DE — Fiscal Q3 2026 (Quarter Ended August 2, 2026) Financial Report Analysis

Deere's earnings grew without its core business growing

Deere & Company reported net income of $1,379 million, or $5.10 per diluted share, for its fiscal third quarter of 2026 — the three months ended August 2, 2026 (Deere's fiscal year ends in late October, so this quarter ran from early May to early August and does not line up with the calendar quarter). That is up from $1,289 million and $4.75 a year earlier. Total net sales and revenues rose 4.9% to $12,608 million.

Underneath the headline, the company that grew is not the company Deere is known for. Its largest business — Production & Precision Agriculture, which builds the high-horsepower tractors, combines and sprayers used by large grain, cotton and sugarcane growers — saw sales fall 6% and operating profit fall 9%. Every dollar of consolidated growth came from the two smaller segments: Small Agriculture & Turf (+12% sales) and Construction & Forestry (+18% sales).

Management's framing was explicit: "we continue to believe 2026 will mark the bottom of the current ag equipment cycle," said chairman and CEO John C. May, citing early order programs and improving used-equipment inventories. The filing's own hard numbers do not yet show that bottom — they show the large-ag decline continuing, with the earnings line held up by other segments, by pricing, and by a one-time tariff refund.

Key metrics

Operating margin above is total segment operating profit ($1,856M) divided by total segment net sales and revenues ($12,737M, which includes sales between segments). The individual segment margins are Deere's own disclosed figures, calculated on each segment's net sales. "pp" means percentage points. Non-performing receivables are loans on which Deere has stopped recording interest income, generally once a customer is 90 days late; the portfolio figure is total retail customer receivables of $42,127M this quarter and $42,959M a year ago.

The three-way split in the equipment business

Deere discloses, for each segment, how much of the sales change came from price increases and how much from currency translation (the effect of converting foreign sales into dollars at different exchange rates). Backing those out isolates the change in actual units and product mix:

Production & Precision Ag is the important number. Its reported 6% sales decline understates the underlying contraction: a weaker dollar and higher prices together added about five points, meaning the physical volume of large ag equipment Deere shipped fell by roughly a ninth year over year. The filing attributes the drop to "lower shipment volumes (primarily in Brazil and Europe)," with the currency help coming "primarily [from] the Brazilian real and Australian dollar." So Brazil is simultaneously Deere's worst volume market and one of its biggest translation tailwinds — the reported number looks better than the business does.

Construction & Forestry delivered the quarter's biggest swing, with operating profit up 84% to $436 million. But its +8% price realization is unusually large for a construction equipment business, and the filing says the profit increase came from "favorable price realization, partially offset by higher selling, administrative and general and research and development expenses" — note that volume is not listed as a profit driver for the quarter, only for the nine-month period. This is a price-led result, not a demand-led one.

Small Ag & Turf is the cleanest performer: an 11% volume gain and 2.4 points of margin expansion, driven by "higher shipment volumes (primarily in the U.S.)". Smaller equipment sold to dairy, livestock and turf customers is less tied to grain prices than the large-ag franchise, and it is behaving differently.

The tariff refund is doing real work in the margin

On February 20, 2026, the U.S. Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act. Deere concluded refunds were "probable and reasonably estimable" and recorded tariff recoveries of $110 million in the third quarter and $382 million in the first nine months, booked as a reduction of cost of sales. About 80% of the recorded recoveries had already been received in cash by August 2.

Crucially, the filing states how that $110 million was split: 20% to Production & Precision Ag, 25% to Small Ag & Turf, and 55% to Construction & Forestry. Applying those percentages to each segment's net sales gives an estimate of how much of the reported margin improvement is the refund rather than operations:

These are our calculations from the allocation percentages Deere disclosed, not figures Deere presents this way. They do not adjust the prior-year quarter, which carried tariff costs with no offsetting recovery — so this is not a clean like-for-like adjustment in either direction. But the direction is clear: roughly 1.7 points of Construction & Forestry's 4.4-point margin expansion is a legal-settlement accrual, and Production & Precision Ag's margin decline is closer to a full point than the 0.4 point it reports. The refund is real cash, but it is not repeatable, and the tariffs it refunds are still being litigated at a policy level — the filing warns that "trade policies continue to evolve, causing uncertainty in the agriculture and construction industries."

For context on scale: Deere's direct incremental tariff cost was $502 million in the first nine months of 2026 net of the $382 million recovery, against roughly $300 million in the same period of 2025. Gross tariff cost is therefore still rising sharply year over year; the recovery masks part of it.

Tax, not operations, is why net income grew only 7%

Pretax income of the consolidated group rose 17.6%, to $1,882 million from $1,600 million. Net income rose only 7.0%. The entire gap is tax: Deere's effective tax rate — the share of pretax profit paid in income tax — jumped to 28.1% from 21.2%, which the filing attributes to "unfavorable discrete items" (one-off tax charges that do not reflect the ongoing rate). Management quantifies the drag at $114 million of net income.

That cuts the other way from the tariff point. On an operating basis the quarter was stronger than $5.10 of EPS suggests; on a cash-quality basis it was weaker. The two roughly offset, which is worth knowing before extrapolating either.

Management's own bridge for the $90 million net income increase: favorable price realization of $286 million after tax ($403 million pretax), less $114 million of unfavorable tax and $89 million after tax ($126 million pretax) of higher production costs, "primarily from higher material costs." Price, in other words, was the whole story — and price is the variable that gets hardest to hold once volumes turn.

Two smaller supports: interest expense fell 11% to $710 million on lower borrowing rates and lower average borrowings, and buybacks were negligible as a driver — diluted share count fell only 0.26% (270.7 million from 271.4 million), which explains the tiny gap between 7.0% net income growth and 7.4% EPS growth. Deere still has $7.2 billion left under its $18.0 billion repurchase authorization. A quarterly dividend of $1.62 per share was declared on August 26, 2026.

Financial Services: better spreads, slowly worsening credit

Deere's captive lending arm — which finances dealers and end customers buying John Deere equipment — earned $219 million, up 7% from $205 million, even though revenue fell 3% on a 2% smaller average portfolio. The improvement came from "favorable financing spreads" (the gap between what Deere charges borrowers and what it pays to fund those loans), as interest expense fell 8% to $661 million.

Credit quality is the part that deserves attention, because it is drifting in the wrong direction and the filing is specific about where:

• Non-performing retail customer receivables rose to $710 million from $683 million, on a slightly smaller book — 1.7% of the portfolio versus 1.6%.
• The allowance for credit losses (money set aside for loans expected to go bad) ended at $268 million on $49,444 million of financing receivables, or 0.54%, up from $258 million on $52,136 million, or 0.49%.
• Deere states the nine-month allowance build was "due to higher expected losses on construction retail accounts," versus 2025 when the build came from "higher expected losses on agriculture and turf customer accounts as a result of elevated delinquencies."
• Receivables modified for borrowers in financial difficulty rose to $155 million year-to-date from $115 million.

The segment carrying the quarter's earnings growth is now also the segment where Deere is provisioning for losses. That is a normal late-cycle pattern in equipment finance — pricing and volumes hold up for a few quarters after the credit behind them starts to soften — and it is the single most useful forward indicator in this filing.

Actual losses have not yet followed: nine-month write-offs were $244 million against $48 million of recoveries (net $196 million), better than the prior year's $255 million and $39 million (net $216 million). And dealer-channel receivables improved markedly — trade receivables outstanding longer than 12 months fell to 1% from 3% a year ago. So this is early deterioration in expected losses, not realized pain.

Takeaway: Deere grew earnings 7% while its core large-ag franchise shipped roughly 11% fewer machines — the quarter was carried by pricing, by two smaller segments, and by a $110 million non-repeatable tariff refund that accounts for about 1.7 of Construction & Forestry's 4.4 points of margin expansion. Management calls 2026 the bottom of the ag cycle, but the filing's own guidance still has large ag down 15-20% in North America and South America for the full year, and Financial Services is now building reserves against construction borrowers — the one place the growth is coming from.

Guidance and outlook

Deere raised full-year fiscal 2026 net income guidance to $4.75-5.00 billion. With $3.808 billion earned through nine months, that implies fourth-quarter net income of roughly $0.94-1.19 billion.

Management's stated industry outlook for fiscal 2026:

And its own segment outlook: Production & Precision Ag net sales down ~10%, Small Ag & Turf up ~15%, Construction & Forestry up ~20%, Financial Services net income ~$870 million.

Our read. The guidance raise is credible on the numbers — nine-month earnings plus a normal seasonal fourth quarter get there without heroics, and the cash from the tariff refunds is largely already received. What is not yet supported by anything in this filing is the "bottom of the cycle" claim. The evidence management offers for it — early order program trends and used-equipment inventories — is qualitative and appears in the press release, not in the 10-Q's financial disclosures. What the 10-Q does contain points the other way for now: large-ag volumes down roughly 11%, a full-year forecast of another 15-20% industry decline in both North and South America, and the company's own warning that unfavorable large-ag conditions may produce "lower sales volumes, higher sales incentives, and elevated receivable write-offs."

Three things to watch next quarter. First, whether Construction & Forestry's price realization holds; +8% is a level that usually reflects tariff pass-through and is hard to repeat once the cost being passed through is refunded. Second, whether the construction credit provisioning turns into actual write-offs, or stays a reserve build. Third, whether Production & Precision Ag volumes stop falling — not whether its reported sales stabilize, since a weak dollar can produce that on its own. The cycle bottoms when the third one happens, and it has not happened in this filing.