Deere & CompanyDE

Key highlights

• Full year profit outlook: Management expects net income for fiscal 2026 to land between $4.5 billion and $5.0 billion. This forecast suggests a decline from the $10.166 billion earned in 2023, reflecting a continued downturn in the global agricultural market.
• Small agriculture and turf growth: Sales in the small agriculture and turf division rose 16% to $3.485 billion during the quarter. This segment was a bright spot as higher shipment volumes and better pricing helped offset weakness in the larger farming equipment market.
• Production and precision ag slump: Revenue in the production and precision agriculture segment fell 14% to $4.503 billion, while operating margins dropped from 22.0% last year to 15.7%. The decline was driven by lower shipment volumes as farmers pull back on buying large tractors and combines.
• Construction and forestry boom: Construction and forestry sales jumped 29% to $3.790 billion, which helped push the division's operating profit up by 48% to $561 million. This growth demonstrates the strength of the company's diversified business even as the agricultural cycle remains soft.
• Financial services profit lift: Net income for the financial services division, which provides loans to customers buying equipment, increased 18% to $190 million. The improvement came from better financing spreads, which is the difference between the interest the company pays and the interest it charges customers.
• Construction technology acquisition: Deere spent $439 million to acquire Tenna, a company that provides tracking and operations software for construction equipment fleets. The move adds to the company's software capabilities as it aims to help customers manage mixed equipment fleets more efficiently.

Our take: This was a resilient quarter that shows the value of having diverse business lines. While the large farming equipment market is clearly in a slump, the big gains in construction and small tractor sales effectively cushioned the blow. It is a reassuring performance that keeps the long term case intact.