Deere & Company (DE) Strength Puts Agribusiness ETFs In Focus

May 27, 2015 4:31pm NYSE:MOO NYSE:VEGI

agriculture 600X300The world’s largest agricultural equipment maker, Deere & Co (NYSE:DE), reported remarkable second-quarter fiscal 2015 results before the opening bell on Friday amid tough business conditions.


The company surpassed our estimates on both earnings and revenues despite falling on a year-over-year basis. Further, it provided an upbeat outlook for fiscal 2015.

Deere Q2 Results in Focus

Earnings per share came in at $2.03, comfortably beating the Zacks Consensus Estimate of $1.57 but deteriorating 23% from the year-ago earnings. Revenues also fell 18% year over year to $8.12 billion, but strongly beat the Zacks Consensus Estimate of $7.60 billion. Global agricultural slowdown due to lower commodity prices and falling farm income was more than offset by strong demand for its construction equipment.

The manufacturer expects overall equipment sales to drop 17% in the third quarter and 19% in fiscal 2015 on weak demand for agricultural machineries and strong dollar. Segment wise, the company expects global construction and forestry equipment sales to grow about 2% in fiscal 2015 but global sales of agriculture and turf equipment to drop 24%.

The company raised the 2015 net income guidance to $1.9 billion from the previous expectation of $1.8 billion. Amid declining sales and continued pullback in the global agricultural sector, John Deere expects to thrive in 2015, reflecting its efforts to establish a more resilient business model.

Market Impact

Based on solid results and an assuring outlook, shares of DE jumped as much as 4.6% on the day while trading volume was also heavy exchanging more than 8.5 million shares in hand compared to the 3-month average of around 2.6 million shares. Smooth trading is expected to continue in the ETF world as well over the next few days, especially among those that have the largest allocation to this big agricultural equipment maker.

Investors could easily tap this opportunity arising from Deere earnings and the solid run-up in its price with the following two agribusiness ETFs at lower risk.

iShares MSCI Global Agriculture Producers ETF (NYSEARCA:VEGI)

This fund follows the MSCI ACWI Select Agriculture Producers Investable Market Index and offers investors global exposure to 132 firms that are primarily engaged in the business of agriculture. Here, Deere occupies the fourth position with a 7.5% allocation. From a sector look, agricultural chemicals take the largest share at 51%, closely followed by farming/fishing (21%) and industrial engineering (17%).

American firms dominate the fund’s holding with 47.9% of total assets while Canada and Switzerland receive double-digit allocation each. The ETF is less popular and illiquid with $35.4 million in its asset base and around 12,000 shares in average daily volume. The ETF charges 39 bps in fees per year from investors and has gained 7.1% in the year-to-date time frame.

Market Vectors Agribusiness ETF (NYSEARCA:MOO)

This fund is by far the most popular and liquid choice in the space with AUM of about $1.5 billion and average daily volume of nearly 185,000 shares. It tracks the Market Vectors Global Agribusiness Index and charges 57 bps in annual fees. In total, the fund holds 57 securities in its basket with DE occupying the third spot at 6.9% of total assets.

The product provides nice diversification across business segments with agricultural chemicals accounting for 43% share while farming/fishing (17%), and industrial engineering (16%) rounding off the next two spots. In terms of country allocation, half of the portfolio goes to the U.S. firms while Canada, Switzerland and Japan (7.4%) also get a decent exposure each. The fund has added 9.3% in the year-to-date time frame.

This article is brought to you courtesy of Sweta Killa.


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