Before the opening bell on May 21, the world’s largest agricultural equipment maker under the iconic John Deere (NYSE:DE) brand, Deere & Co DE reported better-than-expected second-quarter fiscal 2021 results, beating estimates on both the top and bottom lines. In addition, the company lifted its fiscal year outlook on a recovering global economy, which boosted demand for farm machine and construction equipment.
Earnings per share came in at $5.68, well above the Zacks Consensus Estimate of $4.44 and surged 169.2% from year-ago earnings. Revenues increased 30% year over year to $12.06 billion and beat the Zacks Consensus Estimate of $10.38 billion. Robust results were fueled by improving conditions in the farm and construction sectors.
Deere expects industry sales of large agricultural equipment in the United States and Canada — the company's biggest combined market — to grow by 25% this year compared with the previous forecast of 15-20% growth as the global economy recovers from the COVID-19 pandemic. However, the farm equipment giant also sees increased supply-chain pressures through the balance of the year. Despite these challenges, the company is on track for a strong year (read: Why Agricultural Commodity ETFs Are Soaring This Year).
For fiscal 2020, the company raised its net income forecast to $5.3-$5.7 billion from the previous projection of $4.6-$5 billion. Construction and forestry sales are expected to grow 25-30% and the small agriculture and turf equipment sales will grow 20-25%.
Market Impact
Following the solid results, shares of DE climbed 1.3% on the day of its earnings announcement. Currently, John Deere has a Zacks Rank #2 (Buy) and VGM Score of B. This will lead to smooth trading in ETFs with the largest allocation to this farm equipment giant. Below, we have highlighted some of those funds.
iShares MSCI Global Agriculture Producers ETF VEGI
This fund provides global exposure to the companies that produce fertilizers and agricultural chemicals, farm machinery, packaged foods and meats by tracking the MSCI ACWI Select Agriculture Producers Investable Market Index. Holding 142 stocks in its basket, Deere takes the top spot at 19.9% share. American firms account for 55% of the assets while Canada, Norway and Japan round off the next three spots. The ETF is less popular and illiquid with $91.3 million in AUM and around 27,000 shares in average daily volume. It charges 39 bps in fees per year from investors (see: all Materials ETFs here).
First Trust Indxx Global Agriculture ETF FTAG
This ETF follows the Indxx Global Agriculture Index, which is a market-capitalization weighted index designed to measure the performance of companies, directly or indirectly engaged in improving the agricultural yields. It holds 51 stocks in its basket with John Deere occupying the second position at 9.7%. From the perspective of industrial exposure, materials take the largest share at 51.9%, followed by 28.8% in industrials and 10.3% in healthcare. Here again, the United States is the top country with 30.6% share while Germany takes 22.9% share. FTAG is an overlooked ETF, having accumulated $4.5 million in AUM and trading in an average daily volume of about 3,000 shares. It charges 70 bps in annual fees.
VanEck Vectors Natural Resources ETF HAP
With AUM of $73.1 million, this fund offers exposure to companies that are involved in the production and distribution of commodities and commodity-related products and services in the following sectors — Agriculture, Alternatives (Water & Alternative Energy), Base and Industrial Metals, Energy, Forest Products, and Precious Metals. It tracks the VanEck Natural Resources Index, holding 357 stocks in its basket. John Deere takes the top spot at 9.9% of the assets. Here too, American firms dominate the portfolio with nearly 49% share, and materials is the top sector with 37.4%. The ETF charges 49 bps in annual fees and trades in an average daily volume of 11,000 shares (read: Commodity Prices on an Unstoppable Rally: ETFs to Benefit).
VanEck Vectors Agribusiness ETF MOO
This fund is by far the most popular choice in the space with an AUM of about $1.3 billion and an average daily volume of 86,000 shares. It tracks the MVIS Global Agribusiness Index, which offers exposure to companies, involved in agri-chemicals, animal health and fertilizers, seeds and traits, farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations, and trading of agricultural products. The fund holds 52 securities in its basket with John Deere capturing the second position with 7.9% share. It charges 55 bps in annual fees.
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Deere & Company (DE): Free Stock Analysis Report
VANECK-AGRIBUS (MOO): ETF Research Reports
ISHARS-M GL AGR (VEGI): ETF Research Reports
VANECK-NAT RSC (HAP): ETF Research Reports
FT-IDX GLB AGR (FTAG): ETF Research Reports
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