morning agriculture and construction equipment company CNH Industrial (CNHI) , a competitor to Action Alerts PLUS holding Deere & Co. (DE) , reported its latest quarterly results, which topped consensus expectations for both revenue and EPS.
Revenue for the quarter rose 26.7% year over year with ag equipment up more than 29% and construction equipment rising 16.5% on the same basis. What was more eye catching was the pop in margins particularly those for ag equipment, which rose to 13.1% from 10.0% in the year ago quarter, as well as the strong order book, also for ag equipment. The common thread across both of CNH's segments was higher volumes, price realization, and continued improvement on supply chains.
In terms of what CNH sees ahead, it joins the cast of companies seeing a strong nonresidential construction market in the U.S, a positive for our United Rentals (URI) and Vulcan Materials (VMC) shares as well as the construction business that accounts for 25% of Deere's overall revenue.
For ag equipment, CNH echoed our thoughts that elevated farm incomes bode well for equipment sales, but shared it is seeing some flattening out in Europe given the softening economic environment but also added it is better than expected.
Standout comments regarding CNH's forward view that caught our attention on the earnings conference call were "we're really kind of running our factories as fast as we can", dealer inventories remain lean, and margins should continue to improve given prior pricing actions and improving costs.
Those are positive data points for Deere as well, and with just under half of its sales outside the U.S., the year over year decline in the dollar should add to its competitive position beginning toward the end of its April quarter. Next week brings quarterly results from AGCO (AGCO) , another Deere competitor, and we expect it will also deliver a favorable outlook, during which we should also get an update on what it sees ahead for precision ag equipment.
Deere will report its quarterly results on February 17.
With DE shares having retreated to levels we last saw in November, adding to upside to our $470 target as well as the $463 consensus price target, we will pick up some additional DE shares ahead of those upcoming events.
We will buy 30 shares of Deere & Co. at or near $405. Following the trade, the portfolio will own 310 DE shares, accounting for roughly 3.5% of the portfolio.
(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)