Deere & Company (DE) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals. Strong financial metrics with positive pricing and market share gains are offset by weak guidance in certain segments, such as large ag. The Q&A reveals cautious management responses to tariffs and production costs, suggesting uncertainties. While there are positive aspects like strong biofuel demand and tech adoption, the overall sentiment remains balanced, leading to a neutral stock price prediction.
Key Financial Performance
Operating Margin for Equipment Operations 5.9%, reflecting a diversified portfolio and higher net sales year-over-year. The increase was driven by shipping volumes ahead of plan and strengthening order books.
Net Sales and Revenues $9.611 billion, up 13% year-over-year. Driven by higher shipment volumes and positive effects of foreign currency translation.
Net Sales for Equipment Operations $8.001 billion, up 18% year-over-year. Driven by higher shipment volumes and positive effects of foreign currency translation.
Net Income Attributable to Deere & Company $656 million or $2.42 per diluted share. The increase was due to higher shipment volumes and operational efficiencies.
Production & Precision Ag Net Sales $3.163 billion, up 3% year-over-year. Driven by positive effects of foreign currency translation, though offset by additional incentives for the South American market.
Small Ag & Turf Net Sales $2.168 billion, up 24% year-over-year. Driven by higher shipment volumes, favorable sales mix, and positive effects of foreign currency translation.
Construction & Forestry Net Sales $2.67 billion, up 34% year-over-year. Driven by higher shipment volumes and positive effects of foreign currency translation.
Worldwide Financial Services Net Income $244 million, up year-over-year. Driven by favorable financing spreads and a lower provision for credit losses.
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Operating Highlights
New Deere-designed 20-ton class excavators: These are the first fully Deere-designed and Kernersville, North Carolina-built machines, packed with productivity-enhancing technology and improved quality and durability. This marks the beginning of a multi-year launch plan for a complete line of excavators.
Tenna acquisition: Tenna provides a technology platform for automating contractor workflows, offering real-time insights into equipment operations and maintenance, and enhancing job site productivity. This acquisition aligns with Deere's strategy to optimize fleets, operations, and job sites.
Upcoming product launches: Deere plans to showcase several major product launches and updates to advanced technology solutions at the Commodity Classic in Texas and World Ag Expo in California.
North American construction equipment market: Industry sales for construction and compact construction equipment in the U.S. and Canada are expected to grow by 5%, supported by government infrastructure spending, declining interest rates, and strong rental demand.
South American ag equipment market: Sales are projected to decline by approximately 5% due to subdued commodity prices, high interest rates, and a stronger Brazilian real.
European ag equipment market: Industry sales are expected to remain flat to grow by 5%, supported by steady interest rates and resilience in key arable markets.
Operational efficiencies: Production costs were lower year-over-year across all business segments due to higher production and disciplined overhead spending, excluding tariffs.
Inventory management: Deere maintained healthy inventory levels, with significant reductions in used equipment inventories, particularly in North America.
Focus on renewable fuels and export opportunities: Deere anticipates future policies around renewable fuels and export opportunities to drive demand and provide stability for U.S. farmers.
Investment in infrastructure and AI-related construction: Deere is focusing on supporting infrastructure upgrades, single-family housing, and AI-related construction projects to meet growing demand.
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Risk or Challenges
Higher tariffs: The company faced increased tariff expenses, which negatively impacted operating margins across multiple segments.
Unfavorable sales mix: The Production & Precision Ag segment experienced an unfavorable sales mix, contributing to a decrease in operating profit.
Higher warranty expenses: The Production & Precision Ag segment incurred higher warranty expenses, which negatively affected its operating margin.
Softer South American market: The South American ag equipment market is projected to decline due to subdued commodity prices, high interest rates, and a stronger Brazilian real, pressuring producer margins.
Decline in large ag equipment demand: The U.S. and Canadian large ag equipment industry is expected to decline by 15% to 20% this year, posing challenges for the company.
Negative pricing pressures in Construction & Forestry: The Construction & Forestry segment faced slightly negative pricing pressures, although these are showing signs of easing.
High inventory levels in Brazil: The company has higher-than-desired inventory levels for combines in Brazil, requiring underproduction to align with retail demand.
Pressure on U.S. row crop farmers: U.S. row crop farmers face a challenging environment due to pressured producer margins and increasing expenses, despite government support programs.
Global economic uncertainties: Subdued commodity prices and high interest rates in various regions, including South America and Asia, are creating economic uncertainties that could impact demand.
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Guidance & Outlook
Fiscal Year 2026 Net Sales Growth: Mid-single-digit net sales growth projected for equipment operations.
Large Agricultural Equipment Industry in U.S. and Canada: Expected to decline 15% to 20% in 2026, but stability and growth are anticipated in the near term due to supportive developments like government programs and improving used inventory markets.
Small Ag and Turf Industry Demand in U.S. and Canada: Expected to remain flat to up 5% in 2026, supported by strong beef prices and a modest return to growth in the turf market.
South American Agricultural Equipment Market: Projected to decline by approximately 5% in 2026 due to subdued commodity prices, high interest rates, and a stronger Brazilian real.
Construction and Compact Construction Equipment in U.S. and Canada: Industry sales expected to grow by around 5% year-over-year in 2026, supported by government infrastructure spending, declining interest rates, and strong rental demand.
Global Forestry Markets: Expected to remain flat in 2026.
Global Road Building Markets: Projected to grow by around 5% in 2026, driven by increases in North America and Europe.
Production & Precision Ag Segment: Net sales forecasted to decline by 5% to 10% in 2026, with operating margins expected between 11% and 13%.
Small Ag & Turf Segment: Net sales expected to grow by about 15% in 2026, with operating margins forecasted between 13.5% and 15%.
Construction & Forestry Segment: Net sales projected to grow by around 15% in 2026, with operating margins estimated between 9% and 11%.
Financial Services Net Income: Outlook increased to $840 million for fiscal year 2026, driven by lower provision for credit losses.
Fiscal Year 2026 Net Income: Updated outlook between $4.5 billion and $5 billion.
Fiscal Year 2026 Operating Cash Flow: Projections increased to between $4.5 billion and $5.5 billion.
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Shareholder Return Plan
Cash returned to shareholders: Nearly $750 million in cash was returned to shareholders through dividends and share repurchases during the quarter.
Share repurchases: Part of the $750 million returned to shareholders included share repurchases.
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Key Q&A
Q:How should we think about the bridge from neutral in Q1 to the full-year guide of 1.5% for PPA pricing?
A:Management explained that incremental incentives were put in place in South America due to a slowdown in the market, particularly in combines. Despite this, Brazilian price realization is expected to be positive for the full year, and North America has seen positive pricing. The expectation is to maintain 1.5 points for large ag price for the full year.
Q:What is driving the strength in C&S order activity, and can it be unpacked?
A:Management attributed the strength to contractor confidence, particularly in larger projects like infrastructure and data centers. Housing remains subdued, but larger contractors are seeing strength in their order books. Rental refleeting and mid-teens retail growth in the quarter also contributed to the strength.
Q:Why does the up 5%-ish forecast for C&F feel conservative, and what explains the higher net sales forecast compared to the end market forecast?
A:Management acknowledged optimism but noted mixed segments, with housing still subdued. The higher net sales forecast (15%) is due to strong underproduction last year, positive pricing (2.5 points), and currency tailwinds.
Q:What is the outlook for large ag order books and production rates?
A:Management noted that North American large ag is expected to be down 15%-20%, with tractors closer to the lower end of that range and combines down 10%-15%. Order books for tractors are now into Q4, and production rates will increase in the back half of the year based on actual orders.
Q:Has anything changed in terms of price versus production costs for the full year?
A:Management expects to be price/cost neutral for the full year, inclusive of $600 million in incremental tariffs. While there is some inflationary pressure on materials, overhead efficiencies from added volume are offsetting these costs.
Q:What are the regional dynamics affecting large ag in Q1 and beyond?
A:In Q1, North America and South America were down year-over-year, while Europe and Asia were up, leading to unfavorable mix. This is expected to normalize in subsequent quarters, with North America production picking up and margins improving.
Q:What is the impact of potential tariff relief on farmers?
A:Management stated that they would not react too quickly to tariff relief and would take a measured approach, similar to how they handled tariff increases. They emphasized that they have not taken outsized price actions related to tariffs.
Q:What is the status of large ag used inventories, and is the pace of destocking sustainable?
A:Management reported significant reductions in late-model tractor inventories, with '22 and '23 AR down 20% sequentially in Q1. While Q1 is typically the strongest quarter for used reduction, they expect continued progress in subsequent quarters.
Q:How is large ag being managed to set up for 2027, and why aren't margins higher given improving conditions?
A:Management is maintaining steady production levels for combines and increasing tractor production in the back half of the year. Margins are not higher due to the overall magnitude of North America being down 15%-20% and some softening in South America.
Q:What are the marketing plans for the new excavator, and will there be promotions?
A:The new excavator was launched at CONEXPO with significant customer and dealer engagement. Management does not plan significant price increases but will emphasize the value delivered through technology, durability, and productivity.
Q:What is the outlook for biofuels and its impact on agriculture?
A:Management sees opportunities in increased domestic consumption of biofuels, E15 legislation, and the Renewable Volume Obligation (RVO). They noted strong demand for biofuels in both North and South America.
Q:Are there any market share gains expected in large ag, and what is the adoption rate of tech attachments?
A:Management expects to gain market share in 2026 as they are better positioned with inventory. Adoption rates for tech attachments like harvest automation are increasing, with 99% of combines ordered this year having some level of automation.
Q:What is the cadence of earnings growth for the year?
A:Management expects mid-single-digit growth for most quarters, with the toughest comp in Q2 and easier comps in the back half of the year. Growth is expected across equipment operations for the full year.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing whether tariff relief would immediately benefit farmers, stating that they would take a measured approach. Additionally, they did not provide specific details on how regional production differences would affect margins beyond general comments about mix normalization.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ADARs
Ag Turf
CF
Forestry Power
Power Systems
President Worldwide
Production Precision
Slide sale
Small Ag
Worldwide Construction
acquisition
ag fundamental
bank
cash farm
cash receipt
challenge
demand commodity
effect currency
estimate
excavator
fleet job
horsepower category
insight
job site
peak
plan line
producer
product portfolio
productivity
sector
settlement
strength
task
tractor order
translation Price
visibility
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The earnings call presents mixed signals. Strong financial metrics with positive pricing and market share gains are offset by weak guidance in certain segments, such as large ag. The Q&A reveals cautious management responses to tariffs and production costs, suggesting uncertainties. While there are positive aspects like strong biofuel demand and tech adoption, the overall sentiment remains balanced, leading to a neutral stock price prediction.
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Frequently Asked Questions
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
