Deere & Co. shares fell sharply on Thursday after the farm equipment manufacturer cut its full-year profit outlook, overshadowing stronger-than-expected quarterly earnings.
The stock dropped more than 6.9% to $478 on Thursday’s open, even as the S&P 500 and Dow Jones Industrial Average futures were little changed.
The move comes despite a 45% gain in Deere shares over the past year, driven by investor expectations of a recovery in the agricultural cycle.
For its fiscal third quarter, Deere reported earnings per share of $4.75 from equipment sales of $10.4 billion, topping Wall Street forecasts of $4.58 and $10.3 billion, respectively.
However, the results marked a sharp decline from the prior year’s $6.29 per share on sales of $11.4 billion.
Lower prices in both the large agricultural and construction equipment businesses contributed to the sales drop, with the construction segment seeing its third straight quarter of pricing declines.
Guidance cut on construction weakness
The midpoint of Deere’s net income forecast for fiscal 2025, ending in October, now stands at $5 billion, down from $5.15 billion in May and $5.25 billion earlier in the year.
The revised guidance implies fourth-quarter net income of about $1 billion, compared with analysts’ expectations of $1.1 billion.
Jefferies analyst Stephen Volkmann cited weakness in construction as the primary driver for the reduction, adding that some of the margin pressure could be related to tariffs.
He maintained a Hold rating and a $510 price target, noting that 2025 should still mark a bottom in the agricultural cycle, though any recovery could be modest given low corn prices.
Farm incomes remain under pressure
The US Department of Agriculture estimates that net farm income will reach $139 billion in 2024, down from a 2022 peak of $182 billion when corn prices averaged $6.50 a bushel.
Over the past year, corn has averaged around $4 a bushel, reducing farmers’ purchasing power for new machinery.
As a result, Deere’s projected $5 billion net income for fiscal 2025 would be well below the $7.1 billion earned in 2024 and more than $10 billion in 2023.
Optimism tempered by high inventories
Despite current pressures, some industry indicators suggest a brighter outlook ahead.
Government forecasts call for 2025 net farm income to climb back to roughly $180 billion, and peer AGCO recently posted better-than-expected results, lifting its shares more than 10%.
However, Deere and other manufacturers continue to grapple with elevated dealer inventories, particularly in the used equipment market.
High inventory levels can force companies to scale back production, weighing on wholesale volumes.
Chief executive John May said Deere has been actively managing stock levels to align production with retail demand.
New equipment inventories have improved, but the company remains focused on reducing used machinery levels to foster a healthier market.
“By continuing to address the high levels of used equipment in the industry, we’re building a healthier market for everyone… even in these challenging times,” May said in a statement.
Shares remain volatile around earnings
Deere shares have been prone to swings following quarterly results, moving an average of about 5% after each of the past four reports.
Options trading ahead of Thursday’s release implied a similar move, and historically, the stock has risen three times and fallen once after earnings.
While the company is positioning itself for an eventual turnaround, the latest guidance cut suggests that recovery may take longer to materialise.
For now, investors appear unwilling to overlook near-term headwinds, even if 2025 is still seen as the cycle’s low point.
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