Deere & Co. Earnings Drop 50% in Q1 2025

Deere & Co. (NYSE:DE), renowned for its agricultural machinery, reported financial results for fiscal 2025's first quarter on Thursday, Feb. 13, that topped analysts' consensus expectations. Despite the analyst beats, the earnings release revealed a significant decline in key financial metrics compared to the previous year. Net income of $869 million, or $3.19 per diluted share, was down roughly 50% from $1.75 billion or $6.23 per share in Q1 2024. Additionally, revenue decreased by 30% to $8.51 billion.

The disappointing performance was primarily attributed to lower shipment volumes and ongoing market challenges.

Source: Deere & Co. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year.

Overview of Deere & Company's Business

Deere & Co., known for its iconic green tractors and farm machinery, operates across four main segments: Production & Precision Agriculture, Small Agriculture & Turf, Construction & Forestry, and Financial Services. Each of these sectors plays a role in supporting the company’s diverse global market presence. Recently, the focus has been on the Smart Industrial Operating Model, which emphasizes technological integration to enhance operational efficiency and product offerings.

Key success factors for the company include executing its technology integration strategy, maintaining a robust product portfolio, and growing its financial services to aid customer financing. The company's expansive product line and global reach enable it to mitigate risks associated with regional market volatility.

Quarterly Highlights

In the first quarter, Deere experienced major setbacks in its core equipment segments, leading to a substantial decline in revenue and operating profit from the previous year. The Production & Precision Agriculture segment saw a 37% drop in sales to $3.07 billion, largely due to reduced shipment volumes, and its operating profit plunged 68% to $338 million despite a decrease in selling, administrative, and general expenses.

The Small Agriculture & Turf division reported a 28% decrease in sales to $1.75 billion. Operating profits in this segment declined by 62% to $124 million as a result of lower shipment volumes and a less favorable sales mix. Moreover, the Construction & Forestry segment experienced a stark 38% sales decrease to $2 billion, with operating profit declining by 89% to $65 million, driven by unfavorable pricing and higher research and development expenses.

The Financial Services division was the exception, achieving an 11% rise in net income to $230 million, aided by special items and a reduced valuation allowance on assets held for sale related to Banco John Deere S.A.

The company continues to face a challenging environment marked by geopolitical tensions and unpredictable market demand, which normalized sales across various segments. Deere reported ongoing efforts to optimize inventory levels, an area of focus amid difficult market conditions. In terms of forward-looking dividends, the company remains committed to providing shareholder returns, although these will reflect current financial constraints.

Looking Ahead

For the fiscal year 2025, management's net income forecast ranges between $5.0 billion and $5.5 billion. This guidance serves as a reflection of steady resilience despite current adversities. The company plans to sustain strategic investments focused on enhancing customer productivity and profitability outcomes.

Deere management said it expects sales at its Production and Precision Agriculture division to fall 15% to 20% in fiscal 2025. Small Agriculture & Turf sales are projected to fall 10% and Construction and Forestry sales to fall 10% to 15%. The guidance does not include any potential impact from tariffs or retaliatory actions by other countries.

Going forward, investors should monitor Deere & Company's ability to manage its inventory levels, as high volumes of used equipment could continue to put pressure on pricing. Furthermore, ongoing adoption of precision technology within its Smart Industrial Operating Model indicates a commitment to future-proofing its offerings in alignment with evolving market dynamics.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Deere & Company. The Motley Fool has a disclosure policy.