The world’s largest agricultural equipment maker, Deere & Company (NYSE:DE), released fourth-quarter 2014 results before the opening bell on Wednesday. Though the company surpassed our estimates on both the top and bottom lines, it provided a gloomy outlook on fiscal 2015.
Deere Q4 Results in Focus
Earnings per share came in at $1.83, comfortably beating the Zacks Consensus Estimate of $1.58 but deteriorating from the year-ago earnings of $2.11. Revenues also fell 5% year over year to $8.97 billion, but strongly beat the Zacks Consensus Estimate of $7.76 billion.
The year-over-year decline was mainly due to bumper corn harvest that pushed the prices down in the quarter leaving farmers with less cash to buy equipment (read: Corn ETF: Is a Turnaround Coming Soon?).
The manufacturer provided a bearish outlook for the full fiscal year. Equipment sales are guided to drop 21% in the first quarter and 15% in fiscal 2015 on weak demand for agricultural machineries. Segment wise, the company expects global construction and forestry equipment sales to grow about 5% in fiscal 2015 but global sales of agriculture and turf equipment to drop 20%.
The company also expects net income to be $1.9 billion for 2015, down from $3.16 billion in 2014 and $3.54 billion in 2013. Amid declining sales and continued pullback in the global agricultural sector, John Deere expects to thrive in 2015, reflecting its efforts to establish a more resilient business model.
Market Impact
The disappointing guidance sent the shares in the red territory, plunging nearly 4% initially and then recovering slightly to close at down 0.9%. The stock traded in more than two times the volume on a normal day. The sluggish trading is expected to continue over the next few days given that Deere has a Zacks Rank of #4 (Sell) and falls in the poor industry with the Zacks Industry Rank in the bottom 40% (see: all Materials ETFs here).
Given this, the following two ETFs having the largest allocation to this big agricultural equipment maker would be in focus in the coming days.
MarketVectors-Agribusiness (NYSE:MOO)
This fund provides exposure to the global agribusiness industry by tracking the Market Vectors Global Agribusiness Index. It is by far the most popular and liquid choice in the space with AUM of over $1.5 billion and average daily volume of nearly 403,000 shares. The ETF is one of the low cost choices in this space, charging 55 bps in annual fees.
In total, the fund holds 56 securities in its basket. Of these firms, DE takes the third spot, making up roughly 6.8% of the total assets. The product provides nice diversification across business segments with agricultural chemicals accounting for 41% share while farming/fishing (20%), and industrial engineering (16%) rounding off the next two spots (read: Will the Commodity Slump Weigh on Agribusiness ETFs?).
In terms of country allocation, U.S. (49.4%), Canada (10.4%) and Japan (7.4%) occupy the top three spots. The fund added 1.6% in the year-to-date time frame.
MSCI Global Agri. Producers Fund (NYSE:VEGI)
This fund provides exposure to the firms of developed and developing nations that are primarily engaged in the agricultural business at or near the initial phase of agricultural input and production. It follows the MSCI ACWI Select Agriculture Producers Investable Market Index and holds 122 securities in its basket (read: 3 ETFs Crushed in Commodity Market Rout).
Here, Deere occupies the fourth position with 7.6% allocation. From a sector look, agricultural chemicals take the largest share at 51%, closely followed by farming/fishing (23%) and industrial engineering (17%). American firms dominate the fund’s holding with 50.3% of total assets while Canada, Switzerland and Japan receive modest allocations.
The ETF is less popular and illiquid with $47.7 million in its asset base and around 9,000 shares in average daily volume. The ETF charges 39 bps in fees per year from investors. VEGI has delivered almost flat returns in the year-to-date time frame.