Construction profit +84%, tractors -9%. Deere near all-time high
The construction division lifted operating profit by 84%, the large agriculture division lost it. A large part of the surprise against analyst estimates came from tariff refunds. And for Deere's weakest earnings in five years, the market pays 36 times.
Key points
Operating profit of the construction division jumped 84%, for large agricultural equipment it fell 9%
In nine months, small and garden machinery earned more than the large tractor and combine division - something that never happened in any of the five completed fiscal years
A large part of the beat against consensus will be cut by $110 million in tariff refunds
Deere trades around 36 times earnings at a time when management itself talks about the bottom of the cycle
Construction orders stretch into fiscal 2027 and are largely driven by data centers
When Deere $DE reported third fiscal quarter results on Thursday, August 20, it looked simple at first glance. Net income of $1.379 billion, or $5.10 per share, against expectations of about $4.70. Sales and revenues of $12.608 billion, five percent higher than last year. Management also raised the full-year profit outlook to $4.75 to $5.0 billion. The stock reacted with gains and closed Friday at $647.47, about four percent below the all-time high of $674.19 from this February.
But under that smooth headline something happened that had not occurred in any of the five completed fiscal years. The large field machinery division - high-power tractors, combines, sprayers, the part from which the company traditionally takes most of its operating profit - earned $1.372 billion in operating profit over nine months of the fiscal year. The small and garden machinery division, i.e., compact tractors, mowers and what a landowner outside the city buys, earned $1.538 billion. The flagship is only second.
And then there is the third division. Construction and forestry raised quarterly sales 18 percent and operating profit 84 percent to $436 million, margin jumped from 7.7 to 12.1 percent. That growth is not driven by American residential construction, which is flat, but by large infrastructure orders and data center construction. The company pigeonholed as a combine maker profits from the same capital expenditure wave as the semiconductor industry.
The market rewarded this change by lifting the stock price about 39 percent since the beginning of the year. Earnings per share, according to the company's own outlook, will head to about $18 this year, the lowest since 2020, and management repeats that 2026 is the bottom of the cycle. The question this quarter opens is not whether Deere is a good company. It is how much of that recovery someone has already paid before it began.