Detailed Narrative
Q1 Performance Drivers and Full-Year Outlook Adjustment
Deere's first quarter results exceeded internal forecasts, with equipment operations net sales up 18% year-over-year. This outperformance was primarily driven by better-than-expected shipment volumes across all three business units, particularly in North America large tractors and Construction & Forestry equipment. The company's full-year net income forecast was subsequently raised to between $4.5 billion and $5 billion, reflecting increased confidence in end-market demand and operational execution, despite initial expectations for lower operating margins due to tariffs and unfavorable product mix.
Ag Market Stability and North American Improvement
While global large ag fundamentals remained challenged, the quarter saw increased stability, especially in North America. The combined early order program finished better than anticipated, and large tractor order activity picked up, leading to a modest improvement in the North American large ag net sales forecast. This helped offset softer projections for the South American ag equipment market, which is expected to decline by approximately 5% in 2026 due to high interest rates and commodity price pressures.
Inventory Management and Order Book Health
Deere maintained healthy new inventory levels in Small Ag & Turf and made significant progress in reducing North American used large ag equipment inventories. Used high-horsepower tractor units declined over 10% from their March 2025 peak, with late-model units seeing substantial sequential reductions. The Construction & Forestry segment's order bank surged over 50% in the past quarter, reaching its highest point since May 2024, providing clear production visibility into the second half of the fiscal year.
Construction & Forestry Momentum and Strategic Investments
Construction markets demonstrated resilience, bolstered by U.S. government infrastructure spending, declining interest rates, and strong rental demand, including data center construction. Retail settlement activity for construction and compact construction equipment was up mid-teens year-over-year. Deere is investing in innovation, including a multi-year launch plan for new Deere-designed 20-ton class excavators and the acquisition of Tenna, a technology platform aimed at optimizing mixed-fleet operations and job sites for contractors.
Pricing, Costs, and Tariff Impact
Price realization in Production & Precision Ag was flat in Q1 due to South American incentives, while Small Ag & Turf saw positive price realization. Construction & Forestry experienced slightly negative pricing in Q1, though competitive pressures are easing. The company anticipates a near price/cost neutral position for the full year, inclusive of the projected $1.2 billion in tariff costs. Production costs, excluding tariffs, were lower year-over-year across all segments due to operational efficiencies from higher production volumes and disciplined overhead spending.
Shareholder Returns and Future Growth Confidence
Deere returned nearly $750 million to shareholders in Q1 through dividends and share repurchases, demonstrating a commitment to capital allocation while maintaining high levels of investment. Management expressed confidence in future growth aspirations, citing the company's financial strength, effective inventory management, and upcoming product and technology introductions as key drivers for the remainder of the decade and beyond.