5 days ago
Deere & Co (DE) Q3 2025 Earnings Call Highlights: Navigating Challenges with Strategic Precision
Net Sales and Revenues: Down 9% to $12.018 billion.
Equipment Operations Net Sales: Down 9% to $10.357 billion.
Net Income: $1.289 billion or $4.75 per diluted share.
Operating Margin: Equipment operations delivered a 12.6% operating margin.
Production and Precision Ag Net Sales: Down 16% to $4.273 billion.
Production and Precision Ag Operating Margin: 13.6% with an operating profit of $580 million.
Small Ag and Turf Net Sales: Down 1% to $3.025 billion.
Small Ag and Turf Operating Margin: 16% with an operating profit of $485 million.
Construction & Forestry Net Sales: Down 5% to $3.059 billion.
Construction & Forestry Operating Margin: 7.7% with an operating profit of $237 million.
Financial Services Net Income: $205 million for the third quarter.
Fiscal Year 2025 Net Income Guidance: Between $4.75 billion and $5.25 billion.
Effective Tax Rate Guidance: Between 19% and 21%.
Operating Cash Flow Guidance: Equipment operations expected to generate $4.5 billion to $5.5 billion.
Tariff Costs: Approximately $200 million for the quarter, $300 million year-to-date, with a forecast of nearly $600 million for fiscal 2025.
Warning! GuruFocus has detected 7 Warning Sign with DE.
Release Date: August 14, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Deere & Co (NYSE:DE) achieved a 12.6% operating margin in the quarter despite challenging market dynamics.
Turf and compact utility tractor shipments in North America exceeded expectations, reflecting improved consumer confidence and favorable weather conditions.
Year-over-year retail sales increased for tractors in Europe and earthmoving and forestry equipment in North America.
Deere & Co (NYSE:DE) has effectively managed inventories, resulting in significant year-over-year declines across all business units and geographies.
The company has seen strong adoption of its Precision Ag Solutions, with over 5,000 global orders for JDLink Boost and 21,000 orders for Precision Essentials.
Negative Points
Net sales and revenues were down 9% year-over-year, with equipment operations also down 9%.
Production and Precision Ag segment saw a 16% decline in net sales due to lower shipment volumes and unfavorable price realization.
Tariff costs in the quarter were approximately $200 million, contributing to higher decremental margins.
The Construction & Forestry segment experienced a 5% year-over-year decline in net sales due to unfavorable price realization.
High interest rates and trade uncertainty continue to pressure demand in key markets, particularly in North America.
Q & A Highlights
Q: Can you clarify your production plans for next year in relation to retail demand? If retail sales increase by 5% or 10%, will your production increase similarly? A: Josh Beal, Director of Investor Relations, explained that Deere has made significant progress in reducing inventory levels across all segments. For fiscal 2026, Large Ag production will align closely with retail demand changes. In Small Ag and Turf and Construction & Forestry, production will increase as they were underproduced by about 10% this year, allowing for potential growth in line with retail demand next year.
Q: Could you provide more details on the early order programs, particularly for planters and combines? A: Josh Beal noted that planter orders have been cautious due to market uncertainty, but typically ramp up towards the end of the early order programs. Combine orders have just started, and early responses are positive. Cory Reed, President of Worldwide Agriculture & Turf Division, added that they expect customers to wait and see due to external policy factors.
Q: What are the factors contributing to the positive pricing in Production & Precision Ag for Q4? A: Josh Beal highlighted that the positive pricing in Q4 is due to the timing of incentives and the introduction of model year '26 pricing, which includes a 4% to 4.5% increase for Sprayers and mid-single digits for Brazil. Joshua Jepsen, CFO, added that Brazil's pricing has returned to positive, which is significant given the market's growth.
Q: Can you elaborate on the impact of tariffs and how they are affecting your margins? A: Josh Beal stated that tariffs have added significant costs, with a $200 million impact in Q3 and an expected $600 million for the full year. The primary drivers are increased tariff rates on Europe and India, and higher steel and aluminum tariffs. Despite these challenges, Deere is working on mitigation strategies, including sourcing adjustments and pricing strategies for future orders.
Q: How are you addressing the used equipment situation with incremental pool funds, and what does this mean for farmers? A: Cory Reed explained that pool funds provide dealers with flexibility to offer attractive rates to customers, helping offset higher interest costs. This strategy supports moving used inventory and aligns with the large crop in the field, potentially leading to year-end buying driven by tax policies and strong yields.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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