DE

Agricultural Equipment Industry Stuck in the Mud

by

The agricultural equipment industry is dependent on a global economy that remains mired in mediocrity. Durable goods orders fell in both April and May 2015–as well as 9 of the 10 months prior–and the solid 3.4% increase in June is misleading due to the extraordinary number of aircraft orders. Excluding transportation orders, the increase for the month of June was a slight 0.8%. Economic conditions in the US, if construed as positive, in the words of Caterpillar (CAT), the global economy “remains relatively stagnant,” with ongoing weakness in China and Brazil and uncertainty across the Eurozone given the crisis in Greece. Weak commodity prices are not suggestive of a near-term recovery for the overall economy either. Crude oil prices are … Read more

Valuentum Economic Castleâ„¢ Rating Update

by

Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Deere Doing Much Better Than Caterpillar

by

After Caterpillar’s (CAT) dismal third-quarter performance, it was quite refreshing to read about Deere’s (DE) record earnings performance in its fiscal fourth quarter results, released Wednesday. Though Deere’s worldwide net sales fell 3% in the quarter, the firm’s net income of $806.8 million, or $2.11 per share, set a record for the period (up 17% and 21%, respectively). Lower shipment volumes were more than offset by a much favorable pricing environment, which worked wonders on the company’s bottom line, particularly in its ‘Agricultural & Turf’ segment (where operating profit jumped 7%). Deere’s ‘Financial Services’ operations also experienced a nice 26% jump in operating profit during the quarter thanks to improving credit performance and crop-insurance margins. We continue to like the … Read more

Joy Global: Business Is Bad and Getting Worse; Share Buybacks Are Value Destructive

by

The Power of a Valuentum Buying Index (VBI) Score of 1–the worst possible measure Mining equipment maker Joy Global (click ticker for report: ) posted lackluster results Wednesday for its fiscal year 2013 third quarter. Competitor Caterpillar (click ticker for report: ) posted similarly weak results as it deals with many of the same weakening global trends that are impacting Joy Global. During the period, Joy Global’s revenue declined 7% year-over-year to $1.3 billion, though that was better performance than consensus estimates predicted. Excluding items, earnings per share fell 9.1% year-over-year to $1.70, which was also slightly above consensus estimates. Free cash flow was actually better than the prior-year quarter at $320 million, equal to 24% of total revenue. Image … Read more

Deere’s Third Quarter Highlights Inherent Operating Leverage

by

On Wednesday morning, agricultural equipment giant Deere (click ticker for report: ) posted fantastic third quarter results. Revenue jumped 4% year-over-year to $10 billion, topping consensus expectations by a comfortable margin. Consequently, earnings per share surged 29% year-over-year to $2.56, crushing consensus estimates. Because of its financing business Deere’s cash flows aren’t that easy to follow, but management noted that operating cash flow from equipment operations should total $3.8 billion during fiscal year 2013—a solid figure, in our view. Deere’s third quarter results really demonstrate the tremendous operating leverage inherent in the firm’s business model. Sales in the Agricultural & Turf segment grew 8% year-over-year to $7.8 billion, but operating profit surged 32% year-over-year to $1.3 billion. Incremental margins for … Read more

Uralkali Backs Out of Belarusian Potash Company; Industry to Change

by

Early this morning, Russian fertilizer Uralkali announced it will leave the Belarusian Potash Company in order to grab market share. CEO Vladislav Baumgertner asserted that BPC partner Belaruskali had been making potash exports outside of the pre-arranged agreement, rendering the BPC useless. Until now, the potash industry had been a relatively stable cartel allowing industry participants to generate robust amounts of free cash flow as spot prices rested well above the cost of production. On a conference call following the announcement, Baumgertner mentioned that the price of potash could fall by over $100/tonne as Uralkali will boost production nearly 25% and look to steal market share. Uralkali is the largest single potash producer in the world and likely has the … Read more

Caterpillar’s Second Quarter Performance Falls Short

by

Industrial bellwether Caterpillar (click ticker for report: ) reported relatively disappointing second-quarter results Wednesday, as both its top and bottom lines fell below consensus estimates. Revenue dropped 16% to $14.6 billion, as sales declined in all geographic regions, with the steepest reduction in Asia/Pacific (though we note sales in China increased). Profit per share plunged over 40% to $1.45 due to lower volumes, an unfavorable mix of products, and sales deleveraging (reduced cost absorption). Management acknowledged the difficult market environment by reducing inventories $1.2 billion in the quarter, trumping that of its dealer supply chain, which cut channel inventories by $1 billion (more than expected). It appears that neither Cat nor its dealer network, which plans to reduce inventories even … Read more

Is BHP Jumping Into the Potash Market?

by

Earlier this week, rumors intensified regarding mining giant BHP (click ticker for report: BHP) and the firm’s prospective entry into the potash market. Because demand for potash (see image below) tends to be a bit more stable than the company’s other resources (namely iron ore), we can see why BHP would be interested in entering the market. Image Source: Potash As it is currently structured, the potash market is dominated by a few large players, namely Canpotex and Belarus Potash Company. Canpotex is comprised of Potash Corporation (click ticker for report: ), Mosaic (click ticker for report: ), and Agrium (click ticker for report: ), while the Belarus Potash Company (BPC) represents the Russian equivalents. These two producers form a … Read more