Deere's Beat Finally Comes From the Factory, Not the Refund Cheque, and the Stock Takes the Upgrade With It

Three months ago we described Deere's Q2 as a beat manufactured by a one-time tariff refund, published against a guide that management pointedly declined to raise. The market agreed and sold the stock 5.2%. Q3 is the quarter that inverts every element of that description. The refund shrank from $272M to $110M, and most of what it added was handed straight back by a tax rate that ran above the full-year guide. Pre-tax income grew 18% against 5% revenue growth. The full-year net income and cash-flow floors both moved up. And the early-order programs, the single piece of hard evidence we said we were waiting on, came in positive for the first time in this downcycle.

The problem is that the market got there first. Deere rallied 6.9% on the print and another 4.3% the next session, and while it has given some of that back, at $634.54 it trades at roughly 35x an implied fiscal 2026 and 28x a consensus fiscal 2027. Our Q2 fair value of the low-to-mid $500s deserves to go up on this quarter. It does not deserve to go up 19%. This note walks through why the operating story earned an upgrade in conviction that the share price has already spent.

Results vs. Consensus

Year-over-Year Comparison

Nine-Month View

Sequential Comparison (Q3 vs. Q2 FY2026)

The sequential decline is seasonal rather than deteriorating. Q2 is Deere's peak shipping quarter and Q3 steps down every year. The useful comparison is the ex-refund margin line: 14.4% in Q2 against 13.4% in Q3, a 100bp seasonal give-back on a 6.6% sequential revenue decline. That is respectable operating leverage in reverse.

Assessment: Revenue

Equipment net sales of $10.999B rose 6% and beat the roughly $10.81B consensus by about 1.8%, with the mix repeating the cyclical pattern that has defined the year: Construction & Forestry up 18% and Small Ag & Turf up 12% against Production & Precision Ag down 6%. Currency was a modest tailwind across the portfolio, worth about 1.5 points at PPA and half a point at C&F, and a slight drag at Small Ag & Turf. Price was the larger contributor, and unusually so at C&F. The important structural point is unchanged from last quarter and is now two quarters old: two of Deere's three equipment segments are growing double digits while the flagship large-ag franchise shrinks, and the enterprise still delivers revenue growth. That is diversification working as advertised rather than as a slide.

Assessment: Margins

Equipment operating margin of 14.4% expanded 180bps from 12.6% a year ago. Roughly 100bps of that is the tariff refund, leaving about 85bps of genuine year-over-year expansion on 6% volume growth. Gross margin on equipment sales reached 27.8% against 26.9%, so the improvement is visible above the operating line as well. The segment pattern is a study in contrast: Small Ag & Turf expanded 240bps to 18.4% and Construction & Forestry expanded 440bps to 12.1%, while Production & Precision Ag slipped 40bps to 13.2%. C&F is the segment to scrutinise, because 8 points of positive price realisation is not a run-rate: management was explicit that a substantial part of it is lapping roughly 5 points of negative price in the year-ago quarter from retail incentives. Strip the comp and C&F's underlying margin progress is real but considerably less dramatic.

Assessment: EPS

Diluted EPS of $5.10 against $4.75 grew 7%, understating the operating performance because of the tax line. The effective rate of 28.1% compares with 21.2% a year ago and with a 24% to 26% full-year guide that management reaffirmed rather than revised. The nine-month rate of 24.8% already sits inside that range, so the guide does not require a lower fourth quarter to stay within it; a repeat of the 28.1% Q3 rate would still leave the year near 25.5%. Nine-month EPS of $14.06 is still down 3% from $14.57, a reminder that fiscal 2026 remains a down year in aggregate; the trough is being called, not yet exited. Share count did essentially no work, down 0.3% year over year, and buybacks remain the quietest part of the capital-allocation story.

Segment Performance

Nine-month segment results put the quarter in cycle context. Production & Precision Ag has produced $11,664M of sales (down 7%) and $1,372M of operating profit (down 34%) for an 11.8% margin. Small Ag & Turf has produced $9,036M (up 16%) and $1,538M (up 30%) for a 17.0% margin. Construction & Forestry has produced $10,079M (up 26%) and $1,134M (up 67%) for an 11.3% margin. Financial Services has earned $823M of operating profit, up 11% on 4% lower revenue. The ranking is the fact worth sitting with. Small Ag & Turf, the smallest of the three by revenue this quarter, has been Deere's largest profit segment in every quarter of fiscal 2026, and on a nine-month basis it is now $166M ahead of Production & Precision Ag after trailing it by $884M in the same period last year. That is either the most interesting fact of the year or a marker of exactly how deep this ag trough runs. It is both.

Production & Precision Agriculture

PPA remains the drag and the cut. Net sales fell 6% to $3,998M on lower shipment volumes, cushioned by 2.5 points of price and 1.5 points of currency, and operating profit fell 9% to $527M as volume and higher production costs compressed margin to 13.2% from 13.6%. The full-year sales guide was moved to the bottom of its prior range, and the margin guide narrowed by cutting the top rather than lifting the floor. The driver was geographic: South America and Europe both softened while North America held.

"Given the softer demand expectations in South America and Europe, we have adjusted our full year sales outlook to be down approximately 10%. At the same time, we have tightened our margin guidance to 11% to 12%." — Christopher Seibert, Director of Investor Relations

Order books for the year are described as effectively full, and Deere is modestly underproducing retail in South America, without quantifying by how much, to protect channel inventory into fiscal 2027. The couple-of-percentage-points figure management gave applies at the Production & Precision Ag and Construction & Forestry segment level. Brazilian farm economics remain squeezed by fertiliser costs and interest rates, though management pointed to modest rate improvement during the quarter and the MoveAgro financing programme as sources of relief into next year.

Assessment: A 13.2% margin at what management calls sub-trough demand is genuine evidence of the structurally higher earnings power the bull case rests on, and it is worth noting the margin held within 40bps of last year on a 6% sales decline. But this is the second consecutive quarter in which the Production & Precision Ag outlook has moved the wrong way, following May's South America cut, and it is the segment that has to inflect for the 2027 thesis to pay.

Small Agriculture & Turf

SAT delivered the quarter's cleanest number and the only outright guidance raise. Net sales rose 12% to $3,383M on higher volumes and 1.5 points of price, and operating profit rose 28% to $622M with margin expanding 240bps to 18.4%. The full-year margin guide was raised to 14.5% to 15.5% from 13.5% to 15%, lifting the floor a full point and the ceiling half a point. Management credited the tariff refund and the Section 232 policy adjustment alongside execution, so a portion of the raise is policy rather than operations. The demand backdrop is the healthiest in the portfolio: dairy and livestock customers are carrying strong cash flows on firm beef prices, turf is recovering across residential and commercial mowing, and India's small-tractor market continues to grow.

"Our dairy and livestock customers experienced exceptionally strong farm cash flows in 2025, and have been able to maintain healthy margins in 2026 supported by strong beef prices." — Christopher Seibert, Director of Investor Relations

Assessment: The segment we described last quarter as quietly excellent has now forced a guidance raise, and it is doing the work that keeps enterprise earnings flat through a large-ag trough. The caveat is that Q4 carries a seasonal step-up in R&D and administrative spend, so the exit-rate margin will look worse than the 18.4% printed here.

Construction & Forestry

C&F produced the eye-catching numbers: net sales up 18% to $3,618M and operating profit up 84% to $436M, with margin expanding 440bps to 12.1%. Eight points of price realisation drove it, and management was candid that the comp did much of the lifting. The demand picture underneath is nonetheless the strongest in the company. The US and Canada construction equipment industry guide was raised to up 5% to 10% from up roughly 5%, and Deere is now carrying four to five months of orders against a normal two to three.

"The order books for 2026 are largely full, as demand fundamentals remain favorable across both the earthmoving and roadbuilding end markets. Large scale infrastructure projects, data center construction, and pipeline activity continue to support robust customer demand. As a result, customer backlogs now extend well into fiscal year 27." — Christopher Seibert, Director of Investor Relations

Deere is deliberately producing modestly below retail, which sets up a restock opportunity into 2027 and supports dealer rental-fleet expansion. Technology attach is scaling alongside: factory-installed smart grade adoption is up more than 50% year to date and job-site safety solutions are up nearly 40%. Offsetting all of this, global forestry was cut again, to down roughly 10% from down roughly 5%, on weak residential construction and soft log and lumber prices.

Assessment: The segment remains the best part of the story, but this quarter requires care in the reading. The 84% profit growth is not repeatable and the full-year price guide of roughly 3% against 8 points in Q3 implies close to flat price in Q4. The durable elements are the backlog extending into fiscal 2027, the deliberate underproduction, and rental now accounting for 30% to 35% of earthmoving transactions. Those are the things to underwrite, not the print.

Financial Services

Financial Services net income rose 7% to $219M on favourable financing spreads, partly offset by a smaller average portfolio, and segment operating profit of $271M was up 2%. The full-year outlook was nudged up again, to roughly $870M from roughly $860M. Nine-month operating profit of $823M is up 11% on 4% lower revenue, which is spread expansion doing the work.

Assessment: The counter-cyclical anchor continues to behave, and a second consecutive small raise is a quiet signal about dealer and farmer credit quality in a weak farm-income year. It is not large enough to change the enterprise story, but it has now contributed to holding or raising the group guide two quarters running.

Key KPIs: Order Books, Inventory & Technology

Two of these lines matter more than the rest. The early-order programs are the first demand data point in our coverage to print above the prior year, and the used-inventory normalisation is the mechanical precondition that lets replacement demand convert into new orders. Everything else on this table is a second-order confirmation of one or the other.

Key Topics & Management Commentary

Overall Management Tone: Materially more confident than last quarter and, unusually, willing to quantify. Where the Q2 call answered the recovery question with a framework, this one answered it with an order number and a technology take rate, and then immediately capped the enthusiasm by insisting the recovery will be measured rather than sharp. Guidance discussion was conducted almost entirely in the language of narrowing ranges and raising floors, which is a deliberate posture rather than an accident of phrasing.

1. The Beat Came From the Factory This Time

Management led with production output rather than policy, which is the opposite of the Q2 framing. Factories were described as exceeding expectations on output, combined with cost discipline and favourable price. The refund was disclosed second, sized precisely, and explicitly excluded from the remainder of the year.

"We recognized 110 million of incremental refunds in Q3, slightly above expectations… As a result, total refunds recognized in fiscal year 26 now stand at 382 million. Notably, current outlook assumes no further refund activity during the balance of the fiscal year." — Christopher Seibert, Director of Investor Relations

The disclosure discipline here is worth crediting. Deere sized the refund, told the market it would not repeat in Q4, and left investors able to normalise the quarter without guesswork. That is the same transparency it showed in Q2, applied to a much smaller number.

Assessment: This is the clean quarter we said we were waiting for. The refund is a tenth of the beat once the tax rate is netted against it, and the operating line carried the rest. On the substance of the print, the Q2 objection is answered.

2. Raising the Floor, Not the Ceiling

Both headline guidance changes moved the bottom of the range and left the top untouched: net income to $4.75B to $5.00B from $4.5B to $5.0B, and equipment-operations cash flow to $5.0B to $5.5B from $4.5B to $5.5B. Management's own framing was about narrowing rather than raising.

"Combination of our performance year to date and a strong fourth quarter order book across all segments has enabled us to narrow our guidance ranges and improve our net income and cash flow forecast despite a very dynamic market backdrop." — T. Brent Norwood, Chief Financial Officer

The arithmetic underneath is tighter than the headline suggests. Nine-month net income of $3.808B against a $4.75B to $5.00B full-year range implies Q4 of $942M to $1,192M, a midpoint of $1,067M against $1,065M in the year-ago quarter. The raised guide, at its midpoint, embeds a Q4 that is flat year over year.

Assessment: A raised floor after three quarters of actuals is closer to the elimination of downside than the creation of upside. It de-risks the year and confirms that the low end was never going to be tested, which is worth something. It does not tell you the business is accelerating, and the implied flat Q4 says it is not.

3. The Early-Order Programs Turned Positive

This is the quarter's most important disclosure and the direct answer to our number-one watch item from May. Sprayer programs opened in mid-May and run through the end of this month, planters opened in early June and close at the end of September, and the combine program has just opened. With the crop-care programs still running, the collective order book is already above last year's completed total.

"As of right now, we are seeing modest improvements in order intake versus the prior year. Even though the crop care programs are still open, the collective orders for planters, and sprayers are already higher than last year. At this time, results are up mid single digits compared to the completion of last year's program." — Deanna Kovar, President, Worldwide Agriculture & Turf Division

The comparison is against the completed prior-year program with weeks left to run, so the final number should land higher still. Regionally the United States is trending slightly better than Canada, though Canada is a small share of the planter portfolio and the distinction carries little weight.

Assessment: This clears the bar we set in May. It is the first hard demand evidence in our coverage that points up rather than sideways, and it converts the cycle-bottom call from an assertion into a supported claim. It is also, as the next topic explains, smaller than what the Street has modelled.

4. "Measured," Not Sharp: Management Caps Its Own Recovery

Having delivered the good order news, management immediately constrained the extrapolation, twice, in near-identical language from two speakers. Customer profitability has improved only modestly, farm income remains pressured, and input-cost uncertainty persists.

"At the same time, underlying fundamentals continue to support a measured recovery. Rather than a sharp rebound in 2027." — Deanna Kovar, President, Worldwide Agriculture & Turf Division

The closing remarks repeated it: "While the recovery is likely to be measured and is expected to vary by region, the underlying trends are moving in the right direction." Set against a Street modelling 25%-plus earnings growth for fiscal 2027 and roughly 8% PPA revenue growth, mid-single-digit order intake and a management team using the word "measured" twice is a gap worth naming.

Assessment: The most important tension in the quarter. The order data validates direction; management's own language questions the slope that consensus has assumed. If the closed programs land at mid single digits rather than high single digits, fiscal 2027 estimates have further to fall than the share price currently allows for.

5. Tariffs: Better This Year, Worse Next

The gross tariff run-rate came down to roughly $1.1B from roughly $1.2B, driven by the Section 232 rate on imported goods dropping from roughly 25% to 15%, which particularly benefits European imports. Netted against $382M of cumulative refunds, fiscal 2026 net tariff cost is roughly $718M, down from the roughly $900M framed last quarter. The catch is the shape of next year.

"Keep in mind, these changes have been effective June 1st. So the impact we see for this year are 5 out of 12 months. So you can expect another, call it, tailwind for fiscal year 27 as a result of these changes." — Christopher Seibert, Director of Investor Relations

A full year of the lower rate is a genuine tailwind. But the refunds do not repeat, and management guided net tariff cost to right around $1B in fiscal 2027 against roughly $718M this year. On a net basis, tariffs are a roughly $280M headwind to next year's earnings bridge.

Assessment: A rare case where the improving line item is still a deterioration. The structural point from Q2 stands: tariffs are a permanent, policy-dependent tax on the model, and the refunds were a cash windfall rather than relief. Anyone building a fiscal 2027 bridge off this year's net number will start roughly $280M too high.

6. Used Inventory Is Cleared and the Value Spread Has Normalised

The inventory story reached what looks like its conclusion. Model-year 2023 and 2024 high-horsepower tractors are down nearly 40% year over year, the model-year distribution of used combines is described as healthy, and new inventory in North America is tight. The more consequential disclosure is about pricing rather than volume.

"model year 2023 and 2024 high horsepower tractors are down nearly 40% from a year ago. Just as importantly, the spread between new and used equipment values has largely normalized. Improving replacement economics and creating a healthier environment for equipment trade cycles." — Deanna Kovar, President, Worldwide Agriculture & Turf Division

Through this downturn the used market has functioned as a governor on new-equipment demand: depressed used values destroyed trade-in economics and kept aging fleets in the field. A normalised spread removes that brake.

Assessment: Arguably a bigger structural positive than the order number, because it is the mechanism through which an aging fleet converts into orders. The precondition work is now essentially done. What remains is farm income, which Deere does not control.

7. Precision Ag: Take Rates Have Replaced Acres as the Metric

The technology narrative shifted from adoption breadth to attach depth. See & Spray factory installation is set to nearly double, and the model-year 2027 planter order book shows customers buying up the option list even in a pressured farm economy.

"current EOP trends suggest factory adoption of See & Spray will nearly double with the technology included on about 1/3 of North American sprayers on order." — Deanna Kovar, President, Worldwide Agriculture & Turf Division

More than 40% of North American planters on order for model year 2027 include the advanced offerings, and the digital ecosystem now spans more than 520 million engaged acres across roughly 1.2 million connected machines, with more than 190 million highly engaged acres growing double digits and more than 450,000 monthly active users. Management flagged AI-enabled capabilities coming to the operations centre without committing to timing or monetisation.

Assessment: Take rates rising in a bad farm economy is the strongest form of this evidence, because it means the technology is being bought on payback rather than prosperity. This also mixes favourably into 2027 revenue per unit, which is a partial offset to the modest order-volume recovery.

8. Construction Pricing Will Not Repeat, and Management Said So

The 8 points of C&F price realisation in the quarter sits against a full-year guide of roughly 3%, which implies close to nothing in Q4. Management explained the discrepancy without being pushed hard.

"There was, quite frankly, 1 part was an easy comps compared to last year. Keep in mind, you know, Q3 in 2025, we had about 5% negative price in C&F, which was the result of some of the incentives we deployed in the market you know, given the competitive environment at that point." — Christopher Seibert, Director of Investor Relations

The full-year C&F price assumption did move up, from roughly 2.5% to roughly 3%, so underlying pricing genuinely improved. But roughly five of the eight points in the quarter are the absence of last year's incentives rather than new price.

Assessment: Credit for the clarity. The risk is that the 84% operating-profit growth gets capitalised into 2027 models by anyone who did not listen to the explanation. C&F's durable story is the backlog and the underproduction, not this quarter's margin.

9. The Q4 Bridge Got Softer Than Q2 Implied

In May, management guided a back-half-weighted year with Q4 stronger than Q3 on both revenue and margin, driven by a heavier fourth-quarter large-tractor shipment schedule and easier price/cost comps. The Q3 framing is different.

"net sales is going to be more or less the same for PPA and C&F. But margins will come in a little bit on PPA and SAT. As you know, they incur a slightly higher load of R&D and SA&G coming out of the year." — T. Brent Norwood, Chief Financial Officer

Q4 also loses the refund entirely. The full-year segment guides tell the same story from another angle: PPA at down roughly 10% for the year against down 7% through nine months requires a materially steeper Q4 decline, and C&F at up roughly 20% against up 26% through nine months requires growth well below the nine-month pace.

Assessment: The revenue cadence promised in May did not fully materialise, and the margin cadence reversed. This is the least-discussed negative in the quarter and the reason the guidance ceiling did not move. It is not a thesis-breaker, but it belongs in any fiscal 2027 exit-rate assumption.

10. The FTC Settlement Closes a Long-Standing Overhang

The right-to-repair litigation brought by the Federal Trade Commission and five state attorneys general in January 2025 settled during the quarter. We flagged its absence from the Q2 call under omissions; this quarter management addressed it directly when asked. The agreement requires Deere, for ten years under FTC and state supervision, to give farmers and independent repair providers the same repair resources it provides authorised dealers, including fault-code handling, reprogramming of electronic components, emissions-shutdown restarts, and access to technical manuals.

"I think the agreement does formalize, some of the products and tools that we have and offer to the market, and we think are industry leading… So I think it will help support long term our aspirations and our life cycle solutions business overall." — T. Brent Norwood, Chief Financial Officer

Management's position is that the settlement formalises capabilities Deere already offered rather than forcing new concessions, and framed the outcome as supportive of the life-cycle solutions business rather than dilutive to it.

Assessment: The regulatory tail risk is resolved and the terms look manageable, which is a genuine positive that got almost no attention in the reaction. The framing that it helps the parts and service business is optimistic; the honest read is that a ten-year compliance regime is a modest constraint on a high-margin aftermarket, traded for the removal of a reputational and legal overhang. That is a good trade.

11. Buybacks Stay Slow While Cash-Flow Guidance Rises

Nine-month repurchases of common stock totalled $697M against $1,136M in the same period last year, a 39% reduction, implying roughly $197M in the third quarter. This is happening in the same quarter that Deere raised the floor of its equipment-operations cash-flow guide by $500M.

Assessment: Deere has now spent nine months buying back materially less stock than last year while telling the market its cash generation is improving. Through the Q2 sell-off, when the shares traded in the low $500s, the reduced pace looked like a missed opportunity. With the stock at $634.54 it looks more defensible, though management has never explained the decision as deliberate. Capital allocation is the one part of this story that has gone unarticulated all year.

Guidance & Outlook

Industry Outlook Revisions

Read the two tables together and the pattern is consistent: both ag markets that moved, Europe and South America, moved down while North America and Asia held, every construction market held or moved up, and the enterprise number still went higher because Small Ag & Turf and Financial Services absorbed the difference. That is the second consecutive quarter in which the diversification argument has been settled not by rhetoric but by a guidance table.

Implied Q4: Nine-month net income of $3.808B against the $4.75B to $5.00B range implies $942M to $1,192M in the fourth quarter, midpoint $1,067M. Q4 fiscal 2025 delivered $1,065M, so the raised guide embeds a flat fourth quarter at the midpoint, down 12% at the low end and up 12% at the high end. Implied full-year EPS at the midpoint is roughly $18.00 against $18.50 in fiscal 2025, so fiscal 2026 remains a down year even after the raise.

Street at: Consensus sat near $4.87B before the print, inside the new range and essentially at its midpoint of $4.875B. For fiscal 2027, the Street is modelling 25%-plus earnings growth, which implies roughly $22.50 of EPS, and roughly 8% revenue growth at Production & Precision Ag. The mid-single-digit early-order result is directionally supportive of the first and arithmetically light against the second.

Guidance style: Characteristically conservative, and deliberately so. Deere raised floors, narrowed ranges, and left every ceiling in place, having declined to raise the enterprise guide at all last quarter despite a larger beat. The pattern across three quarters is a management team protecting the full-year number rather than chasing it, which makes the raise more credible than a wider one would have been.

Analyst Q&A Highlights

Production versus retail into 2027, and what pricing the order book carries

The opening question paired the 2027 supply setup with the pricing embedded in the early-order programs, given several years of equipment-cost inflation against pressured farm margins. Management confirmed modest underproduction of a couple of percentage points in both Production & Precision Ag and Construction & Forestry, then addressed pricing discipline directly: the order-program pricing was set months ago and is calibrated to cover inflation rather than to expand margin.

Q: "I guess just my first question just on the setup for 2027. How are we thinking about production versus retail by region? And then just with regards to the early order program up mid-single-digit, can you just talk about what the pricing expectation are just in 2027 given concerns about inflationary, costs over the past several years on farm equipment."
— Jamie Cook, Truist Securities

A: "From an EOP pricing standpoint, we, of course, rolled that pricing out several months ago as we started our EOP process, and our focus remains on covering inflation with our pricing. And we have done that across the EOP products and also across all of the PPA portfolio as we roll towards 2027."
— Deanna Kovar, President, Worldwide Agriculture & Turf Division

Assessment: A restrained answer and the right one for the franchise. Inflation-covering price into a weak farm economy protects share and dealer relationships, but it also means 2027 margin expansion has to come from volume and mix rather than price. Anyone modelling both a volume recovery and price-led margin expansion next year is double-counting.

Unpacking the early-order result by region and by technology

A recurring line of questioning sought to decompose the order improvement, noting it landed better than most expected in aggregate and that with programs still open the final figure could reach high single digits. The response steered away from the regional split and toward the attach rates, which is where management clearly believes the signal is.

Q: "I wonder if you could just unpack the comments on the early order program. Deanna, if you do not mind just commenting on what variability in demand you saw depending on region because it came in, I think, better than most of us expected in aggregate."
— Jerry Revich, Wells Fargo

A: "I would say as we look regionally, The US is trending slightly better, than Canada… seeing a doubling of See & Spray on factory installed sprayer orders and seeing 40% of our planters taking some of the most advanced technologies on planting really gives us confidence that we are headed in the right direction relative to our portfolio and that customers are looking for ways to maximize everything they can going into 27."
— Deanna Kovar, President, Worldwide Agriculture & Turf Division

Assessment: Management is more confident in the mix than in the volume, which is a meaningful tell about how it sees the shape of 2027. Redirecting a volume question to take rates is not a dodge here, because the take rates are genuinely the better number, but it does confirm the volume recovery is modest.

The third-to-fourth-quarter bridge and the inventory build

A question flagged an apparent tractor-inventory build in the quarter running ahead of the industry and asked whether shipments had shifted between quarters. The answer, after a first response dismissing any concern, contained the most consequential guidance detail on the call and the one that most directly revises what was said in May.

Q: "I am looking here 3Q, 4Q. I am just wondering, did something slip between those quarters, maybe pushed a little bit into from 4Q? When I look at your inventory to ratios, it looks like you actually built some tractor inventory and 3Q ahead of the industry."
— Kristen Owen, Oppenheimer

A: "For PPA and, C&F, you know, we would expect a similar, sales level net sales level in the fourth quarter as we saw in the third quarter Now keep in mind, from a margin perspective, we will not get the benefit of refunds in the fourth quarter like we had in the third quarter"
— T. Brent Norwood, Chief Financial Officer

Assessment: The single most useful exchange for modelling purposes, and it went largely unremarked in the reaction. Flat sequential revenue with lower margin and no refund is a materially softer fourth quarter than the back-half-weighted ramp described three months ago. It explains why the guidance ceiling stayed put.

Walking the gross tariff number down from $1.2B to $1.1B

An analyst sought to separate the sources of the $100M reduction in expected tariff expense, specifically whether it reflected the July policy relief or anticipated refunds. Management attributed it entirely to the Section 232 rate change and then volunteered the part that matters for next year.

Q: "I think you expect now $1.1 billion of impact which I think is probably a $100 million lower than what you had anticipated originally. Is that a function of the tariff relief that ag equipment got back in July or is that reflective of some refunds you expect?"
— Tami Zakaria, JPMorgan

A: "Keep in mind, these changes have been effective June 1st. So the impact we see for this year are 5 out of 12 months. So you can expect another, call it, tailwind for fiscal year 27 as a result of these changes."
— Christopher Seibert, Director of Investor Relations

Assessment: Volunteering the seven months of unrecognised benefit is the kind of disclosure that builds credibility, and it is a real positive for the 2027 bridge. It is also only half the tariff picture, as the next exchange established.

Net tariff exposure as a 2027 headwind or tailwind

The follow-up question that mattered most asked management to net the lower gross rate against the disappearing refunds and say plainly whether fiscal 2027 tariffs are better or worse. Management answered without hedging.

Q: "So really just trying to think about when all is said and done and comparing 2026 to 2027, you know, is that 8 roughly 800 million net impact that you have this year And if all else were to be equal, would that be a headwind going into next year or a tailwind or neutral?"
— Steven Fisher, UBS

A: "As you think about our tariff expense this year versus next year, net tariffs, so direct tariffs paid less any refunds will be a headwind going into next year… Going into next year, we would expect a run rate that is going to be closer to, or right around 1 billion for the year. So there will be a there will be a bit of a step up."
— T. Brent Norwood, Chief Financial Officer

Assessment: A straight answer to a question management could easily have fudged, and the number is unwelcome: roughly $280M of incremental net cost in a year the market expects 25%-plus earnings growth. This is the concrete, quantified 2027 headwind that came out of the call, and it deserves more weight than it received.

Eight points of construction price in the quarter against three for the year

An analyst noticed that the full-year construction price guide implies roughly nothing in the fourth quarter against 8 points in the third and asked what reconciles them. The answer confirmed that the bulk of the quarter's price was a comparison effect.

Q: "Looks like the guidance implies a kind of 50-basis point positive price versus plus 8% in the third quarter. So I just want to understand some of the moving dynamics behind that."
— Chad Dillard, Bernstein

A: "There was, quite frankly, 1 part was an easy comps compared to last year. Keep in mind, you know, Q3 in 2025, we had about 5% negative price in C&F, which was the result of some of the incentives we deployed in the market you know, given the competitive environment at that point."
— Christopher Seibert, Director of Investor Relations

Assessment: Full marks for candour on a number that flattered the headline. The exchange establishes that roughly five of the eight points were the absence of prior-year incentives, which means the segment's 84% profit growth should not be carried into any forward model. The underlying price improvement, from roughly 2.5% to roughly 3% for the year, is the real and much smaller figure.

The right-to-repair settlement and the aftermarket

A question paired order-book margin implications with the regulatory settlement, asking specifically what it means for life-cycle parts economics over the next five years. Management's answer emphasised continuity of existing practice over concession.

Q: "On the FTC settlement, could you comment on that? Just the right to repair issue and just what any, implications that might have on related to life cycle parts over the next 5 years?"
— Angel Castillo, Morgan Stanley

A: "John Deere has always supported our customer's ability to repair their own equipment or, themselves or use whatever third party they trust the most. And so that has not changed. At all. I think the agreement does formalize, some of the products and tools that we have and offer to the market, and we think are industry leading."
— T. Brent Norwood, Chief Financial Officer

Assessment: The framing is that nothing changes, which is a defensible reading of an agreement that largely codifies existing tooling. What it does not address is whether a ten-year, monitored parity obligation with independent providers constrains aftermarket pricing power over time. The overhang is gone, which is the bigger point; the aftermarket question is left open.

What They're NOT Saying

1. A quantified 2027. Three quarters into the cycle-bottom call, management still will not size the recovery. It has now added a qualifier, "measured," without saying measured against what. With the Street modelling 25%-plus earnings growth, declining to bracket the number leaves the single most important input to the stock entirely to inference.
2. What "mid single digits" becomes when the books close. Sprayer programs close at the end of this month and planters at the end of September, with combines still running. Management said it would update next quarter and pointedly declined to indicate where the final figure lands, even when asked directly whether the running total could finish in the high single digits.
3. Why the ceiling did not move. The net income and cash-flow floors both rose and both ceilings stayed put. Nobody asked why, and management did not volunteer it. The implied flat fourth quarter at the guide midpoint is the answer, and it went unexamined on the call.
4. The buyback. Nine-month repurchases are down 39% year over year in the same quarter the cash-flow guide floor rose $500M. Management has not characterised the slowdown as deliberate, has not been asked about it in three quarters, and has offered no framework for what the shares are worth to the company.
5. Whether the aftermarket is structurally affected by the settlement. The response addressed reputation and customer choice. It did not address whether ten years of monitored parity with independent repair providers changes the pricing power of a high-margin parts and service business.
6. Europe, in any depth. The European industry outlook was cut with a single sentence about arable profitability, drought and heat stress. For a region carrying material Production & Precision Ag exposure and now a second consecutive downward revision, that is thin, and the question about a 2028 policy change pulling demand forward was answered with "too early to tell."

Market Reaction

• Pre-print setup: DE closed at $580.63 on August 19, up 24.7% year to date and 17.8% over twelve months but down 1.1% over the trailing 30 days, inside a 52-week closing range of $439.11 to $662.49. The S&P 500 entered the print up 12.6% year to date, so Deere had already outperformed by roughly 12 points on the year.
• Reaction session (August 20, before-open report): Shares gapped up 5.3% to open at $611.12, traded between $586.48 and $639.00, and closed at $620.94, up 6.9% or $40.31. Volume of 3.2M shares ran 3.2x the 1.0M 30-day average. The S&P 500 fell 0.9% on the day.
• Follow-through: The stock added another 4.3% on August 21 to close at $647.47 and peaked at a closing $648.64 on August 24 before giving back 2.8% on August 25. It closed at $634.54 on August 26, up 9.3% cumulatively from the pre-print close and up 36.3% year to date, still 4.2% below the February record close of $662.49.

The rally was a rational response to a print that answered the market's two open questions at once. The beat was operationally sourced rather than refund-driven, which is what the May sell-off had been asking for, and the early-order data supplied the first demand evidence that the cycle-bottom call is more than an assertion. Two of the three things we said in May would make us constructive arrived on the same call, and the market repriced accordingly.

What the reaction did not price is the fourth-quarter step-down or the fiscal 2027 tariff bridge. Both were disclosed clearly and neither made the coverage. The gradual fade from $648.64 to $634.54 over the three sessions since suggests some of that reading has begun, though it is equally consistent with ordinary profit-taking after an 11.5% two-day move.

One transaction is worth recording without over-reading. On August 21, at prices between $650.31 and $654.05, the president of the Worldwide Construction & Forestry and Power Systems business exercised options covering 23,260 shares and sold them for roughly $15.1M, with a further planned sale of about 7,839 shares disclosed. The sale executed under a Rule 10b5-1 plan adopted in March, well before the quarter closed, so it carries no informational content about the print. It is a fact about the stock's position rather than a signal from an insider.

Street Perspective

Debate: Is the mid-single-digit order book enough for the 2027 numbers?

Bull view: The comparison is against last year's completed program with weeks of ordering still to run, so the final figure lands higher, plausibly high single digits. Volume is only part of the revenue equation: See & Spray attach nearly doubling and more than 40% of planters taking advanced options lift revenue per unit, so mid-single-digit units can support high-single-digit segment revenue on their own.

Bear view: Sell-side models embed roughly 8% Production & Precision Ag revenue growth for fiscal 2027, and mid-single-digit orders on the two seasonal categories do not get there without heroic assumptions about combines, which have only just opened. Management chose the word "measured" twice, and management has better visibility than the models do.

Our take: The bear has the better arithmetic and the bull has the better mechanism. Mix is genuinely underappreciated and does close part of the gap, but the burden of proof sits with the closed books at the end of September. This is the most important number Deere will disclose this year and it is one quarter away.

Debate: Does the operational beat justify a 35x multiple?

Bull view: Deere is a trough-earnings franchise, and trough earnings always carry inflated multiples; the correct denominator is mid-cycle, against which the stock is far cheaper. The print proved structurally higher earnings power, with a 13.2% margin in a segment management calls sub-trough and a 14.4% equipment margin in a down year, and the recurring-revenue layer is compounding regardless of the cycle.

Bear view: The trough-multiple argument only pays if you are early, and the stock is up 36% year to date, within 4% of its all-time high, with consensus targets clustering barely above the price. The recovery it discounts is already the base case, tariffs step up roughly $280M next year, and the fourth quarter is guided flat.

Our take: The bull case is directionally correct about the business and premature about the entry. Paying 35x for a trough works when the multiple compresses into a recovery you own from the start; it works considerably less well after the market has repriced 19% in three months on evidence you can already read. We want the same business at a lower price, and we have said so at each of the last two prices.

Debate: Is Construction & Forestry now the more important segment?

Bull view: C&F has closed to within $238M of Production & Precision Ag on nine-month operating profit, from $1,385M behind a year ago, carries four to five months of backlog extending into fiscal 2027 against a normal two to three, is deliberately underproducing retail into a restock, and is levered to data centres, pipelines and infrastructure rather than to the farm cycle. Technology attach is scaling fast, and rental is now 30% to 35% of earthmoving transactions and growing.

Bear view: C&F closed that gap because PPA is at the bottom of a severe downcycle, not because C&F grew into it. Small Ag & Turf, not Construction, is the segment actually carrying enterprise profit this year. The quarter's 84% profit growth was largely a pricing comp, forestry was cut again, and construction is itself a late-cycle, rate-sensitive end market whose backlog can evaporate faster than an order book of seasonal ag equipment.

Our take: Both are right, and the resolution is a matter of horizon. C&F is the better business right now and the reason enterprise earnings have held; it is not structurally larger than large ag through a full cycle, and it should not be capitalised at this quarter's run-rate. The genuinely durable disclosures are the backlog duration and the deliberate underproduction, which are 2027 revenue that has already been sold.

Model Update Needed

Valuation impact: At the August 26 close of $634.54, DE trades at roughly 35x an implied fiscal 2026 EPS of about $18.00 and roughly 28x a consensus fiscal 2027 near $22.50, against a historical mid-cycle range closer to 15x to 17x. Three months ago at $531 those same multiples were roughly 30x and 24x, so one print has re-rated the forward multiple by about four turns. This quarter genuinely earns a higher fair value than the low-to-mid $500s we published in May: the order evidence arrived, the guidance floor rose, gross tariff exposure fell, and the regulatory overhang cleared. Applying 25x to 27x to a fiscal 2027 we would set nearer $22.50, and cross-checking against 21x to 22x on a mid-cycle figure in the high $20s, puts our fair-value range at $560 to $600. That is roughly 6% to 12% below the last close.

Thesis Scorecard Post-Earnings

Overall: Strengthened on fundamentals, unchanged on risk/reward. Three of the six pillars are now confirmed rather than merely on track, the first bear point held rather than deteriorated further at the enterprise level, and the tariff picture improved for the year in front of us. Against that, the valuation risk we had marked as easing in May has escalated back to where it sat in February, and the fiscal 2027 bridge acquired a quantified $280M tariff headwind against a Street that has not lowered its growth expectation.

Action: Maintaining Hold. We wrote in May that a clean, non-refund beat-and-raise or a supportive early-order season would take us to Outperform, and both conditions were met inside a single quarter. We are not upgrading, and the reason is price rather than thesis: those triggers were framed against a $531 share price, and the stock has since moved 19% to $634.54, carrying the forward multiple up roughly four turns and moving through our revised $560 to $600 fair-value range. The business is in better shape than at any point in our coverage; the entry point is worse. We upgrade on a pullback toward the mid-$500s, or on the closed early-order books landing at high single digits or better at the September quarter, which would validate the fiscal 2027 revenue growth consensus currently assumes and justify carrying our fair value higher.