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Deere (DE) maintained its streak of surpassing EPS consensus expectations in Q3, but the beat was notably smaller than the prior quarter’s blowout EPS result. Additionally, the company trimmed the high end of its FY25 net income guidance to $4.75-$5.25 bln from $4.75-$5.50 bln, following a reduction in the low end last quarter, signaling caution amid persistent market challenges. The revision to DE’s FY25 net income guidance stems primarily from uncertainty in the agricultural sector, exacerbated by tariffs that have increased production costs and disrupted market dynamics.

Lower shipment volumes, driven by subdued demand due to lackluster crop prices and high used-equipment inventories, have prompted DE to proactively manage inventory by aligning production with retail demand. CEO John May emphasized disciplined execution, but external pressures like tariffs and fluctuating demand continue to weigh on the company’s outlook, particularly in its core agricultural segments.

• DE’s revenue declined for the eighth consecutive quarter on a yr/yr basis, falling 9% in Q3 to $10.36 bln. All three equipment segments -- Production & Precision Agriculture, Small Agriculture & Turf, and Construction & Forestry -- experienced revenue declines, driven by lower shipment volumes and unfavorable price realization.
• The Production & Precision Agriculture segment, DE’s largest, saw a significant 16% revenue drop to $4.27 bln, primarily due to lower shipment volumes and an unfavorable sales mix. Operating margin contracted sharply to 13.6% from 22.8% in the year-earlier quarter, reflecting the impact of reduced volumes and higher production costs, partly attributable to tariffs. DE continues to project a 15-20% net sales decline for this segment in FY25, consistent with prior guidance, as market demand remains soft amid high inventory levels and depressed commodity prices.
• In contrast, the Small Agriculture & Turf segment demonstrated relative resilience, with revenue declining just 1% to $3.03 bln, the smallest drop among DE’s segments. Operating margin held steady, slipping only 20 bps to 16.0%, supported by stable demand for smaller equipment and turf products, which are less sensitive to the broader agricultural downturn. DE improved its FY25 outlook for this segment, now expecting a 10% net sales decline compared to the prior 10-15% forecast, reflecting stronger-than-anticipated performance driven by targeted demand for compact equipment and DE’s focus on advanced technologies like See & Spray.
• The Construction & Forestry segment saw revenue decrease by 5% to $3.06 bln, a milder decline compared to recent quarters, though still challenged by high interest rates and tariff-related cost pressures. Operating margin fell significantly to 7.7% from 13.8%, driven by unfavorable price realization and higher production costs linked to tariffs. Despite the improvement in revenue decline, this segment continues to face headwinds from a cautious construction market and macroeconomic uncertainties, limiting its recovery potential.

DE’s smaller-than-expected EPS beat and the downward revision of FY25 net income guidance to $4.75-$5.25 bln have contributed to stock price weakness. Tariffs are notably impacting production costs and market uncertainty, particularly in the agricultural and construction sectors, clouding DE’s near-term outlook. While cost-cutting measures and technological innovation provide some stability, the company’s ability to navigate these headwinds will be critical for future performance.