Deere & Company’s (DE - Analyst Report) third-quarter fiscal 2016 (ended Jul 31, 2016) earnings increased around 1.3% year over year to $1.55 per share. Earnings also topped the Zacks Consensus Estimate of 95 cents.

Operational Update
Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) came in at $5.86 billion, down roughly 14% year over year. Revenues also lagged the Zacks Consensus Estimate of $5.996 billion. Region-wise, equipment net sales were down 16% in the U.S. and Canada, and 12% in the rest of the world.

Cost of sales in the quarter decreased 16% year over year to $4.49 billion. Gross profit in the quarter came in at $1.37 million, down 6.8% year over year. Selling, administrative and general expenses dropped 6% to $709 million. Operating profit declined around 9% year over year to $658 million.

Operating income from equipment operations increased 4% year over year to $625 million driven by price realization, lower production costs and a decrease in selling, administrative and general expenses, partially offset by reduced shipment volumes and the unfavorable effects of foreign-currency exchange.

Segment Performance

Agriculture & Turf segment’s sales declined 11% year over year to $4.7 billion. Revenues were impacted by lower shipment volumes and the unfavorable effects of currency translation. These factors were partially offset by price realization. Operating profit at the segment, however, went up 21% year over year to $571 million. The improvement was primarily driven by price realization, lower production costs and lower selling, administrative and general expenses, partially offset by lower shipment volumes and unfavorable effects of foreign-currency exchange.

Construction & Forestry sales went down 24% year over year to $1.16 billion, impacted by lower shipment volumes. Operating profit at the segment declined significantly year over year to $54 million due to reduced shipment volumes and a less favorable product mix, partially offset by lower production costs, a decrease in selling, administrative and general expenses and price realization.

Net revenues at Deere’s Financial Services division totaled $667 million in the reported quarter, a rise of 5% year over year. The segment’s operating profit was $191 million, compared with $239 million in the prior-year quarter. Net income at the segment was $125.9 million compared with $153.4 million in the year-ago quarter. This decline was due to higher losses on residual values, less favorable financing spreads and a higher provision for credit losses.

Financial Update

Deere reported cash and cash equivalents of $3.13 billion at the end of third-quarter fiscal 2016 compared with $2.91 billion at the end of the prior-year quarter. The company reported cash from operations of $1.64 billion for the period of nine months ended Jul 31, 2016 compared with cash usage of $1.95 billion in the comparable year-ago period. As of third-quarter end, long-term borrowings totaled $4.58 billion, compared with $4.48 billion in the prior-year quarter.

DEERE & CO Price, Consensus and EPS Surprise

DEERE & CO Price, Consensus and EPS Surprise | DEERE & CO Quote

Looking Ahead

Deere revised its outlook for fiscal 2016. For fiscal 2016, the company annet income to be about $1.35 billion which is outside the prior range of $1.2 billion from $1.3 billion. It projects total equipment sales to decline 10% year over year in fiscal 2016. For the fourth quarter of fiscal 2016, sales are likely to deteriorate about 8% from the year-ago quarter. The projection includes a negative currency-translation effect of about 2% for the full year and a positive translation effect of about 1% for the fourth quarter.

Segment-wise, Deere expects Agriculture and Turf equipment sales to decline 8% in fiscal 2016, including an unfavorable currency-translation impact of about 2%. Industry sales for agricultural equipment in the U.S. and Canada are expected to be down 15%−20% in fiscal 2016 owing to low commodity prices and stagnant farm income.

In the EU28, sales are projected to be flat, down 5% due to low commodity prices and farm income, including potential pressure on the dairy sector. In South America, industry sales of tractors and combines are expected to decline 15%−20% year over year due to economic uncertainty in Brazil.

Sales in Asia are projected to be flat, down slightly, due in part to weakness in China. Deere expects sales growth of turf and utility equipment in the U.S. and Canada to range to plateau out with a tendency to rise 5%, gaining from new products and general economic growth.

The company foresees global sales for Construction & Forestry equipment to be down about 18% in fiscal 2016, including an unfavorable currency-translation effect of about 1%. The decline reflects the impact of soft conditions in the North American energy sector. In forestry, global sales are expected to be down 5%−10% from year-ago levels. The outlook for net income from Financial Services has been reaffirmed at $480 million for fiscal 2016. The outlook reflects less-favorable financing spreads, higher losses on lease residual values and an increased provision for credit losses.

Zacks Rank

At present, Deere has a Zacks Rank #3 (Hold). Some better ranked stocks in the same sector are ACCO Brands Corporation (ACCO - Snapshot Report) , AO Smith Corp. (AOS - Analyst Report) and Apogee Enterprises, Inc. (APOG - Analyst Report) . All the three stocks carry a Zacks Rank #2 (Buy).