10-Q: Deere & Company Reports Steep Profit Decline Amidst Weakening Demand and High Interest Rates in Q2 2025

Deere & Company announced a significant drop in net sales and net income for the second quarter and first half of fiscal year 2025, primarily driven by reduced equipment demand, elevated interest rates, and unfavorable foreign currency impacts.

Summary

• Net sales and revenues decreased by 16% to $12,763 million for the three months ended April 27, 2025, compared to $15,235 million in the prior year.
• For the six months ended April 27, 2025, net sales and revenues fell by 22% to $21,272 million from $27,420 million in the previous year.
• Net income attributable to Deere & Company declined by 24% to $1,804 million for the three-month period and by 35% to $2,673 million for the six-month period.
• Diluted earnings per share were $6.64 for the quarter (down from $8.53) and $9.82 for the six months (down from $14.74).
• Operating profit for Production and Precision Agriculture (PPA) decreased by 30% for the quarter and 45% for the six months, primarily due to lower U.S. shipment volumes driven by higher interest rates and elevated used inventory levels.
• Small Agriculture and Turf (SAT) operating profit remained steady for the quarter (+1%) but declined 22% for the six months, impacted by economic uncertainties and higher interest rates.
• Construction and Forestry (CF) operating profit saw a significant decline of 43% for the quarter and 64% for the six months, due to lower worldwide shipment volumes, economic uncertainties, high interest rates, and unfavorable price realization.
• Financial Services (FS) net income was flat for the quarter and increased by 6% for the six months, influenced by the deconsolidation of Banco John Deere S.A. (BJD) and a higher provision for credit losses.
• The company completed the sale of 50% ownership in Banco John Deere S.A. (BJD) in Brazil in February 2025, resulting in its deconsolidation and a $32 million pre-tax gain (reversal of previous losses) in the first quarter of 2025.
• Cash, cash equivalents, and marketable securities increased to $9,263 million at April 27, 2025, from $8,478 million at October 27, 2024.
• Total external borrowings increased by $1,128 million in the first six months of 2025, contributing to higher cash balances.
• The company declared a quarterly dividend of $1.62 per share on May 28, 2025, payable on August 8, 2025.

Sentiment

Score: 3

Explanation: The financial results show significant declines in revenue, net income, and EPS across most segments, indicating a challenging market environment. While there are some positive cost management efforts and strategic initiatives, the overall outlook for sales volumes remains negative due to high interest rates, elevated inventory, and market uncertainties. The ongoing FTC lawsuit adds a layer of regulatory risk. The company's own forward-looking statements explicitly anticipate lower sales volumes.

Positives

• Lower production costs, including reduced material costs and employee profit-sharing incentives, partially offset declines in operating profit.
• Favorable net discrete tax items totaling $110 million from foreign net operating losses and $53 million from an uncertain tax position adjustment were recorded in the first quarter of 2025.
• The deconsolidation of Banco John Deere S.A. (BJD) resulted in a $32 million pre-tax gain (reversal of previous losses) in the first quarter of 2025.
• Cash, cash equivalents, and marketable securities increased to $9,263 million at April 27, 2025, from $6,647 million a year prior, indicating strong liquidity.
• Financial Services net income increased by 6% for the six-month period, partly due to a reduction in derivative valuation adjustments and lower selling, administrative, and general expenses.
• The company continues to focus on developing and incorporating technology solutions, aligning with the persistent market trend of deeper technology integration into equipment.
• Improving farm fundamentals in Europe, driven by strong dairy and livestock margins, and steady commodity prices along with an improving interest rate environment, are expected to partially mitigate demand declines.
• In South America, profitability from recovered corn and soybean crop yields, as well as high margins in coffee production, are expected to positively impact sales.
• The outlook for tractor sales in India is improving, contributing to a flat industry sales forecast for Asia.
• U.S. government infrastructure spending is projected to partially offset declines in construction equipment industry sales.

Negatives

• Net sales and revenues decreased significantly by 16% for the three months and 22% for the six months ended April 27, 2025, primarily due to lower sales volumes.
• Net income attributable to Deere & Company fell by 24% for the quarter and 35% for the six months, largely due to lower sales volumes and unfavorable foreign currency exchange effects.
• Diluted earnings per share decreased to $6.64 for the quarter and $9.82 for the six months, reflecting the overall profit decline.
• Operating profit for Production and Precision Agriculture (PPA) plummeted by 30% for the quarter and 45% for the six months, driven by lower U.S. shipment volumes, high interest rates, and elevated used inventory levels.
• Construction and Forestry (CF) operating profit saw the steepest decline, down 43% for the quarter and 64% for the six months, impacted by lower worldwide shipment volumes, economic uncertainties, high interest rates, and unfavorable price realization due to competitive pressures.
• Small Agriculture and Turf (SAT) operating profit decreased by 22% for the six-month period, primarily due to lower shipment volumes and sales mix, influenced by economic uncertainties and higher interest rates.
• Financial Services experienced less favorable financing spreads and a higher provision for credit losses, which offset some positive factors.
• The company incurred approximately $95 million in direct incremental tariffs in the second quarter of 2025, contributing to higher overhead costs from production inefficiencies associated with lower volumes.
• Elevated interest rates continue to negatively impact the demand for agricultural, turf, and construction products by increasing borrowing costs for customers.
• Record crop production in South America is likely to reduce commodity prices, further tempering equipment demand in the region.
• Moderating single-family housing starts and softening rental sales, coupled with elevated mortgage rates, are negatively affecting the construction equipment market in the U.S. and Canada.

Risks

• Government policies and actions related to the global trade environment, including increased and proposed tariffs, retaliatory trade regulations, and general economic uncertainty, could adversely affect product sales, production costs, and financial results.
• The agricultural business cycle is unpredictable and influenced by factors such as world grain stocks, harvest yields, commodity prices, input costs, and macroeconomic conditions, which can lead to lower demand for equipment.
• Higher interest rates and currency fluctuations could negatively impact the U.S. dollar, customer confidence, access to capital, and overall demand for products and solutions.
• The company faces challenges in adapting to highly competitive markets, including understanding and meeting customers' changing expectations for products and solutions, including delivery and utilization of precision technology.
• Fluctuations in housing starts, real estate and housing prices, levels of public and non-residential construction, and infrastructure investment can affect demand for construction equipment.
• Political, economic, and social instability of the geographies in which the company operates, including the ongoing war between Russia and Ukraine, the conflict between India and Pakistan, and the conflicts in the Middle East, pose significant risks.
• Investigations, claims, lawsuits, or other legal proceedings, such as the antitrust lawsuit filed by the Federal Trade Commission (FTC) and several State Attorneys General regarding access to repair tools, could result in substantial damages, fines, or costly actions.
• Delays or disruptions in the supply chain could impact production and product availability.
• Changes in climate patterns, unfavorable weather events, and natural disasters can affect agricultural demand and operations.
• Volatility in the availability and price of raw materials, components, and whole goods poses a risk to production costs and profitability.
• Supplier and manufacturer business practices and compliance with laws applicable to topics such as human rights, safety, environmental, and fair wages could impact operations.
• Loss of or challenges to intellectual property rights could affect the company's competitive position.
• Rationalization, restructuring, relocation, expansion, and/or reconfiguration of manufacturing and warehouse facilities carry operational and financial risks.
• The ability to successfully execute business strategies, including the Smart Industrial Operating Model and Leap Ambitions, and to accurately forecast customer demand and manage inventory, is crucial.
• Dealer practices and their ability to manage inventory and distribution of products, and to provide support and service for precision technology solutions, can impact sales and customer satisfaction.
• Challenges with successfully integrating operations and internal control processes from acquisitions and joint ventures could hinder anticipated benefits.
• Negative claims or publicity that damage the company's reputation or brand.
• The ability to attract, develop, engage, and retain qualified employees, as well as the impact of workforce reductions on company culture, employee retention, and morale, are significant human capital risks.
• Labor relations and contracts, including potential work stoppages and other disruptions, could affect operations.
• Security breaches, cybersecurity attacks, technology failures, and other disruptions to information technology infrastructure and products pose operational and financial risks.
• Leveraging artificial intelligence and machine learning within business processes introduces new complexities and risks.
• Changes to governmental communications channels (radio frequency technology) could impact precision agriculture solutions.
• Changes to existing laws and regulations, including the implementation of new, more stringent laws, as well as compliance with a variety of U.S., foreign, and international laws (e.g., advertising, anti-bribery, antitrust, consumer finance, cybersecurity, data privacy, environmental, farming, health and safety, foreign exchange controls, human rights, import/export and trade, tariffs, labor and employment, product liability, telematics, and telecommunications), could increase compliance costs and operational burdens.
• Governmental and other actions designed to address climate change in connection with a transition to a lower-carbon economy could impact business models and costs.
• Warranty claims, post-sales repairs or recalls, product liability litigation, and regulatory investigations as a result of the deficient operation of products are ongoing risks.

Future Outlook

Deere & Company anticipates lower sales volumes for agriculture and turf and construction equipment during the remainder of fiscal year 2025 due to reduced demand, high interest rates, and elevated used inventory levels. While stable crop prices and government subsidies are expected to partially mitigate declines in large agricultural equipment, and strong profitability in dairy/livestock and high-value crops may help small agriculture, overall demand is projected to be restrained. Global forestry markets are expected to be flat to down, while global roadbuilding markets are forecasted to be generally flat, supported by infrastructure spending. Financial Services net income is expected to increase due to favorable special items and lower expenses, despite unfavorable financing spreads. The company continues to invest in technology solutions and its Smart Industrial Operating Model to capitalize on market trends.

Management Comments

• "Customers seek to improve profitability, productivity, and sustainability through integrating technology into their operations. Deeper integration of technology into equipment is a persistent market trend."
• "We expect this trend to persist for the foreseeable future. Our Smart Industrial Operating Model and Leap Ambitions are intended to capitalize on this market trend."
• "Agriculture and turf and construction equipment sales volumes during the remainder of 2025 are expected to continue to be lower than the prior year due to reduced demand."
• "Demand for large agricultural equipment in the U.S. and Canada is expected to decline due to high interest rates, elevated used inventory levels, and market uncertainty."
• "Strong profitability is anticipated to continue in the small agricultural sector as dairy and livestock prices remain elevated and certain high value crops return to profitability; however, this is projected to be more than offset by restrained demand in the turf and compact utility tractor markets amid economic uncertainty and high interest rates."
• "Industry demand in Europe is forecasted to be down slightly. Farm fundamentals are improving, given strong dairy and livestock margins. Additionally, commodity prices and input costs have steadied along with an improving interest rate environment. This is projected to be offset by below-average yields in key markets."
• "Demand in South America is expected to be roughly flat. In Brazil, profitability from recovered corn and soybean crop yields, as well as high margins in coffee production, are expected to have a positive impact on sales. However, record crop production is likely to reduce commodity prices, and high interest rates continue to temper demand for equipment."
• "Construction equipment industry sales are forecasted to be down in the U.S. and Canada from 2024 levels. The decline is due to projections for single-family housing starts to moderate given macro uncertainty and high mortgage rates, while rental sales continue to soften and elevated interest rates continue to reduce multi-family and commercial real estate markets. These unfavorable factors are projected to be partially offset by high levels of U.S. government infrastructure spending."
• "Global forestry markets are expected to be flat to down as global market conditions remain challenged."
• "Global roadbuilding markets are forecasted to be generally flat, supported by strong end-market demand worldwide, along with improving sentiment throughout Europe."
• "We are actively taking steps to limit potential impacts on our business [from tariffs]."
• "At this stage, we are unable to estimate the potential impact on our business [from the FTC lawsuit]."

Industry Context

Deere & Company's performance reflects broader challenges in the agricultural and construction equipment sectors, characterized by high interest rates, elevated used inventory levels, and economic uncertainties impacting customer demand. While some regions like Europe and parts of South America show improving farm fundamentals, these are often offset by other negative factors such as lower crop prices due to record production. The company's strategic focus on technology integration and 'Solutions as a Service' aligns with an industry-wide trend towards smart, connected machinery aimed at improving productivity and sustainability. However, the competitive environment, particularly in construction, is leading to unfavorable price realization. The ongoing legal challenge from the FTC regarding 'right to repair' issues is a significant industry-specific concern that could set precedents for equipment manufacturers.

Corporate Governance

Legal Proceedings

• On January 15, 2025, the Federal Trade Commission (FTC), along with the Attorneys General of Illinois, Minnesota, Arizona, Michigan, and Wisconsin, filed a lawsuit against Deere & Company in the U.S. District Court for the Northern District of Illinois Western Division.
• The lawsuit alleges monopolization and unfair competition in violation of federal and state antitrust laws.
• Plaintiffs seek a permanent injunction and other equitable relief to allow owners of John Deere equipment and independent repair providers access to repair tools and resources available to authorized John Deere dealers.
• Deere & Company filed a motion to dismiss the lawsuit on March 17, 2025, with the FTC filing a response on April 28, 2025, and Deere filing a reply on May 28, 2025.
• The company is currently unable to predict the outcome or impact of this matter on its business and financial results.
• Other prevalent legal claims include product liability (including asbestos-related liability), employment, patent, trademark, and other antitrust matters (including class action litigation).

Related Party Transactions

• In February 2025, Deere & Company completed a transaction with Banco Bradesco S.A. for Bradesco to invest and become a 50% owner of Deere's wholly-owned subsidiary in Brazil, Banco John Deere S.A. (BJD).
• This transaction resulted in the deconsolidation of BJD from Deere's financial services segment in the second quarter of 2025.
• Deere retained a 50% equity interest in BJD, valued at $362 million at the deconsolidation date, and is now accounting for this investment using the equity method.
• The deconsolidation resulted in a pre-tax and after-tax gain (reversal of previous losses) of $32 million, recorded in Selling, administrative and general expenses.

Stakeholder Impact

• **Shareholders:** Experience reduced net income and diluted EPS, potentially impacting dividend growth and share price. The ongoing share repurchase program aims to return capital, but its effectiveness may be limited by market conditions. The FTC lawsuit introduces significant uncertainty and potential financial liabilities.
• **Customers:** Face higher interest rates and elevated used equipment inventory, which temper demand for new equipment. The FTC lawsuit highlights customer desire for broader access to repair tools and resources, indicating potential for improved customer service or increased competition in repair markets.
• **Employees:** Lower sales volumes and production inefficiencies may lead to reduced employee profit-sharing incentives. Workforce reductions are mentioned as a risk factor, potentially impacting company culture, retention, and morale.
• **Suppliers:** Supply chain disruptions and volatility in raw material prices are noted risks, which could affect supplier relationships and stability.
• **Creditors:** The company maintains access to global markets and has increased its total external borrowings, indicating continued reliance on debt financing. The new credit facilities provide liquidity, but the financial performance decline could impact creditworthiness perceptions over time.

Next Steps

• The company expects to continue experiencing lower sales volumes, higher sales incentives, and elevated receivable write-offs and expected credit losses in 2025 due to unfavorable market conditions.
• The company will continue to invest in a Solutions as a Service business model to increase technology adoption and utilization by customers.
• Capital expenditures for fiscal year 2025 are estimated to be approximately $1,430 million.
• The company will continue to monitor the performance of financing receivables that are modified with borrowers experiencing financial difficulty.
• The company will deliver a Pricing Certificate for the most recently ended fiscal year within 120 days following the end of each fiscal year (commencing with the fiscal year ending October 31, 2025) to adjust sustainability-linked pricing.
• A hearing on the motion to dismiss the FTC lawsuit has not yet been scheduled.

Key Dates

Recommendation

Keywords

Agricultural Equipment, Construction Equipment, Forestry Equipment, Financial Services, Heavy Machinery, Farm Equipment, Turf Equipment, Precision Agriculture, SEC Filing, 10-Q, Quarterly Results, Earnings Report, Revenue, Net Income, EPS, Operating Profit, Interest Rates, Tariffs, Supply Chain, Antitrust Lawsuit, Corporate Governance, Risk Management, Capital Resources, Liquidity, Dividends, Share Repurchase, Sustainability, Smart Industrial Operating Model, Leap Ambitions, Solutions as a Service