As most of the firms on Wall Street queue up to report their end-of-year numbers, farm equipment maker Deere (NYSE:DE) is once again a step ahead of the pack. When reporting its earnings news tomorrow, it's fiscal Q1 2007 that it'll be talking about.

What analysts say:

  • Buy, sell, or waffle? Seventeen analysts follow Deere, which gets 10 buy ratings, six holds, and a sell.
  • Revenues. Analysts estimate that quarterly sales stayed roughly flat at $3.7 billion.
  • Earnings. Profits are predicted to fall 14% to $0.81 per share.

What management says:
As is customary for the bigger companies, Deere laid out its expectations for both Q1 and all of fiscal 2007 as part of last quarter's earnings release. Management expects to improve its sales 5% year over year in tomorrow's news, but to post flat sales for the year as it cuts production to address ongoing inventory issues, especially in its construction and forestry segment. This is interesting, because construction and forestry was the firm's strongest-performing division last year. Deere attributed the reversal of fortunes to an anticipated slowdown in residential construction.

Profits-wise, Deere looks to earn between $150 million and $175 million in the first quarter, and about $1.33 billion for the year.

What management does:
Deere has been growing its rolling gross margins for four quarters running now, its rolling operating margins for two, and its rolling net margins for three. Overall, the trend has been upward, with the firm generating greater profits at all levels of the income statement than it was achieving one year ago.

Margins

7/05

10/05

1/06

4/06

7/06

10/06

Gross

25.4%

24.8%

24.9%

24.9%

25.6%

26.3%

Operating

10.8%

10.0%

9.8%

9.5%

10.0%

10.9%

Net

7.3%

6.8%

6.6%

7.2%

7.2%

7.6%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
In addition to highlighting its achievements in sales, earnings, dividend payments, and stock repurchases, Deere noted that it also made progress with "further reduction in trade receivables and inventories." Turning to the firm's income statements and balance sheets to confirm this, I found management's assertions well-founded. Compared to the previous year's numbers, average accounts receivable at Deere in the last two quarters fell 3%; average inventories declined a good 7%. Measured against the yardstick of sales that grew 3%, that's pretty impressive.

Also worth highlighting, I think, is the fact that while sales have risen just 3%, Deere accelerated its spending on research and development. At 5%, it's growing R&D almost twice as fast as its sales. While that may crimp margins in the short term, it's great to see the company investing in its future, even as Wall Street focuses on its short-term, housing industry-inspired troubles. Let's hope that in tomorrow's news, we see the company keep this up.

Customers:

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Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy, like Bambi, is a timeless classic.