What drove Deere's gross profit decline in 2024?

Deere's gross profit decline in 2024 can be attributed to a combination of factors:

1. **Sales Decline**: Deere experienced a significant drop in net sales and revenue, which declined by 17% year-over-year to $13.152 billion in Q3 2024 compared to $15.801 billion in the same period in 2023. This decline in sales was due to lower shipment volumes across all segments, including Production & Precision Agriculture, Small Agriculture & Turf, and Construction & Forestry.
2. **Market Conditions**: The global agricultural and construction sectors faced challenging conditions, affecting Deere's performance. Corn and soybean prices dropped, leading to a decline in farmer income and subsequent reduction in demand for tractors and other farming equipment. Additionally, high borrowing costs and a decline in commodity prices put pressure on farmers, leading to a slump in demand for new farm equipment.
3. **Cost and Profitability Challenges**: Despite strong pricing and cost control measures, the company faced sluggish demand for its farm equipment, which impacted profitability. The operating profit fell by 34.7% year-over-year to $2.279 billion, and the margin contracted by 480 bps to 17.5%. The Production & Precision Agriculture segment saw a 35% decline in operating profit to $1.162 billion, while the Small Agriculture & Turf segment dropped 32% to $496 million.
4. **Strategic Adjustments**: In response to weak market conditions, Deere took steps to reduce costs and strategically align production with customer needs. The company initiated involuntary employee-separation programs and reduced salaried employees to cut costs. These adjustments indicate a proactive approach to managing the downturn in the agricultural sector.

In summary, Deere's gross profit decline in 2024 was primarily driven by a combination of sales drop, market conditions, cost and profitability challenges, and strategic adjustments.