Wednesday, November 25, 2009

Deere & Co Residual Value Losses

Deere & Co (DE) issued Q4 and year end results the day before the long Thanksgiving Day weekend. They lead with this headline ” Deere Completes Profitable Year in Face of Historic Economic Slowdown”

Spinmeister was in charge of that one. The reality is the results are worse than last year. By this stage of the game it is not a surprise but as this is the year end release the headline is designed to last a long time.

What is more important is revenues and margins. We see some telling signs of problems when you read the results of their captive credit arm. They are experiencing losses with residual values from operating leases on construction equipment. No comment on where in the world this is happening but the shareholders pocket book is impacted.

If they are experiencing absolute losses in this category for the entire year the category has problems. If you believe the economy is coming back because of stimulus spending and shovel ready projects for infrastructure, think again. The equipment is being sold at a loss. This will be a strong headwind against new equipment sales in the same category. Double dip anyone?