Deere's Diversification Pays Off as Ag Trough Nears
Q3 beats on construction and small ag strength; tariff refunds and early order momentum signal the bottom of the cycle.
DE · Earnings Call · 2026-08-20
Tariff Dynamics: From Headwind to Tailwind
Deere's third-quarter results underscored how the tariff narrative has flipped from a persistent headwind to a partial tailwind. The company recognized $110 million of incremental tariff refund in Q3, lifting fiscal-year refunds to $382 million, while cutting its direct tariff expense forecast to approximately $1.1 billion (excluding IEEPA refunds) — a $100 million reduction driven by Section 32 tariff rate changes. As Christopher Seibert noted: “We recognized 110 million of incremental refunds in Q3, slightly above expectations, due to the timing of the Phase II AIPA refund approvals.” — Christopher Seibert, Director of Investor Relations · 2026-08-20 This is a notable shift from the prior quarter, when the tariff burden was a major drag, and it directly contributed to the equipment operations' 14.4% operating margin — above both company and consensus expectations.
The agricultural environment remains challenging, but we continue to believe that 2026 represents the bottom of the ag equipment cycle.
The Recovery Blueprint: Early Orders and Technology Adoption
The forward-looking signals are equally constructive. Deere's early order programs (EOPs) for sprayers, planters, and combines are running ahead of last year, with order intake up mid-single digits. Deanna Kovar highlighted: “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.” — Deanna Kovar, President, Worldwide Agriculture and Turf Division, Production and Precision Ag, Sales and Marketing, Regions of the Americas and Australia · 2026-08-20 This uptick in early order program activity, combined with record technology adoption — See & Spray factory-installed on about a third of North American sprayers on order, and 40% of planters with advanced features — reinforces management's view that the trough is behind them.
The market tape validates this optimism: Deere's 90-day price trend is up 7%, and the stock is in a steady uptrend, while the broader industrial sector has seen similar but more volatile moves. The rental fleet expansion in construction is a key theme, with Christopher Seibert noting: “Large scale infrastructure projects, data center construction, and pipeline activity continue to support robust customer demand.” — Christopher Seibert, Director of Investor Relations · 2026-08-20
Construction & Forestry: The Diversification Dividend
Construction and Forestry delivered an 18% net sales increase with 8 points of positive price realization, benefiting from easy comps and strong demand. The segment's margin guidance was narrowed to 10.5%–11.5%, and order books extend into fiscal 2027. This is the clearest example of the diversification benefit Deere has touted — while PPA remained challenged, C&F and small ag/turf carried the quarter. The net profit margin of 13.3% in Q3 reflects this resilience, even as the cycle bottoms.
Prior calls have laid the groundwork for this narrative. In May, Josh Beal described the shift in tariff composition: “There were some moving pieces over the course of the quarter with IEEPA going away, section 22 coming back coming in.” — Josh Beal, Director of Investor Relations · 2026-05-21 And on EOPs, he acknowledged the cautious start: “We opened up EOPs for sprayers just a couple of weeks ago, So we are a couple of weeks into that program.” — Analyst (Kristen Owen), Analyst · 2026-05-21 Now those EOPs are exceeding prior-year pace, a clear sign that the recovery is building.
Deere's ability to generate cash and invest through the cycle remains intact. With net income raised to $4.75–5 billion and operating cash flow of $5–5.5 billion, the balance sheet is positioned for the next upcycle. The Favorable price realization across segments, combined with disciplined cost management, has allowed margins to hold up far better than in previous downturns. As Brent Norwood concluded, the team "remains very confident" in finishing strong, and the setup for 2027 — healthy inventories, a diversified portfolio, and a differentiated technology stack — suggests the company is ready for the next phase.