Core Viewpoint - Deere & Company is facing significant challenges due to a projected $1.2 billion tariff impact in fiscal 2026, which overshadows its recent earnings performance [1][2]. Financial Performance - Despite exceeding earnings estimates, Deere anticipates a decline in net income for fiscal 2026, projecting it to fall between $4.0 billion and $4.75 billion, down from over $5 billion in fiscal 2025 [2]. - The company reported a 30% decline in the North American large agriculture industry this year, yet managed to deliver margins that are over 450 basis points better than in 2016, the last comparable cycle [6]. Inventory and Cost Management - Deere has significantly reduced its inventory levels, with the inventory for its largest tractors reaching a 17-year low, indicating aggressive cost management in response to falling demand [4]. - The company is committed to inventory management and cost control to navigate the ongoing margin pressures from tariffs and challenges in the large agriculture sector [5]. Market Outlook - Executives view fiscal 2026 as a transitional year, suggesting that it may mark the bottom of the large agriculture cycle, while also indicating growth in other segments [5]. - Deere expects its construction and forestry business, along with its small agriculture and turf segment, to grow approximately 10% in fiscal 2026 [5]. Stock Performance - Year-to-date, Deere shares have increased by 12.36%, but this is lower than the S&P 500's return of 16.09% during the same period, with a minimal annual gain of 0.83% [6]. - Following the earnings report, Deere's stock fell by 5.67% to $469.87 per share [6].

Financial Data and Key Metrics Changes - Net sales and revenues decreased by 9% to DKK 12.018 billion, with equipment operations net sales also down 9% to DKK 10.357 billion [10] - Net income attributable to Deere and Company was €1.289 billion, or $4.75 per diluted share [10] Business Segment Data and Key Metrics Changes - Production and Precision Ag segment net sales fell 16% year over year to €4.273 billion, primarily due to lower shipment volumes and unfavorable price realization [10][11] - Small Ag and Turf segment net sales decreased by 1% year over year to €3.025 billion, with operating profit declining slightly to €485 million, resulting in a 16% operating margin [12] - Construction and Forestry segment net sales were down 5% year over year to DKK 3.059 billion, with an operating profit of €237 million and a 7.7% operating margin [19][20] Market Data and Key Metrics Changes - In the U.S. and Canada, large ag equipment industry sales are expected to decline approximately 30% in fiscal year 2025 due to high interest rates and elevated used inventory levels [13] - Small ag and turf industry demand in the U.S. and Canada is projected to decrease by 10% [14] - European market sentiment is improving, with expectations for industry sales to be flat to down 5% in fiscal year 2025 [15] Company Strategy and Development Direction - The company is focused on disciplined execution amidst challenging market dynamics, with a strong emphasis on managing production costs and inventory levels [6][8] - Deere is positioning itself to respond effectively to market demand inflections, having reduced inventories significantly across all business segments [29][32] - The company is investing in technology and precision agriculture solutions to drive future growth and improve customer outcomes [59][110] Management's Comments on Operating Environment and Future Outlook - Management noted that global uncertainty and high interest rates are impacting customer sentiment, leading to cautious capital purchases [28] - Despite challenges, there are signs of optimism in certain markets, with improved retail sales and order activity in specific segments [9][44] - The company remains committed to delivering long-term value for customers and shareholders, leveraging its operational efficiencies and market position [67][68] Other Important Information - Tariff costs in the quarter were approximately $200 million, with a forecasted pretax impact of nearly $600 million for fiscal year 2025 [37][38] - The company has seen a positive response to pricing actions taken in the North American earthmoving market, with retail settlements up mid-single digits year over year [39] Q&A Session Summary Question: Can you provide additional color on the quarter's performance? - Management highlighted the challenges posed by global trade dynamics and interest rate expectations, emphasizing the importance of focusing on controllable factors like production and inventory management [28] Question: What are the expectations for production in relation to retail demand next year? - Management indicated that production is expected to align closely with retail demand, particularly in large ag, while small ag and turf may see some lift due to underproduction this year [75] Question: Can you elaborate on the early order programs and their trends? - Management noted that while there is caution in ordering due to market uncertainty, early returns on planters and combines are positive, though it is still early in the programs [81][82] Question: How is the company addressing pricing competition in the market? - Management acknowledged the competitive pricing environment but expressed optimism about the market's ability to bear higher pricing, especially with positive retail sales trends [86] Question: What is the outlook for cash flow guidance? - Management explained that the cash flow guidance remains unchanged due to the uncertain environment, but they feel confident about inventory levels and retail sales trends [94]