Deere outlines $4.75B–$5.25B FY25 net income forecast amid ongoing tariff headwinds

Earnings Call Insights: Deere & Company (DE) Q3 2025

MANAGEMENT VIEW

* Christopher Seibert stated that "John Deere's third quarter performance reflects the company's focus on disciplined execution amidst challenging market dynamics." He highlighted a 12.6% operating margin for equipment operations and noted better-than-anticipated demand in several segments, particularly turf and compact utility tractors in North America and increased year-over-year retail sales for tractors in Europe and earthmoving and forestry equipment in North America.
* Seibert emphasized, "The actions that we have taken over the past 18 months to manage inventories across the board have resulted in significant year-over-year declines across all business units and geographies, positioning the company well to respond to inflections in market demand."
* Josh Beal discussed reduced inventory levels across all segments: "220 horsepower and above tractor inventories are 45% lower year-over-year, and combine inventories are down 25%" in North America, with similar reductions internationally.
* Cory J. Reed reinforced the company's proactive approach: "We, as an organization, have intentionally and proactively responded to this downturn faster and more aggressively than ever before."
* Joshua A. Jepsen added, "The underproduction we've done this year in small ag and construction forestry should be a year-over-year tailwind to our production as we move into '26 as we're enabling both businesses to build in line with retail demand next year."
* Jepsen also acknowledged ongoing cost discipline: "Our ag and turf business remained production costs favorable in the quarter despite the impact of tariffs."
* Beal noted that tariff costs in Q3 were approximately $200 million, bringing year-to-date tariff expense to roughly $300 million, with a full-year forecast of nearly $600 million due to increased rates on Europe, India, and steel and aluminum.

OUTLOOK

* The company maintained full-year net income guidance for fiscal 2025 between $4.75 billion and $5.25 billion, tightening from the previous quarter. The forecast for Production and Precision Ag net sales remains down 15%–20%, with an operating margin of 15.5%–17%.
* Small Ag and Turf net sales are now expected to be down about 10%, an improved outlook from last quarter, with an operating margin forecasted between 12% and 13.5%.
* Construction and Forestry 2025 net sales are projected to be down 10%–15%, with an operating margin of 8.5%–10%.
* Jepsen highlighted, "Our forecast for net income is largely unchanged quarter-over-quarter. Recall, the top end of our guide from last quarter reflected a scenario where tariff rates moderated."

FINANCIAL RESULTS

* Net sales and revenues were $12.018 billion, down 9% year-over-year; net sales for equipment operations were $10.357 billion, also down 9%.
* Net income attributable to Deere & Company was $1.289 billion or $4.75 per diluted share.
* Production and Precision Ag net sales of $4.273 billion fell 16% year-over-year; Small Ag and Turf net sales were $3.025 billion, down 1%.
* Operating margins were 13.6% for Production and Precision Ag, 16% for Small Ag and Turf, and 7.7% for Construction and Forestry.
* Worldwide Financial Services net income in Q3 was $205 million, with the fiscal year outlook increased to $770 million.

Q&A

* Tami Zakaria, JPMorgan: Asked about production plans relative to retail demand. Josh Beal answered, "Large ag, pretty much in retail this year. So whatever happens with retail next year, that will be the change... Small ag and turf and construction and forestry, they'll get some lift building in line with retail next year, again, down 10% to retail in both of those segments this year."
* Angel Castillo, Morgan Stanley: Asked about early order programs for planters and combines. Beal characterized planter orders as "cautious" so far, with customers likely waiting until later in the program. Reed added, "We expect based on where all the external policy factors are that people are going to wait and see a little bit."
* Steven Michael Fisher, UBS: Questioned the drivers of implied positive pricing in Q4. Beal explained, "Some model year '26 pricing is starting to come through... We'll start to ship model year '26 sprayers in the fourth quarter of the year, which average pricing on sprayers for next year, 4% to 4.5%."
* Kristen Owen, Oppenheimer: Asked about tariff impacts and mitigation. Beal said, "Europe and steel combined are about 50% of the impact. If you add in India and Japan, you get about 2/3 of the impact from those 4 areas."
* Paddy Bogart, Melius Research: Asked about AI and automation opportunities. Reed responded, "You're seeing a lot of AI in the form of machine learning that's showing up in our current products... It's something that we're investing in today."

SENTIMENT ANALYSIS

* Analysts expressed caution, repeatedly referencing market uncertainty, cautious ordering behaviors, and the impact of tariffs, with several questions probing the sustainability of margins and pricing decisions.
* Management maintained a disciplined and confident tone regarding inventory, cost controls, and the ability to respond to market inflections. Jepsen stated, "There's still a fair bit of uncertainty as we look ahead to next year. However, given reduced field inventory levels, our expectations to build to retail demand... will be beneficial."
* Compared to the previous quarter, analyst skepticism around tariffs and order activity persisted, but management's confidence in structural improvements and inventory management remained steady.

QUARTER-OVER-QUARTER COMPARISON

* The net income guidance range was tightened but largely unchanged.
* Small Ag and Turf outlook improved from down 10%–15% to down about 10% for the year, reflecting better-than-expected retail sales in key segments.
* Tariff impact estimates increased from over $500 million to nearly $600 million for the full year.
* Management continued to emphasize inventory reductions and proactive cost measures, while analysts maintained a cautious tone regarding ongoing volatility and trade policy uncertainty.
* Operational discipline and cost control messaging from management was consistent with the prior quarter.

RISKS AND CONCERNS

* Persistent global uncertainty, high interest rates, and ongoing tariff impacts remain key risks.
* Beal indicated, "The primary drivers for the change from last quarter are increased tariff rates on Europe, India and steel and aluminum."
* Management is mitigating through inventory control, cost reductions, and flexible early order programs. Reed noted, "Priority #1 is jointly addressing used inventory levels."

FINAL TAKEAWAY

Deere & Company reported disciplined execution in a challenging environment, highlighting reduced inventory levels, strong cost control, and a resilient outlook despite ongoing tariff headwinds and market uncertainty. The company reaffirmed its full-year net income guidance, noted signs of demand stabilization in several key segments, and underscored its readiness to respond as market conditions improve, while maintaining focus on structural improvements, technology adoption, and long-term value creation for stakeholders.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/de/earnings/transcripts]

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