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DEERE & CO (DE)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 net sales and revenues fell 30% to $8.51B; equipment net sales declined 35% to $6.81B; diluted EPS was $3.19 as discrete tax benefits of ~$163M partially offset currency and volume headwinds .
  • Segment pressure was broad: Production & Precision Ag (PPA) net sales -37% with margins 11.0%; Small Ag & Turf net sales -28% with 7.1% margins; Construction & Forestry (C&F) net sales -38% with 3.3% margins, reflecting planned underproduction and competitive pricing .
  • Full-year net income guidance maintained at $5.0–$5.5B; effective tax rate lowered to 20–22% (from 23–25%); equipment operations cash flow guidance held at $4.5–$5.5B — currency strengthened and drove a reduction in PPA sales/margin guide ranges .
  • Management emphasized proactive inventory normalization (new and used) and selective incentives; earthmoving underproduced ~35% to reduce field inventory, setting up sequential margin improvement through the year .
  • Consensus estimates from S&P Global were unavailable due to access limits; comparisons vs Street are noted as unavailable (see Estimates Context).

What Went Well and What Went Wrong

  • What Went Well

    • Proactive inventory management: Deere underproduced earthmoving by ~35% in Q1, reducing field inventory >15% in 3 months and nearly 30% over two quarters, allowing operational flexibility as demand evolves .
    • Cost execution: Lower production costs and SA&G aided margins in ag segments despite steep volume declines; PPA and Small Ag cited favorable production costs and reduced SA&G/R&D .
    • Technology adoption momentum: Brazil ordered >1,500 Precision Ag Essentials kits and >1,200 JDLink Boost (Starlink-enabled) connectivity solutions within weeks, supporting digital engagement and future conversion .

  • What Went Wrong

    • Volume-driven margin compression: PPA margin dropped to 11.0% (from 21.6% prior year); C&F margin to 3.3% (from 17.6%) due to lower shipments, unfavorable mix, price pressure, and higher SA&G/R&D .
    • Currency headwinds: Strengthening USD reduced PPA net sales guidance and margin outlook; full-year PPA margin lowered to 16–17% with ~2.5 pts negative FX .
    • Used inventory mix still elevated: High-horsepower tractors remain heavy in 1–2 year vintages (about 2x normal), prolonging normalization and requiring continued incentives/pool fund support .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Net Sales and Revenues ($USD Billions)$13.15 $11.10 $8.51
Net Sales (Equipment Ops, $USD Billions)$11.39 $9.30 $6.81
Net Income ($USD Billions)$1.73 $1.20 $0.87
Diluted EPS ($)$6.29 $4.55 $3.19
Equipment Operations Margin (%)18.5% 13.1% 7.7%

Segment breakdown (Q1 2025 vs Q1 2024):

SegmentNet Sales Q1 2024 ($USD Billions)Net Sales Q1 2025 ($USD Billions)Operating Profit Q1 2024 ($USD Millions)Operating Profit Q1 2025 ($USD Millions)Operating Margin Q1 2024 (%)Operating Margin Q1 2025 (%)
Production & Precision Ag$4.85 $3.07 $1,045 $338 21.6% 11.0%
Small Ag & Turf$2.43 $1.75 $326 $124 13.4% 7.1%
Construction & Forestry$3.21 $1.99 $566 $65 17.6% 3.3%
Financial Services (Net Income)$207 $230 ————

KPIs (Q1 context):

KPIValueNotes
Discrete tax benefits~$163MFavorable net discrete items in Q1 2025
Brazil Precision Ag Essentials orders>1,500Q1 orders; foundation of guidance/connectivity/compute stack
JDLink Boost orders (Brazil)>1,200Starlink-enabled connectivity; ~500 on first day
Engaged acres (global)~455M; +15% YoYHighly engaged acres ~30% of total; >30% YoY growth
Remote display sessions~2.5M in 2024+85% vs two years prior
Dealer inventories (U.S./Canada)Tractors ≥100hp: 34%; Combines: 11%As % of trailing 12 months retail sales
Retail relative to industry (U.S./Canada)Deere above industry in multiple categories2WD <40hp, 2WD ≥100hp, 4WD, Combines

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Income (Attributable to DE)FY 2025$5.0–$5.5B $5.0–$5.5B Maintained
Effective Tax RateFY 202523–25% 20–22% Lowered
Net Operating Cash Flow (Equipment Ops)FY 2025$4.5–$5.5B $4.5–$5.5B (includes $520M voluntary 401(h) contribution) Maintained
PPA Net SalesFY 2025Down ~15% (prev. -0.5 pt FX; +1 pt price) Down 15–20% (−2.5 pts FX; +1.0 pt price) Lowered (wider decline; FX worse)
PPA Operating MarginFY 202517–18% 16–17% Lowered
Small Ag & Turf Net SalesFY 2025Down ~10% (+0.5 pt price; +0.5 pt FX) Down ~10% (+0.5 pt price; −1.5 pts FX) Maintained top-line; FX worse
Small Ag & Turf Operating MarginFY 202513–14% 13–14% Maintained
C&F Net SalesFY 2025Down 10–15% (+1 pt price; flat FX) Down 10–15% (flat price; −1.5 pts FX) Maintained range; price guide lowered
C&F Operating MarginFY 202511.5–12.5% 11.5–12.5% Maintained
Financial Services Net IncomeFY 2025~$750M ~$750M Maintained
R&D Expenses (Equipment Ops)FY 2025Not specifiedDown slightly New disclosure
Capital Expenditures (Equipment Ops)FY 2025Not specified~$1.6B New disclosure
DividendCurrent$1.47 (Q1 FY24 dividends declared) $1.62 per share declared for May 8, 2025 Increased vs prior-year quarter

Earnings Call Themes & Trends

TopicQ3 2024 (Prior-2)Q4 2024 (Prior-1)Q1 2025 (Current)Trend
Inventory managementInitiated underproduction in earthmoving; planning further drawdowns Aggressive Q4 shutdowns (e.g., Waterloo 8-series ~50% days; harvesters ~2/3 days) to cut field inventory Underproduced earthmoving ~35% in Q1; new inventory lean; used mix improving slowly Continued proactive drawdown; improvement expected through year
Pricing and incentivesConstruction pricing turned negative amid competition PPA net price ~2% with embedded incentives; Brazil price flattish-to-positive late in year PPA +1% net price with higher incentives to support used; C&F price guide lowered to flat near term Balanced price/share; incentives targeted
CurrencyFX largely flat earlier FY25 PPA guide had −0.5 pt FX USD strengthened; PPA −2.5 pts FX; margin guide reduced FX headwinds intensified
Ag fundamentalsSofter commodities, elevated rates, used inventory concern Expect FY25 ag at/below trough; used inventories in NA a focus USDA net cash farm income outlook improved; commodity rally; added U.S. support; cautious orders Mixed improvement; cautious demand
Technology/AI/connectivitySee & Spray efficacy and adoption building; high-speed planting drives equipment needs Precision Ag Essentials sold ~8,000 kits in 2024; pay-per-use model boosting adoption Brazil tech momentum (Essentials/Boost), engaged acres up, remote support scaling Adoption broadening; conversion tailwinds
Tariffs/macroCompetitive pricing, rental refleeting slowed Underproduction to align with softer demand Potential tariffs: exposure to new China tariffs immaterial; resilient supply chain noted Monitoring; limited direct impact
Regional trendsEurope down; Brazil stabilization hopes Brazil inventory rightsized (except combines); Europe still pressured Brazil sentiment improving; Europe −5% industry; NA large ag −30% industry; Asia slightly down Stabilization in Brazil; Europe/NA subdued

Management Commentary

  • “Deere’s performance in the first quarter highlights our continued focus on optimizing inventory levels of both new and used equipment amidst the uncertain market conditions our customers are facing.” — John C. May, Chairman & CEO .
  • “Net income attributable to Deere & Company for fiscal 2025 is forecasted to remain in a range of $5.0 billion to $5.5 billion.” — Company Outlook .
  • “Net sales and revenues were down 30%… diluted EPS… included $163 million of discrete tax benefits.” — Josh Rohleder (prepared remarks) .
  • “We underproduced retail demand by approximately 35% in the first quarter [earthmoving], resulting in an inventory reduction of more than 15% over the past 3 months.” — Josh Beal .
  • “Our exposure to the recently enacted China tariffs is expected to have an immaterial amount on our business.” — Josh Rohleder .

Q&A Highlights

  • Seasonality and shipment timing: Management expects Q2 to be the highest quarter for sales; PPA year-over-year declines in Q2 could exceed full-year guide, improving into Q3/Q4 with potential YoY growth in Q4 .
  • Early Order Program (EOP): Combine EOP tracked below industry outlook; orders provide strong visibility (typically >90% of annual build), with Q1 softness primarily timing-related .
  • Precision Ag adoption: Global engaged acres ~455M (+15% YoY); highly engaged ~30% of total (>30% growth); Brazil orders show strong momentum; remote support scaling .
  • Used inventory: Late-model (1–2 year) high-horsepower tractors remain ~2x normal share; modest sequential declines since November peak; normalization expected over several quarters .
  • Pricing/incentives: PPA net price realization +1% inclusive of elevated incentives to support used; C&F price pressure near term, moderating in back half as comps ease .

Estimates Context

  • Street consensus comparisons (EPS, revenue) via S&P Global were unavailable due to access limits at the time of this analysis; therefore, we cannot quantify beats/misses for Q1 2025 versus consensus. Values would ordinarily be retrieved from S&P Global; however, the request limit was exceeded during this session.
  • Implications: Lower effective tax rate (20–22%) and reduced PPA margin guide (16–17%) may prompt estimate model adjustments (tax and segment margins), while maintained net income and cash flow ranges temper downside revisions .

Key Takeaways for Investors

  • Execution over demand: Deere’s proactive inventory actions (including underproduction) and cost discipline are cushioning trough-level demand, with margin cadence expected to improve sequentially into H2 .
  • Currency is the swing factor: USD strength materially impacted PPA guide (sales and margins); FX remains a key variable for FY25 outcomes .
  • Technology-driven conversion: Strong adoption of essentials/connectivity in Brazil and growing engaged acres enhance medium-term share and monetization (supporting equipment replacement and retrofit cycles) .
  • Used normalization continues: Expect ongoing targeted incentives/pool funds to balance late-model mix; positive for dealer health and future new equipment demand normalization .
  • Segment setup: C&F margins likely trough in Q2 given underproduction/price pressure, then improve; PPA follows more normal seasonality with peak in Q2, stabilization thereafter .
  • Policy risk manageable: Tariff exposure currently immaterial; supply chain resiliency and domestic manufacturing footprint mitigate operational impacts .
  • Capital returns intact: Dividend of $1.62 declared and maintained cash flow guidance support ongoing shareholder returns while funding R&D and capex for technology leadership .

Bolded surprises: Effective tax rate lowered to 20–22% (vs 23–25% prior), supporting EPS despite steep volume declines . Currency headwinds intensified, reducing PPA guide ranges and margin outlook .