Deere (DE)

Agricultural and construction machinery company Deere (NYSE:DE) announced better-than-expected revenue in Q3 CY2025, with sales up 33.6% year on year to $12.39 billion. Its GAAP profit of $3.93 per share was 2.5% above analysts’ consensus estimates.

Company Overview

Revolutionizing agriculture with the first self-polishing cast-steel plow in the 1800s, Deere (NYSE:DE) manufactures and distributes advanced agricultural, construction, forestry, and turf care equipment.

Agricultural machinery companies are investing to develop and produce more precise machinery, automated systems, and connected equipment that collects analyzable data to help farmers and other customers improve yields and increase efficiency. On the other hand, agriculture is seasonal and natural disasters or bad weather can impact the entire industry. Additionally, macroeconomic factors such as commodity prices or changes in interest rates–which dictate the willingness of these companies or their customers to invest–can impact demand for agricultural machinery.

Deere’s peers and competitors include Caterpillar (NYSE:CAT), Eaton (NYSE:ETN), and AGCO (NYSE:AGCO).

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Deere grew its sales at a tepid 5.4% compounded annual growth rate. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Deere’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 14.4% annually. Deere isn’t alone in its struggles as the Agricultural Machinery industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

We can dig further into the company’s revenue dynamics by analyzing its three most important segments: Production & Precision Agriculture , Construction & Forestry , and Small Agriculture & Turf, which are 38.2%, 27.3%, and 19.8% of revenue. Over the last two years, Deere’s revenues in all three segments declined. Its Production & Precision Agriculture revenue (tractors, harvesters, tillage) averaged year-on-year decreases of 14.3% while its Construction & Forestry (loaders, excavators, dump trucks) and Small Agriculture & Turf (mowers and other small vehicles) revenues averaged drops of 11% and 14.3%.

This quarter, Deere reported wonderful year-on-year revenue growth of 33.6%, and its $12.39 billion of revenue exceeded Wall Street’s estimates by 6.6%.

Looking ahead, sell-side analysts expect revenue to grow 14% over the next 12 months, an improvement versus the last two years. This projection is eye-popping for a company of its scale and suggests its newer products and services will fuel better top-line performance.

Deere has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 19.9%.

Looking at the trend in its profitability, Deere’s operating margin decreased by 5.4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Deere generated an operating margin profit margin of 10.9%, down 4.7 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Deere’s EPS grew at a spectacular 16.3% compounded annual growth rate over the last five years, higher than its 5.4% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into Deere’s earnings quality to better understand the drivers of its performance. A five-year view shows that Deere has repurchased its stock, shrinking its share count by 14.5%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Deere, its two-year annual EPS declines of 26.9% mark a reversal from its (seemingly) healthy five-year trend. We hope Deere can return to earnings growth in the future.

In Q3, Deere reported EPS of $3.93, down from $4.55 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 2.5%. Over the next 12 months, Wall Street expects Deere’s full-year EPS of $18.51 to grow 3.8%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Deere has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 12.6% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Deere’s margin dropped by 6.8 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Deere’s free cash flow clocked in at $1.78 billion in Q3, equivalent to a 14.3% margin. The company’s cash profitability regressed as it was 33 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t read too much into this quarter’s decline because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, causing short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Deere hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 30.4%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Deere’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Deere’s $63.94 billion of debt exceeds the $9.69 billion of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $8.30 billion over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Deere could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Deere can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

While revenue and EPS beat, management cited still-challenged end market conditions and meaningfully lowered full-year earnings guidance. This is weighing on shares. The stock traded down 4.9% to $473.50 immediately after reporting.

Updated: December 4, 2025 at 9:08 PM EST

Are you wondering whether to buy Deere or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We see the value of companies helping their customers, but in the case of Deere, we’re out. To begin with, its revenue growth was uninspiring over the last five years. And while its impressive operating margins show it has a highly efficient business model, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its projected EPS for the next year is lacking.

Deere’s P/E ratio based on the next 12 months is 29x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $523.82 on the company (compared to the current share price of $482.82).