What happened

Shares of Deere & Co. (NYSE:DE) traded up more than 9% on Friday after the agriculture and heavy equipment manufacturer reported better-than-expected earnings. Deere says the farm sector is stabilizing, which should help stabilize sales of the company's tractors, loaders, and other farm equipment.

So what

Deere reported fiscal first-quarter earnings of $1.63 per share on revenue of $7.63 billion, easily topping analyst expectations for $1.26 per share in earnings on $6.42 billion of sales. The company generated net income of $517 million in the quarter, compared to $498 million in the same three months a year prior, despite revenue falling 4% year over year.

A farm tractor spraying crops in the field.

Image source: Getty Images.

CEO John C. May said in a statement that the results "reflected early signs of stabilization in the U.S. farm sector," which helped to offset slower sales in the construction sector and in forestry. The results were also aided by Deere's voluntary employee reduction program, which helped drive down costs and improve flexibility.

"Farmer confidence, though still subdued, has improved due in part to hopes for a relaxation of trade tensions and higher agricultural exports," May said.

Now what

Deere said it expects to generate net income of between $2.7 billion and $3.1 billion in fiscal 2020, with construction and forestry revenue expected to decline 10% to 15% and agriculture equipment sales expected to decline 5% to 10%, including the impact of currency translation. In North America, agriculture equipment sales are expected to be flat to down 5%, driven by lower demand from Canada.

The company has faced headwinds including U.S./Chinese trade tensions and the threat of a recession, which cut into equipment demand from China and created uncertainty among U.S. farmers, and now must deal with the impact of the coronavirus. But Deere's results show that management is dealing with these challenges well, and the markets are responding accordingly on Friday.

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