DE Q1 Earnings Call: Deere Misses Sales Target, Highlights Tariff and Tech Challenges

Agricultural and construction machinery company Deere (NYSE: DE) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 17.9% year on year to $11.17 billion. Its non-GAAP EPS of $6.64 per share was 18.1% above analysts’ consensus estimates.

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StockStory’s Take

Deere’s first quarter results reflected a sharp year-over-year decline in sales, which management attributed to lower equipment shipment volumes across its major segments and ongoing trade-related volatility. CEO John May explained that the company faced “historic levels of volatility and significant uncertainty across our end markets,” citing dynamic global trade conditions as a primary headwind. The company also faced incremental tariff expenses, with CFO Josh Jepsen noting that approximately $100 million in new tariff costs affected results this quarter. Despite these challenges, Deere’s operational execution, especially in production cost management and factory efficiency, helped offset some margin pressures. Management discussed how sequential sales growth and disciplined inventory management, particularly in North American large agriculture equipment, provided some stability amid a challenging demand environment.

Looking ahead, Deere’s outlook is shaped by several persistent challenges, including fluid global trade policies, high interest rates, and cautious customer sentiment across agricultural and construction markets. Management emphasized the unpredictable nature of tariffs, estimating potential impacts of over $500 million for the year if current levels persist. Jepsen stated that Deere is “actively planning and executing mitigation strategies” but warned that most order books are already set, limiting pricing flexibility for the remainder of the year. Furthermore, the company sees continued pressure on equipment demand, especially in North America and Europe, although there are emerging signs of stabilization in South America and segments like precision agriculture. As Deere continues to invest in technology and integrated solutions, management believes these initiatives will be crucial in sustaining long-term competitiveness and margin resilience.

Key Insights from Management’s Remarks

Management attributed the quarter’s underperformance to lower equipment volumes, rising tariff-related expenses, and persistent market uncertainty, while highlighting progress in digital and precision agriculture offerings.

• Tariff impacts weighed on margins: Management reported roughly $100 million in incremental tariff costs during the quarter, primarily affecting the construction and forestry segment. The company expects these costs to rise further in the coming quarters, with approximately $500 million forecast for the year if current trade policies remain unchanged.
• Lower shipment volumes across segments: Reduced demand for production and precision agriculture equipment, as well as ongoing softness in small agriculture and turf and construction, led to significant declines in sales. CFO Josh Jepsen noted that shipment volumes were the main driver of the year-over-year sales drop, especially in North America.
• Operational cost efficiencies: Despite sales pressures, Deere benefited from better-than-expected production costs due to supply chain optimization and factory efficiency gains. Management credited disciplined cost control and material sourcing improvements as key contributors to maintaining adjusted margins above expectations.
• Technology adoption in precision agriculture: The company highlighted continued growth in precision technology adoption, with products like Precision Essentials and See & Spray seeing increasing orders and usage, particularly in Brazil and North America. Management emphasized that subscription-based and digital solutions are becoming a larger driver of customer engagement and future renewals.
• Inventory management and channel alignment: Deere made progress in reducing new inventory levels for large tractors and combines, focusing on aligning production with retail demand. Used equipment inventories remain elevated, particularly for late-model tractors, but management is implementing targeted financing and dealer incentives to address this overhang.

Drivers of Future Performance

Deere’s forward guidance is shaped by ongoing trade policy volatility, weak global equipment demand, and the company’s increasing focus on technology-driven solutions.

• Tariff headwinds and mitigation: Management anticipates tariff expenses could exceed $500 million for the year if current trade policies persist, with the majority impacting construction, small agriculture, and turf. While Deere is implementing certification and sourcing adjustments to reduce exposure, order books are largely set, limiting opportunities for near-term price increases.
• Muted equipment demand outlook: Deere expects continued subdued demand for large agricultural and construction equipment, especially in North America and Europe, due to high interest rates, elevated used inventory, and persistent customer uncertainty. Stabilization in South America and emerging markets, as well as government support programs, may partially offset these headwinds.
• Growth in digital and precision technologies: Management is prioritizing investments in subscription-based digital solutions, such as See & Spray and Precision Essentials, to drive recurring revenue and customer retention. The company is targeting higher renewal rates for its initial cohorts and expanding product offerings to new geographies, with early adoption in Brazil seen as a growth opportunity.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the evolution of trade policy and tariff impacts on margins, (2) the pace of inventory reduction for both new and used equipment in North America, and (3) adoption and renewal rates for Deere’s digital and precision agriculture solutions. The trajectory of equipment demand in South America and developments in government farm support programs will also be important indicators.

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