Deere & Company (DE) Earnings

Management highlights

- Overall Operational Performance * Deere delivered a strong Q3 with equipment operations achieving a 14.4% operating margin, beating both company and consensus expectations for revenue and profitability. * Teams across factories, warehouses, and offices executed well, maintained cost discipline, and continued improving inventory health across the dealer channel. * The company recognized $110 million in incremental tariff refunds in Q3, bringing total 2026 refunds to $382 million. Guidance assumes no further refunds for the remainder of the fiscal year. - End Market Dynamics * Agricultural equipment: Large ag equipment demand is soft in South America and Europe due to elevated input costs, high interest rates, and farm profitability pressure, while North America demand remains stable at low levels. Small ag and turf demand is positive globally, supported by strong dairy/livestock margins in the U.S. and growing small tractor demand in India. * Construction and forestry equipment: Strong demand is supported by large-scale infrastructure, data center, and energy projects, with backlogs extending into 2027. Global forestry demand remains weak due to subdued residential construction and low lumber prices. - Technology Adoption Progress * Precision agriculture: See & Spray factory adoption on ordered North American sprayers is set to nearly double, with customers achieving 50% herbicide savings. Over 40% of ordered North American planters include advanced precision technologies. The John Deere Operations Center now has over 520 million engaged acres, with 190 million highly engaged acres (double-digit YoY growth) and 450,000+ monthly active digital users. * Construction technology: Factory-installed smart technology adoption is up over 50% YoY, and job site safety solution sales are up nearly 40% YoY as customers invest in productivity and safety improvements.

Guidance

- Full Year 2026 Industry Outlooks * U.S. and Canada large ag equipment: Maintained forecast of a 15% to 20% YoY decline amid muted farm profitability, commodity price volatility, and elevated input costs. * U.S. and Canada small ag and turf: Maintained forecast of flat to 5% YoY growth. * Asia ag equipment: Maintained forecast of flat industry sales. * U.S. and Canada construction equipment: Revised upward to 5% to 10% YoY growth; compact construction equipment forecast maintained at 5% YoY growth. * Global forestry: Revised to a 10% YoY decline amid weak residential construction and low lumber prices. * Global road building: Maintained forecast of ~10% YoY growth supported by infrastructure spending. - Segment Full Year 2026 Guidance * Production and Precision Ag: Revised net sales guidance to ~10% YoY decline (down from the prior range, due to further softening in South America and Europe), with 1 point of positive price realization and ~2.5 points of favorable currency translation. Operating margin guidance narrowed to 11% to 12%. * Small Ag and Turf: Maintained net sales guidance of ~15% YoY growth, with 1.5 points of positive price realization and 0.5 points of favorable currency translation. Operating margin guidance increased to 14.5% to 15.5%. * Construction and Forestry: Maintained net sales guidance of ~20% YoY growth, with 3 points of positive price realization and 1.5 points of favorable currency translation. Operating margin guidance narrowed to 10.5% to 11.5%. - Company-Wide Full Year 2026 Guidance * Net income: Raised to a range of $4.75 billion to $5 billion. * Effective tax rate: Maintained at 24% to 26%. * Equipment operations operating cash flow: Improved to $5 billion to $5.5 billion. * Financial services net income: Increased to $870 million. * Direct tariff expense (excluding refunds): Set at $1.1 billion, down from the prior forecast of $1.2 billion due to Section 232 tariff rate cuts.

Segment performance

1. Production and Precision Ag: Q3 net sales of $3.998 billion, down 6% year-over-year (YoY), contributing 31.7% of total company net sales. Operating profit was $527 million, with a 13.2% operating margin. The YoY decline stemmed from lower shipment volumes and higher production costs, partially offset by 2.5 points of positive price realization and 1.5+ points of favorable currency translation. 2. Small Ag and Turf: Q3 net sales of $3.383 billion, up 12% YoY, contributing 26.8% of total company net sales. Operating profit increased to $622 million, with an 18.4% operating margin. Growth was driven by higher shipment volumes, favorable sales mix, and 1.5+ points of positive price realization, partially offset by higher production costs. 3. Construction and Forestry: Q3 net sales of $3.618 billion, up 18% YoY, contributing 28.7% of total company net sales. Operating profit was $436 million, with a 12.1% operating margin. Growth came from higher shipment volumes and 8 points of positive price realization (driven by lapping prior year retail incentives), partially offset by higher S&A and R&D costs. 4. Financial Services: Q3 net income attributable to Deere & Company was $219 million, up YoY due to favorable financing spreads, partially offset by a lower average portfolio compared to the prior year.

Risks & headwinds

- Agricultural market risks: Persistent volatility in global commodity prices, elevated input costs (especially fertilizer), high interest rates, and uncertainty around crop demand and trade flows continue to pressure farm profitability and delay capital spending decisions. * Regional demand uncertainty: Softness in South American and European large ag markets could persist into 2027, with European demand further complicated by upcoming 2028 policy changes that may lead to delayed or pulled-forward purchases. * Tariff cost headwind in 2027: The 2026 Section 232 tariff cut only impacted 5 months of 2026 results, so full-year 2027 will see a full year of benefit, but the absence of 2026-level tariff refunds will lead to a net increase in tariff expense in 2027 compared to 2026. * Macroeconomic construction risks: While current demand is strong, a slowdown in infrastructure or residential construction could negatively impact forestry and construction equipment demand.

Analyst Q&A

• Q: For 2027, what is Deere's plan for production relative to retail demand by region, and what are pricing expectations for the agricultural early order program (EOP)? /

  A: Deere is planning modest underproduction of retail demand (a couple percentage points) in both Production and Precision Ag (PPA) and Construction and Forestry (CNF) in 2026. For PPA, added caution is driven by softening demand in South America. For CNF, strong retail demand and backlogs extending four to five months out lead to modest underproduction to maintain healthy dealer inventory. For EOP pricing, Deere structured pricing to fully cover expected inflation across all PPA products for 2027. (338 character)

• Q: What drove the reduction in expected 2026 direct tariff expense from $1.2 billion to $1.1 billion, and what is the update on the new excavator launch? /

  A: The 2026 direct tariff expense reduction stems from the June 2026 cut to Section 232 tariffs on imported goods, which dropped the rate from 25% to 15% for European imports. Since the change only applied to the last five months of 2026, there will be additional full-year tariff cost tailwinds in 2027. The first wave of the new Deere-designed excavator line has launched, with positive customer reception to date. The full portfolio rollout will take three to four years, starting this spring, and it is still early days for broader adoption. (437 character)

• Q: What is the current state of CNF order trends, and how much demand is driven by dealer rental fleet expansion? /

  A: CNF order trends are very positive, with four to five months of orders on hand (more than the typical 2-3 months) driven by strong industry and retail growth. Demand is supported by large infrastructure projects, data center construction, sales to independent rental companies, and growing dealer appetite to expand their own rental fleets. Modest 2026 underproduction will leave room for dealer rental fleet growth in 2027, and Deere sees meaningful long-term growth opportunity in the rental channel, where 30-35% of earthmoving transactions now start as rentals. (352 character)

• Q: What are the implications of the FTC right-to-repair settlement for Deere's aftermarket business? /

  A: Deere has always supported customers' right to repair their equipment themselves or use any third-party repair provider they choose, so the settlement does not change this core principle. The settlement formalizes Deere's existing industry-leading tools, including the John Deere Operations Center Pro Service, which gives customers and independent technicians access to diagnostics, manuals, and self-service software updates. Deere believes the formalized framework will support long-term growth of its lifecycle solutions and aftermarket business. (341 character)

• Q: What is Deere hearing from U.S. and Brazilian farmers about input cost trends and how that impacts their equipment purchasing decisions? /

  A: There is widespread uncertainty around input prices, especially fertilizer, across both markets, though fertilizer has a larger impact on Brazilian farmer economics. Farmers are staying nimble, considering alternative input products, sources, and application levels, but there has not been a large overall reduction in planned input application as farmers remain focused on protecting yield. Larger operations are increasingly contracting inputs across multiple years, and are adjusting their contracting strategies to account for current volatility, but no major broad shift in purchasing behavior has been seen to date. (344 character)