What happened

Deere & Company (NYSE:DE) has released commentary on its retail sales data for February. According to Deere, its February retail sales did better than the industry in all the two-wheel drive categories but worse in four-wheel drives and combines.

The chart below shows industry retail sales, so it's also relevant for investors in Deere's peers as well. The monthly numbers can bounce around a lot, so the chart shows the average of the last three months for selected data. As you can see, smaller tractors continue to do well, but the industry is still experiencing significant declines in its more profitable larger agricultural machinery sales.

Chart that shows mall-horsepower sales remain positive, larger tractors remain negative but ticked up a bit on a 3-month basis to February

Data sources: Deere & Company presentations, Association of Equipment Manufacturers. PTO = power takeoff; hp = horsepower.

Does it matter?

The latest data is a net positive relative to expectations in 2017. For example, Deere's management is expecting overall net equipment sales to rise 4% in 2017, with its agriculture and turf sales segment forecast to increase sales by 3%. However, we are focusing on its North America operations here, and management's guidance is for a 5%-10% decline in 2017.

As you can see in the chart above, there is a bit of an uptick caused by the February data (although the figures are still negative), and this correlates with Manager of Investor Communications Joshua Jepsen's comment on North America on the latest earnings call that "there are signs the large Ag market is nearing bottom." According to him, "The magnitude of the industry decline expected in 2017 is considerably less than that experienced in 2016."

A Deere combine harvester in action

Deere & Company continues to struggle with sales of large equipment such as combines. Image source: Deere & Company.

It's far too early to definitively call a bottom, but investors can take heart from the numbers. It's welcome because Deere has a significant number of short-term leases expiring in the current quarter and this may cause a glut of used equipment in the market -- something to look out for in the coming months. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.