Deere Lifts Profit Outlook as Construction and Small-Farm Segments Offset Large-Ag Slump
The farm and construction equipment maker raised its full-year net income forecast to $4.75 billion to $5.00 billion after third-quarter earnings rose 7%.
Deere & Co. (DE) raised its full-year profit guidance after third-quarter earnings rebounded, powered by surging demand in its construction and small-farm equipment divisions even as its flagship large-agriculture business continued to contract.
The Moline, Ill.-based equipment maker now expects fiscal 2026 net income of $4.75 billion to $5.00 billion, narrowing the range from the $4.5 billion to $5.0 billion forecast it had held since the start of the year. The revision came after net income rose 7% year over year to $1.379 billion, or $5.10 a share, in the quarter ended July 27, reversing a 2% decline in the prior quarter and a 25% drop in the fiscal first quarter.
The recovery traces to a widening divergence across Deere's three equipment segments. Construction & Forestry delivered the quarter's standout performance, with net sales climbing 18% year over year to $3.618 billion and operating profit surging 84% to $436 million, pushing the segment's operating margin to 12.1% from 7.7% a year earlier. Over the first nine months of the fiscal year, C&F net sales grew 26% to $10.079 billion and operating profit rose 67% to $1.134 billion, outpacing every other division. Deere pegs full-year C&F sales growth at roughly 20%, underpinned by a U.S. construction-equipment market it sees up 5% to 10% and roadbuilding up about 10%. The company also closed its $439 million acquisition of Tenna LLC, a construction-technology firm, in February, folding it into the C&F segment.
Small Agriculture & Turf provided the second engine. Net sales jumped 12% year over year to $3.383 billion on higher volumes and favorable pricing, while operating profit climbed 28% to $622 million and the operating margin widened to 18.4% from 16.0%. The margin trajectory has accelerated throughout the year: SAT's operating margin stood at just 9.0% in the fiscal first quarter versus 7.1% a year earlier, then expanded sharply through the second and third periods. Deere projects full-year SAT sales up roughly 15%, reflecting a domestic small-ag and turf market it estimates flat to up 5%.
The large-farm-equipment division, Production & Precision Agriculture, remains the drag. Q3 net sales fell 6% year over year to $3.998 billion, though that marked an improvement from a 14% decline in the second quarter. Operating profit dropped 9% to $527 million, a far shallower slide than the 39% second-quarter decline and the 59% first-quarter plunge. The operating margin compressed to 13.2% from 13.6% a year ago but recovered sequentially from the 15.7% posted in Q2, confirming the first quarter's 4.4% margin as the trough. Deere expects full-year PPA sales down about 10%, consistent with an industry forecast for U.S. and Canada large-ag equipment to fall 15% to 20% and South American tractors and combines to decline by the same range.
Tariff-related recoveries have cushioned the PPA hit. Deere recorded $110 million in tariff recoveries during the third quarter and $382 million year to date, following a $272 million recovery booked in the second quarter after the Supreme Court's February ruling on IEEPA tariffs.
Across the enterprise, worldwide net sales and revenues grew 5% year over year to $12.608 billion in the third quarter, matching the prior quarter's pace. Financial Services contributed $219 million in net income, up 7%, helped by wider financing margins though partially offset by a smaller average portfolio. Higher taxes weighed on the bottom line: income tax expense surged 56% in the quarter to $529 million, reflecting the absence of prior-year discrete benefits that had included a $110 million foreign net-operating-loss credit and a $53 million uncertain-tax-position adjustment.
For the first nine months, net income stood at $3.808 billion, or $14.06 a share, down 4% from $3.962 billion, or $14.57 a share, a year earlier — a reminder that the first-half PPA weakness still outweighs the recent momentum in the other segments.
Deere appointed Brent Norwood as chief financial officer effective May 1, replacing the previous finance chief. With the full-year outlook now anchored at the top of the prior range, the company enters its fiscal fourth quarter with construction demand firm, small-farm margins expanding, and large agriculture stabilizing but not yet recovering.