10-Q: Deere Q1 Earnings Dip Amid Tariffs, Strong Sales Growth

Deere & Company reported a 24.6% drop in net income to $656 million for Q1 2026 despite a 13% revenue increase, primarily impacted by higher tariffs and prior period tax benefits.

Summary

• Net sales and revenues increased 13% to $9,611 million for the three months ended February 1, 2026, compared to $8,508 million in the prior year.
• Net income attributable to Deere & Company decreased 24.6% to $656 million, down from $869 million in the same period last year.
• Diluted earnings per share fell 24.1% to $2.42 from $3.19 year-over-year.
• The decline in net income was primarily due to $361 million (pretax) in incremental tariffs and $163 million in prior period favorable discrete tax items, partially offset by higher shipment volumes.
• Cost of sales to net sales ratio increased to 78.5% from 74.0%, mainly due to incremental tariffs.
• Research and development expenses increased 5% to $554 million, reflecting continued focus on technology solutions.
• Interest expense decreased 13% to $719 million due to lower average borrowing rates and lower average borrowings.
• The provision for income taxes significantly increased to $196 million from $27 million, primarily due to favorable discrete tax adjustments in the prior period.
• Cash used for operating activities improved to $890 million from $1,132 million in the prior year.
• Cash provided by investing activities increased to $1,822 million from $1,416 million.
• Cash used for financing activities increased to $2,490 million from $923 million, driven by lower borrowings, dividends paid, and common stock repurchases.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a challenging quarter with significant declines in net income and EPS, primarily due to tariffs and a tough PPA segment. While some segments showed strong growth, the overall profitability was negatively impacted, and the future outlook for large agriculture remains subdued.

Positives

• Net sales and revenues increased 13% to $9,611 million, driven by higher sales volumes and positive foreign currency translation.
• Small Agriculture & Turf (SAT) segment net sales grew 24% and operating profit surged 58% to $196 million, reflecting increased customer demand.
• Construction & Forestry (CF) segment net sales increased 34% and operating profit more than doubled to $137 million, benefiting from higher U.S. shipment volumes and production efficiencies.
• Financial Services (FS) net income increased 6% to $244 million, driven by favorable financing spreads and a lower provision for credit losses.
• Net cash used for operating activities improved to $890 million from $1,132 million in the prior year.
• Net cash provided by investing activities increased to $1,822 million from $1,416 million.
• Interest expense decreased 13% due to lower average borrowing rates and lower average borrowings.
• Acquired Tenna LLC, a construction technology company, for $440 million, enhancing the CF segment's offerings.
• The U.S. Supreme Court decision on February 20, 2026, invalidating certain tariffs, may provide future tariff relief and potential recovery of previously paid amounts.

Negatives

• Net income attributable to Deere & Company decreased 24.6% to $656 million.
• Diluted earnings per share decreased 24.1% to $2.42.
• Production & Precision Agriculture (PPA) segment operating profit decreased 59% to $139 million, primarily due to higher tariffs, unfavorable sales mix, and higher warranty expenses, despite a 3% increase in net sales.
• Incremental tariffs of $361 million (pretax) significantly impacted net income.
• The cost of sales to net sales ratio increased to 78.5% from 74.0%, largely due to tariffs.
• Financial Services revenue decreased 5% primarily due to the deconsolidation of Banco John Deere S.A. (BJD).
• Net cash used for financing activities increased significantly to $2,490 million from $923 million, reflecting lower borrowings, dividends paid, and increased common stock repurchases.
• The prior period included favorable discrete tax items of $163 million, making the current period's tax provision appear significantly higher.

Risks

• Unpredictability of the agricultural business cycle, influenced by commodity prices, farm income, international trade, crop yields, government programs, and macroeconomic conditions.
• Uncertainty of government policies and actions regarding the global trade environment, including tariffs and retaliatory trade regulations.
• Political, economic, and social instability in operating geographies.
• Fluctuations in worldwide demand for food and renewable energy impacting equipment demand.
• Challenges in accurately forecasting customer demand and managing inventory.
• Availability and price volatility of raw materials, components, and whole goods.
• Potential delays or disruptions in the supply chain.
• Impact of changes in climate patterns, unfavorable weather events, and natural disasters.
• Higher interest rates and currency fluctuations adversely affecting the U.S. dollar, customer confidence, access to capital, and product demand.
• Ability to attract, develop, engage, and retain qualified employees.
• Challenges in adapting to highly competitive markets and meeting evolving customer expectations for precision technology.
• Risks associated with the execution of business strategies, including the Smart Industrial Operating Model and Leap Ambitions.
• Dealer practices and their ability to manage inventory, distribute products, and provide support for precision technology solutions.
• Difficulties in realizing anticipated benefits from acquisitions and joint ventures, including integration challenges.
• Negative claims or publicity damaging reputation or brand.
• Impact of workforce reductions on company culture, employee retention, morale, and institutional knowledge.
• Labor relations and contracts, including potential work stoppages.
• Security breaches, cybersecurity attacks, technology failures, and disruptions to IT infrastructure.
• Challenges in leveraging artificial intelligence and machine learning within business processes.
• Changes to existing laws and regulations, including new, more stringent laws related to antitrust, environmental, tariffs, and "right to repair" legislation.
• Governmental and other actions designed to address climate change.
• Warranty claims, post-sales repairs or recalls, product liability litigation, and regulatory investigations.
• Ongoing legal proceedings, including the antitrust lawsuit filed by the FTC and several State Attorneys General.
• Loss of or challenges to intellectual property rights.

Future Outlook

Net sales are expected to increase in fiscal year 2026 compared to 2025, with anticipated declines in Production & Precision Agriculture (PPA) sales volumes being more than offset by improvements in Small Agriculture & Turf (SAT) and Construction & Forestry (CF) segments. Large agriculture equipment sales in North America are projected to remain subdued and soften in South America, while small agriculture and turf equipment sales in the U.S. and Canada are expected to be flat to slightly up. Construction and forestry industry sales in the U.S. and Canada for earthmoving and compact construction equipment are projected to be slightly higher, supported by government infrastructure spending and declining interest rates. Global forestry markets are expected to be flat, and global roadbuilding markets are forecasted to be up slightly. Financial Services net income is expected to decrease due to a lower average portfolio and prior period special items, partially offset by favorable credit loss provisions and financing spreads. Operating cash flows from equipment operations in 2026 are expected to remain flat, driven by inventory reductions offsetting a decrease in net income adjusted for non-cash provisions.

Management Comments

• Deeper integration of technology into equipment to enable customers to do more with less remains a persistent market trend.
• Customers seek to improve profitability, productivity, and sustainability by selecting our equipment and technology solutions.
• While we continue to benefit from the adoption of these technologies, revenue from SaaS products did not represent a significant percentage of our revenues in the periods presented.

Industry Context

StockSavvy.ai notes that Deere's performance reflects a mixed industry landscape. While the construction sector benefits from government infrastructure spending and declining interest rates, the large agriculture market faces headwinds from challenging farm fundamentals and subdued commodity prices. The company's strategic focus on technology integration and 'Solutions as a Service' aligns with broader industry trends towards digitalization and efficiency, though SaaS revenue is not yet a significant contributor. The impact of tariffs and the ongoing 'right to repair' lawsuit highlight the regulatory and geopolitical challenges facing global manufacturing and equipment industries.

Comparison to Industry Standards

• NA

Legal Proceedings

• On January 15, 2025, the Federal Trade Commission (FTC) and Attorneys General from Illinois, Minnesota, Arizona, Michigan, and Wisconsin filed a lawsuit alleging monopolization and unfair competition.
• The lawsuit seeks a permanent injunction and other equitable relief to provide equipment owners and independent repair providers access to repair tools and resources.
• A motion to dismiss the lawsuit was denied, and preliminary discussions for a potential resolution are ongoing. The outcome or impact on the business is currently unpredictable.
• Total accrued losses on unresolved legal matters were approximately $175 million at February 1, 2026, including a consolidated multidistrict class action antitrust lawsuit.
• Other prevalent legal claims relate to product liability (including asbestos-related liability), employment, patent, and trademark matters.
• The reasonably possible range of losses in excess of recorded accruals for these actions is not expected to have a material effect on consolidated financial statements, but adverse decisions could lead to substantial damages or costly actions not fully covered by insurance.

Related Party Transactions

• The company has a 50% ownership interest in Banco John Deere S.A. (BJD), an equity method investment in Brazil, established in February 2025 through the sale of 50% ownership of a former subsidiary.
• BJD is a variable interest entity (VIE) where the company provides funding and is exposed to disproportionate losses but is not the primary beneficiary.
• Guarantees primarily include BJD debt related to government funding that existed prior to deconsolidation, totaling $164 million at February 1, 2026.

Stakeholder Impact

• Shareholders are impacted by decreased net income and EPS, but also by continued stock repurchases ($7.6 billion remaining authorization) and consistent quarterly dividends ($1.62/share declared). The Supreme Court tariff decision could be a positive.
• Customers are facing challenging farm fundamentals in large agriculture, but benefiting from technology integration and improved demand in small agriculture and construction. The "right to repair" lawsuit could impact customer access to repair tools.
• Employees are subject to equity incentive awards (stock options, RSUs, PSUs) with vesting conditions and restrictive covenants. Employee benefits accruals decreased, potentially impacting some.
• Suppliers are affected by potential supply chain disruptions and volatility in raw material prices.
• Creditors: The company maintains strong liquidity with $7.2 billion in unused credit lines and stable debt ratings, indicating continued ability to meet obligations.

Next Steps

• Assess the effect of ASU 2025-10 (Government Grants) on consolidated financial statements (effective FY2030).
• Assess the effect of ASU 2025-06 (Internal-Use Software) on consolidated financial statements (effective FY2029).
• Assess the effect of ASU 2024-03 (Expense Disaggregation Disclosures) on related disclosures (effective FY2028).
• Assess the effect of ASU 2023-09 (Income Tax Disclosures) on related disclosures (effective FY2026).
• Continue preliminary discussions with the FTC regarding a potential resolution for the antitrust lawsuit.
• Evaluate the impact of the U.S. Supreme Court decision on IEEPA tariffs on future financial statements.
• Allocate the purchase price for the Tenna LLC acquisition to acquired assets and liabilities.
• Pay a quarterly dividend of $1.62 per share on May 8, 2026, to stockholders of record on March 31, 2026.
• Manage capital expenditures, estimated at approximately $1.4 billion for fiscal year 2026.

Key Dates

Recommendation

The filing presents a mixed picture. While revenue growth is strong across most segments, the significant decline in net income and EPS, primarily driven by tariffs and a weak Production & Precision Agriculture segment, is a concern. The positive outlook for Construction & Forestry and Small Agriculture & Turf, coupled with the potential relief from the Supreme Court's tariff decision, offers some upside. However, the ongoing antitrust lawsuit and continued pressure in large agriculture warrant caution. A 'hold' recommendation is appropriate as investors await clearer signs of sustained profitability improvement and resolution of legal and trade uncertainties.

Keywords

Deere & Company, 10-Q, Quarterly Report, Agricultural Equipment, Construction Equipment, Forestry Equipment, Financial Services, Net Sales, Net Income, EPS, Tariffs, Supply Chain, Right to Repair, Antitrust Lawsuit, Precision Agriculture, Smart Industrial Operating Model, Leap Ambitions, Stock Repurchase, Dividends, Acquisition, Tenna LLC