Deere & Company Lifts Outlook Amid Tariff Drag
Deere & Company ((DE)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Deere & Company’s latest earnings call carried a cautiously upbeat tone, as management pointed to double‑digit revenue growth, improving order books, and stronger‑than‑expected shipments in key segments. While tariff costs, weak large‑ag markets, and regional softness weighed on margins, executives stressed operational discipline and raised guidance across several businesses, signaling underlying momentum.
Top-Line Growth and Profitability
Deere reported a 13% year‑over‑year rise in net sales and revenues to $9.611 billion, with equipment operations net sales jumping 18% to $8.001 billion. Net income attributable to Deere came in at $656 million, or $2.42 per diluted share, as equipment operations delivered a 5.9% operating margin despite significant tariff and mix headwinds.
Small Ag & Turf Strong Performance
Small Ag & Turf was a standout, with net sales up 24% to $2.168 billion driven by roughly 2 points of price and about 2.5 points of currency tailwind. Operating profit rose to $196 million for a 9% margin, and Deere now expects full‑year net sales in this segment to climb about 15% with margins between 13.5% and 15%.
Construction & Forestry Surge
Construction & Forestry posted a powerful rebound, with net sales up about 34% to $2.67 billion, helped by higher shipments and roughly 3.5 points of favorable foreign exchange. Operating profit more than doubled to $137 million, lifting segment margin to 5.1%, and full‑year guidance now calls for about 15% sales growth and a 9%–11% operating margin.
Production & Precision Ag Stability and Inventory Progress
Production & Precision Ag saw more modest growth, with net sales up 3% to $3.163 billion, supported by around 4 points of positive currency translation. Management highlighted healthier inventory levels, with new combines about 15% below the March 2024 peak and high‑horsepower tractor units down more than 10% from the March 2025 peak alongside double‑digit declines in late‑model used tractors.
Improving Order Books and Demand Signals
Order books strengthened across much of Deere’s portfolio, with the Construction & Forestry order bank up more than 50% in the quarter to its highest level since May 2024. North American large‑tractor order velocity improved and rolling order books now extend into the fourth quarter, while European tractor orders run four to five months out and South American orders are full through the second quarter.
Strengthened Financial Outlook
Management raised its full‑year net income forecast to a range of $4.5 billion to $5.0 billion while keeping the effective tax rate outlook at 25% to 27%. Guidance for cash flow from equipment operations was lifted by $500 million at both ends to a range of $4.5 billion to $5.5 billion, and the Financial Services profit outlook was increased to $840 million on lower expected credit losses.
Capital Returns and Strategic Investments
Deere continued to push shareholder returns, distributing nearly $750 million in the quarter through dividends and share repurchases. At the same time, the company advanced its strategy with the completed acquisition of Tenna to enhance digital fleet and jobsite capabilities and prepared major product launches such as Deere‑designed 20‑ton excavators to support future growth.
Cost and Operational Discipline
Excluding tariffs, production costs declined year over year across segments as the company benefited from operational efficiencies tied to higher production levels. Management also highlighted disciplined overhead spending, noting that first‑quarter production‑cost performance, excluding tariffs, was favorable and a key support for margins.
Large Ag Industry Weakness
Despite solid execution, Deere is facing a downcycle in large agriculture, with the U.S. and Canada large‑ag equipment industry expected to drop 15% to 20% in 2026. Reflecting these softer fundamentals, the Production & Precision Ag segment still carries a full‑year net sales outlook of down 5% to 10% and an operating margin range of 11% to 13%.
Tariff Headwind
Tariffs remain a major drag, with Deere projecting roughly $1.2 billion of pretax tariff expense for fiscal 2026, only partially offset by volume and other mitigation efforts. Management emphasized that uncertainty around trade and tariff policy continues to cloud cost visibility and pricing decisions, posing an ongoing risk to profitability.
South America Softness and Pricing Actions
The South American agriculture market has softened, with industry sales now expected to fall around 5% as Brazil weakens further. Deere indicated that additional incentives were needed in the region, muting price realization in Production & Precision Ag, and it plans underproduction in the second and third quarters to bring elevated Brazilian combine inventories back toward target.
C&F Near-Term Pricing Pressure
In Construction & Forestry, pricing was a modest headwind in the quarter, with price realization just under negative 0.5 point as backlog rebuilt faster than expected. The company trimmed its full‑year pricing outlook for the segment by about 0.5 point, as the strong order intake temporarily delayed the timing of planned price increases.
Segment Margin Headwinds in PPA
Production & Precision Ag margins came under pressure, with operating margin slipping to 4.4% on $139 million of operating profit despite the 3% sales increase. Higher tariffs, an unfavorable sales mix, and elevated warranty costs all weighed on profitability, underscoring the challenges of navigating a softer large‑ag cycle.
Material Inflation and Competitive Pressures
Management noted modestly higher materials inflation, though much of this impact was offset by overhead efficiencies and productivity gains on the factory floor. Competitive intensity in construction markets also picked up, with some rivals adjusting prices in ways that add short‑term transactional pressure until industry inventory levels normalize.
Exposure to Macro Risks
Deere acknowledged that results remain sensitive to broader macro drivers, including corn and soybean prices, which directly influence farmer purchasing power. Higher interest rates, especially in Brazil, upcoming elections, and shifting trade and tariff policies were all cited as key variables that could alter demand and the company’s cost structure.
Forward-Looking Guidance and Market Outlook
Looking ahead, Deere expects equipment operations net sales to grow at a mid‑single‑digit pace in fiscal 2026, even as Production & Precision Ag declines and Small Ag & Turf and Construction & Forestry each rise about 15%. Management is counting on stronger order books, healthier used inventory levels and solid construction demand to offset a 15% to 20% decline in North American large‑ag and the roughly $1.2 billion tariff burden.
Deere’s call painted a picture of a company executing well in pockets of strength while managing through a cyclical downturn in large‑scale agriculture and elevated trade costs. Investors heard a balanced message of raised guidance, improved demand signals, and continued capital returns but also reminders that tariffs, macro uncertainty, and sector‑specific softness will remain key swing factors for earnings.
