DE breaks out above $415 despite cautious 2025 outlook

Deere & Company reported its latest quarterly earnings, delivering a mixed performance as it navigates a challenging macroeconomic environment. The company posted earnings per share (EPS) of $8.00, exceeding analyst expectations of $7.70, while revenue came in at $16.3 billion, slightly surpassing the consensus estimate of $16.2 billion. Despite this earnings beat, the company’s cautious fiscal 2025 outlook weighed on sentiment, reflecting anticipated declines across key segments.

Breaking down performance by segment Production & Precision Ag experienced a decline, as Deere projected segment sales to fall approximately 15% for fiscal 2025. This reflects significant weakness in U.S. and Canada Large Ag, which is expected to contract by 30%. In contrast, Small Ag & Turf, which Deere projects to fall 10% in fiscal 2025, showed relative resilience due to more stable demand in turf equipment. Meanwhile, Construction and Forestry is projected to see a 10-15% decline, with U.S. and Canada construction equipment sales forecasted to drop by 10% and compact equipment down 5%, driven by softness in residential and non-residential construction activity.

Deere’s fiscal 2025 guidance reflects ongoing industry headwinds, with total net sales expected to decline in all major segments. The company anticipates minimal currency impacts but modest price realization gains of about 1% in key divisions, which will only partially offset volume declines. Financial Services is expected to contribute $750 million in net income, a modest but steady performance reflecting the strength of Deere's financing arm even in a weaker demand environment.

Management’s commentary highlighted continued challenges in the agricultural sector, particularly in North America, where large agricultural equipment sales are under significant pressure. Persistent inflation, higher input costs for farmers, and moderating commodity prices have curtailed demand. Additionally, concerns over elevated borrowing costs have dampened spending on capital-intensive equipment, further contributing to the anticipated slowdown in agricultural machinery sales.

Deere noted that construction markets are also facing challenges, with U.S. and Canada construction equipment demand expected to decline due to weaker housing and infrastructure activity. However, global forestry and roadbuilding segments showed relative stability, with guidance for flat to slightly negative sales in fiscal 2025. South America remains a bright spot for the company, with tractor and combine sales expected to hold steady, supported by strong agricultural export activity.

Despite the near-term headwinds, Deere remains optimistic about its long-term growth trajectory, emphasizing its focus on technology and innovation. The company is continuing to invest in precision agriculture and automation, which it believes will drive efficiency gains and cost savings for customers. Deere's management also pointed to the ongoing adoption of its smart farming solutions as a key differentiator in a competitive market.

Deere’s cautious outlook for fiscal 2025 reflects broader economic uncertainties, particularly as the Federal Reserve maintains elevated interest rates and the global economic environment remains mixed. However, the company’s strong pricing power, operational efficiencies, and robust financial position provide it with some cushion against the anticipated downturn. Deere also reiterated its commitment to returning value to shareholders, signaling continued share repurchases and dividend stability.

Shares of DE broke above $415 resistance in reaction to the better than feared results. The stock is holding on to gains despite making cautious comments on its 2025 outlook. We would prefer not to chase this move as the rally may provide to be unsustainable. It does highlight the potential for animal spirits in regard to a year end rally.

In summary, Deere delivered a solid earnings beat for the quarter, but its forward-looking guidance paints a challenging picture for fiscal 2025. Declines across major segments, especially in North American large agricultural equipment and construction markets, highlight the difficult environment the company faces. While pockets of stability in South America and forestry provide some relief, Deere’s near-term performance will hinge on its ability to navigate these headwinds while leveraging its technological advancements to maintain its competitive edge. Investors will likely remain cautious as they weigh Deere’s long-term potential against near-term pressures.