Agriculture and construction equipment maker Deere & Co. (DE -0.18%) reported its fiscal 2023 fourth-quarter results Wednesday morning, and the stock plunged. As of 11:40 a.m. ET, it was down by about 5%, making it one of the leading losers in the Dow Jones Industrial Average index for the session.
Notably, the company handily beat earnings estimates for the quarter, which ended Oct. 29. What investors didn't like was what management said about the outlook for fiscal 2024.
Net income set to tumble
Deere's fiscal Q4 earnings came in at $8.26 per share, well in excess of the $7.46 per share Wall Street was expecting. Sales also slightly outpaced estimates. Those results represented sharp increases compared to the prior-year period as well.
However, Deere management projected net income of between $7.75 billion and $8.25 billion for fiscal 2024. That would be a sharp drop from the nearly $10.2 billion it just earned in fiscal 2023. The reasons for that expected decline don't really stem from problems with the company itself, though. Deere's business is highly cyclical, and management anticipates that sales volume will move from a recent cyclical peak to mid-cycle levels next year.
Deere is historically cheap
Prices of cyclical company stocks often tend to move in anticipation of the cycles rather than in reaction to them. That helps explain why Deere stock has significantly trailed the broader market in 2023. Including Wednesday morning's drop, Deere shares are down more than 15% year to date.
But that has also driven its price-to-earnings ratio down to the low end of its historical range.
DE PE Ratio data by YCharts.
Investors in cyclical sectors shouldn't be overly concerned about short-term swings in a business driven by broader industry conditions. Deere, in fact, has increased its dividend by 165% over the last decade. Wednesday's share price drop gives long-term investors a good opportunity to pick up a solid company that will also pay them while they wait for the cycle to swing back.
