Agricultural and construction machinery company Deere (NYSE: DE) announced better-than-expected revenue in Q4 CY2025, with sales up 13% year on year to $9.61 billion. Its non-GAAP profit of $2.42 per share was 17.5% above analysts’ consensus estimates.

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StockStory’s Take

Deere’s fourth quarter saw a strong market response, underpinned by a 13% year-over-year sales increase and widespread demand for both agricultural and construction equipment. Management attributed the outperformance to higher shipment volumes, especially in Small Agriculture & Turf and Construction & Forestry, where both segments posted over 20% top-line growth. CFO Josh Beal called out “better-than-expected shipment volume” as the key driver, while improvements in order books and stable used equipment inventories helped offset ongoing challenges in large agriculture markets. The quarter also benefited from operational efficiencies and disciplined cost management, which partially counteracted the impact of higher tariffs and an unfavorable product mix.

Looking ahead, management expects 2026 to mark the bottom of the current cycle, citing early signs of market stabilization and a return of replacement demand in North America. The company is projecting mid-single-digit annual sales growth, with key drivers including government support programs for farmers, new product launches—such as the Deere-designed 20-ton excavators—and continued investment in digital and automation technologies. President Ryan Campbell emphasized, “We’re positioning ourselves to capitalize on infrastructure investments and the industry’s push toward smarter, more productive machines,” while cautioning that tariffs and regional market volatility remain headwinds.

Key Insights from Management’s Remarks

Management viewed the quarter’s performance as a result of demand strength in both construction and select agricultural segments, along with operational improvements and product launches that helped offset ongoing margin pressure from tariffs and sales mix.

• Construction order book momentum: The Construction & Forestry division experienced a more than 50% rise in its order bank, driven by increased contractor confidence and robust demand for infrastructure projects, particularly in North America and Europe. Management said this provided “clear visibility into the second half of the fiscal year.”
• Small Ag & Turf volume surge: Small Agriculture & Turf shipments grew over 20%, supported by higher demand from dairy and livestock producers, as well as a modest rebound in turf equipment orders. Management pointed to favorable inventory management and a strong order pipeline.
• Tariff and cost headwinds: Higher tariffs increased costs across all business units, with total tariff expenses projected to reach $1.2 billion for the year. Despite these pressures, operational efficiencies and lower production costs (excluding tariffs) supported margin resilience in the quarter.
• Product innovation and launches: The company announced a multiyear launch plan for fully Deere-designed excavators, beginning with a new 20-ton model, and highlighted upcoming ag equipment launches featuring advanced automation and connectivity. These are expected to enhance customer productivity and differentiate Deere in key markets.
• Used equipment market stabilization: Progress in reducing used inventory—especially in high-horsepower tractors—has improved market conditions, with late-model inventory down more than 40% year-over-year. This supports replacement demand and underpins management’s outlook for a gradual recovery in large ag sales.

Drivers of Future Performance

Management’s outlook is shaped by a combination of supportive government programs, ongoing product innovation, and continued investment in digital technologies—balanced against persistent tariff and regional market risks.

• Government support and market stabilization: Management believes U.S. government programs, such as the Farmer Bridge Assistance, and resumed commodity purchases by China will help maintain farmer liquidity and stabilize demand, even as commodity price margins remain pressured.
• Infrastructure and digital investments: The company expects U.S. infrastructure spending and growing demand for technologically advanced equipment—including smart machines and digital job site solutions—to drive future growth, particularly in construction. The recent Tenna acquisition is set to strengthen Deere’s mixed-fleet management capabilities.
• Tariff and market risks: Persistent tariff costs and potential regional volatility, notably in South America and Asia, are seen as ongoing headwinds that could limit margin expansion. Management projects price/cost neutrality for the year, with tariffs offsetting much of the benefit from operational efficiencies.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will watch (1) the pace and sustainability of order book growth in Construction & Forestry, (2) whether replacement demand in North American large ag continues to strengthen amid stable used equipment inventories, and (3) the impact of new product launches—including digital and automation solutions—on segment sales and margins. We will also be monitoring tariff developments and regional market volatility as potential swing factors for profitability.

Deere currently trades at $662.00, up from $593.27 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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