DE Stock - Deere & Company

As of February 17, 2026, Deere & Company (DE) is scheduled to release its official Q1 2026 earnings report on February 19, 2026. However, the fiscal year 2026 guidance established in the company’s most recent comprehensive update (Q4 2025) provides the "updated" targets that reflect management's current expectations for the North American large-crop equipment market.

These targets are set against a backdrop of corn and soybean futures trading near multi-year lows, significantly impacting farmer sentiment and capital expenditure.

1. Production & Precision Ag (PPA) Guidance Overview

Deere’s fiscal 2026 outlook reflects a defensive posture as the company navigates what CEO John May has described as the "bottom of the large ag cycle." The updated targets for the PPA segment—which includes large tractors, combines, and advanced technology—show a marked contraction compared to the previous two years.

• Net Sales Forecast: PPA net sales are projected to decline by -5% to -10% year-over-year.
• Operating Margin Targets: Segment operating margins are forecasted between 11% and 13%. This is a significant compression from the ~20%+ levels seen during the 2022–2023 peak, reflecting lower volume leverage and pricing headwinds.
• Industry Demand: Deere anticipates North American large-crop industry sales to be down -15% to -20% for the full year.

2. Impact of Multi-Year Lows in Corn and Soy Futures

The demand for large-crop equipment is highly correlated with farmer net income, which is currently pressured by the lowest commodity prices seen since 2020.

• Corn Futures: As of mid-February 2026, March corn futures are trading near $4.28 per bushel. This represents the 9th percentile of the past five-year price distribution, driven by a record 17.02B bushel U.S. harvest in late 2025.
• Soybean Futures: March soybean futures are hovering around $11.22 per bushel, pressured by massive Brazilian production (estimated at 178 MMT) and shifting trade dynamics with China.
• Transmission to Demand: With crop prices near or below the cost of production for many North American farmers, the "replacement cycle" for large machinery has stalled. Farmers are prioritizing operational efficiency over fleet expansion, leading to the projected -15% to -20% industry-wide decline in large equipment sales.

3. Strategic Production Adjustments & Inventory Management

To protect margins and prevent a glut of used equipment, Deere has implemented aggressive production "under-runs" relative to retail demand.

• Inventory Destocking: Management is intentionally producing below retail sales levels to clear field inventory. This strategy is a primary driver of the lower revenue guidance but is intended to support used equipment values, which are critical for new equipment trade-ins.
• Precision Ag Resilience: Despite the downturn in hardware sales, Deere’s precision ag margin targets are supported by the "Smart Industrial" strategy. The company is leaning on high-margin software and autonomy solutions (e.g., See & Spray, autonomous 8R tractors) to offset the decline in physical unit volume. These technologies are marketed as "input-cost reducers," making them more attractive to farmers even in a low-commodity-price environment.

4. External Headwinds: Tariffs and Costs

The 2026 margin targets also incorporate significant non-operational headwinds that exacerbate the impact of low commodity prices.

• Tariff Impact: Deere has guided for a pre-tax direct tariff expense of approximately $1.2B for fiscal 2026, up from $600M in 2025. This creates a roughly 1.5 to 2.0 percentage point drag on equipment operations margins.
• Net Income Target: Total company net income for 2026 is projected in the range of $4.0B to $4.75B, a sharp decline from the $10B+ peak in 2023, reflecting the full weight of the cyclical downturn.

5. Summary of Investor Implications

The updated targets suggest that while Deere is maintaining structural profitability far above previous cyclical troughs (e.g., 2015–2016), the recovery in North American large-crop demand is unlikely to begin until commodity prices stabilize or interest rates provide further relief. The upcoming Q1 report on February 19 will be critical for determining if the recent slight bounce in corn/soy prices following the February WASDE report has led to any upward revision in management's "bottom of the cycle" assumptions.

Deere & Company’s (DE) 2026 rollout of its second-generation autonomous tractor fleet represents a critical inflection point in its "Smart Industrial" strategy. By transitioning from a pure-play hardware manufacturer to a "Solutions-as-a-Service" (SaaS) provider, Deere aims to stabilize its earnings profile. However, as of February 2026, the decoupling of high-margin software revenue from the cyclicality of traditional hardware sales remains a work in progress, showing significant promise but not yet fully insulating the bottom line from a challenging agricultural macro-environment.

The "Per-Acre" Economic Pivot

Deere’s new business model for autonomous systems, such as the 9RX and 5ML tractors, shifts the value proposition from a one-time equipment sale to a recurring operational expense for the farmer. This model typically involves:

• Reduced Upfront Barrier: An "autonomy-ready" hardware kit priced at approximately $40,000, which is significantly lower than the full premium previously required for high-end precision tech.
• Recurring Revenue Streams: A choice between a flat annual license fee (roughly $10,000 for tillage) or a "pay-as-you-go" per-acre fee, often cited around $5.00 per acre for specialized applications like See & Spray.
• Margin Expansion: While traditional hardware operating margins for the Production & Precision Ag segment are currently forecasted between 11% and 13% for fiscal 2026, software-driven recurring revenue carries significantly higher incremental margins, often exceeding 70% to 80%.

Decoupling Analysis: Software vs. Hardware Cyclicality

The extent of "decoupling" can be measured by the resilience of Deere's financials during the current cyclical downturn. As of early 2026, the agricultural sector is navigating a "trough" characterized by low crop prices and high interest rates.

• Hardware Drag: Large agriculture equipment demand has remained soft, leading to a forecasted fiscal 2026 net income of $4.0B to $4.75B, a decline from $5.027B in 2025 and $7.1B in 2024. This suggests that hardware sales still dominate the earnings narrative.
• Software Resilience: Despite the drop in total net income, Deere’s "engaged acres" have reached a milestone of 500 million globally. The company reported a 17% year-over-year growth in the number of acres actively utilizing its technology services in 2025, indicating that even when farmers defer new tractor purchases, they continue to pay for software that optimizes their existing fleet's efficiency.

Progress Toward the 2030 "Leap Ambitions"

Deere’s long-term goal is to generate 10% of total enterprise revenue from recurring software subscriptions by 2030.

• Current Status: While recurring revenue is growing at a double-digit pace, it currently represents a low-single-digit percentage of total sales.
• The 2026 Catalyst: The full-scale commercial availability of the second-generation autonomy kit is expected to accelerate this mix shift. By making the technology available as a retrofit for 2022-and-newer models, Deere is monetizing its massive "installed base" of over 1 million connected machines, rather than relying solely on new unit production.

Risks and Adoption Barriers

The success of the per-acre model faces several headwinds that could slow the decoupling process:

• Macro Headwinds: Deere has warned of up to $1.2B in direct tariff expenses for 2026, which pressures the capital available for farmers to invest in new tech subscriptions.
• Farmer Sentiment: In a low-margin crop environment, some producers remain skeptical of "per-acre" fees that feel like a perpetual tax on their land. The ROI must be clearly demonstrated through labor savings (estimated at 20%) and input reduction.
• Connectivity Gaps: The reliance on high-speed data for autonomous operations requires ongoing investment in satellite partnerships (e.g., SpaceX/Starlink) to reach remote "engaged acres."

Analytical Conclusion

Deere & Company is partially successful in decoupling its revenue from hardware cycles, but the transition is in its early stages. The "per-acre" model has created a floor for service revenue that did not exist in previous downturns, preventing a more severe earnings collapse. However, until recurring software revenue reaches the 10% target, the company’s valuation and stock performance will remain heavily tethered to the traditional -20% to -30% swings of the global agricultural equipment cycle.

The current operating environment for Deere & Company (DE) in early 2026 is characterized by a "cyclical bottoming" phase, where the convergence of high dealer inventory, persistent interest rate pressure, and significant tariff headwinds poses a direct threat to the company’s historically robust pricing power. As of February 2026, Deere is navigating a delicate balance between maintaining premium margins through precision technology and the necessity of aggressive retail incentives to clear stagnant floor stock.

Specific Risks to Pricing Power

Deere’s pricing power—its ability to increase prices without losing significant volume—is currently facing its most severe test since the 2014–2016 downturn.

• Inventory-Driven Deflationary Pressure: Industry reports indicate that approximately 42% of North American dealers consider their new equipment inventory levels to be "too high." This glut, particularly in large-horsepower tractors and combines, creates a "dealing mood" at the retail level. When dealers are forced to discount to move units, it erodes the manufacturer’s "price realization" (the actual price increase captured after incentives).
• Tariff Pass-Through Vulnerability: Deere has projected a massive $1.2B headwind from direct tariffs in fiscal year 2026. While management aims for a 1.5% price realization to offset these costs, the "sticky" nature of new equipment prices in a low-commodity-price environment (corn and soybeans) makes this pass-through risky. If farmers refuse to absorb these costs, Deere may be forced to choose between further production cuts or margin compression.
• Used Equipment Velocity: The "120% rule" (where used equipment prices must stay below 80% of new prices to maintain trade-in logic) is under stress. Weakness in used equipment values is pressuring trade-in allowances, effectively raising the "net" price for farmers and forcing Deere to subsidize the gap to maintain sales volume.

Retail Sales Incentive Spending Outlook

To combat the inventory build and high financing costs, Deere has pivoted toward aggressive "below-the-line" spending, which directly impacts net margins.

• Financing Subsidies: With interest rates remaining elevated in early 2026, Deere Financial has intensified its use of 0% APR programs. For example, the 2026 Golf & Turf Program offers 0% interest for up to 24 months, while the Model Year 2026 Planter Early Order Program (EOP) relies heavily on interest waivers to pull demand forward.
• Incentive Normalization vs. Escalation: While Deere entered FY26 hoping to reduce the "heavy dealer incentives" seen in late 2025, the 35% projected revenue decline for Q1 FY26 suggests that incentive spending will likely remain elevated through the remainder of the year. Retail incentive spending is expected to be a primary tool to protect market share against competitors like CNH Industrial and AGCO, who are facing similar inventory gluts.
• Precision Ag Bundling: A strategic shift is occurring where Deere "disguises" incentives by bundling high-margin precision hardware (e.g., See & Spray, G5 Displays) at reduced costs or through "Precision Essentials" subscription trials. This supports the technology narrative while providing a de facto discount on the iron.

Segment-Specific Performance & Risks

Deere's diversified segments are reacting differently to the current macro pressures:

• Production & Precision Ag: This segment is the most at risk, with U.S. and Canada sales forecasted to be down 15% to 20% for the full year. Pricing power here is limited by the "replacement cycle" being deferred by farmers.
• Small Ag & Turf: A brighter spot, with expected growth of 10%. However, this segment is highly sensitive to the housing market and consumer interest rates, requiring constant promotional support.
• Construction & Forestry: Expected to grow 10%, supported by infrastructure spending. Pricing power is more resilient here due to a 25% year-over-year increase in earthmoving order books.

Summary of Financial Guidance (FY 2026)