10-Q: Deere & Co. Reports Significant Q3 Profit Decline Amid Weak Demand

Deere & Company reported a substantial decrease in net sales and income for the third quarter and first nine months of fiscal 2025, driven by lower equipment sales volumes and challenging market conditions.

Summary

• Net sales and revenues for the three months ended July 27, 2025, decreased by 9% to $12,018 million, down from $13,152 million in the prior year.
• Net income attributable to Deere & Company for the third quarter fell by 26% to $1,289 million, compared to $1,734 million in the same period last year.
• Diluted earnings per share (EPS) for the quarter was $4.75, a 24.4% decrease from $6.29 in the prior year.
• For the nine months ended July 27, 2025, net sales and revenues decreased by 18% to $33,290 million, down from $40,572 million.
• Nine-month net income attributable to Deere & Company declined by 32% to $3,962 million, from $5,855 million in the previous year.
• Diluted EPS for the nine months was $14.57, a 30.7% decrease from $21.04 in the prior year.
• The cost of sales to net sales ratio increased to 73.1% for the quarter (from 68.9%) and 71.3% for the nine months (from 68.2%), indicating reduced profitability.
• Operating profit for Production and Precision Agriculture (PPA) decreased by 50% for the quarter and 46% for the nine months.
• Operating profit for Construction and Forestry (CF) decreased by 47% for the quarter and 60% for the nine months.
• Financial Services (FS) net income increased by 34% for the quarter and 14% for the nine months, partly due to lower provision for credit losses and special items.
• A non-cash charge of $61 million pretax ($49 million after-tax) was recorded in Q3 2025 due to impairment of external overseas battery operations' trade name and customer relationship assets.
• The company completed the sale of 50% ownership in Banco John Deere S.A. (BJD) in Brazil in February 2025, resulting in its deconsolidation and a $32 million gain (reversal of previous losses) in Q1 2025.
• Acquired businesses for $89 million (net of cash) in 2025 to enhance technology offerings in PPA and CF segments.
• Favorable net discrete tax items of $110 million from foreign net operating losses and $53 million from an uncertain tax position adjustment were recorded in Q1 2025.

Sentiment

Score: 3

Explanation: The sentiment is negative due to significant declines in net sales, net income, and EPS across equipment segments. The outlook for 2025 remains challenging with projected lower sales volumes. While Financial Services performed better and the company is investing in technology, the overall financial performance and market conditions present substantial headwinds.

Positives

• Financial Services (FS) segment reported a 39% increase in operating profit for the three months ended July 27, 2025, reaching $266 million, and a 13% increase for the nine months to $740 million.
• Net cash provided by operating activities was $3,464 million for the nine months ended July 27, 2025, indicating continued cash generation from core operations.
• Net cash used for investing activities significantly improved, decreasing to $801 million for the nine months ended July 27, 2025, from $3,671 million in the prior year, reflecting more efficient capital deployment.
• Cash, cash equivalents, and restricted cash increased by $1,214 million during the first nine months of 2025, reaching $8,847 million at period end.
• The company acquired businesses for $89 million to advance technology offerings, aligning with strategic priorities for profitability, efficiency, and sustainability.
• Favorable net discrete tax items in the first quarter of 2025, totaling $163 million, positively impacted net income.
• The deconsolidation of Banco John Deere S.A. (BJD) in Brazil resulted in a $32 million gain (reversal of previous losses) in the first quarter of 2025.

Negatives

• Net sales and revenues decreased by 9% for the three months and 18% for the nine months, primarily due to lower sales volumes.
• Net income attributable to Deere & Company decreased by 26% for the three months and 32% for the nine months.
• Diluted EPS decreased by 24.4% for the three months and 30.7% for the nine months.
• Operating profit for Production and Precision Agriculture (PPA) declined significantly by 50% for the quarter and 46% for the nine months.
• Operating profit for Construction and Forestry (CF) also saw a substantial decrease of 47% for the quarter and 60% for the nine months.
• The cost of sales to net sales ratio increased to 73.1% for the quarter and 71.3% for the nine months, indicating higher production costs relative to sales, partly due to higher tariffs and production inefficiencies from lower volumes.
• Unfavorable price realization in PPA and CF segments due to incremental incentive programs to address elevated used inventory levels and competitive pressures.
• Other income decreased by 23% for the quarter and 18% for the nine months, primarily due to lower revenues from licenses and credit enhancement recoveries.
• A non-cash impairment charge of $61 million pretax was recorded in Q3 2025 related to external overseas battery operations due to slowing external demand.
• Net cash used for financing activities increased to $1,557 million for the nine months, up from $789 million in the prior year, partly due to higher cash returned to shareholders but also increased external borrowings.

Risks

• Government policies and actions regarding global trade, including increased and proposed tariffs and retaliatory trade regulations, create uncertainty and can increase product costs.
• Uncertainty in the ability to sell products domestically or internationally, continue production at international facilities, procure raw materials, accurately forecast demand, manage increased costs, and remain competitive.
• The agricultural business cycle is unpredictable, affected by factors like world grain stocks, harvest yields, commodity prices, input costs, and adverse macroeconomic conditions (unemployment, inflation, interest rate volatility).
• Higher interest rates and currency fluctuations could negatively impact the U.S. dollar, customer confidence, access to capital, and demand for products.
• Intense competition requires continuous adaptation to changing customer expectations for products and precision technology solutions.
• Fluctuations in housing starts, real estate prices, construction levels, and infrastructure investment affect demand for construction equipment.
• Political, economic, and social instability in operating geographies, including ongoing conflicts in Russia-Ukraine and the Middle East, pose risks.
• Legal proceedings, including the FTC lawsuit alleging monopolization and unfair competition regarding repair services, could result in substantial damages, fines, or costly actions.
• Delays or disruptions in the supply chain could impact production and delivery.
• Changes in climate patterns, unfavorable weather events, and natural disasters can affect agricultural demand.
• Volatility in the availability and price of raw materials, components, and whole goods.
• Risks related to supplier and manufacturer business practices and compliance with various laws.
• Potential loss of or challenges to intellectual property rights.
• Challenges in executing business strategies, including the Smart Industrial Operating Model and Leap Ambitions.
• Difficulty in accurately forecasting customer demand and managing inventory levels.
• Dealer practices and their ability to manage inventory, distribute products, and provide technology support.
• Challenges in realizing anticipated benefits of acquisitions and joint ventures, including integration issues.
• Negative claims or publicity that could damage reputation or brand.
• Ability to attract, develop, engage, and retain qualified employees, and the impact of workforce reductions.
• Labor relations and contracts, including potential work stoppages.
• Security breaches, cybersecurity attacks, technology failures, and disruptions to IT infrastructure.
• Risks associated with leveraging artificial intelligence and machine learning.
• Changes to governmental communications channels (radio frequency technology).
• Changes to existing laws and regulations across various domains (e.g., antitrust, data privacy, environmental, trade, tax).

Future Outlook

The company anticipates lower sales volumes for agriculture and turf, and construction equipment in fiscal year 2025 compared to the prior year, primarily due to reduced demand. Demand for large agricultural equipment in the U.S. and Canada is expected to decline due to high interest rates, elevated used inventory, trade uncertainty, and lower commodity prices, partially offset by stable farm balance sheets and government subsidies. Small agricultural equipment sales are also projected to be down. European industry demand is forecasted to be flat to slightly down, while South America is expected to be roughly flat, with Brazil showing positive signs tempered by high interest rates and trade policy uncertainty. Asia's industry sales are expected to be flat to slightly up. Construction industry sales for earthmoving equipment are forecasted to be down, and compact construction equipment sales flat to down in the U.S. and Canada, offset by U.S. government infrastructure spending. Global forestry markets are expected to be flat to down, and global roadbuilding markets generally flat. Financial services net income is expected to be up. The company forecasts lower operating cash flows from equipment operations in 2025 and estimates capital expenditures of approximately $1,450 million.

Management Comments

• "Customers seek to improve profitability, productivity, and sustainability through integrating technology into their operations. Deeper integration of technology into equipment is a persistent market trend. We expect this trend to persist for the foreseeable future."
• "Our Smart Industrial Operating Model and Leap Ambitions are intended to capitalize on this market trend."
• "Engaged acres are an indicator we use to understand customer utilization of our technology. We remain focused on a Solutions as a Service business model to increase technology adoption and utilization by our customers."
• "We are actively taking steps to mitigate, to the extent possible, potential impacts on our business from incremental import tariffs."
• "At this stage, we are unable to estimate the potential impact on our business from the FTC lawsuit."
• "We believe the reasonably possible range of losses, if any, for these unresolved legal actions would not have a material effect on our consolidated financial statements."

Industry Context

The heavy equipment industry, particularly agriculture and construction, is facing significant headwinds. High interest rates are increasing borrowing costs for customers, dampening demand for new equipment. Elevated used inventory levels further pressure new sales and pricing. Global trade policies, including new tariffs and retaliatory measures, are increasing costs and creating market uncertainty. While U.S. government infrastructure spending provides some offset for construction, and stable farm balance sheets offer some support for agriculture, the overall economic environment is challenging. The industry is also undergoing a technological transformation, with a persistent trend towards deeper integration of technology and a shift towards 'Solutions as a Service' models, which Deere is actively pursuing with its Smart Industrial Operating Model and Leap Ambitions.

Comparison to Industry Standards

• The filing does not provide specific comparable company or project data to assess results against global benchmarks directly. However, the reported declines in equipment sales volumes and operating profits are consistent with broader industry trends of reduced demand due to high interest rates and economic uncertainty, which are impacting competitors in the agricultural and construction sectors.
• The increase in the cost of sales to net sales ratio, partly attributed to higher tariffs and production inefficiencies from lower volumes, suggests that the company is experiencing cost pressures similar to those faced by other global manufacturers dealing with supply chain disruptions and trade policy shifts.
• The growth in Financial Services net income, despite a lower average portfolio, indicates a relatively resilient performance in this segment, potentially outperforming some pure-play financial institutions or captive finance arms facing similar interest rate environments but without the benefit of specific special items or credit loss adjustments.

Management Changes

Corporate Governance

Legal Proceedings

• On January 15, 2025, the Federal Trade Commission (FTC), along with the Attorneys General of Illinois, Minnesota, Arizona, Michigan, and Wisconsin, filed a lawsuit alleging monopolization and unfair competition regarding access to repair tools and resources for John Deere equipment. The company's motion to dismiss was denied, and preliminary discussions for a potential resolution are ongoing. The potential outcome or impact on the business is currently unable to be predicted.
• Other prevalent legal claims relate to product liability (including asbestos-related liability), antitrust matters (including class action litigation), employment, patent, and trademark. Accrued losses on these matters were not material at July 27, 2025, and the reasonably possible range of losses is not expected to have a material effect on consolidated financial statements.

Related Party Transactions

• The company has a 50% ownership interest in Banco John Deere S.A. (BJD), an equity method investment that finances retail and wholesale loans for agricultural, construction, and forestry equipment in Brazil. The company provides funding to BJD and is exposed to losses disproportionate to its voting rights. Receivables from unconsolidated affiliates (BJD) totaled $516 million, and investments in unconsolidated affiliates (BJD) totaled $395 million at July 27, 2025. Guarantees to BJD totaled $153 million.

Stakeholder Impact

• **Shareholders**: Negative impact due to significant declines in net income and EPS, and a challenging future outlook. Share repurchase program continues to return capital, and dividends are maintained.
• **Customers**: Facing higher interest rates and economic uncertainty, leading to reduced demand for new equipment. Unfavorable price realization and incentive programs are being deployed to address used inventory levels, potentially benefiting customers through lower prices or better financing terms. The FTC lawsuit regarding 'right to repair' could impact customer access to repair tools and resources.
• **Employees**: Employee-separation programs implemented in 2024 indicate workforce reductions, which could impact morale and institutional knowledge. Continued focus on technology and strategic priorities may shift skill requirements.
• **Suppliers**: Lower sales volumes and production inefficiencies could lead to reduced demand for raw materials and components, potentially impacting supplier revenues. Tariffs also affect the cost of components.
• **Creditors**: The company maintains access to global markets and bank lines of credit, with all credit agreement requirements met, indicating stable liquidity and ability to meet funding needs despite the downturn.

Next Steps

• Continue to assess the effect of new accounting pronouncements (ASU 2025-05, ASU 2024-03, ASU 2023-09) on financial results and disclosures.
• Actively mitigate potential impacts of incremental import tariffs on products and components.
• Engage in preliminary discussions with the FTC regarding a potential resolution for the antitrust lawsuit.
• Monitor the performance of financing receivables modified with borrowers experiencing financial difficulty.
• Continue share repurchases under the existing $18.0 billion plan, with $7.9 billion remaining.
• Pay a quarterly dividend of $1.62 per share on November 10, 2025, to stockholders of record on September 30, 2025.
• Focus on the Smart Industrial Operating Model and Leap Ambitions to capitalize on technology integration and Solutions as a Service business model.

Key Dates

Recommendation

The filing presents a challenging financial picture with significant declines in sales and profitability across key equipment segments, driven by macroeconomic headwinds like high interest rates, trade uncertainty, and elevated used inventory. The outlook for 2025 remains subdued. However, the Financial Services segment shows resilience, and the company is actively investing in technology and pursuing strategic initiatives (Smart Industrial Operating Model, Leap Ambitions) for long-term growth. The ongoing share repurchase program and consistent dividend declaration indicate management's commitment to shareholder returns despite the downturn. While the short-term outlook is negative, Deere & Company is a market leader with a strong balance sheet and strategic vision. A 'hold' recommendation is appropriate, acknowledging the current headwinds while recognizing the company's long-term strengths and strategic positioning.

Keywords

Deere & Company, John Deere, 10-Q, Quarterly Report, Financial Results, Agriculture Equipment, Construction Equipment, Forestry Equipment, Financial Services, Net Sales, Net Income, EPS, Operating Profit, Tariffs, Interest Rates, Trade Policy, FTC Lawsuit, Supply Chain, Market Conditions, Precision Agriculture, Capital Expenditures, Share Repurchase, Dividends