DEERE Q3 FY26 earnings call DE

Deere delivered a strong third quarter with equipment operations achieving a 14.4% operating margin. Net sales and revenues were up 5% to $12,608 million, and net sales for equipment operations increased 6% to $10,999 million. This performance was driven by strong execution across all business segments, with factories exceeding production output expectations, combined with disciplined cost management and favorable price realization, leading to results above company and consensus expectations for both revenue and profitability.

The quarter included $110 million of incremental tariff refunds, bringing the total refunds recognized in fiscal year 2026 to $382 million. The current outlook assumes no further refund activity for the balance of the fiscal year. Following changes to Section 122, 232, and 301 tariff policies, the direct tariff expense for FY26 is now expected to be approximately $1.1 billion, down from a previously communicated $1.2 billion, primarily due to Section 232 tariff rate changes effective June 1st. This change is expected to provide a tailwind for FY27.

The Construction & Forestry segment maintained its net sales forecast of up approximately 20% for the full year and tightened its operating margin guidance to between 10.5% and 11.5%. Order books for 2026 are largely full, with customer backlogs extending well into fiscal year 2027, driven by robust demand from large-scale infrastructure projects, data center construction, and pipeline activity. Technology adoption is strong, with factory-installed SmartGrade adoption increasing over 50% year-to-date and sales of job site safety solutions up nearly 40% year-over-year.

The Small Ag & Turf segment saw net sales up 12% year-over-year to $3,383 million, with its operating margin guide increased to between 14.5% and 15.5%. The overall demand environment remains positive and consistent with expectations, supported by healthy margins in the dairy and livestock sector and improving trends in residential and commercial mowing markets. India's small tractor market continues to grow, building on a strong 2025.

The Production & Precision Ag segment experienced softer demand conditions in South America and Europe, leading to a revised full-year net sales outlook of down approximately 10% and a narrowed operating margin forecast of 11% to 12%. Despite these challenges, early order programs for planters and sprayers are showing modest improvements, up mid-single digits versus the prior year. Technology adoption rates are strong, with See & Spray factory adoption expected to nearly double and over 40% of Model Year '27 North American planters including advanced offerings, reinforcing the view that 2026 represents the bottom of the ag equipment cycle.

Deere has maintained a disciplined approach to balancing production with demand, resulting in meaningful improvements across equipment inventories. In North America, new inventories remain tight and well-positioned to support customer demand, while late-model used inventory continues to improve. Model Year 2023 and 2024 high-horsepower tractors are down nearly 40% from a year ago. The normalization of the spread between new and used equipment values is improving replacement economics and creating a healthier environment for equipment trade cycles, positioning the company and its dealers for the recovery ahead.

Deere continues to invest in technologies that improve customer profitability. Customers are using See & Spray on significantly more acres year-over-year, achieving over 50% herbicide savings. The John Deere Operations Center now connects over 1.2 million machines across more than 520 million engaged acres, with highly engaged acres growing double-digits to over 190 million. With more than 450,000 unique active monthly digital users, the company plans to build on this foundation with AI-enabled capabilities to unlock further value from operational data, emphasizing the critical role of technology in optimizing farm economics.