Business Context and Reporting Period
Company: Deere & Company (DE)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Second quarter ended April 27, 2025 (13 weeks) and the six months ended April 27, 2025 (26 weeks).
Overview: Deere is a global leader in agricultural, turf, construction, and forestry equipment. The company operates through four segments: Production and Precision Agriculture (PPA), Small Agriculture and Turf (SAT), Construction and Forestry (CF), and Financial Services (FS). The period was marked by a significant strategic shift involving the deconsolidation of its Brazilian subsidiary, Banco John Deere S.A. (BJD), following a 50% sale to Banco Bradesco S.A. in February 2025.
Key Financial Metrics
| Metric (in millions, except per share) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 |
|---|---|---|---|---|
| Net Sales and Revenues | $12,763 | $15,235 | $21,272 | $27,420 |
| Net Income Attributable to Deere | $1,804 | $2,370 | $2,673 | $4,121 |
| Diluted Earnings Per Share | $6.64 | $8.53 | $9.82 | $14.74 |
| Operating Profit | $2,308 | $3,098 | $3,101 | $5,292 |
| Operating Margin | 18.1% | 20.3% | 14.6% | 19.3% |
| Cash and Cash Equivalents | $7,991 | $5,553 | $7,991 | $5,553 |
| Total Debt (Short + Long Term) | $58,759 | $58,661 | $58,759 | $58,661 |
| Net Cash Provided by Operating Activities (YTD) | $568 | $944 | $568 | $944 |
Material Changes vs. Prior Period
- Revenue Decline: Total net sales decreased 16% in Q2 and 22% year-to-date compared to the prior year. This was driven primarily by lower shipment volumes across all equipment segments due to high interest rates, elevated used equipment inventory, and economic uncertainty.
- Profitability Compression: Net income attributable to Deere fell 24% in Q2 and 35% year-to-date. Operating margins contracted significantly, particularly in the Construction and Forestry segment (down to 9.0% YTD from 17.5% last year) and PPA (down to 17.9% YTD from 23.6%).
- Deconsolidation of BJD: The sale of 50% of Banco John Deere S.A. (BJD) resulted in the deconsolidation of the subsidiary in Q2 2025. This reduced the average balance of receivables and leases financed in the Financial Services segment by 6% in Q2 and 4% YTD.
- Cost Structure: Cost of sales as a percentage of net sales increased to 70.3% YTD (from 67.9% in 2024) due to higher overhead costs from production inefficiencies associated with lower volumes and the impact of new tariffs, partially offset by lower material costs.
- Shareholder Returns: The company repurchased $838 million of common stock YTD and declared dividends of $3.24 per share YTD.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- 2025 Outlook: Management expects agriculture and turf, as well as construction equipment sales volumes, to remain lower than 2024 levels for the remainder of the fiscal year.
- Market Drivers: Demand is being suppressed by high interest rates, elevated used inventory, and macroeconomic uncertainty. In the U.S. and Canada, large agricultural equipment demand is expected to decline. Construction demand is forecast to be down due to moderating housing starts and high mortgage rates.
- Financial Services: Net income is expected to be impacted by less favorable financing spreads and higher provisions for credit losses, though these may be partially offset by lower selling, administrative, and general expenses.
Risks and Contingencies
- Legal Proceedings: The FTC and Attorneys General from multiple states filed a lawsuit in January 2025 alleging monopolization and unfair competition regarding repair tools and resources. The company has filed a motion to dismiss but cannot predict the outcome.
- Trade Policy: New tariffs imposed in Q2 2025 on imports from various countries have adversely affected component costs. The direct impact was approximately $95 million in Q2. Retaliatory tariffs pose a risk to export profitability.
- Interest Rates: Elevated interest rates continue to negatively impact customer borrowing costs and demand for equipment, as well as financing spreads for the Financial Services segment.
- Credit Quality: The allowance for credit losses increased in Q2 and YTD 2025 due to elevated delinquencies and a decline in market conditions, particularly in agriculture and turf customer accounts.
Investor Verification Checklist
- BJD Deconsolidation Impact: Verify the specific accounting treatment and future cash flow implications of the 50% equity interest retained in Banco John Deere S.A. (BJD).
- Tariff Exposure: Assess the long-term impact of new U.S. tariffs and potential retaliatory measures on the cost of goods sold and pricing power in key export markets.
- Inventory Levels: Monitor the ratio of inventories to prior 12-month cost of sales (currently 29% YTD) to gauge potential future write-downs or markdowns given the demand slowdown.
- Credit Loss Provisions: Review the trend in delinquency rates and the adequacy of the allowance for credit losses, especially in the Financial Services segment, given the economic headwinds.
- Legal Liability: Track the progress of the FTC antitrust lawsuit regarding "right to repair" and potential financial or operational impacts.