DE

Business Context and Reporting Period

Company: Deere & Company (DE)

Filing Type: Form 10-Q (Unaudited)

Reporting Period: Third quarter and nine months ended July 27, 2025.

Overview: Deere is a global leader in agricultural, turf, construction, and forestry equipment and financial services. 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 fiscal year 2025 is a 53-week year, with the additional week occurring in the fourth quarter.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 9% in Q3 and 18% year-to-date (YTD) compared to the prior year, primarily driven by lower sales volumes across all equipment segments.
• Profitability Compression: Net income attributable to Deere fell 26% in Q3 and 32% YTD. Operating profit margins declined significantly in PPA (13.6% vs 22.8%) and CF (7.7% vs 13.8%) due to lower volumes, unfavorable price realization, and higher tariffs.
• Cost Structure: Cost of sales as a percentage of net sales increased to 73.1% in Q3 (from 68.9% in 2024) due to higher tariffs and production inefficiencies from lower volumes, partially offset by reduced material costs.
• Financial Services: FS operating profit increased 39% in Q3 and 13% YTD, driven by lower provisions for credit losses and favorable special items, despite a lower average portfolio balance due to the deconsolidation of Banco John Deere S.A. (BJD).
• Balance Sheet: Total assets remained relatively flat at $107.8 billion. Financing receivables decreased slightly, while cash and cash equivalents increased to $8.58 billion.

Guidance, Outlook, and Risks

Management Commentary and Outlook

• 2025 Outlook: Management expects agriculture and turf, as well as construction equipment sales volumes, to be lower than the prior year due to reduced demand.
• Key Headwinds: High interest rates, elevated used inventory levels, trade uncertainty, and lower commodity prices are expected to dampen demand in the U.S. and Canada. Global grain stocks remain constrained, and trade policies (including new tariffs) continue to create uncertainty.
• Special Items:
  • Impairment: A non-cash charge of $61 million (pretax) was recorded in Q3 2025 related to overseas battery operations.
  • BJD Deconsolidation: The sale of 50% of BJD to Bradesco was completed in February 2025, resulting in a $32 million gain recorded in Q1 2025.

Risks and Contingencies

• Legal Proceedings: The FTC and several state Attorneys General filed an antitrust lawsuit alleging monopolization regarding repair tools and resources. The court denied Deere's motion to dismiss; the company is in preliminary discussions regarding a potential resolution.
• Trade Policy: New U.S. tariffs on imports and retaliatory tariffs from other countries have increased product costs (approx. $300 million impact in the first nine months) and may continue to affect profitability.
• Interest Rates: Elevated interest rates in the U.S. and Brazil continue to negatively impact customer demand and financing spreads.

Investor Verification Checklist

• Tariff Impact: Verify the ongoing cost impact of new U.S. tariffs on imported components and the ability to pass these costs to customers.
• Inventory Levels: Monitor dealer and used equipment inventory levels, which are cited as a primary driver of reduced new equipment demand.
• Credit Quality: Review the allowance for credit losses and delinquency rates in the Financial Services segment, particularly given the economic headwinds for farmers and contractors.
• Legal Resolution: Track the status of the FTC antitrust lawsuit and potential settlement costs or operational changes required.
• Capital Allocation: Confirm the pace of share repurchases ($1.1 billion in Q3) and dividend sustainability ($1.62/share declared) amidst lower cash flows.