DEERE & CO DE

Deere delivered over $5 billion in net income and 12.6% equipment operations operating margins in FY25, surpassing 2020 performance at a lower point in the cycle. This reflects structural improvements and effective management of a challenging market, including industry declines in most major markets and significant tariff headwinds^🌐. The company's ability to achieve these results, even with North American large ag declining by around 30%, demonstrates enhanced through-cycle resilience and diversified profitability across its business segments.

The company successfully managed inventory, with North American large ag new field inventory for 220+ horsepower tractors reaching 17-year lows. Small ag and turf underproduced global retail demand by 10%, leading to significant field inventory reductions. For FY26, Deere plans a lean production approach for North American large ag, particularly in Q1, while maintaining flexibility in the full-year production plan to quickly adapt to market inflections and changes in order velocity.

Deere is experiencing accelerating momentum in its tech stack, expanding solutions and customer utilization across multiple layers. Base precision offerings like JDLink Boost (over 8,000 orders) and Precision Essentials (over 24,000 kits) are driving connectivity. The John Deere Operations Center now covers over 500 million engaged acres, with highly engaged acres rising 17% YoY. Automation solutions like Harvest Settings Automation (over 90% take rate, 5M acres covered) and See & Spray (5M acres covered, 50% herbicide savings) are delivering tangible value. Autonomous tillage kits for 8R/9R tractors are now taking orders, having covered over 200,000 acres autonomously.

While North American large ag is expected to decline in FY26, positive factors such as strong commodity demand, growing biofuel support, and new trade agreements suggest a cycle bottom. Small ag and turf and Construction & Forestry are projected to grow, driven by improving end-market demand, a modest housing market recovery, and robust infrastructure spending. South America's industry sales are expected to be flat, balancing high interest rates with potential reductions and strong order books.

The company faces a significant pretax direct tariff expense of $1.2 billion in FY26, representing an incremental $600 million from FY25, with a quarterly run rate of approximately $300 million. Management expects to be price/cost positive for FY26, partially offsetting the tariff impact^🌐 through continued price actions and ongoing cost reduction efforts, although not fully mitigating the entire expense.

In FY25, equipment operations generated $5.1 billion in cash flow, enabling the return of over $2.8 billion to shareholders via dividends and share repurchases. Share buybacks were temporarily paused in Q4 FY25 due to heightened market uncertainty^🌐 but are anticipated to resume in FY26 as the company continues its normal capital allocation activities.