David.....don't worry, be happy...all is well in goldilocks land, no problems around here NOT
DEERE & COMPANY (DE) 37 1/4. If global economies are improving, and profits are forecast to increase sharply next year, why are many cyclical companies experiencing such significant problems? Before the open Tuesday, construction and farm equipment manufacturer Deere (DE) reported that fiscal fourth quarter profits (Oct) were $0,71 per share, a penny below expectations, and down from the year ago operating profit level of $0.83 per share. Revenue fell 7%, marking the first decline in the years. Looking ahead, it is even worse, according to DE. They say that demand for farm equipment has suffered "abrupt and serious erosion" and that to keep inventories in check, they will significantly and immediately cut fiscal first quarter (just starting) production. Farm equipment sales have been hurt by falling agricultural prices, caused in part by weak demand in Asia and emerging markets. Frankly, if these economies were rebounding as the financial markets seem to believe, then prices and demand should not be falling sharply. And it is not just the agricultural sector. Construction equipment sales fell 8% in the just ended quarter, and the company expects a further decline in 1999. Asia can not be singled out either. Equipment sales in the U.S. and Canada were down 11% this quarter, while international sales were down just 4%. The picture here is simply unavoidable: demand for equipment in the highly cyclical construction and farm equipment business is declining, and is likely to continue to decline. DE stock is priced for further problems, as it trades at a price/earnings multiple of just 9. The most interesting issue here, though, is: if cyclical companies such as DE are saying the demand is still falling, and these stocks are priced for such, how is it that the overall profits are expected to rise sharply? DE does not attract much trader interest, but it is sending signals that investors might want to listen to.
|
