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Thanks to Deere's (DE) cost containment efforts and analysts' subdued expectations, the farming and agriculture equipment maker edged past 1Q25 estimates, but the company's results and outlook were otherwise pretty bleak. A decline in farming incomes and persistently high interest rates weighed heavily on demand once again, driving sales and net income lower by 35% and 50% yr/yr, respectively. Also, despite the better-than-expected Q1 earnings, DE only reaffirmed its FY25 net income outlook of $5.0-$5.5 bln, creating some disappointment among investors who were looking for a turnaround later this year. Those hopes were reflected in the stock's 12% run higher this year, prior to today's sell off.

• Like last quarter, each of DE's main business units experienced steep double-digit sales declines in Q1. Nearly matching the 38% plunge in Q3, sales of large tractors and combines dove by 37% in Q4 to $3.07 bln due to lower shipment volumes in the Production & Precision Agriculture segment. Unfortunately, there's no relief on the horizon either as DE lowered its FY25 sales outlook for the unit to -15% to -20% from its prior forecast of -15%.
• Tariffs are throwing another wrench into the mix. In particular, the 25% tariff on steel and aluminum will drive manufacturing and production costs higher at a time when farmers are less willing and able to absorb price increases. DE's FY25 guidance didn't incorporate the potential impact of tariffs, adding more uncertainty to equation.
• On a more positive note, the company stated that it's seeing some signs that its efforts to reduce production and control inventory are beginning to pay off. Additionally, following back-to-back years of declines in 2023 and 2024, farming income is expected to modestly increase this year, perhaps providing a much-needed catalyst as DE awaits a replacement cycle. The company has launched upgraded tractors and combines that offer new technology, including equipment that can operate without an operator. 
• The prospect for lower interest rates, which President Trump is pushing for, should also help DE's struggling Small Agriculture & Turf segment. This unit, which sells riding lawn mowers and lawn care equipment, caters more to individuals and has faced stiff headwinds from the slowdown in consumer spending. Following last quarter's 25% drop, sales fell by 28% in Q1 to $1.75 bln as shipment volumes plummeted. 

To put it bluntly, this was another dismal quarter for DE as the ag downcycle continues to hammer the company. The stock has been impressively resilient, though, reflecting the market's view that the worst may be in the rearview mirror following several quarters of inventory reductions.