Deere & Company (DE) Q1 FY26 earnings call: guidance and Q&A

How will PPA pricing move from neutral in Q1 to 1.5% for the full year, and what are the drivers behind the trimmed C&F pricing expectation?

PPA pricing will improve as South American incentives are not expected to continue, and North American pricing remains positive, aided by easier comps from prior accruals. C&F's full-year price forecast was trimmed due to the rapid build-up of backlog early in the year, delaying the impact of announced price increases, but confidence in overall price realization remains high.

“We announced some price increases in January. And quite frankly, we were surprised at how quickly we had built our backlog in the first couple of months of the year. So the price actions are going to be delayed a little bit.”

asked by Kristen Owen · answered by Ryan Campbell

What are the primary drivers behind the surprising strength in C&F orders, distinguishing between end-market demand, bonus depreciation, and Deere's product innovation?

The order strength is broad-based, primarily driven by strong contractor confidence, particularly in larger projects like infrastructure and data centers. Rental refleeting and retail sales also contributed significantly. While housing remains subdued, the overall confidence in growing backlogs is leading to increased fleet investments, encompassing all the factors mentioned by the analyst.

“More and more as we have conversations with contractors, they feel good about their backlog. And candidly, they feel good about that backlog growing even as they look into 2027 as well.”

asked by Angel Castillo Malpica · answered by Josh Beal

Given the improved large ag order book visibility, why is the full-year guide unchanged? Are line rates increasing, and how does this reconcile with commodity prices?

The improved order book provides better visibility, with increased build rates for tractors in the second half of the year based on actual orders. This reflects replacement demand driven by an aging fleet and a healthier used inventory market, which facilitates trade-ins. While commodity prices remain challenged, stability and an improving used market are freeing up the trade ladder, leading to some pickup in replacement demand, though not a massive inflection.

“Yes, we are seeing some increased build rates in tractors, and that's kind of back half related to this order activity that we saw come through.”

asked by David Raso · answered by Joshua Jepsen

Has the expectation for full-year price versus production costs changed, given the slower start in some segments and fluctuations in costs/tariffs?

The company is now closer to price/cost neutral for the full year, which includes covering the $600 million of incremental tariffs. While there's been some material inflationary pressure, it's offset by overhead efficiencies from higher production volumes. Q1 saw production cost favorability ex-tariffs, demonstrating effective cost management.

“We're probably closer now to price/cost neutral for the full year, just given particularly a little bit of a reduction on the pricing side in C&F. Tariff costs -- and by the way, that price cost neutral is inclusive of the $600 million of incremental tariffs that we're seeing this year.”

asked by Timothy Thein · answered by Josh Beal

How should regional production differences, particularly between North America and Europe, be modeled for Q2 and the rest of the year, and how will this affect large ag margin progression?

Q1 saw an unfavorable regional mix in large ag, with Europe and Asia up, but North and South America down, impacting margins. This mix is expected to normalize, with North America production picking up in Q2 and beyond. This shift to a more normal mix will aid margins, with large ag expected to achieve double-digit margins each quarter for the remainder of the year.

“That starts to change as you move through the course of the year. I mean, as we'll see a pickup, particularly in North America production here in the second quarter. And as Josh Jepsen mentioned, our order books are for tractors as an example, now into the fourth quarter. So we've got good confidence that we'll see that pick up and we'll revert to a more normal mix going forward, and that will aid margins.”

asked by Steven Fisher · answered by Josh Beal

To what extent is Deere limiting large ag production in 2026 to set up for 2027, and why aren't margins for Production & Precision Ag trending towards the upper end of the range given improving conditions?

Combine production is largely set by the early order program, remaining level. Tractor production will pick up in the back half of the year due to increased order momentum. While conditions are improving, North America large ag is still significantly down (15%-20%), which is a real drag on margins. The current progress is not a massive inflection, but rather positive momentum from very low levels, which will lead to strong incrementals as demand fully recovers.

“I think the one thing I'd point out is we're still below trough levels for production and precision Ag overall and North America below that. So when you just the overall magnitude of North America being down 15% to 20% and the pull or negative impact on margins is real there.”

asked by Jamie Cook · answered by Joshua Jepsen

Does Deere expect market share gains in large ag this year, and what are the trends in tech attachments and ultimate package adoption for combines?

Deere expects an opportunity to gain market share in North America large ag in 2026, after ceding some share in the past 12-18 months due to focusing on leaner inventory and used equipment reduction. Tech adoption in combines is strong, with 99% of combines ordered through the EOP having some level of harvest automation, and nearly 80% taking the highest 'ultimate package,' an increase of 4-5 points year-over-year. Engaged acres with Deere technology also increased by over 10% year-over-year to 500 million.

“99% of the combines that were ordered this year through the EOP at some level of harvest automation and nearly 80% of that, we're taking the highest level of the ultimate package. That's up 4 or 5 points, Mike, better year-over-year.”

asked by Michael Shlisky · answered by Josh Beal