Deere & Company - Q2 FY2026 Earnings Analysis

Performance Highlights

Deere reported Q2 FY2026 net sales of $11.778 billion, up 5% year-over-year, with total revenues of $13.369 billion and net income of $1.773 billion, or $6.55 per diluted share, broadly beating consensus expectations. Results included a $272 million IEEPA tariff refund recovery that benefited production costs and lifted equipment operations margins by nearly 2.5 points to 16.9% for the quarter. Construction & Forestry delivered the standout segment performance, with net sales surging 29% to $3.790 billion and operating profit up 48% to $561 million at a 14.8% margin, while Small Ag & Turf posted a 16% revenue increase and a 20.6% operating margin on stronger shipment volumes and favorable price realization. Production & Precision Ag remained the drag, with net sales down 14% to $4.503 billion and operating profit declining 39% to $706 million, reflecting ongoing large ag demand weakness.

Management Outlook and Forward Catalysts

Management held its full-year FY2026 net income guidance at $4.5–$5.0 billion and equipment operations operating cash flow at $4.5–$5.5 billion, signaling confidence that the portfolio's diversification can absorb continued large ag softness through cycle trough. Production & Precision Ag net sales guidance remains down 5–10% for the full year with an 11–13% operating margin target, while Construction & Forestry guidance was raised to up approximately 20% in net sales with a 10–12% margin range, and Small Ag & Turf is expected to grow roughly 15% with margins of 13.5–15%. Management characterized 2026 as the likely bottom of the large ag cycle, highlighting tightening field inventories, aging fleet hours, and continued new product introductions as structural catalysts for recovery.

The central investor debate heading into Q3 centers on the pace and shape of the large ag cycle recovery and whether tariff and geopolitical headwinds will erode the margin gains achieved through portfolio diversification. Bulls will focus on the continued improvement in used equipment inventory, biofuel policy tailwinds including RVO approval and potential year-round E15, and structurally higher profitability versus prior cycle troughs, while bears will watch elevated input costs, a stronger Brazilian real pressuring South America demand, and the durability of Construction & Forestry's above-mid-cycle volumes.