Deere Blows Past Estimates and Raises Outlook—Stock Breaks Out on Construction Rebound

Deere & Company delivered a better-than-expected fiscal first quarter and raised its full-year profit outlook, sending shares roughly 4% higher in pre-market trading. The headline numbers were strong relative to consensus, even as year-over-year comparisons reflected ongoing cyclical pressure in large agriculture. For investors who have been waiting for signs that the downturn in farm equipment demand is nearing a trough, management’s tone and revised guidance were arguably just as important as the earnings beat itself.

For the quarter, Deere reported net income of $656 million, or $2.42 per share, ahead of Wall Street expectations that ranged from roughly $1.92 to $2.10 per share depending on the source. Revenue came in at $9.61 billion, well above estimates near $7.6–$7.7 billion and up 13% from $8.51 billion a year ago. Net sales alone were $8.0 billion versus $6.8 billion last year, marking a solid top-line recovery in key segments. While net income declined 25% year over year from $869 million, that comparison reflects a tougher prior-year base and a still-challenged large agriculture environment rather than an operational miss.

The segment breakdown shows a clear divergence within the portfolio. Production & Precision Agriculture, which includes Deere’s large ag equipment and technology-heavy offerings, posted net sales of $3.16 billion, up 3% year over year. However, operating profit dropped sharply to $139 million from $338 million, and operating margin compressed to 4.4% from 11.0%. Management cited higher tariffs, an unfavorable sales mix, and higher warranty expenses as the primary drivers of the profit decline. In short, while revenue held up modestly thanks in part to foreign currency translation, profitability in large ag remains under pressure amid weak crop prices and cautious farmer spending.

By contrast, Small Agriculture & Turf was a bright spot. Net sales rose 24% to $2.17 billion, driven by higher shipment volumes and favorable currency effects. Operating profit jumped 58% to $196 million, and operating margin expanded to 9.0% from 7.1%. Management attributed the improvement to stronger volumes, positive sales mix, and price realization, partially offset by higher tariff costs. This segment is benefiting from more resilient demand among smaller operators, lifestyle farmers, and turf customers, areas that tend to be less exposed to commodity price swings than large-scale row crop producers.

Construction & Forestry was the standout performer. Net sales surged 34% to $2.67 billion, while operating profit more than doubled to $137 million from $65 million. Operating margin improved to 5.1% from 3.3%, reflecting higher shipment volumes, better mix, and production efficiencies, again partially offset by tariff costs. The rebound in construction demand, particularly in the U.S. and Canada, has provided Deere with an important counterbalance to the softness in large agriculture. Management noted that strengthening order books and shipments ahead of plan contributed to the outperformance.

Tariffs remain a meaningful headwind across segments. Deere has previously indicated that tariff costs could run around $300 million per quarter in fiscal 2026, or roughly $1.2 billion for the year, up from $600 million in fiscal 2025. In the first quarter, tariff-related costs were embedded within production expenses and explicitly cited as a drag on operating profit in all three equipment segments. While price realization and cost controls have helped mitigate some of the impact, higher input costs tied to imported raw materials continue to pressure margins, particularly in Production & Precision Agriculture.

Despite those headwinds, Deere raised its fiscal 2026 net income outlook to a range of $4.5 billion to $5.0 billion, up from its prior guidance of $4.0 billion to $4.75 billion and above consensus expectations near $4.4 billion. The company now expects net sales in both Small Agriculture & Turf and Construction & Forestry to rise approximately 15% for the year, up from earlier forecasts of roughly 10% growth. Production & Precision Agriculture is still expected to see net sales decline 5% to 10%, reflecting ongoing challenges in the large ag cycle.

Management struck a cautiously constructive tone on the broader industry backdrop. CEO John May acknowledged that the global large agriculture industry continues to face challenges, with U.S. farmers contending with weak crop prices and elevated input costs. However, he emphasized that recovery in construction and small agriculture demand supports the view that fiscal 2026 represents the bottom of the current cycle. The company also highlighted strengthening order books and its continued investment in research and development, which is expected to support a pipeline of new products across all business segments.

From a margin perspective, the story is mixed but stabilizing. Large ag margins remain under significant pressure due to mix and tariffs, but margins in Small Ag & Turf and Construction & Forestry are expanding as volumes recover and production efficiencies improve. Deere’s cost discipline, scaled-back factory production in response to prior weak demand, and efforts to work down dealer inventory appear to be contributing to better operational balance.

The industry outlook embedded in management’s commentary reflects a still-fragile but improving environment. For Agriculture & Turf in the U.S. and Canada, Deere expects Large Ag to be down 15% to 20%, while Small Ag & Turf is expected to be flat to up 5%. In Construction & Forestry, U.S. and Canada construction equipment demand is projected to rise about 5%, with compact construction equipment also up around 5%. These projections suggest that while the large ag downturn is not yet over, other end markets are providing incremental growth and profit support.

Overall, Deere’s quarter demonstrates that while the core farm equipment cycle remains soft, the broader portfolio is performing better than expected. A significant earnings beat, accelerating growth in construction and small ag, and an upgraded full-year profit forecast point to improving momentum. With tariffs still weighing on margins and large agriculture demand under pressure, the recovery is not uniform. But if management’s view that 2026 marks the bottom of the cycle proves correct, this quarter may be remembered as the first clear step in that turn.