Tractors are impressive. Don't believe me? Try remaining unimpressed by the power and possibility evoked by the tractor-laden railcars that line the path near the Deere (NYSE:DE) plant along the Mississippi in Moline, Ill. Or pedal across Iowa on RAGBRAI and sneak your flimsy two-wheeler past one of those shiny green behemoths; then tell me you're not awed.
If that doesn't do it for you, yesterday's headlines might. Third-quarter earnings were up more than 62%. Shareholders enjoyed a slimmer, 55% uptick in greenbacks, but that was still $1.58 per ticket. The news looks even better when you consider that revenues rose 23% to $5.4 billion.
Equipment sales provided 90% of the sales total, growing 27%, so while the past few weeks' headlines have left us with an overwhelming impression of decreasing American spending, it looks like folks in need of big, rolling steel were bucking the trend. Despite missing profit expectations, Caterpillar (NYSE:CAT) recently shocked the Street with evidence of strong demand. And even harried automakers such as Ford (NYSE:F), DaimlerChrysler (NYSE:DCX), and GM (NYSE:GM) have posted sales comebacks.
At Deere, the agricultural and forestry divisions saw the strongest sales spikes, 34% and 40%, respectively. Better yet, the units became more profitable because of volume efficiencies and less pressure for discounting. Though shareholders might be tempted to groan at phrases such as "partially offset by higher provision for bonus provisions," keep in mind that happy, rewarded employees make these snazzy quarters possible.
And the crews should remain busy. The company foresees a 35% sales increase for the last quarter of the year, with full year earnings to come in around $1.3 billion. That would put the green machine at a forward P/E near 12, making the firm look awfully cheap compared with the massive earnings growth for this year. Of course, Foolish investing means looking a bit further down the road, when growth should cool. Still, Deere stock has been out of favor for a few months, and given the company's ability to capitalize on sales growth despite punishing commodity prices, shares look like a reasonable value these days.
Will ample free cash flow and a healthy dividend help Deere make the cut for Mathew Emmert's Motley Fool Income Investor ? Take a free trial to find out.
Seth Jayson was proud to ride in a paceline full of Deere jerseys on this year's RAGBRAI. But he has no position in any company mentioned. View his Fool profile here.
