Deere (DE) Earnings Preview: Resilience Amid Agricultural Downturn?

Deere & Company, a leading manufacturer of agricultural, construction, and lawn care equipment, is set to release its first-quarter earnings for fiscal year 2025. Investors will closely watch the results and management’s guidance as the company navigates a prolonged downturn in the farming and agriculture equipment sector.

Despite challenging industry conditions, Deere’s stock has remained resilient, rising 12% year-to-date and even touching record highs in late January. This optimism appears to be built on expectations of an eventual recovery, but whether that optimism is justified remains a key question for investors.

The agricultural machinery industry is currently in a down cycle, driven by falling commodity prices, lower farm incomes, and elevated interest rates. These factors have reduced capital spending among farmers, limiting demand for high-priced equipment such as tractors and combines.

Deere’s primary competitor, AGCO, reported a steep 24% decline in revenue for the fourth quarter, demonstrating the extent of weakness in the sector. Deere itself has not been immune to these pressures, with all three of its major business segments experiencing double-digit revenue declines last quarter.

The company's Production & Precision Agriculture division, which accounts for its largest revenue stream, saw a significant 38% year-over-year decline in revenue last quarter, driven by reduced shipments and delayed orders.

Deere had already guided for a 30% decline in this segment for fiscal year 2025, indicating ongoing challenges. The company has been hoping that an equipment replacement cycle, supported by demand for precision technology in farming, will help spur sales, but lower farm incomes have delayed these purchases.

The Small Agriculture & Turf segment has faced similar struggles, though to a slightly lesser degree. Consumer spending trends have remained sluggish, affecting demand for smaller-scale agricultural equipment and lawn care products. Deere saw a 25% revenue decline in this segment last quarter and expects a 10% decrease in fiscal year 2025.

Despite these headwinds, Deere’s stock has remained strong, suggesting that investors believe the worst of the downturn may soon pass. The market appears to be pricing in an eventual recovery, perhaps in the latter half of 2025 or into 2026. However, this outlook assumes that farm incomes will stabilize, interest rates will ease, and equipment replacement demand will pick up.

There is reason for caution. While Deere’s stock has rallied, its financial outlook has been less encouraging. The company’s prior full-year net income guidance of $5.0-$5.5 billion was well below analyst expectations, reflecting the persistent challenges in its end markets. Additionally, any further decline in commodity prices or unexpected macroeconomic pressures could delay the anticipated recovery, making the stock’s recent strength appear premature.

Another factor to consider is the competitive landscape. While Deere remains a dominant player, the broader industry is undergoing shifts. Alternative equipment financing options, increased leasing activity, and the potential rise of automation in agriculture could change purchasing dynamics in the coming years. Deere’s ability to maintain its technological edge and offer compelling solutions to customers will be critical.

Heading into its earnings report, investors should focus on key areas such as updated guidance for fiscal year 2025, commentary on farm income trends, and any signs of a rebound in equipment demand. Management’s outlook on interest rate impacts and potential cost-saving initiatives will also be closely scrutinized.

While Deere has shown resilience in the face of industry challenges, the stock’s strong performance suggests that investors may be overly optimistic about a near-term recovery. If guidance remains weak or suggests a longer-than-expected downturn, the stock could be vulnerable to a pullback. Conversely, any signs that demand is beginning to stabilize could provide further support for the stock’s recent strength.

For long-term investors, Deere remains a solid company with a strong brand and a history of weathering industry cycles. However, those looking for short-term gains should be mindful of the risks associated with a still-uncertain agricultural equipment market.