Will Deere & Company (DE) Disappoint this Earnings Season?

Deere & Company (DE), the worldwide producer and distributor of agricultural and forestry equipment, construction equipment and engines, is slated to report third-quarter fiscal 2014 results before the market opens on Aug 13, 2014. In the last quarter, it posted a positive surprise of 10.42%. However, on an average, Deere has posted a 7.81% negative surprise in the last four quarters. Let’s see how things are shaping up for the second quarter.

Factors Influencing this Quarter

Deere reported second-quarter fiscal 2014 earnings of $2.65 a share, down 4% due to lower shipment volumes, unfavorable effects of foreign-currency exchange, and a less favorable product mix partially offset benefits from price realization and a lower effective tax rate.

For the third quarter of fiscal 2014, Deere expects equipment sales to decrease around 4% year over year. For the fiscal 2014, Deere trimmed its forecast by 4% from the previous expectation of a 3% dip. Deere, however, maintained its net income projection of $3.3 billion for fiscal 2014.

Segment-wise, Deere projects Agriculture and Turf equipment sales to decline 7% for fiscal 2014, down from the previous expectation of a 6% drop. This includes a negative currency translation effect of about 1%. Farm incomes are expected to be lower than 2013, which will have a dampening effect on demand for large farm equipment

Improved market conditions in the U.S and Canada will drive growth in sales of turf and utility equipment. Global sales for Construction & Forestry equipment will benefit from recovery in the U.S. economy and a rise in housing starts. Global forestry sales growth will be driven by economic development and higher sales in the European markets.

Earnings Whispers?

Our proven model does not conclusively show that Deere is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.

Zacks ESP: Deere has an Earnings ESP (Expected Surprise Prediction) of 0.00%. This is because the Most Accurate estimate stands at $2.19 per share, in line with the Zacks Consensus Estimate, resulting in 0.00% ESP.

Zacks Rank #3 (Hold): Deere has a Zacks Rank #3 which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings surprise:

G&K Services Inc. (GK) has an earnings ESP of +4.11% and a Zacks Rank #3.

Quanex Building Products Corporation (NX) has an earnings ESP of +4.76% and a Zacks Rank #3.

Cintas Corporation (CTAS) has an earnings ESP of +1.32% and a Zacks Rank #3.