DE Q2 2025: $500M Tariffs to Squeeze Margins by up to 2.5pts
- Expanding SaaS & Precision Technologies: Deere is aggressively building its SaaS portfolio—including foundational digital technologies like Precision Essentials and usage-based applications such as See & Spray—with a robust pipeline and growing adoption globally, which supports recurring revenue potential.
- Flexible Early Order Programs & Inventory Management: The company’s early order programs are designed with pricing optionality to adapt to a volatile tariff environment, while disciplined inventory and production planning across key regions (U.S., Brazil, Europe) positions Deere well to align production with retail demand in 2026.
- Proactive Cost Management & Tariff Mitigation: Deere is actively sharing tariff impacts across stakeholders and leveraging dual sourcing and supplier negotiations to minimize cost pressures, which helps protect margins amid challenging market dynamics.
- Sustained Tariff Headwinds and Margin Compression: The Q&A repeatedly emphasized that escalating tariff costs (targeting $500 million for the full year with heavier impacts in the later half) are eroding margins. If these incremental costs aren’t fully absorbed through efficiencies or pricing adjustments, profitability could be significantly squeezed.
- Pricing Uncertainty in a Volatile Environment: Discussions around early order programs and cautious pricing strategies indicate uncertainty in whether the company can pass on rising costs. This pricing ambiguity, in a climate of fluctuating tariffs and modest price realization improvements, may lead to softer margins and earnings pressure.
- Demand and Operational Challenges: Analysts questioned the softness of second-half margins and noted that lower-than-expected shipment volumes and mixed production cost favorability could compound the adverse effects of tariffs. This combination of operational risks and volatile market conditions raises concerns about sustaining revenue growth and margin strength.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | –16% (from $15.235B to $12.763B) | Overall revenue declined due to major drops in key equipment segments—with Production & Precision Agriculture down by 21% and Construction & Forestry down by 23%—reflecting lower shipment volumes and market uncertainty compared to Q2 2024. |
Production & Precision Agriculture | –21% (from $6.581B to $5.230B) | Net sales in this segment fell significantly because lower shipment volumes and less favorable market conditions dampened revenue compared to the previous period, highlighting a contraction in agricultural equipment demand. |
Construction & Forestry | –23% (from $3.844B to $2.947B) | This segment experienced a sharp decline due to lower shipment volumes and potential planned underproduction to manage inventory, which contributed to adverse sales performance versus Q2 2024. |
Net Income Attributable to Deere & Company | –24% (from $2.368B to $1.804B) | Net income decreased as the decline in overall revenue from lower equipment sales squeezed margins, compounded possibly by higher costs, reflecting the challenging operating environment of Q2 2025 relative to Q2 2024. |
United States Revenue | +78% (from $3.881B to $6.927B) | U.S. revenue rebounded strongly driven by improved domestic demand and higher order volumes, marking a significant recovery from a relatively lower base in Q2 2024. |
Canada Revenue | +98% (from $600M to $1.189B) | Canadian revenue nearly doubled, suggesting a robust recovery in shipment volumes and market conditions, with local demand significantly stronger in Q2 2025 compared to the prior period. |
Western Europe Revenue | +176% (from $659M to $1.820B) | Revenue surged in Western Europe due to a combination of favorable market improvements, better order velocity, and positive currency translation effects, representing a dramatic turnaround from Q2 2024. |
Central Europe & CIS Revenue | +56% (from $275M to $428M) | Moderate recovery in this region reflects incremental improvements in shipment volumes and market sentiment over Q2 2024, helping increase revenue from previously lower levels. |
Latin America Revenue | +61% (from $850M to $1.372B) | Latin America showed improved performance—likely driven by better commodity prices and production outcomes—boosting demand for equipment compared to the previous quarter. |
Asia, Africa, Oceania & Middle East Revenue | +148% (from $414M to $1.027B) | Substantial revenue growth in these regions is attributable to a rebound in international market conditions, enhanced by favorable currency translations and improved economic outlook relative to Q2 2024. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Income (Company-wide) | FY 2025 | Projected between $5.0B and $5.5B | Projected between $4.75B and $5.5B | lowered |
Effective Tax Rate | FY 2025 | Expected to be between 20% and 22% | Expected to be between 20% and 22% | no change |
Operating Cash Flow (Equipment Ops) | FY 2025 | $4.5B to $5.5B | $4.5B to $5.5B | no change |
PPA – Net Sales Decline | FY 2025 | Decline by 15% to 20% | Decline by 15% to 20% | no change |
PPA – Price Realization | FY 2025 | Approximately 1% positive | 1 point of positive price realization | no change |
PPA – Currency Impact | FY 2025 | Approximately 2.5% negative | 1.5 points negative | raised |
PPA – Operating Margin | FY 2025 | Between 16% and 17% | Between 15.5% and 17% | lowered |
Small Ag & Turf – Net Sales Decline | FY 2025 | Decline by 10% | Decline by 10% to 15% | lowered |
Small Ag & Turf – Price Realization | FY 2025 | Approximately 0.5% positive | 0.5 points positive | no change |
Small Ag & Turf – Currency Impact | FY 2025 | Approximately 1.5% negative | Flat | raised |
Small Ag & Turf – Operating Margin | FY 2025 | Between 13% and 14% | Between 11.5% and 13.5% | lowered |
C&F – Net Sales Decline | FY 2025 | Decline by 10% to 15% | Decline by 10% to 15% | no change |
C&F – Price Realization | FY 2025 | Expected to be flat | 1 point of negative price realization | lowered |
C&F – Currency Impact | FY 2025 | Approximately 1.5% negative | Flat | raised |
C&F – Operating Margin | FY 2025 | Between 11.5% and 12.5% | Between 8.5% and 11.5% | lowered |
Financial Services – Net Income | FY 2025 | no prior guidance | $750 million | no prior guidance |
Tariff Impact | FY 2025 | no prior guidance | Pretax impact just over $500 million (40% C&F, 35% Small Ag & Turf, 25% PPA) | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
PPA Net Sales (yoy) | Q2 2025 | Decline by 15%–20% | Declined by 20.5% (Q2 2024: 6,581Vs. Q2 2025: 5,230) | Missed |
Small Ag & Turf Net Sales (yoy) | Q2 2025 | Decline by 10% | Declined by 6% (Q2 2024: 3,185Vs. Q2 2025: 2,994) | Beat |
C&F Net Sales (yoy) | Q2 2025 | Decline by 10%–15% | Declined by 23.4% (Q2 2024: 3,844Vs. Q2 2025: 2,947) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Inventory Management | In Q1 2025, Deere discussed significant inventory reductions, mix adjustments, and proactive management to align with demand ( ); in Q3 2024, the focus was on proactive adjustments to reduce field inventories amid softening demand ( ). | Q2 2025 emphasized resilient production supported by seasonal production adjustments and strategic cost management—including actions to mitigate external pressures like tariffs ( ). | Consistent focus on inventory control continues with an added emphasis on managing tariff‐driven cost risks in Q2 2025. |
Production Planning | Q1 2025 details highlighted aligning production with retail demand through scheduled underproduction ( ); Q3 2024 reinforced production adjustments to keep field inventories low as market demand softened ( ). | Q2 2025 maintained a proactive stance on production planning, stressing factory resilience, seasonal adjustments, and integrating tariff mitigation into sourcing and production decisions ( ). | Steady emphasis with an increased strategic focus on external trade pressures and cost management in the current period. |
Margin Performance | Q1 2025 reported lower overall margins (7.7%) with expectations for sequential improvement ( ); meanwhile, Q3 2024 noted stronger margins near 18.5% driven by cost efficiencies ( ). | Q2 2025 achieved an 18.8% equipment operations margin, even as tariff headwinds eroded margins somewhat—reflecting mixed performance across segments ( ). | Varied performance—while some segments show strong outcomes, tariff headwinds continue to create margin pressure in Q2 2025. |
Pricing Strategies | Q1 2025 discussed positive price realization (around 1 point) enhanced through selective incentive programs ( ); Q3 2024 highlighted adjustments in pricing guidance due to competitive dynamics and dealer collaboration ( ). | Q2 2025 maintained a 1% price realization target with early order programs aiming for 2–4% increases in select segments, balancing competitive pressures with cost challenges ( ). | Consistent approach to balancing price increases with market realities while navigating ongoing competitive pressure. |
Tariff Impacts | Q1 2025 mentioned tariff impacts in a forward‑looking manner with limited detail ( ); Q3 2024 did not explicitly address tariffs. | Q2 2025 provided detailed quantification of tariff impacts (e.g. $100 million in Q2 and an estimated $500 million for the full year) along with strategic sourcing adjustments to mitigate these effects ( ). | Increased emphasis on quantifying and managing tariff risks in Q2 2025 relative to previous periods. |
Cost Mitigation | Q1 2025 referenced supplier resiliency and optimizing global trade flows to moderate costs ( ); Q3 2024 outlined concrete measures such as workforce reductions and engineered cost savings ( ). | Q2 2025 outlined initiatives like dual sourcing, duty‑free certification, and targeted price actions as part of a broader strategy to offset tariff and operational cost pressures ( ). | Persistent focus on cost control, with clearer, more detailed strategies emerging in Q2 2025. |
Digital Transformation | Q1 2025 highlighted the rollout of Precision Ag Essentials, JDLink Boost for connectivity, and significant remote engagement metrics ( ); Q3 2024 mentioned positive feedback on precision technologies but with limited digital transformation detail ( ). | Q2 2025 expanded on digital transformation by bundling SaaS solutions, integrating digital platforms across product lines (e.g. the Operations Center now supports roadbuilding), and reporting strong order growth for precision tech solutions ( ). | Strengthened emphasis on digital integration and an expanded SaaS strategy compared to previous commentary. |
SaaS & Precision Technologies Expansion | Q1 2025 discussed subscription‑based models, with notable adoption of subscription packages and significant order volumes ( ); Q3 2024 featured only limited feedback on precision technologies without broad expansion discussion. | Q2 2025 showcased broadened SaaS offerings with bundling strategies across crops and geographies, along with robust growth in orders for solutions like See & Spray ( ). | Accelerated growth and broadened offerings signal a ramp‑up in focus on SaaS and precision tech expansion in Q2 2025. |
Demand Dynamics | Q1 2025 and Q3 2024 both described constrained demand due to macroeconomic factors and regional declines (e.g. 15–30% drops in key markets) ( ). | Q2 2025 reiterated these challenges with detailed regional forecasts—such as a 30% decline in North American large ag and 10–15% in small ag and turf—emphasizing ongoing demand softness ( ). | Consistent downward pressure on demand continues across regions, underscoring persistent macroeconomic headwinds. |
Shipment Volumes | Q1 2025 noted significantly lower shipment volumes driving net sales declines ( ); Q3 2024 reported similar declines across agriculture and construction segments ( ). | Q2 2025 confirmed continued lower shipment volumes across all segments, directly impacting net sales figures and prompting production scheduling adjustments ( ). | Continuous trend of reduced volumes, reinforcing the need for agile production planning amid weak demand. |
Government Support | Q1 2025 detailed substantial government support (e.g. $10 billion in U.S. aid) boosting farmer liquidity and margins, though not immediately translating into orders ( ); Q3 2024 omitted discussion on government support. | Q2 2025 reiterated the role of government support by noting that nearly 75% of the $10 billion emergency assistance had been distributed, which helped stabilize market sentiment in North America ( ). | Consistent critical factor in Q1 and Q2, even though government support was not mentioned in Q3 2024—highlighting its importance in the agricultural sector. |
Recovery Uncertainty | Q1 2025 mentioned market uncertainty and long‑term margin targets with cautious commentary ( ); Q3 2024 provided detailed regional analysis on recovery challenges and dealer sentiment amid softening conditions ( ). | Q2 2025 did not expressly discuss recovery uncertainty, though broader comments on volatile global trade conditions suggest its implicit relevance ( ). | Slight de‑emphasis in explicit commentary on recovery in Q2 2025, even though underlying global uncertainty persists. |
Potential Restructuring | Q1 2025 featured minimal talk of restructuring, focusing instead on margin improvements ( ); Q3 2024 disclosed active measures such as workforce reductions and production shutdowns as part of restructuring efforts ( ). | Q2 2025 did not explicitly discuss any potential restructuring measures, omitting references to workforce or production adjustments on that front. | Reduced short‑term focus on restructuring in Q2 2025 compared to explicit actions taken in Q3 2024, suggesting a temporary pause on further restructuring discussions. |
Competitive Pressures & Pricing Declines | Q1 2025 highlighted strong competitive pressures, particularly in the Construction & Forestry segment, leading to negative price realization and the need for incentives ( ); Q3 2024 echoed these challenges with heightened competition spurring pricing adjustments and reduced guidance ( ). | Q2 2025 continued to experience competitive pressures—especially in earthmoving—with revised pricing outlooks and clearly observed pricing declines in key segments ( ). | Steady and persistent pressure from competitors is driving a continuous challenge to maintain pricing power and margins across periods. |
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PPA Profitability
Q: What drives lower H2 PPA margins?
A: Management explained that tariff impacts—$500 million annually with $100 million already hit—combined with modest sales and mix challenges drive an extra decrement of about 2–2.5 points on margin in the second half. -
Ag Margins
Q: Why are second-half ag margins soft?
A: They attributed softer margins to the bulk of tariff costs—roughly $400 million yet to hit—and a mix of lower price realization and slightly diminished material favorability, resulting in a conservative margin outlook. -
Pricing Strategy
Q: Can pricing offset cost pressures in '26?
A: Management noted they will pursue measured price increases—around 2–4% on early order programs—while controlling production costs so that tariffs are offset without sacrificing margin, reflecting a balanced approach. -
Tariff Impact
Q: Is the goal to cover tariffs or protect margins?
A: They stressed that the aim is protecting overall margins through both disciplined pricing and cost controls rather than simply passing tariff costs directly to customers. -
Tariff Sharing
Q: How will tariff costs be shared?
A: Management indicated that tariff burdens will be distributed across vendors, dealers, and customers via strategic pricing measures and optimal sourcing, as evidenced by early order flexibility. -
Pricing Outlook
Q: How will early order programs help in '26?
A: They highlighted that new early order programs, like those recently launched for sprayers, embed pricing flexibility and optionality to adjust as tariff conditions evolve, keeping production aligned with retail demand. -
Tech Pipeline
Q: What SaaS models are in the pipeline?
A: Management outlined three buckets—foundational precision tech, usage-based solutions like See & Spray, and forthcoming autonomous models—with an expanding pipeline aimed at bundling capabilities across production systems. -
Used Equipment
Q: How is used equipment affecting pricing?
A: They noted some stabilization in the used market, especially in high-horsepower tractors, where seasonal trends and ECAP flows support pricing, though the pace and overall impact remain somewhat uncertain.
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