Agricultural and construction machinery company Deere (NYSE: DE) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 9% year on year to $10.36 billion. Its non-GAAP profit of $4.75 per share was 4.3% above analysts’ consensus estimates.

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StockStory’s Take

Deere’s second quarter saw a disappointing market reaction as revenue missed Wall Street’s expectations, driven by a 9% year-over-year sales decline. Management attributed underperformance to challenging end market conditions, elevated tariffs, and persistent caution among customers, especially in North America. CFO Josh Beal described the period as one marked by “uncertainty in the industry fundamentals and evolving global trade environment,” highlighting that elevated inventory levels and high interest rates continued to weigh on large equipment demand. Despite these headwinds, Deere noted improved retail activity in some European and North American segments, but overall, the company faced cost pressures and negative price realization as it worked to clear used equipment.

Looking ahead, management expects ongoing volatility, with tariffs and competitive pricing underpinning a cautious outlook. The company is positioning itself for potential demand recovery by maintaining lean inventories and focusing on operational efficiency. CEO Cory Reed noted, “We know that when [market demand returns], nobody is better positioned to respond than us,” but also cautioned that customers remain hesitant due to unclear trade policies and uncertain commodity prices. While Deere is investing in precision agriculture and digital solutions, near-term performance will depend on how quickly end markets stabilize and whether policy developments around tariffs and biofuels provide support.

Key Insights from Management’s Remarks

Management cited several operational and market factors that shaped the quarter, focusing on inventory management, tariffs, and evolving customer sentiment.

• Inventory reductions across segments: Deere accelerated efforts to lower both new and used equipment inventories, particularly in North America, where large tractor stocks were cut by 45% and combine inventories by 25%. Management believes this positions the company to respond quickly when demand improves.

• Tariff costs impacted margins: Higher tariffs on imports from Europe, India, and increased steel and aluminum rates increased costs by $300 million this quarter, with a full-year impact now estimated at $600 million. Management is pursuing supply chain adjustments and price increases for future orders to offset this pressure.

• Discounting and incentives: To address used equipment backlogs, Deere expanded dealer incentives, which resulted in negative price realization in several segments. These actions helped stabilize used equipment prices and increased quoting activity, but also pressured margins in the short term.

• Mixed demand signals by geography: While North America remains cautious, management observed improved sentiment and retail sales in Europe, Brazil, and parts of Asia, driven by stable crop prices and government support. However, high interest rates continue to limit capital investment across most markets.

• Digital and precision ag adoption: Deere reported robust engagement with its precision agriculture offerings, such as JDLink Boost and Precision Essentials, with over 5,000 satellite connectivity units ordered globally and increased utilization of See & Spray technology among repeat customers. These products are seen as drivers of future customer value and market differentiation.

Drivers of Future Performance

Management’s outlook is shaped by ongoing tariff headwinds, cautious customer sentiment, and a focus on inventory discipline and technology investments.

• Tariff and cost headwinds: The company expects tariffs to remain a significant drag on margins, particularly as higher steel and component costs work through the system. Management is planning to offset these impacts with 2–4% list price increases on new equipment in 2026, but acknowledges that pricing power is limited in certain segments due to competitive dynamics.

• Inventory alignment with demand: Having substantially reduced field inventories, Deere aims to produce in line with retail demand next year, especially in small agriculture and construction. This should create tailwinds for production volumes if demand recovers, but management cautioned that actual order rates depend on commodity prices and trade clarity.

• Innovation and technology adoption: Continued investment in digital and precision agriculture solutions, including the expansion of JDLink Boost and See & Spray, is expected to support customer productivity and drive differentiation. Management views these initiatives as critical for long-term growth, especially as farmers seek efficiency gains amid uncertain economic conditions.

Catalysts in Upcoming Quarters

In coming quarters, StockStory analysts will watch (1) whether Deere’s inventory reductions translate into improved production volume as markets recover, (2) the company’s ability to offset ongoing tariff and input cost pressures through pricing and supply chain adjustments, and (3) adoption rates for new precision agriculture technologies. Progress on trade policy and biofuel-related demand will also be important markers for future performance.

Deere currently trades at $480.51, down from $513.02 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).

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