Deere's FY2025 Earnings Decline and Cautious FY2026 Guidance Reflect Persistent Cyclical Pressures

What happened

Deere reported a net income of $1.065 billion for the fourth quarter of fiscal 2025, down from $1.245 billion in the prior year, signaling ongoing challenges in key markets. Full-year net income for fiscal 2025 was $5.027 billion, a significant drop from $7.100 billion in fiscal 2024, driven by weaker volumes and market normalization. Management highlighted improving outlooks for small agriculture and construction and forestry segments, but large agriculture remains subdued, limiting overall growth. The company projected fiscal 2026 earnings between $4.00 billion and $4.75 billion, indicating continued pressure and a cautious stance amid cyclical headwinds. This performance aligns with DeepValue's neutral assessment, emphasizing the need for stabilization in used equipment pricing and precision tech monetization to support a more bullish view.

Implication

The earnings drop reinforces Deere's vulnerability to agricultural and construction cycles, necessitating a cautious approach despite resilient free cash flow. Lower FY2026 guidance suggests near-term profitability may remain pressured, overshadowing management's optimistic segments like small ag and construction. Persistent weakness in large agriculture, a core revenue driver, limits upside potential and aligns with DeepValue's watch items on used equipment and order intake. Key risks such as precision tech monetization delays and credit loss provisions in Financial Services could exacerbate declines if not managed effectively. Overall, the HOLD recommendation is justified, with investors awaiting clear signs of demand stabilization and tech execution before considering a more constructive position.

Thesis delta

The reported earnings decline and cautious FY2026 guidance validate DeepValue's concerns about cyclical normalization and near-term balance, reinforcing the neutral stance. This update strengthens the case for monitoring key triggers like used equipment pricing and construction demand, as structural strengths are insufficient to offset persistent softness. No material shift in thesis is warranted yet, but continued deterioration could tilt the view toward a more defensive posture.