Deere & Company Q4 FY2025 earnings call

• Deere & Company demonstrated resilience in a challenging market backdrop, with equipment operations delivering 9.2% margins in Q4 and full-year operating margins at 12.6%, and over $5 billion in net income. - Teams managed the downturn effectively by focusing on controllable factors, and the business is well-positioned for fiscal 2026. - Progress in the tech stack was noted, with growth in solutions across layers from precision to autonomy. - Inventory management was emphasized, with low new field inventory levels in North American large ag and reduced inventory in small ag and turf. - Dealer partnerships were highlighted as critical in navigating market cycles.

Production Precision Ag: Net sales were $4.74 billion in Q4, up 10% compared to the prior year, with an operating margin of 12.7%. Small Ag and Turf: Net sales totaled $2.457 billion in Q4, up 7% year over year, but operating profit declined due to higher tariffs, warranty expenses, and production costs. Construction Forestry: Net sales for the quarter were up 27% year over year to $3.382 billion, with an operating margin of 10.3%. Financial Services: Worldwide Financial Services net income attributable to Deere & Company was $93 million for the fourth quarter, up year over year due to favorable financing spreads, special items, and lower provision for credit losses.

• Fiscal 2026 net sales expected to be up around 10%, including 2 points of positive price realization and 1 point of positive currency translation. - Production Precision Ag net sales forecasted to be down 5-10% in fiscal 2026, with segment operating margin between 11-13%. - Small Ag and Turf segment operating margin projected to be between 12.5-14%. - Construction and Forestry net sales forecasted to be up around 10%, with operating margin between 8-10%. - Full-year net income forecast in the range of $4 billion to $4.75 billion, effective tax rate between 25-27%, and cash flow from equipment operations projected to be in the range of $4 billion to $5 billion.

• Tariffs pose a significant risk, with projected pretax direct tariff expense of approximately $1.2 billion in 2026. - Market uncertainties, including subdued large ag in North America, commodity price pressures, and labor shortages in various production systems. - Geopolitical factors, such as uncertainty around demand for Brazil exports of soybeans due to trade agreements.

Q: Stephen Volkmann from Jefferies asked about tariffs and offsetting the $1.2 billion headwind.

A: Josh Jepsen responded that the $1.2 billion is pretax tariff hit, run rate is roughly $300 million per quarter, expecting to capture back some exposure and continue executing to mitigate, with expectation of taking continued price in the future.

Q: Jamie Cook with Truist Securities inquired about production and precision ag sales decline and margin decrementals.

A: Josh Jepsen said tariffs have approximately zero point margin impact for 2026, with decrementals in the low to mid-50s due to geographic mix as North America large ag is the most profitable market but declining.

Q: Kristen Owen with Oppenheimer questioned the large ag price assumption.

A: Josh Jepsen explained that the 1% price guide is due to geographic mix (Brazil price more muted) and parts mix versus complete goods in North America being more muted for 2026.

Q: Tim Thein with Raymond James asked about production costs in 2026.

A: Josh Jepsen stated that ex-tariffs, production costs are slightly unfavorable in 2026, with overheads and North American labor contract as headwinds, but teams continue to work on taking cost out of product and process.

Q: David Raso with Evercore ISI asked about production and precision ag sales cadence and pricing.

A: Josh Jepsen said seasonality will be different in 2026 with lean start in Q1, expecting down year over year in all quarters but margins improving from Q2 onward, and price cost positive inclusive of tariffs.

Q: Chad Dillard with Bernstein asked about government assistance and operating leverage.

A: Josh Jepsen said baseline expectation is no more government assistance, based on current market, and operating leverage will be positive as volumes pick up and technology continues to drive growth.

Q: Steven Fisher with UBS inquired about South America outlook and small ag improvement.

A: Josh Jepsen said South America is flat with mix of caution and optimism due to interest rate uncertainties, and small ag improvement is based on modest growth in home sales and turf recovery as housing market eases.