Deere Q3 Earnings Beat as Construction Sales Lift Profit 7%

Deere returns to profit growth

Deere & Company has reported its first year-over-year increase in quarterly profit in about three years. Construction equipment carried the result, while the large-farm machinery business that defines the brand kept shrinking.1118 For the fiscal third quarter ended Aug. 2, net income attributable to Deere was $1.379 billion, or $5.10 per diluted share. A year earlier the company earned $4.75 per share.11 Total net sales and revenues rose 5% to $12.61 billion. Net sales in the equipment operations rose to $10.999 billion from $10.357 billion.11

Deere also raised the bottom of its full-year forecast. It now expects fiscal 2026 net income of $4.75 billion to $5 billion, compared with an earlier range of $4.5 billion to $5 billion.12 Management raised its equipment operations cash flow outlook to $5 billion–$5.5 billion and now expects $870 million of net income from financial services.16

The report beat estimates, but it was not a broad farm recovery. Deere's highest-profile business is still contracting, and the headline growth came from parts of the company that most people do not associate with green tractors.

Construction did most of the work

Every outlet covering the report pointed to the same driver. Construction and forestry net sales rose 18% to $3.62 billion, and the segment's operating profit jumped 84% to $436 million.11 Its operating margin widened to 12.1% from 7.7% a year earlier.15

Reuters linked the strength to a construction boom fueled by artificial intelligence, along with tariff refunds.12 Other coverage said infrastructure spending and data center construction were lifting demand for earthmoving equipment.1815 Deere now expects U.S. and Canadian construction equipment industry sales to grow 5% to 10%, up from a flatter earlier view, and pointed to infrastructure, data center and energy projects. One analysis said this was the clearest sign so far that the AI buildout is showing up in Deere's order book.

Pricing explains much of the margin gain. Price realization in the segment added 8 points in the quarter. On the earnings call, Deere said part of that came from lapping retail incentive programs from the previous year, so the comparison was partly easy.14 Management left its full-year sales forecast for the segment at roughly 20% growth and narrowed its margin guidance to 10.5%–11.5%.14 That 8-point pricing gain is unlikely to repeat as cleanly once the year-ago incentives drop out of the comparison.

Small agriculture and turf helped as well. Sales there rose 12% to $3.38 billion, and operating profit rose 28% to $622 million.11 Reuters connected the demand to better milk and beef prices, which help dairy and livestock operations that buy lower-horsepower tractors.12 The segment's operating margin reached 18.4%.16

Large ag is still in decline

Production and precision agriculture, Deere's largest segment, went the other way. Net sales fell 6% to $3.998 billion and operating profit fell 9% to $527 million, mainly because Deere shipped fewer machines.11 Deere said South America and Europe were the weakest regions.16 It now expects the segment's full-year sales to fall about 10%, near the bottom of its earlier range, and narrowed margin guidance to 11%–12%.4 Large-ag industry sales in North America are expected to fall 15% to 20%.

CEO John May repeated his view that 2026 will be the bottom of the current agricultural equipment cycle.12 Management cited early order program results running up mid-single digits from last year's program. It also said it expects a measured recovery rather than a sharp rebound in 2027, because farm income is still under pressure.1416 Ryan Keeney of Third Bridge was more doubtful. He argued that weak commodity prices limit how far sales can recover, and that discounting by rivals such as AGCO and CNH could weaken the market further.12

Deere's "bottom" call is plausible, but even the company describes it as a floor, not a rebound. The quarter shows a company that can hold margins through a farm downturn. It does not show that the downturn is over.

Tariff refunds helped

Tariff refunds also supported earnings. Deere recognized $110 million of refunds in the quarter and $382 million so far this year.13 Investor relations director Christopher Seibert said the quarter's refund was slightly above expectations because Phase II refund approvals came earlier than planned.16 The year-ago quarter also carried a $61 million pretax noncash impairment charge, which makes this year's comparison easier.15

Neither item erases the improvement in operations. Equipment operations posted a 14.4% operating margin, which management credited to factory output that beat expectations and to pricing discipline.14 Still, a meaningful share of the quarter's roughly $90 million profit increase over the prior year came from refunds and comparison effects rather than stronger end demand. Prior-year net income was $1.289 billion.15

How big was the beat?

All outlets agree Deere beat expectations. They disagree on the size of the beat, mostly because they used different consensus figures.

On earnings per share, LSEG data cited by Reuters put consensus at $4.70.12 MarketBeat and Investing.com used $4.69, which makes the beat 41 cents, or about 8.7%.514 Zacks compared the result with a $4.79 consensus and calculated a smaller surprise of 31 cents.3

The revenue comparison needs more caution. Reuters measured about $11 billion of revenue against a $10.73 billion estimate.12 That figure matches equipment operations net sales. Investing.com and MarketBeat set the $12.61 billion total, which includes financial services, against a $10.81 billion forecast and reported a 16.65% beat.145 That comparison likely mixes two different revenue measures. The beat of roughly 2% to 3% on Reuters' basis is the more defensible number.

The outlets also differ on some details. Investing.com listed prior-year net income at $1.734 billion.14 Quartz, BigGo and the company's own comparison put the earlier figure at $1.289 billion, which implies the roughly 7% increase reported elsewhere.1516 Benzinga's headline called the results second-quarter figures, although the body of its report describes the August release.2

Deere's record of beating estimates helps explain the market reaction. MarketBeat's history shows it beat EPS consensus in the first three quarters of fiscal 2026, including a 85-cent beat in the second quarter.5

The stock rally

Reports of the stock's first move ranged from about a 2% gain before the open to a roughly 7% rally on the day.1113 Investing.com reported shares at $625.12 in premarket trading after a $580.63 close.14 One later analysis described a gain of more than 9%.

Analysts raised price targets after the report. Baird's Mircea Dobre kept a Neutral rating and lifted his target to $640 from $525. Oppenheimer's Noah Kaye kept an Outperform rating and raised his target slightly to $685 from $680.2 CICC began coverage with an Outperform rating and a $760 target.1

By mid-September, the stock had mostly used up that upside. MarketBeat's consensus target was about $680.73, with targets ranging from $500 to $813 and a Moderate Buy rating based on 17 buy and 8 hold recommendations.7 Shares closed at $686.33 on Sept. 17, up about 47% for the year, and near a 52-week high of about $705.88.17 On Oct. 6 the stock traded at $682.63.17

Valuation is now the main issue. MarketBeat data put Deere at about 38 times earnings, with a PEG ratio of 2.86.9 A GuruFocus discounted cash flow analysis estimated intrinsic value at $562.50, well below the trading price at the time.6 MarketBeat's consensus expects earnings per share to rise roughly 25% next year, from $18.12 to $22.60.5 Upward revisions to fiscal 2027 estimates have kept the stock near its highs.8

Outlook

This was a solid beat-and-raise quarter built on construction demand, pricing and tariff refunds, while the core large-ag business shrank.1113 The stock rally rests on two assumptions: that AI-related and infrastructure construction demand stays strong, and that the large-ag recovery arrives on time in 2027. With the shares trading slightly above the average analyst target, there is little room for error on either one.310

For the fourth quarter, the key test is early order program results for large agriculture. Management has said it will provide an update once those programs close.14 If those orders confirm a recovery, today's valuation looks reasonable. If they do not, construction will have to keep doing most of the work.