Deere on Friday reported earnings for its fiscal first quarter that easily topped Wall Street's forecasts, and revenue fell by less than analysts had expected.
The tractor maker and bellwether for agriculture said the "US farm sector shows early signs of stabilization." Net income rose 4% even though revenue was down 6%.
Deere's sales have been battered in the past year due to trade tensions between the United States and China, with China launching several retaliatory tariffs aimed directly at agricultural products in America's heartland, such as soybeans and pork.
But the trade truce between China and the Trump administration is good news for farmers -- and Deere.
"Farmer confidence, though still subdued, has improved due in part to hopes for a relaxation of trade tensions and higher agricultural exports," said Deere CEO John May in a statement.
The rebound in farming helped offset a slowdown in the company's construction and forestry equipment division.
Investors may also be relieved to hear that Deere did not lower its profit outlook for 2020, despite worries about how the coronavirus outbreak in China could hurt demand. Shares of Deere(DE) rose more than 6% in premarket trading.
A Deere & Co. John Deere 9560 combine harvester unloads soft red winter (SRW) wheat during a harvest in the village of Kirkland in Dekalb, Illinois, July 9, 2018.
Daniel Acker | Bloomberg | Getty Images
Shares of Deere spiked Friday morning after the agriculture company topped estimates for its fiscal first quarter and said the farming sector in the United States is starting to stabilize.
The company reported $1.63 in adjusted earnings per share and $6.53 billion of revenue for the quarter. Analysts expected $1.25 in earnings per share and $6.409 billion of revenue, according to Refinitiv. The stock was up more than 8% to about $180 per share in early trading.
"John Deere's first-quarter performance reflected early signs of stabilization in the U.S. farm sector," CEO John May said in a statement.
Deere and other major agriculture companies have been hit by the trade war between the U.S. and China, which has made farmers unsure of how large the market for their products will be.
Sales in the company's agriculture and turf segment were down 4% compared with the same quarter last year, but operating profit rose 7% segment. The company said operating profit grew in part due to lower production costs.
The company said it expects net income of between $2.7 billion and $3.1 billion for the full year. It did not change its guidance for agriculture and turf equipment sales, which includes a 5% decline in the United States and Canada.
Friday's sharp increase represents a turnaround for the stock, which had been down more than 4% so far this year. The stock is within a few percentage points of its 52-week high at $180.48 per share.
Deere suffered sales and profit declines in its construction and forestry segment for the quarter, and the company said it expects those to be down 10 to 15% for the year.
U.S. stock futures declined Friday morning, adding to losses from the prior session. IHS Markit’s February purchasing managers’ indices for the U.S. and coronavirus developments remained a focus for investors.
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7:49 a.m. ET: Deere & Co. shares jump in pre-market trading after company beats 1Q expectations
Heavy equipment seller Deere & Co. (DE) posted better than expected results for its fiscal first quarter as farmer sentiment picked up after U.S.-China trade tensions deescalated.
The company posted adjusted earnings of $1.63 per share on sales of $6.53 billion, better than the $1.25 per share on $6.28 billion in sales anticipated, according to Bloomberg data.
Deere maintained its guidance for the full year, saying it expected net income in a range of between $2.7 billion to $3.1 billion. The midpoint of this range was higher than consensus analysts expected.
“Farmer confidence, though still subdued, has improved due in part to hopes for a relaxation of trade tensions and higher agricultural exports. At the same time, activity in the construction sector has slowed leading to lower sales and profit for our Construction & Forestry division,” CEO John May said in a statement.
“Also impacting results in Deere’s construction equipment business were our actions to reduce factory production and lower inventories in response to current market conditions,” he added. “Additionally, the quarter included costs of a voluntary employee-separation program, which is among the steps Deere is taking to improve flexibility and efficiency.”
Shares of Deere were up 7% in early trading. The stock had been down 4% for the year to date through Thursday’s close.
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7:38 a.m. ET: Stock futures decline in early trading
U.S. stock futures edged lower in early trading, extending losses from Thursday. Each of the three major indices was set to decline for a second straight session.
Friday’s trading day comes on the heels of a volatile session Thursday, with the S&P 500, Dow and Nasdaq each off by more than 1% at the lows of the session. While no single catalyst was necessarily to blame, some analysts suggested a broad-based erosion of investor confidence was at play.
“[Thursday’s’ midday selloff had many root causes, but all signal poorer investor confidence than that reflected in U.S. stock prices,” Nicolas Colas, co-founder of DataTrek, wrote in a note. “3M-10Y Treasury spreads went to new 2020 levels of inversion and 30-Year yields [neared] record lows again.”
Meanwhile, the euro declined, and the Japanese yen and South Korean won fell in response to coronavirus fears, Colas added. “Bottom line: export more turbulence ahead,” he said.
In China, the Hubei province at the epicenter of the coronavirus outbreak revised its method of counting cases for the third time this month, further undermining confidence in the country’s official counts. The province’s health commission said on Friday that the total number of new confirmed cases for Thursday was 631, versus the 411 reported earlier, since prison tallies had not previously been accounted for in the region’s coronavirus reporting network. Globally, the coronavirus has killed more than 2,200 individuals among more than 76,000 cases.
Here were the main moves during the pre-market session, as of 7:38 a.m. ET:
S&P 500 futures (ES=F): 3,357.00, down 12.25 points or 0.36%
Dow futures (YM=F): 29,081, down 90 points or 0.31%
Nasdaq futures (NQ=F): 9,582.25, down 42 points or 0.44%
Crude oil (CL=F): $52.94 per barrel, down $0.94 or 1.74%
Gold (GC=F): $1,636.80 per ounce, up $16.30 or 1.01%
Traders work during the opening bell at the New York Stock Exchange (NYSE). (Photo by Johannes EISELE / AFP) (Photo by JOHANNES EISELE/AFP via Getty Images)
(Bloomberg) -- T-Mobile US Inc. and Sprint Corp. agreed to new terms for their pending merger that take account of the deterioration in Sprint shares since the transaction was first agreed, putting the industry-altering deal a step closer to completing.
T-Mobile owners will get roughly 11 shares of Sprint for each of their stock, the companies said Thursday. That’s an increase from a ratio of 9.75 previously -- a more favorable deal for T-Mobile’s German owner Deutsche Telekom AG.
Getting one of the biggest U.S. wireless mergers ever over the finish line would be a boon for Deutsche Telekom as it will reduce its reliance on Europe, where carriers are struggling to grow amid fierce competition. T-Mobile makes up more than half of Deutsche Telekom’s sales, up from about a third in 2014. A completed deal will also benefit Sprint owner SoftBank Group Corp. by allowing its chairman, Masayoshi Son, to better focus on his technology investments and the $100 billion Vision Fund.
The combined company, which will operate under the T-Mobile name, will have a regular monthly subscriber base of about 80 million -- in the same league as AT&T Inc., which has 75 million subscribers, and Verizon Communications Inc., which has 114 million.
When the transaction closes, which could happen as soon as April 1, Deutsche Telekom is expected to keep 43% of the merged entity, while SoftBank has 24%. The rest will be held by public shareholders.
Deutsche Telekom shares were little changed in early trading in Frankfurt.
The original accord, which united the third- and fourth-largest U.S. wireless carriers in a $26.5 billion deal, was forged in April 2018. That pact lapsed on Nov. 1, and the companies didn’t initially renew the terms while they fought for government approval. When a federal judge rejected a state lawsuit to block the transaction earlier this month, that put the talks on the front burner.
Along the way, Sprint’s condition has worsened. That added pressure to redraw the agreement so that it was more favorable to Deutsche Telecom.
SoftBank agreed to surrender 48.8 million T-Mobile shares that it will acquire in the merger to the combined company immediately after the transaction closes. But those shares could be reissued to SoftBank by 2025 if the new company’s stock stays above $150 for a period of time.
Sprint investors other than SoftBank will still get the original ratio of 0.10256 T-Mobile shares for each Sprint share -- the equivalent of about 9.75 Sprint shares for each T-Mobile share.
Sprint’s monthly churn -- a closely watched measure of how many customers leave -- has risen to nearly 2%. That means roughly a quarter of its subscriber base is quitting the carrier each year. And the company isn’t making up for the decline by charging more: Average revenue per customer has fallen 5% since the deal was announced.
Analysts such as LightShed Partners’ Walt Piecyk said the merger’s exchange ratio should be closer to 12, given Sprint’s deteriorated business.
(Updates with share price in sixth paragraph.)
--With assistance from Stefan Nicola.
To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net
To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Jennifer Ryan
For more articles like this, please visit us at bloomberg.com
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WASHINGTON/RIYADH/FRANKFURT - (Reuters) - In the days after a new virus was identified in China on Dec. 31, global central bankers fell back on past experience for a comforting early analysis.
FILE PHOTO: A man wearing a face mask walks past a shop of a French luxury cosmetic brand Lancome at the Wangfujing shopping street as the country is hit by an outbreak of the novel coronavirus, in Beijing, China February 20, 2020. REUTERS/Tingshu Wang
The SARS epidemic in 2003, they noted, had come and gone with little economic impact.
Weeks later, that parallel has failed.
A disease that has sickened around 75,000 in China and ground its economy to a near halt continues to spread outside its epicenter. The latest blow to hopes for a successful containment came Thursday when confirmed cases in South Korea topped 100 and it reported its first death. The streets of that country’s fourth-largest city stood abandoned as residents holed up indoors.
Now, as global finance officials gather in Riyadh, Saudi Arabia, for the latest Group of 20 summit, they will do so having intensified both their level of concern and the breadth of their detective work to understand the economic implications of the outbreak.
That has meant watching measures of coal use and local travel in China for any independent evidence the world’s second largest economy is returning to normal. They are watching disease counts outside China as the best indicator of whether the virus has been contained.
In Japan officials are surveying the empty streets of the Ginza shopping district and tallying airline and cruise ship cancellations, and pondering if an economic rebound they had counted on for later this year will fizzle.
In the United States, Fed officials are quizzing local business contacts and hearing from entrepreneurs blindsided by vulnerabilities in their supply networks.
Businesses “have supply chains that are intimately involved in China sometimes in ways they did not know,” Richmond Federal Reserve Bank President Thomas Barkin said in an interview Wednesday, recalling a conversation with one medical manufacturer that “had a supplier who had a supplier who had a part in China.”
SHORT HIT OR GLOBAL RECESSION?
Given the evolving and unpredictable nature of any viral outbreak, analysts have no tried and true way to model the event.
But policymakers and analysts say this much is clear: the more they talk to people, they more they understand China’s deep role in global supply chains. That means the longer the outbreak remains uncontained, the higher the likelihood that it could become a systemic problem.
Barkin said unknowables include just how flush businesses were with parts inventories before China began quarantines and business closures to stop the spread of the virus or how flexibly companies can move to other suppliers. These are issues not captured in any particular economic model, leaving central bankers globally in a scramble to get a grip on them.
Forecasters have sketched scenarios that cluster around a limited impact, mostly a drop in China’s first-quarter growth. But they also include a possible contraction in the global economy or, in the worst case, a European and U.S. recession as global demand falls.
That’s not the base case at the Fed, the European Central Bank or the Bank of Japan, with no push yet for policy action or rate cuts to offset an unwelcome economic shock. But policymakers acknowledge they are flying somewhat blind.
“My read is if everything gets up to speed in the next few weeks it will be a minor bump that won’t be an issue. If you are out for months then you have a more significant impact on probably 10 to 15 percent of the economy” that depends on Chinese suppliers or exports to the country, Barkin said.
Similar time-dependent assessments are offered in Europe and Japan, where that country’s close economic ties to China have officials particularly wary.
“The picture has changed completely from before the outbreak,” said a BOJ official, who was not authorized to speak publicly about the matter.
RISK OF ‘CONSEQUENTIAL SPILLOVERS’
Economists typically look at events like this with a sanguine eye. They hurt the economy in the moment, but some losses are permanent: While a consumer can still buy that car a month or two later, forgone trips or restaurant meals are not necessarily made up.
But overall, an inevitable bounce back offsets the shock.
Some events, however, prove systemic. Policymakers and analysts point to how a 2011 earthquake and flooding compromised a nuclear reactor in Japan’s Fukushima province, and led global businesses to rethink supply networks to make them less dependent on any single source.
In a paper last year (here), Fed researchers studied what a "hard landing" in China - a combination of financial stress and a sharp drop in gross domestic product - would mean for the U.S. and global economies.
The results weren’t pretty.
The research predicted “consequential spillovers to the United States and global economy through both real trade links and financial channels.” U.S. officials as a rough rule of thumb say a 1 percentage point drop in China’s growth shaves about a 0.2 percentage point from U.S. GDP - noticeable, but not likely to cause a recession unless the shock is massive.
From Europe’s perspective, it is not yet time to worry - but to stay watchful.
“The history of these has been that there could be a significant short-term effect of events like these, but no long-lasting effect,” ECB chief economist Philip Lane said in Berlin. “So this is the baseline. Let’s see - it depends on how quickly it is contained.”
Following a dip in sales and criticism about its billionaire founder, Victoria's Secret will be sold and have its founder step down as it seeks to move forward and find profit.
The company's owner, L Brands, confirmed to Fox News that the private-equity firm Sycamore Brands will buy 55 percent of Victoria's Secret for about $525 million. According to a statement from L Brands, the Columbus, Ohio company will keep the remaining 45 percent stake in order to, "enable its shareholders to meaningfully participate in the upside potential of these businesses."
Shares of L Brands slid 12 percent in premarket trading Thursday.
The selling price signifies a marked decline for a brand with hundreds of stores that booked about $7 billion in revenue last year.
Sales at its stores are in decline due to increasing competition and changing tastes. Victoria's Secret suffered a 12 percent drop in same-store sales during the most recent holiday season. L Brands said Thursday that same-store sales declined 10 percent at Victoria's Secret during the fourth quarter.
The Victoria's Secret Fashion Show was called off in 2019 following a dip in ratings and controversy surrounding it.
(REUTERS/Charles Platiau)
"We believe the separation of Victoria’s Secret Lingerie, Victoria’s Secret Beauty and PINK into a privately held company provides the best path to restoring these businesses to their historic levels of profitability and growth," CEO Les Wexner said in the statement. "Sycamore, which has deep experience in the retail industry and a superior track record of success, will bring a fresh perspective and greater focus to the business. We believe that, as a private company, Victoria’s Secret will be better able to focus on longer-term results. We are pleased that, by retaining a significant ownership stake, our shareholders will have the ability to meaningfully participate in the upside potential of these iconic brands."
The company also confirmed that Wexner will step down after the transaction is completed and become chairman emeritus.
“Les Wexner is a retail legend who has built incredible brands that are household names around the globe. His leadership through this transition exemplifies his commitment to further growth of Bath & Body Works and Victoria’s Secret and driving overall shareholder value,” said Allan Tessler, lead independent Board director.
At its peak, the underwear and lingerie brand was known for its catalog filled with supermodels and a glitzy annual television special that mixed fashion, models and music. Amid its struggles, Victoria's Secret sales have continued to erode, its show was pulled from network television in Nov. 2019 due to controversy and low ratings and its stock - which traded at close to $100 in 2015 - now trades at around $24.
Victoria's Secret founder Les Wexner (left) will step down from his position after the company is sold.
(Astrid Stawiarz/Getty Images for Fragrance Foundation)
L Brands has also come under scrutiny because Wexner has ties to the late, disgraced financier Jeffrey Epstein, who was indicted on sex-trafficking charges.
Epstein started managing Wexner’s money in the late 1980s and helped straighten out the finances for a real estate development backed by Wexner in a wealthy suburb of Columbus. Wexner has said he completely severed ties with Epstein nearly 12 years ago and accused him of misappropriating “vast sums” of his fortune.
Wexner offered an apology at the opening address of L Brands' annual investor day in Columbus last fall, saying he was "embarrassed" by his former ties with Epstein.
Wexner is the longest-serving CEO of an S&P 500 company. He founded what would eventually become L Brands in 1963 with The Limited retail store, according to the company's website. Wexner owns approximately 16.71 percent of L Brands, according to FactSet.
Sycamore has about $10 billion in assets under management. The firm's investment portfolio includes retailers such as Belk, Coldwater Creek, Hot Topic and Talbots.
The investment bank told clients this week that a near-term correction, in which the market slides at least 10% from a recent peak, "is looking much more probable."
The thinking: Equity markets look "increasingly exposed" to disappointing earnings growth due to the new coronavirus outbreak, Goldman warns.
The number of companies that have lowered their guidance on profits for the first quarter is still in line with past years. But Apple's surprise update this week that it wouldn't hit its revenue target has put investors on edge.
Goldman Sachs(GS) notes that the global economy is expected to keep growing, and the United States is, too, despite the country already having experienced its longest economic expansion in 150 years. That creates a supportive environment for stocks. But the bank is concerned that earnings expectations could still be too rosy, especially given the exposure of global companies to the Chinese economy.
Apple(AAPL), it observes, has been "an important driver" of better-than-expected earnings results. Big Tech companies — Facebook(FB), Amazon(AMZN), Apple, Microsoft(MSFT) and Google(GOOG) — beat earnings expectations by 20% on average last quarter, compared with 4% for the average S&P 500 company.
"Any weakness to these and other companies would likely push earnings estimates lower," wrote Peter Oppenheimer, the firm's chief global equity strategist.
Additionally, depressed bond yields have made stocks look more attractive by comparison. Oppenheimer points to Germany's DAX, which has also hit an all-time high as the yield on the country's benchmark 10-year bond remains in negative territory. That raises the stakes for corporate earnings as well, he argues.
