Deere (DE) Q4 2025 earnings review
Volume Returns, But Profitability Does Not
Deere broke a streak of topline contractions with an 11% YoY revenue increase in Q4, driven by strong shipment volumes in Construction and Production Ag. However, this volume recovery failed to flow through to the bottom line. Net Income fell 14% to $1.07B as margins decompressed significantly—most notably in Small Ag & Turf, where operating margin collapsed to 1.0%. The company faces a transitional FY26 with a $1.2B tariff headwind and guidance for a further 13% earnings decline, though management insists 2026 will mark the cycle bottom.
🐂 Bull Case
C&F was a standout, growing revenue 27% YoY in Q4 and flipping from a laggard to a leader. FY26 guidance calls for ~10% growth, supported by infrastructure backlogs and data center construction.
Management explicitly stated their belief that FY26 will represent the bottom of the large ag cycle. With dealer inventories correcting (Combines -25%), the worst of the destocking pain may be in the past.
🐻 Bear Case
Small Ag & Turf (SAT) operating margin evaporated, falling from 10.1% a year ago to just 1.0% in Q4 due to tariffs, warranty costs, and production inefficiencies. Recovering to the guided 12.5-14% range requires near-perfect execution.
A massive $1.2 billion pre-tax tariff expense is forecasted for FY26. While management plans to be price-cost positive, this is a heavy burden that limits earnings leverage even if volumes stabilize.
⚖️ Verdict: 🔴
Bearish. While the return to revenue growth is technically positive, the quality of earnings is concerning. A 1% margin in a major segment and a guide for continued earnings decline in FY26 suggests the cost structure is currently misaligned with the trade environment.
Key Themes
Small Ag & Turf Margin Shock
The most alarming data point in Q4 was the collapse of Small Ag & Turf profitability. Despite sales growing 7%, operating profit fell nearly 90% to just $25M (1.0% margin). Management cited higher tariffs, warranty expenses, and production costs. The gap between this 1% exit rate and the FY26 guidance of ~13% is a massive execution risk.
Construction & Forestry Momentum
Accelerating. C&F surged in Q4 with sales up 27% YoY to $3.38B, driven by shipment volumes. This segment is effectively hedging the Ag downturn. Guidance for FY26 remains robust at ~10% growth, fueled by U.S. government infrastructure spending and strong earthmoving order books (up ~25%).
The $1.2 Billion Tariff Wall
Management quantified the tariff impact for FY26 at $1.2 billion pre-tax ($600M incremental vs FY25). This expense is a structural hit to margins. While they expect to be price-cost positive, the sheer magnitude of this levy dampens the recovery thesis and puts immense pressure on pricing power in a soft ag market.
Tech Stack Monetization
Adoption metrics continue to improve. JDLink Boost satellite connectivity passed 5,000 orders, and Precision Essentials secured 21,000 orders. The ecosystem now encompasses 500 million engaged acres. This recurring/software revenue layer is critical for long-term margin expansion beyond the equipment cycle.
North American Large Ag Weakness
The core profit engine—Production & Precision Ag—is guiding for a sales decline of 5-10% in FY26. This is driven by a forecasted 15-20% drop in North American Large Ag industry sales. Even with a cycle bottom in sight, the immediate future involves contraction in the company's most profitable geography.
Inventory Discipline
Deere is aggressively managing field inventory. 220hp+ tractor inventory is at 17-year lows, and used combine inventory is down 25% from its peak. This 'produce to retail' discipline is painful in the short term (under-absorption of factory costs) but prevents a glut that would destroy pricing power later.
Other KPIs
Decelerating. Down 14% YoY ($1.25B in 24Q4). While revenue recovered, cost of sales spiked 21% YoY ($7.9B vs $6.5B), compressing gross margins and leading to the earnings decline.
Reversing. Down 8% YoY despite a 10% increase in sales. This indicates negative operating leverage where costs (tariffs/production) grew faster than revenue. FY26 guidance implies further margin compression to 11-13%.
Accelerating. Up significantly from $231M in 24Q4 (+62%). Higher interest rates and portfolio growth are benefiting this segment, providing a partial buffer against manufacturing weakness.
Guidance
Decelerating. The midpoint ($4.375B) implies a 13% decline from FY25's $5.03B. This confirms the earnings recession will extend another year.
Reversing. After growing 10% in Q4, this segment is guided back into contraction, driven by the weak North American Large Ag outlook (down 15-20%).
Stable/Accelerating. Maintains the growth trend seen in Q4 (+7%). Driven by dairy/livestock stability and easier comps.
Decelerating. A slowdown from the blistering 27% growth in Q4, but still a healthy expansion driven by infrastructure projects.
Key Questions
Bridge the SAT Margin Gap
Small Ag & Turf margins were 1.0% in Q4 but are guided to ~13% for FY26. What specific one-time costs occurred in Q4 that will not repeat, and how much of the recovery relies on unproven pricing power?
Tariff Pricing Elasticity
With a $1.2B tariff bill, you plan to be price-cost positive. Given the weak farm economy and 15-20% industry declines, are you seeing customers walk away or trade down in response to these price hikes?
Cycle Bottom Confidence
You call FY26 the cycle bottom. What specific leading indicators (used values, crop prices, early order rates) give you confidence that 2027 won't step down further if commodity prices remain depressed?