DEERE & CO DE

Deere has proactively managed inventory levels, resulting in significant year-over-year declines across all business units. North America 220 horsepower and above tractor inventories are down 45% year-over-year, and combine inventories are down 25%. Brazil large tractor and combine inventories decreased over 50% from their late 2023 peaks, while European inventories are down 10-15%. In small ag, North American less than 100-horsepower tractor inventory is down 30% year-over-year and 15% sequentially. North American earthmoving field inventories are 25-30% lower year-over-year, positioning the company to respond to future demand inflections.

Tariff costs significantly impacted Q3, totaling $200 million, bringing the year-to-date expense to $300 million. The full-year FY25 tariff forecast has been adjusted to nearly $600 million, primarily due to increased reciprocal rates on Europe, India, and higher steel and aluminum tariffs. Negative price realization in Construction and Forestry (just under 5 points) was driven by incremental incentive programs in the North American earthmoving market, which led to a mid-single-digit increase in retail settlements. In large ag, negative price (just under 1 point) was due to incremental pool funds to address used inventory in North America, with the full-year price guide for PPA remaining positive by 1 point.

Sentiment in Europe is improving due to strong dairy cash flows, recovering arable yields, stable commodity prices, and stabilizing interest rates, leading to increased order activity for midsized tractors. Asia's outlook is better, driven by India's improved tractor market. South America remains flat, with cautious optimism in Brazil due to improved profitability and record crop production, but tempered by high interest rates and trade policy concerns. Argentina shows positive grower sentiment from above-average yields and reduced export taxes. North America continues to face caution due to trade dynamics and lower commodity prices, though global stocks-to-use ratios remain low.

The early order program (EOP) for sprayers in North America closed with projected model year '26 orders down roughly 20% year-over-year. Planter EOP is halfway through with cautious ordering, and combine EOP just opened. Management noted that sprayer demand cycles differently, and current market uncertainty^🌐 makes it difficult to extrapolate sprayer results to other product lines. The company plans to produce in line with retail demand in FY26, which will be a tailwind for small ag and construction and forestry, which saw 10% underproduction in FY25.

Deere continues to see strong adoption and utilization of its precision agriculture solutions. JDLink Boost, a satellite connectivity solution, has surpassed 5,000 global orders in its first year. Precision Essentials, a bundle of foundational technologies, has 21,000 global orders and has brought 2,400 new customers to the John Deere Operations Center, contributing to overall engaged acre growth of 485 million globally. The Operations Center for road building has doubled active organizations to nearly 3,000. See & Spray technology is showing higher utilization, with 2024 units running on 30% more acres, and new precision harvesting features are delivering over 30% increase in throughput and 20% in machine productivity.

John Deere Financial is supporting the used equipment market by enabling dealers to buy down interest rates for customers, particularly effective with the split rate financing tool. This helps move used inventory in a high interest rate environment. Management also highlighted the positive impact of recent ag policy legislation and potential developments in trade agreements and renewable fuels (RVOs, ethanol) as supportive for future demand, though stability is needed for customers to increase capital investment. Bonus depreciation is also seen as a potential boost for earthmoving demand.