What's going on?
Agricultural equipment maker Deere saw its shares jump 7% on Friday, after announcing that it expects to make much more profit this year than it previously thought!
What does this mean?
Deere increased its profit forecast by 33%, which is a pretty big boost. The company credited a big recovery in demand from South America, as a result of improving economic and political conditions in Argentina and Brazil.
However, sales in the US and Canada, which account for about 70% of Deere’s sales, are still expected to decline about 5% – highlighting the difficult time that American farmers are still having, as large global grain stockpiles drag down the price of wheat and other agricultural products (this “bad” news, however, was already baked into expectations).
Why should I care?
The bigger picture: Investing in American companies is often not just a bet on America.
Deere is typically associated with the American heartland, but its investors just benefited in a big way from the company’s exposure to emerging markets. It’s an important reminder that many of America’s largest companies have significant operations in other countries, and should often be viewed as “global” investments rather than solely US ones.
For markets: The political upheaval in Brazil could have an impact on Deere and other global companies.
Brazil plunged into another political crisis last week when corruption allegations emerged concerning its relatively new president. That sort of political instability can hurt the economy and poses a big risk for international companies operating in Brazil. Deere says it doesn’t expect it to have an effect but concedes that it might. Logically, if the company benefited from Brazil’s recent political stability and economic improvement, as it says it has, then it’s likely to suffer if the situation reverses.