When it comes to equipment sales, location and sector matter. To that end Deere & Co. (NYSE:DEC) recently reported better-than-expected earnings on international farm equipment sales and domestic construction equipment sales.
Weak crop prices and nervous American farmers have driven down the farm equipment side of the business. High demand for construction equipment in response to higher U.S. home sales have helped that sector.
Fine Tuning The Numbers
For Deere worldwide sales of farm equipment increased 2% despite a 5% drop in sales in the U.S. and Canada. Outside North America sales increased 14% and were particularly strong in South America.
Construction and forestry equipment saw a 7% uptick in the quarter and Deere thinks those numbers will jump 13% by the end of the year. As noted, this increase is being driven by a strong (and growing) American housing market.
The South American Connection
The impact of farm-machinery sales in South America on Deere’s numbers cannot be emphasized enough. Farmers in Brazil have plenty of cash and are willing to spend it. In fact, Deere says they anticipate selling 20% more tractors and harvesting combines after record harvests this year.
According to BMO Capital Markets analyst, Joel Tiss, “South America is a growth market. The profitability of farms is better because the costs there are lower. They get three crops a year, so the equipment is used much more intensely.”
A Rising Tide …
Investors noted Deere’s positive numbers and rewarded the stock with a 7.3% boost to $120.90 Friday. The stock was down slightly Monday but the picture remains positive on the strength of foreign sales.
Meanwhile, other machinery makers and agriculture-based companies also got a boost along with Deere. This includes Agco Corp. (NYSE:AGCOB) and CNH Industrial NV (NYSE:CNHIC) and fertilizer maker CF Industries Holdings Inc. (NYSE:CFB) all of which rose about 4%.
Used Farm Machinery Up
One factor behind increased new farm and construction equipment sales is the condition and selling price of used equipment and resulting inventory. As far as used farm machinery is concerned, sales up 6.7% since Q4 2016, according to expert, Greg Peterson.
Values of used machinery have gone up two quarters in a row. This is the first time since Q4 2012. Strong prices were even seen in last few days of March, traditionally a time of soft sales in used equipment.
With used equipment sales up, new equipment sales have room to grow, even better news for Deere, Caterpillar and others in the space.