DE Sell Thesis

Deere and Company reported 1^st quarter earnings today of 1.65 beating analyst consensus by 18 percent on revenues of 7.4 billion which also beat expectations by about 17 percent. Although this quarter was very good for Deere and Company, the stock has fallen approximately 3 percent thus far today. Deere agriculture and turf was the primary driver of growth with sales of 16 percent over the first quarter of 2012. On the other side, the biggest laggard was Deere construction and forestry, which saw sales drop 7 percent over first quarter 2012. Moving forward, I believe that we should exit our position in Deere and Company. Although agriculture equipment sales should continue to grow over 10 percent in Latin America, Europe sales for 2013 were revised down from flat to down 5 percent to down 5 percent as a result of a weak economic environment combined with a poor crop harvest from the United Kingdom. Additionally new import duties will hurt demand in Russia and Belarus in 2013 and high grain prices for livestock farmers will cause agriculture equipment sales in the United States and Canada to be flat over 2012. Also, construction and forestry equipment sales, which struggled in quarter 1, are expected to continue throughout 2013 primarily as a result of forestry equipment sales in North America seeing limited growth. Production, SG&A costs, and warranty costs rose in quarter 1 and that is also going to continue through 2013. Production costs rose from the additional costs from manufacturing more energy efficient engines. This could potentially hurt margins in 2013. Although long, term macro factors are positive, in the nearer term, the company has said that economic, fiscal, and trade factors could have a negative impact on the business. All these factors together and I believe that now is the time to sell Deere and Company.

-Andrew Henderson, Junior Industrial Analyst