Deere & Company: Management Declares 2026 the Ag Cycle Bottom as Tariff Relief and Construction Backlogs Drive a Rare Guidance Raise
Q3 fiscal 2026 earnings call, August 20, 2026
Deere delivered a third quarter that beat both company and consensus expectations on revenue and profitability, with equipment operations posting a 14.4% operating margin on net sales of $10.999 billion, up 6% year-over-year. Net income attributable to Deere came in at $1.379 billion, or $5.10 per diluted share, and management used the print to raise full-year net income guidance to a range of $4.75 billion to $5.00 billion, up from prior guidance, while also lifting the operating cash flow outlook to $5 billion to $5.5 billion. Chief Financial Officer Brent Norwood struck a confident tone, saying he "remains very confident in our team's ability to finish strong for the fiscal year," pointing to a "strong fourth quarter order book across all segments" as the basis for narrowing guidance ranges despite what he called "a very dynamic market backdrop."
Tariffs: a quantified headwind that gets worse before it gets better
The most concrete new data point on the call was Deere's updated tariff arithmetic. Director of Investor Relations Chris Seibert detailed that direct tariff expense for fiscal 2026, excluding IEEPA refunds, has been revised down to approximately $1.1 billion from a prior $1.2 billion run rate, driven by a reduction in Section 232 tariffs on imported goods from roughly 25% to 15%, effective June 1. Because that relief only covers five of the fiscal year's twelve months, management flagged a further tailwind in fiscal 2027. Separately, Deere recognized $110 million of incremental IEEPA refunds in the quarter, bringing year-to-date refunds to $382 million, with no further refund activity assumed for the balance of the year. Norwood was explicit that the net picture reverses next year: net tariff exposure of roughly $750 million in fiscal 2026 is expected to step up to "closer to right around $1 billion" in fiscal 2027, a headwind investors should build into next year's cost bridge even as gross tariff rates ease.
Calling the bottom of the ag cycle
Perhaps the more consequential message for long-term positioning was management's willingness to explicitly call a trough. Norwood stated the company continues "to believe that 2026 represents the bottom of the ag equipment cycle," while cautioning that "the recovery is likely to be measured and is expected to vary by region." The evidence cited includes early order program (EOP) results for model year 2027: combined sprayer and planter orders are running up mid-single digits versus last year's completed program, with sprayers closing later this month and planters closing at the end of September. President Deanna Kovar called the results "an encouraging signal" but was careful to temper expectations, noting "the underlying fundamentals continue to support a measured recovery rather than a sharp rebound in 2027." Replacement demand is building as fleet age increases, and Kovar pointed to record soybean crush and ethanol production as supportive demand signals, while corn futures near $5.05 were flagged by Seibert as "definitely a good signal for a lot of these growers out there."
Inventory discipline sets up a cleaner 2027
Deere's channel management gets credit for much of the earnings resilience. Kovar detailed that model year 2023 and 2024 high-horsepower tractor inventories are down nearly 40% from a year ago, the used combine model-year distribution has normalized, and the spread between new and used equipment values has largely closed, improving trade-in economics. Both Production & Precision Ag and Construction & Forestry are running modestly below retail demand — by a couple of percentage points, according to Seibert — a deliberate choice to keep field inventories lean heading into next year rather than a signal of demand weakness.
Construction & Forestry emerges as the growth engine
While ag absorbs the cyclical pain, Construction & Forestry is doing the heavy lifting on growth. Segment net sales rose 18% to $3.618 billion with operating margin of 12.1%, and full-year sales guidance remains at approximately 20% growth with margin guidance tightened to 10.5%-11.5%. Management raised its 2026 industry outlook for U.S. and Canada construction equipment to up 5% to 10%, citing data center construction, large-scale infrastructure and pipeline activity. Order books now extend four to five months out — more than the two-to-three month level management typically prefers — and backlogs stretch "well into fiscal year 2027." Norwood went further on the strategic framing, calling C&F "one of the most significant opportunities across Deere" within the company's long-term growth ambitions, citing technology adoption as the parallel to what Deere has already achieved in agriculture. Factory-installed SmartGrade adoption is up more than 50% year-to-date, and job site safety solution sales are up nearly 40%. Rental also featured prominently: 30% to 35% of earthmoving transactions now start as a rental, a mix Norwood expects to keep growing as dealers expand owned fleets.
South America and Europe remain the soft spots
Production & Precision Ag sales are now guided down approximately 10% for the year, with margin guidance narrowed to 11%-12%, reflecting further deterioration in South America and Europe. South America's industry outlook was cut to down 15%-20% as elevated fertilizer costs and higher interest rates continue to weigh on affordability; Deere is proactively underproducing there to protect channel health, with hopes that the MOVE Agriculture Financing Program and single-digit financing rates provide relief into 2027. Europe is now expected to be roughly flat, with arable farmers pressured by input costs and drought-related crop uncertainty even as dairy and livestock economics remain a stabilizing force. North America large ag remains the one region holding at "very low levels" but without further deterioration.
Precision ag technology adoption accelerating despite the downturn
Kovar highlighted that Deere continues investing through the cycle in precision technology, and the adoption data support the strategy. See & Spray usage is up significantly on a per-acre basis with herbicide savings exceeding 50%, and factory adoption is set to nearly double for model year 2027, with the technology ordered on about one-third of North American sprayers. On the planter side, more than 40% of North American units on order include next-generation offerings such as ExactRate, ExactShot and FurrowVision. The John Deere Operations Center now covers more than 520 million engaged acres across nearly 1.2 million connected machines, with highly engaged acres up double digits to over 190 million, and more than 450,000 unique monthly active digital users. Kovar framed the opportunity in stark economic terms, noting that seed, fertilizer and crop protection represent roughly 70% of farmer operating costs, and that an integrated precision system "can materially improve farm economics, delivering double-digit savings in variable operating costs and meaningful yield improvement."
Excavator rollout and the FTC right-to-repair settlement
Two smaller but notable disclosures emerged in Q&A. Norwood confirmed Deere has launched the first three models of its in-house-designed excavator line this spring, with "very positive" customer feedback so far, and additional models rolling out over the next three to four years. On regulatory matters, Norwood addressed the FTC settlement on right-to-repair, characterizing it as formalizing tools Deere already offers rather than a substantive change in strategy: "John Deere has always supported our customers' ability to repair their own equipment for themselves or use whatever third party they trust the most." He pointed to Operations Center PRO Service, which gives customers or independent technicians access to diagnostics, digital manuals and software updates, as evidence the settlement should support rather than threaten the company's multi-year Lifecycle Solutions aftermarket ambitions.
On pricing, management reiterated that early order program pricing for 2027 is designed to cover inflation rather than expand margin, with Kovar noting the approach applies "across the EOP products and also across all of the PPA portfolio." Seibert acknowledged the inflation backdrop remains "dynamic," citing supplier tariff pass-throughs and volatile input costs as ongoing considerations heading into next year.