These Stocks Show 2 Sides of the Same Economy

Stock markets often see volatile movements during the holiday weeks, as there are fewer professionals on Wall Street to participate in the trade. However, light trading volume can sometimes leave stock markets in a holding pattern, and that was what looked like Wednesday morning. Major market benchmarks opened with only modest changes from Tuesday’s close, with some rising and others slightly lower.

Still, individual companies that continue to report earnings offer very different views on the current state of the economy. Shares of agricultural equipment specialist deere (ALSO 6.65%) rose after the company announced its latest financial results, but the high-end department store retailer Nordström (JWN -6.36%) failed to show the same level of optimism about macroeconomic conditions. It’s all one big economy, but what Deere and Nordstrom said revealed two different aspects of the economy.

Deere is getting a healthy harvest

Deere shares were up 3% in the early hours of Wednesday morning. Farm equipment inventory is near 10% of its all-time high, and fiscal fourth-quarter financial figures for the period ended Oct. 30 showed continued strength in its core business.

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Recent readings from Deere have been positive. Quarterly revenue increased 37% year-over-year to $15.54 billion, completing a fiscal year where sales increased 19% year over year. Quarterly net income increased 75% to $2.25 billion, resulting in earnings of $7.44 per share.

Deere saw positive results across the business. The best performance ever was in the manufacturing and precision agriculture segment, where sales increased by 59% and operating profit more than doubled with healthy margin growth.

Still, Deere has seen big numbers in its other segments as well. Small agriculture and turf sales increased 26%, increasing operating profit by 46% from a year ago, while the construction and forestry segment posted 20% sales gain, increasing operating profit by 53%.

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Best of all, Deere expects strong conditions to continue into next year. The equipment manufacturer has projected more modest sales increases of 15% to 20% for the manufacturing and precision agriculture segment, 10% for construction and forestry, and 0% to 5% for small agriculture and turf in fiscal 2023. This bodes well for Deere to remain a leading stock even in a bear market.

Nordstrom cuts profit forecasts

Moving in the other direction, Nordstrom’s shares fell 8%. The retailer’s fiscal third-quarter financial report for the period ending Oct. 29 showed that even high-end retail customers are struggling in the recent inflationary environment.

Nordstrom’s quarterly numbers were mixed. Net sales fell almost 3% year over year and gross merchandise value fell 2.5%. A change in the timing of Nordstrom’s major anniversary sale had a calendar impact, but the company saw a drop in revenue both at its full-price stores of the same name and at its discounted price Nordstrom Rack chain.

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Nordstrom lost $0.13 per share in the quarter, but adjusted earnings per share of $0.20 per share after adjusting for supply chain technology-related one-time fees were better than some had expected.

Challenges in the retail industry continued as Nordstrom worked hard to manage inventory levels while meeting customer demand. Overhead expenses remained high, hurting profits. Still, despite challenging conditions, the retailer is opening new stores and plans to make major relocations and openings next year.

Nordstrom still believes it can increase revenue by between 5% and 7% for the full fiscal year by posting adjusted earnings of $2.30 to $2.60 per share. That means a relatively cheap valuation for the stock, but shareholders still seem skeptical that the holiday season will go as well as management hoped.

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