Deere & Company reported fiscal 2025 net income of $5.0 billion ($18.50 per share) on net sales of $45.7 billion, reflecting a 12% revenue decline but robust operating margins of 12.6%. The company demonstrated resilience through disciplined inventory management and cost control, achieving its 'best results yet for this point in the cycle' despite a 30% downturn in North American large ag. For fiscal 2026, Deere projects net income of $4.0–$4.75 billion, anticipating a $1.2 billion tariff headwind but growth in Small Ag & Turf (+10%) and Construction & Forestry (+10%). Management remains focused on its 'Smart Industrial' strategy, highlighting record tech adoption and a healthy trade ladder, positioning the company for recovery as large ag demand stabilizes.
| Metric | Value | Change |
|---|---|---|
| FY 2025 Net Sales | $45.7 billion | -12% |
| FY 2025 Net Income | $5.0 billion | N/A |
| FY 2025 EPS | $18.50 | N/A |
| FY 2025 Equipment Ops Margin | 12.6% | N/A |
| Q4 2025 Net Sales | $12.4 billion | +11% |
| Q4 2025 Net Income | $1.1 billion | N/A |
| FY 2026 Net Income Guidance | $4.0 - $4.75 billion | N/A |
| FY 2026 Tariff Impact | $1.2 billion | N/A |
Management emphasized the accelerating momentum of its 'tech stack,' reporting that See & Spray technology covered over 5 million acres in 2025 with 50% herbicide savings, and that autonomous tillage kits are now taking orders. This focus on high-margin technology solutions is intended to diversify revenue and deepen customer stickiness, supporting the thesis that Deere is evolving into a tech-enabled industrial company. John May stated, 'We're seeing accelerating momentum in the growth of our tech stack... happening across all layers... from base precision to digital engagement to advanced automation and to full autonomy.'
Deere successfully navigated the downturn by aligning production with retail demand, resulting in new field inventory for large tractors hitting 17-year lows. Used inventory levels for high-horsepower tractors and combines have declined significantly (down 7-25% from peaks), clearing the 'trade ladder' and positioning the company to ramp up production quickly when demand recovers. Josh Jepsen noted, 'Inventory to sales ratios for combines and four-wheel drive tractors both closed the year at 8%... new field inventory for Deere 220 horsepower and above tractors ended fiscal 2025 at the lowest unit level we've seen in over seventeen years.'
The company highlighted the resilience of its diversified portfolio, noting that while Large Ag faces a 15-20% decline, Small Ag & Turf and Construction & Forestry are projected to grow ~10% in FY2026. This mix shift, combined with international strength (Europe flat to up 5%), is a key strategic pillar allowing Deere to maintain double-digit margins despite severe weakness in its core North American row crop market. Christopher Seibert remarked, 'This level of performance reflects the structural improvements we have made to the business... resilience that comes from a more diversified business.'
Deere is actively leveraging its technology stack into new verticals like construction and roadbuilding. The John Deere Operations Center was expanded to these sectors, with over 3,200 customer organizations engaging. This cross-pollination of technology validates the 'Smart Industrial' strategy's scalability beyond agriculture. John May noted, 'We're now expanding the value proposition to customers with tools like the John Deere Operations Center... we believe that customers are now benefiting from an advanced digital platform.'
A major concern is the $1.2 billion in projected pretax tariff expenses for FY2026, an incremental $600 million increase from 2025. Management noted these costs are 'evenly spread' throughout the year, pressuring margins and requiring continued price increases to offset, which may be difficult to pass on to customers facing their own profitability crunch. Josh Jepsen stated, 'The run rate of the tariffs by quarter is pretty evenly spread, roughly $300 million per quarter.'
The outlook for North American large agriculture remains bleak, with industry sales expected to decline another 15-20% in 2026. Management cited 'challenging farm fundamentals' and pressure on short-term liquidity, suggesting that the trough for this critical segment may be prolonged, with Q1 margins expected to drop to 'low single digits' due to lean production and mix. Deanna Kovar warned, 'Our customers are still facing headwinds that are driving near-term investment caution.'
Excluding tariffs, management indicated that production costs are expected to be 'slightly unfavorable' in 2026 due to overhead absorption issues and labor contract headwinds in North America. This creates a risk to operating leverage, as the company must rely on price realization and cost-cutting initiatives to maintain margins amidst volume declines. Josh Jepsen admitted, 'If you back off the incremental $600 million of tariffs in production costs, we would still expect to be slightly unfavorable for production costs in 2026.'
While used inventory is improving, the value of that inventory remains high due to a 'higher population of late model equipment,' posing a risk to residual values if the downturn extends longer than anticipated. Josh Beal noted, 'Although the value of inventory today is higher than the last cycle due to a higher population of late model equipment.' This could necessitate further 'pool funds' or incentives, impacting margins.
Overall: Management displayed a tone of disciplined confidence and resilience, acknowledging the 'challenging and uncertain' market while emphasizing the company's ability to 'manage what we can control.' They expressed pride in the team's execution and remained steadfast in their long-term strategic vision, shifting from defensive inventory management to preparing for the eventual market inflection.
Confidence: HIGH - Management consistently emphasized 'structural improvements' and 'resilience,' citing margin performance 450 basis points better than the last cycle trough. They provided specific, data-driven responses regarding inventory levels and technology adoption, indicating a strong command of the business despite macro headwinds.
$4.0 billion to $4.75 billion
~$1.2 billion pretax
Down 5-10%
Up ~10%
Up ~10%
$4.0 billion to $5.0 billion
Hedging & Uncertainty: Management frequently used temporal and probabilistic hedges to frame the uncertain outlook, such as 'anticipate,' 'expected to be,' and 'indications of stabilization.' They softened the negative impact of tariffs by framing them as 'headwinds' they are 'mitigating' rather than passive victims. Phrases like 'we believe' and 'we expect' were used to project confidence in their ability to manage the cycle, while 'uncertainty' was often paired with 'resilience' to balance the narrative. For example, Josh Jepsen stated, 'We would expect to be down year over year in all those quarters, just given the level of decline that we're seeing,' acknowledging the inevitability of the downturn while maintaining control over the narrative.
Resilience and strength of the Deere organization as we continue to demonstrate structurally higher performance levels. - John May, Chairman and Chief Executive Officer
We delivered margins over 450 basis points better than 2016. - Josh Jepsen, Chief Financial Officer
We anticipate that large ag in North America will continue to be subdued. However, there are indications of stabilization. - Christopher Seibert, Manager, Investor Communications
Our planter early order program resulted in a similar year-over-year change. - John May, Chairman and Chief Executive Officer
We expect to see growth in Small Ag and Turf as well as in Construction and Forestry. - Josh Jepsen, Chief Financial Officer
The tech is working. And when customers see that value in their operation, it's anticipated that they will continue to use it. - Deanna Kovar, President, Worldwide Agriculture and Turf Division
Analyst Sentiment: Analysts focused heavily on the mechanics of the downturn, specifically asking for granular detail on tariff impacts, decremental margins, and the timing of the recovery. Questions were direct, probing the sustainability of pricing power and the specific mix issues affecting margins.
Management Responses: Management responses were detailed and data-rich, often breaking down complex margin impacts into specific components like tariffs, mix, and geography. They defended their pricing strategy and inventory discipline, showing transparency about the 'lean' production start to the year.
Analysts pressed for clarification on the $1.2 billion tariff headwind, specifically asking about the cadence of these costs and the ability to offset them through pricing. Josh Jepsen clarified that the run rate is roughly $300M per quarter and that they expect to be 'price cost positive' inclusive of tariffs.
There was significant discussion around the 'implied decremental margins' in the Production & Precision Ag segment, which analysts noted were approaching 60%. Management explained this was due to a mix shift away from the highly profitable North American market and the fixed cost absorption issues in Q1.
Questions regarding the 'price realization' assumptions (1.5% vs 3-4% in early orders) were met with explanations that geographic mix (Brazil) and a higher mix of parts sales were diluting the headline number compared to the specific early order program pricing.
Deere & Company is demonstrating exceptional resilience during a significant agricultural downturn, validating its 'Smart Industrial' strategy through margin expansion (450 bps better than the last trough) and robust cash generation ($5.1B). While the near-term outlook for Large Ag is challenging with a $1.2B tariff headwind, the company's structural improvements—specifically the diversification into Small Ag, Construction, and high-margin technology solutions—provide a strong buffer. The aggressive management of used inventory positions Deere for a rapid share recovery when the cycle inflects. The current valuation offers an attractive entry point for long-term investors, as the company is effectively managing through the trough while investing in future autonomy and tech capabilities that should drive the next leg of growth.
Large ag equipment sales expected to be down 15-20% due to challenging farm fundamentals, high input costs, and pressure on commodity prices despite strong yields.
Industry sales expected to be flat. High interest rates in Brazil are tempering demand, but potential rate cuts and strong crop acreage provide some stability.
Construction markets expected to grow modestly driven by infrastructure spending, data center construction, and rental fleet investments.
New trade agreements and government support (exceeding $40B in 2025) are providing stability and liquidity to farmers, while biofuel demand (ethanol, biomass-based diesel) remains robust.