Can Deere Avoid Joy Global and Caterpillar's Fate?

Deere and Company (DE +2.75%) will release its quarterly report on Wednesday, and investors aren't nearly as excited about the prospects for the farm-equipment company as they were earlier this year. Yet even though it and peers Caterpillar (CAT +2.47%) and Joy Global (JOY +0.00%) have suffered from poor macroeconomic conditions around the world, Deere has a key competitive advantage that could help it bounce back more easily than Joy Global and Caterpillar if things play out the right way.

Deere is best known for its tractors and other agricultural equipment, which have been in high demand as strong conditions in farming have given customers the ability to invest in yield-enhancing capital investments in farm machinery. But the company actually has a diverse set of product offerings with applications in other industries as well, including construction and forestry. Will a change in the heavy equipment investment climate hurt Deere as much as it has Caterpillar and Joy Global? Let's take an early look at what's been happening with Deere over the past quarter and what we're likely to see in its report.

Photo credit: John Deere.

Stats on Deere

Source: Yahoo! Finance.

Where will Deere earnings land this quarter?
In recent months, analysts have started to pull back on their views on Deere earnings, reducing their October-quarter estimates by $0.03 per share and their full-year fiscal 2014 projections by more than quadruple that amount. The stock has stayed near its recent lows for the year, losing another 1% since mid-August.

Deere brought some concerns into the quarter, with its July quarter earnings report failing to give investors reassurance that it was overcoming the macroeconomic headwinds that faced the industry. Deere posted 4% higher sales, and profits jumped by 26%, with CEO Sam Allen pointing squarely at the agricultural segment as driving growth, particularly in North and South America. But sales of construction and forestry equipment fell by 11%, and Deere's forward guidance suggested slowing gains in ag sales that could weigh on overall revenue growth.

Deere also faces substantial competition. In addition to Caterpillar on the construction front, agricultural players CNH Global and AGCO (AGCO +4.96%) have posed an increasing threat to Deere's growth, especially in many key international markets where Deere has lagged behind. Poor conditions in the European construction business have opened the door to competitors there as well, forcing Deere to take action to shore up its presence in Europe.

As a result of those competitive pressures, Deere has started aggressively considering different strategic options for various underperforming divisions. In September, the company said it would look at its John Deere Water Operations irrigation unit to see if it can get more value out of the segment, after having had to take a $50 million impairment charge related to the business in its July quarter report. Late last month, Deere followed up by selling a 60% stake in its John Deere Landscapes division to a private equity company, further concentrating Deere's focus in its core agriculture and construction equipment business.

Still, Deere enjoys one advantage that's unlikely to change: growing populations that need food. Much of Caterpillar's and Joy Global's weakness lately has centered on mining equipment, an area that doesn't affect Deere. By contrast, Deere can concentrate almost entirely on convincing productivity-minded farmers of the superior prospects derived from use of its equipment.

In the Deere earnings report, watch to see whether the company's strategic efforts will help it concentrate more on its highest-priority markets. With so much long-term promise, investors might actually welcome a short-term pullback as an opportunity to invest more cheaply in Deere stock.

Click here to add Deere to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.