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Deere & Company beats on earnings on massive demand for equipment

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Yahoo Finance Live's Julie Hyman and Brian Sozzi review Deere & Company's positive earnings as demand for machinery and equipment is very high.

Video transcript

[MUSIC PLAYING]

JULIE HYMAN: Well, luckily for Brian Sozzi's blood pressure, it wasn't just Gap and Nordstrom that reported earnings. Let's take a look at shares of Deere. They are up by 2 and 1/2% this morning, and that's after the company came out with numbers that beat estimates. And not only that, also came out with a forecast for next year that leaves it room to beat estimates. Couple of things driving all of this, but really, the main driver for Deere is the fact that we have continued to see commodity grains prices go higher and that means more demand from farmers for Deere's equipment. What's also interesting, is that, of course, the company has been experiencing a number of strikes, which it has just resolved, and that doesn't seem to be negatively affecting the profit or outlook.

So that seems to be reassuring to investors. Now all this said, the company might indeed have to be raising prices, and is seeing increased labor costs obviously from that labor negotiation. JP Morgan says the company's going to have to raise prices by about 1 and 1/2%. I guess the question is here, Soz, just like consumers are paying higher prices for a number of different products, if you're a farmer and you're making more on the grains that you're selling through, then I guess the thinking would be that you then are more willing to spend on pricier equipment to get your stuff harvested and out the door.

BRIAN SOZZI: Yeah, you're going to need this equipment, Julie, and Deere puts out really some of the best stuff in the industry, and with increasingly a lot more technology, which is one way to get farmers to go out there and spend this additional money on these products. But look, I have no problems with this quarter out of John Deere. I mean, you've got operating profits outpacing sales in every segment of their business. Still looking for a strong double digit outlook for many of the segments in terms of the next 12 months, Deere coming out here with their outlook. Really the wild card, Julie, is what's the lingering impact of the strike here? I don't think it was really reflected in this guidance, but you would have to think it's going to take some time for Deere to move on beyond that.

JULIE HYMAN: Yeah, the rise in labor costs tied to this specifically, it looks to be about $3 and 1/2 billion. So again, it's a question of whether they can raise their prices enough to offset some of that increased cost. It's also interesting, as I look at the Deere chart year to date, it had an upswing at the beginning of the year and then has kind of gone sideways for the rest of the time. So we'll see if it can gain any momentum on this forecast or other factors going into 2022.

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