Deere Tops Q4 Forecasts but 2026 Outlook Disappoints, Sending Shares Lower
Stronger-than-expected quarterly earnings were overshadowed by guidance pointing to a deeper slowdown in large agriculture equipment, driving a sharp drop in the stock ahead of the Thanksgiving break
Deere delivered better-than-anticipated fiscal fourth-quarter earnings, but its downbeat 2026 outlook quickly erased any goodwill. Deere shares closed down 5.7% Wednesday after the equipment maker projected next year’s net income well below Wall Street expectations.
For the quarter ending in October, Deere posted earnings of $3.93 per share on $12.4 billion in revenue, topping analyst estimates of $3.84 per share and $11.8 billion in sales. A year earlier, the company reported EPS of $4.55 on $11.1 billion in revenue. Despite the beat, analysts noted that higher costs and compressed equipment margins offset gains in pricing and sales volume, leaving the quarter dependent on stronger lending income.
The real blow came from Deere’s guidance. The company expects fiscal 2026 net income of $4 billion to $4.75 billion, well short of the Street’s $5.3 billion forecast and down from roughly $5 billion this year. Analysts flagged the company’s expectation for a 15% to 20% decline in U.S. and Canadian large agriculture equipment demand as notably weaker than consensus.
CEO John May said 2026 should mark “the bottom of the large ag cycle,” citing persistent margin pressure from tariffs and continued soft demand for big-ticket farm equipment. There are some positive factors serving as seeds for a possible recovery, he says — including the recent trade agreement between the U.S. and China. Still, he emphasized that inventory management, cost controls, and growth in other segments should position the company to capitalize on a recovery once market conditions stabilize.
May noted that Deere is encouraged by the Trump administration’s support of the agricultural economy, as trade agreements and policies have helped drive growth and stability for farmers.
Full-year results reflected the industry’s broader downturn. Deere reported EPS of $18.50, down from $25.62 a year earlier, with revenue falling to $45.7 billion from $51.7 billion. Farmer incomes have slid as well: USDA estimates U.S. farmers earned about $128 billion in 2024, down sharply from the $182 billion peak in 2022. While net farm income is projected to rebound to around $180 billion in 2025, that strength has yet to translate into equipment spending.
Perspective: Commodity prices always impact farm income, and farm machinery purchases. Especially corn prices. Today, benchmark corn prices are about $4.20 per bushel, up from recent lows of about $3.70. Corn prices were north of $8 per bushel in early 2022.
Deere’s shares had climbed 18% year to date heading into Wednesday, buoyed by hopes the downturn was nearing its end. But with earnings estimates for 2026 now likely headed lower, investors are starting the holiday week with a reminder that the agriculture cycle still has farther to fall.
| Earnings Call: Key Q&A Topics, Questions & Management Responses• John May, Chairman and Chief Executive Officer, Deere & Company • Josh Beal, Director of Investor Relations, Deere & Company • Chris Seibert, Manager, Investor Communications, Deere & Company • Josh Jepsen, Chief Financial Officer, Deere & Company • Deanna Kovar, President, Worldwide Agriculture and Turf Division, Deere & Company1. Tariffs & how fast Deere can offset themQuestion (Jefferies, Stephen Volkman): How will Deere offset the $1.2B 2026 tariff hit, and what’s the cadence?Answer (Josh Beal):2026 tariffs: $1.2B pre-tax, $600M higher than 2025, roughly $300M/quarter.Deere expects price–cost (including tariffs) to be positive in 2026, covering the incremental exposure and part of 2025’s hit.They won’t fully recapture in 2026, but will use additional pricing and mitigation actions over time.2. High decremental margins in PPAQuestion (Truist, Jamie Cook): Why is the implied ~60% decremental margin in PPA on just a 7% sales decline, and how much is tariffs vs mix?Answer (Beal):Tariffs shave ~1.5 margin points in PPA; backing that out still leaves low-to-mid-50% decrementals, above normal.The main driver is negative geographic mix: North American large ag is still the most profitable market and it’s the one falling the most.3. Pricing assumptions vs early-order programsQuestion (Oppenheimer, Kristen Owen): Why is 2026 price realization just 1.5% when North American large tractor list prices are up 3–4%?Answer (Beal + Kovar):Brazil pricing was very strong in 2025 (mid-single digits) but moderates in 2026, pulling down the overall price mix.Parts vs complete goods: parts become a bigger share in a downturn, and parts pricing is more muted for 2026.Deere is also deliberately maintaining elevated pool fund support to help dealers manage used inventory, staying mindful of customer stress.4. Production costs outlookQuestion (Raymond James, Tim Thein): How should we think about production costs in 2026 ex-tariffs?Answer (Beal & Jepsen):Ex-tariffs, production costs slightly unfavorable:Higher overhead and labor contract step-up are headwinds, partially offset by lower profit sharing.Materials ex-tariffs are slightly negative but near flat.Still, price–cost remains favorable, and Deere sees continued opportunity to take cost out of products and processes.5. PPA cadence & margins through 2026Question (Evercore ISI, David Raso): With Q1 flat and full-year large ag down, does that mean every quarter is negative and how do margins evolve?Answer (Beal & Jepsen):Yes, PPA sales are expected down year-over-year in every quarter, but seasonality is unusual:Q1 very lean given limited production slots.Q2 sees a big step-up in margins, with Q2–Q4 margins around or above ~14%, more normal seasonality after Q1.6. See & Spray adoption and subscription buildoutQuestion (Wells Fargo, Jerry Revich): What are the expectations for See & Spray retrofits and acreage in 2026, and how is subscription adoption evolving?Answer (Beal & Kovar):2026 EOP take rates for factory-installed See & Spray are similar to 2025; retrofit orders will come through winter.Returning customers increased the share of their acreage covered by ~20% in 2025, showing rising utilization.Global adoption is expanding, and Deere expects continued growth in acres covered in 2026, with subscription-type revenue building on those tech solutions.7. Government farm support and leverage on the upturnQuestion (Bernstein, Chad Dillard): Does the 2026 guide assume new farm aid, and what’s leverage like when demand recovers?Answer (Beal & Jepsen):The baseline guide does not assume additional government assistance beyond what’s known; it’s based on current order books and fundamentals.On leverage, Deere already sees strong incrementals in small ag/turf and C&F (ex-tariffs) with only ~10% growth.The combination of a leaner cost structure and more tech-driven revenue should deliver positive operating leverage as volumes pick up.8. Confidence in flat South America and turf recoveryQuestion (UBS, Steven Fisher): Why guide South America flat given caution there, and what underpins turf improvement?Answer (Beal & Jepsen):Brazil’s benchmark rate at 15% has been a drag, but inflation expectations have eased, and the market expects a couple of points of rate cuts in 2026.Deere’s Brazilian order book is ~5 months out, giving good visibility into early 2026.High-value crops in Brazil (coffee, beef, citrus) benefit from tariff relief, supporting small & mid-tractor demand.For turf, Deere assumes low single-digit home sales growth in 2026, with potential upside if the Fed delivers more rate cuts, which would be positive for turf and housing-related construction equipment.Bottom Line: Deere is absorbing a major tariff shock, managing through a deep North American ag downturn, but using tight inventory management, a more diversified business mix, and a rapidly scaling tech stack to keep margins and cash flow far above past troughs while positioning for an eventual upturn in large ag. |
