This Equipment Giant Is on the Road to Recovery

The global farming sector is declining and it is putting pressure on companies in this industry. One such farm equipment giant, Deere (DE), recently released its results for the third quarter which were not up to the mark. But still, on some grounds and as compared to peers, the company did pretty well with decent results. The financials were weak on the back of poor demand and difficult conditions in the global farm sector. However, Deere thinks that it is doing well and will be able to post better results in the future as it is seeing higher shipment volumes.

In the recently reported quarter, Deere's revenue declined by 5% to $9.5 billion as compared to $10.01 billion in the same quarter a year earlier. On the earnings part, the company posted EPS of $2.33, which is a 15% drop as compared to $2.56 per share that it posted last year in the same quarter. The revenue and the earnings of the company declined, but it didn't surprise the analysts much as this drop came in line with what the consensus was modeling.

Trying for a recovery

Deere is suffering. The world's largest farm machinery seller took a hit mainly because of two reasons – first, because of the declining farming sector and second, because of the unfavorable weather conditions for agriculture that are putting pressure on Deere's business. However, Deere is taking various initiatives that are aimed at driving its profitability.

Deere is seeing better prospects due to the recovering economy in Europe. Since the economy is growing, the exports will improve. This will be an advantage for consumers as well as business owners such as Deere. In addition, the GDP across Europe is expected to accelerate slightly in fiscal 2015, which makes Deere's long term prospects strong.

Better demand

Moving forward, Deere is seeing that demand for various crops is increasing. For example, it expects that in the coming days, the demand for soybean and grain will improve. Further, the livestock is also expected to touch new heights in 2014, giving ample opportunities to Deere to increase business. Lastly, Deere expects that demand for grain will remain strong globally, helping Deere's farming equipment grow going forward.

Deere also has other strategies for clearing its inventory such as a John Deere Certified Pre-Owned Program. This program will help the company in selling out its equipment effectively to farmers around the world.

Moreover, the company is executing various initiatives for large late model tractors across the United States and Canada. For example, free warranty coverage is one such move. This initiative will raise the sales for used tractors. The company, on the other hand, is also planning to lay off approximately 600 factory employees to lower costs.

Moving on to its construction and forestry segment, the company is seeing good traction in the market as it is seeing growth in volumes and price realization. As the housing segment is growing, it is making the construction segment better by ramping up production in housing and building development. In addition, Deere is also seeing good support from the energy sector, which can prove to be a growth driver for it in the future.

Conclusion

With a trailing P/E of just 9.16, Deere looks really cheap. Since its initiatives are gaining strength