Q1 2025 Earnings Summary
- Margins are expected to improve throughout the year, with strong margins in Q2 and Q3 anticipated in the Large Agriculture segment. Deere's management expects that sales will peak in the second quarter, which will likely be the strongest margin quarter for the year. This indicates confidence in achieving full-year guidance despite a slow start.
- Deere is effectively managing inventories, particularly in the Large Agriculture segment, where inventory levels for high-horsepower tractors are slightly below historical averages. Management feels good about their position and is underproducing in areas where inventory is higher to bring levels closer to targets. This proactive approach supports future profitability and market position.
- Government support is strengthening farmers' balance sheets, which, while not expected to immediately drive new equipment demand in 2025, could potentially help move used inventory and improve overall market conditions. This positions Deere favorably for future equipment sales as farmers' financial positions improve.
- Margin Pressures Due to Slow Start in Q1: Deere reported a slow start in Q1 across all segments, with lower margins than usual, raising concerns about their ability to meet full-year guidance. Management acknowledged that margins will gradually improve sequentially, which may pose risks if market conditions worsen.
- Limited Impact of Government Support on Equipment Demand: Despite the additional $10 billion in U.S. government support for farmers, Deere does not expect this to drive new equipment demand in 2025. Instead, the funds are likely to be used by farmers to shore up balance sheets, indicating potentially weak equipment demand in the near term.
- Uncertainty About Recovery and Potential Need for Restructuring: Management expressed difficulty in predicting the trajectory of recovery in 2026, indicating uncertainty about market conditions. If the anticipated recovery does not occur, there may be a need for incremental restructuring, which could impact Deere's financial performance.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | –30% (from $12,185M in Q1 2024 to $8,508M in Q1 2025) | Lower shipment volumes across all segments led to significant revenue loss. In Q1 2025, declines were seen with Production & Precision Agriculture down 37%, Small Agriculture & Turf down 28%, and Construction & Forestry down 38% compared to Q1 2024, reflecting worsening market conditions and lower overall demand. |
Operating Income | –64% (from ~$2,215M in Q1 2024 to $793M in Q1 2025) | Severely contracted margins and an unfavorable sales mix drove operating income down dramatically. The drop is attributed to lower shipment volumes and margin compressions—manifested by declines of 68% in Production & Precision Agriculture, 62% in Small Agriculture & Turf, and 89% in Construction & Forestry compared to the previous period—exacerbating cost inefficiencies despite some cost offsets. |
Net Income | ~–50% (from $1,751M in Q1 2024 to ~$869M in Q1 2025) | Reduced net sales and profit margins resulted in a roughly 50% decrease in net income. The decline mirrors the deterioration in both revenue and operating income under challenging market conditions, where lower volumes and increased costs (including higher interest expenses and other operational pressures) compounded the effect seen in the previous period. |
EPS | –49% (from $6.23 in Q1 2024 to ~$3.19 in Q1 2025) | Earnings per share fell sharply in line with the declines in operating and net income. The approximate 49% drop in EPS reflects the overall reduction in profitability across all divisions, aligning with the revenue and margin contractions recorded between the periods. |
Cash Flow | Net cash decrease of –$726M in Q1 2025 | Working capital challenges dominated cash flow results. Although non-cash adjustments provided an inflow of $1,822M, a substantial adverse change in working capital (–$2,105M) led to a net cash decline, indicating that operational liquidity was strained relative to prior periods, where cash flow was more robust. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Income | FY 2025 | $5 billion to $5.5 billion | Projected between $5 billion and $5.5 billion | no change |
Effective Tax Rate | FY 2025 | 23% to 25% | Expected to be between 20% and 22% | lowered |
Operating Cash Flow (Equipment Operations) | FY 2025 | $4.5 billion to $5.5 billion | Projected between $4.5 billion and $5.5 billion | no change |
PPA Price Realization | FY 2025 | Net price increase of approximately 1% | Approximately 1% positive | no change |
PPA Net Sales | FY 2025 | no prior guidance | Forecasted to decline by 15% to 20% | no prior guidance |
PPA Currency Impact | FY 2025 | no prior guidance | Approximately 2.5% negative | no prior guidance |
PPA Operating Margin | FY 2025 | no prior guidance | Expected to be between 16% and 17% | no prior guidance |
Small Ag & Turf Net Sales | FY 2025 | no prior guidance | Expected to decline by 10% | no prior guidance |
Small Ag & Turf Price Realization | FY 2025 | no prior guidance | Approximately 0.5% positive | no prior guidance |
Small Ag & Turf Currency Impact | FY 2025 | no prior guidance | Approximately 1.5% negative | no prior guidance |
Small Ag & Turf Operating Margin | FY 2025 | no prior guidance | Expected to be between 13% and 14% | no prior guidance |
C&F Net Sales | FY 2025 | no prior guidance | Forecasted to decline by 10% to 15% | no prior guidance |
C&F Price Realization | FY 2025 | no prior guidance | Expected to be flat | no prior guidance |
C&F Currency Impact | FY 2025 | no prior guidance | Approximately 1.5% negative | no prior guidance |
C&F Operating Margin | FY 2025 | no prior guidance | Expected to be between 11.5% and 12.5% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent focus on margin performance across all periods | Q2 2024: Emphasized structurally higher margins (~21%) , proactive cost controls. <br>Q3 2024: Maintained ~18.5% margins despite lower volumes. | Q1 2025: Reiterated progress toward 20% mid-cycle target, starting at ~14.5% operating margin, with sequential improvements expected. | Consistently mentioned |
Ongoing inventory management strategies and production alignment | Q2 2024: Underproducing large tractors, reducing used inventory to match demand. <br>Q3 2024: Continued proactive production cuts in large ag & construction. | Q1 2025: Halved earthmoving production in NA, further combine inventory cuts in Brazil, focusing on aligning with retail demand and lowering used equipment levels. | Maintained emphasis |
Continued demand volatility influenced by macro factors (commodity prices, interest rates, weather) | Q2 2024: Softer commodity prices, high interest, global yields driving uncertainty. <br>Q3 2024: Soft commodity pricing, high interest rates, weather volatility. | Q1 2025: Dry conditions in South America boosting commodity prices but not spurring orders, interest rates still dampening demand, limited visibility from government support. | Ongoing challenge |
Technology adoption metrics | Q2 2024: Engaged acres (~415M), 25% highly engaged, double-digit growth. <br>Q3 2024: See & Spray ~10% take rate in first year. | Q1 2025: No “engaged acres” updates given. Focus on precision kits & JDLink Boost in Brazil; no explicit numeric adoption metrics. | Metric references reduced |
Emergence of government support for farmers' balance sheets as a new driver | Q2 2024: Not mentioned.<br>Q3 2024: Not mentioned. | Q1 2025: $10B in U.S. aid likely used to shore up balance sheets and not create immediate new equipment demand. | New topic |
Shift in margin sentiment from record highs to cautious optimism | Q2 2024: Still high (~21%), but acknowledging softer demand. <br>Q3 2024: Discussed strong margins, no explicit mention of shifting sentiment. | Q1 2025: Cautiously optimistic; margins expected to gradually improve but weighed by interest rates and macro uncertainty. | Moderating from peak |
Potential large impact of government programs on future equipment demand | Q2 2024: Not mentioned.<br>Q3 2024: Not mentioned. | Q1 2025: Government support likely helps balance sheets rather than triggering new orders, might have longer-term effect. | New consideration |
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Margin Performance and 20% Target
Q: How is Deere progressing toward its 20% mid-cycle margin target?
A: Deere's operating margin stands at around 14.5% , surpassing its peak performance in 2013. Management is confident about progressing toward the 20% mid-cycle goal , emphasizing control over inventory levels, production, and operating costs while funding strategic initiatives. -
Used Inventory Reduction
Q: How much excess used inventory is there, and how long to reduce it?
A: Deere has made progress reducing used inventory, particularly in high-horsepower tractors, with levels down 3% from the November peak. The mix remains skewed toward 1- and 2-year-old equipment—about double the normal level. Management expects to continue reducing this over the next several quarters. -
New Inventory Levels
Q: Will new inventory levels continue to decrease this year?
A: Deere plans to keep North American new inventory levels unchanged year-over-year by building in line with retail demand. While normal seasonal fluctuations will occur, absolute field inventory units are expected to remain stable by fiscal year-end. -
Demand Outlook and Early Order Program
Q: How confident is Deere in the demand outlook despite weak Early Order Program results?
A: Although the combine Early Order Program was slower this year, Deere has over 90% of combine orders locked in for the year. The industry in North America is expected to be down 30%, with variations by product line. Slower combine bookings delayed Q1 shipments, but management remains confident due to the secured orders. -
Farmer Profitability and Demand
Q: How is farmer profitability affecting equipment demand?
A: Farmer profitability varies based on land ownership and technology use, affecting corn breakeven prices by about $0.50 per bushel. Utilizing all of Deere's solutions can improve profitability by nearly $0.50 per bushel. Commodity prices have rebounded, with corn futures around $5 , and government support is beneficial. Global consumption outpacing supply and low grain stock-to-use ratios enhance the outlook. -
Precision Agriculture Adoption
Q: What progress has been made in precision agriculture adoption?
A: Deere's Precision Ag Essentials package saw strong adoption, with 8,000 units retailed in North America and over 1,500 orders in Brazil. The Starlink-enabled JDLink Boost solution received over 1,200 orders, including 500 orders on the first day. Engaged acres grew to over 455 million, up 15% year-over-year, with highly engaged acres up over 30%. -
Brazil Market Outlook
Q: What are Deere's expectations for the Brazilian market?
A: Deere sees positive signs in Brazil, with improved profitability and optimism for 2025. There's strength in small to mid-tractor sales and positive sentiment in the coffee sector. Price realization is favorable, with positive low single-digit increases expected for the full year, contrasting with negative pricing last year. -
Price Realization and Incentives
Q: Can Deere achieve its price realization targets amid market pressures?
A: In large ag, Deere expects a 1% price increase for the year, accounting for incentives to support the used market. List price increases ranged from 2% to 3%, but net realization reflects these additional incentives. In construction and forestry, price realization was lowered to flat, facing price pressures, particularly in the early part of the year. -
Seasonality and Margin Expectations
Q: How will margins progress throughout the year across segments?
A: Margins are expected to improve sequentially. In construction and forestry, margins will gradually increase after underproduction in early quarters. In large ag, sales and margins will follow normal seasonality, peaking in the second quarter, which is expected to be the strongest margin quarter. The third quarter should be strong as well, with the fourth quarter marking a year-over-year sales increase. -
Farmer Ag Package Impact
Q: Will the farmer ag package boost equipment demand this year?
A: Management anticipates that the farmer ag package will shore up farmers' balance sheets, pay down debt, and fund input purchases rather than drive new equipment demand in 2025. It may help move some used inventory but is unlikely to significantly accelerate equipment orders in the near term.