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Deere (DE) is trading sharply lower following its fiscal Q2 earnings report, despite delivering a solid top-and bottom-line beat, as investors remain concerned about persistent weakness in large agricultural equipment demand and declining profitability within the Production & Precision Ag segment. While DE reaffirmed its FY26 net income outlook of $4.5-5.0 bln and raised its Construction & Forestry sales growth forecast to approximately 20%, the market appears focused on the ongoing downturn in large farm equipment markets and weaker yr/yr earnings trends.

• Total net sales and revenues increased 5% yr/yr to $13.37 bln, while Equipment Operations net sales rose 5.4% to $11.78 bln, topping the $11.55 bln FactSet consensus estimate.
• Diluted EPS came in at $6.55, ahead of the $5.70 consensus estimate, although slightly below the $6.64 earned in the year-ago period.
• Production & Precision Agriculture net sales fell 14% yr/yr to $4.50 bln, while operating profit declined to $706 mln from $1.15 bln due to weaker farm demand and pressured crop economics.
• DE maintained its outlook for U.S. and Canada large ag industry volumes to decline 15-20% in FY26, underscoring continued softness in the farm equipment cycle.
• Small Agriculture & Turf net sales rose 16% yr/yr to $3.49 bln, while operating profit totaled $574 mln as healthy demand offset higher production costs.
• Construction & Forestry was the standout segment, with net sales surging 29% yr/yr to $3.79 bln and operating profit climbing to $561 mln from $379 mln last year.
• DE raised its FY26 Construction & Forestry sales growth outlook to approximately 20% from approximately 15%, reflecting strong infrastructure and compact construction demand trends.
• FY26 Production & Precision Ag operating margin guidance was maintained at 11-13%, below FY25 levels of 15.4%, while Construction & Forestry margins are expected at 10-12%.
• Dealer inventory conditions remained relatively stable, particularly in combines, suggesting DE continues managing channel inventories prudently.

Briefing.com Analyst Insight:

DE delivered a better-than-feared quarter, with the headline beat driven primarily by strong Construction & Forestry performance and resilient Small Ag demand. The key takeaway was DE’s decision to reaffirm full-year earnings guidance despite ongoing pressure in large agriculture markets, suggesting the downturn may be stabilizing rather than deteriorating further. Investors also appear encouraged by the improving construction backdrop after DE raised its Construction & Forestry growth outlook to approximately 20%. However, Production & Precision Ag remains under pressure as lower crop prices and weaker farm cash flows continue to weigh on large equipment purchases. DE’s stable dealer inventory commentary and improving retail trends in certain categories also support the view that agricultural conditions are becoming more manageable. Overall, DE continues to demonstrate solid cost discipline and operational resilience while benefiting from increasing exposure to infrastructure-related demand.