Strong demand, robust pricing to boost Deere's sales

By Bianca Flowers

(Reuters) - Industrial bellwether Deere (NYSE:DE) & Co is expected to post double-digit growth in quarterly sales and profit on Wednesday, fueled by higher crop prices and pent-up demand for its larger equipment.

Nearing the end of harvest season, Deere's bottom-line has fared well in what analysts said has been a bull market for agriculture this year. Strong demand and not enough supply gave Deere the pricing power needed to help offset rising raw material, production and shipping costs for the fiscal year ending on Oct. 31.

The Moline-Illinois based company continues to navigate uncertain global economic conditions and supply chain tightness that has kept dealer inventories low. Even as supply chain challenges start to ease, analysts said it is hard to predict the availability of parts Deere will need to assemble machines.

"The make or break this quarter will really be on the supply chain. The demand side of the equation hasn't wavered and remains quite strong," Jefferies analyst Stephen Volkmann said.

The farm equipment-maker's full-year profit outlook was dragged down last quarter after earnings fell below Wall Street's consensus due to rising interest expenses and an inability to make enough large tractors.

Danielle Shay, a vice president at Simpler Trading was not bothered by the miss because she is confident Deere will be able to recoup sales.

Deere has outperformed the Dow Jones Industrial Average, with shares up 18% year-to-date. For the fourth quarter, the company is expected to report $2.16 billion in net income, or $7.12 earnings per share, on revenue of $13.38 billion, according to Refintiv data.

Demand for tractors and combines has not shown signs of slowing down despite rising interest rates, but analysts are watching whether producers may start to scale back on equipment purchases.

"That's something that we watch closely," said Eric Greaser, a senior analyst at Moody's (NYSE:MCO). "We're waiting to see if this rising interest rate environment will impact the financing of equipment."