On August 20, Deere & Company (NYSE:DE) held its third quarter fiscal 2026 earnings call, and the headline number told a story its largest division couldn’t. Net income climbed 7% year over year to $1.379 billion, with diluted earnings per share rising to $5.10 from $4.75, even as the company’s biggest segment posted a sales decline. The lift came from machines that build roads and mow lawns, not the tractors that plant crops.
Two Segments Carry The Load
Construction and Forestry net sales rose 18% to $3.618 billion, and operating margin jumped to 12.1% from 7.7% a year earlier, helped by an 8 percentage point contribution from pricing. Management pointed to large-scale infrastructure projects, data center construction, and healthy contractor backlogs as the reasons customer order books now stretch well into fiscal 2027. Deere raised its 2026 outlook for U.S. and Canada earthmoving equipment to up 5% to 10%, with global roadbuilding still expected to grow roughly 10% for the year.
Small Ag and Turf net sales grew 12% to $3.383 billion, and operating margin expanded to 18.4% from 16%, on favorable sales mix and pricing. Strong beef prices and healthy dairy margins kept those customers spending even as broader farm economics stayed under pressure, and channel health improved alongside it. Used high-horsepower tractor inventory from model years 2023 and 2024 is down nearly 40% year over year, and the gap between new and used equipment values has largely normalized.
Technology adoption kept climbing too. Factory-installed SmartGrade adoption is up more than 50% year to date; See & Spray is expected to nearly double and now ships on about a third of North American sprayers on order; and the John Deere Operations Center now tracks 520 million engaged acres across 1.2 million connected machines with 450,000 monthly active users. Deere also booked $382 million in tariff refunds so far this fiscal year, including $110 million in the third quarter, and raised its full-year net income guidance to $4.75 billion to $5.00 billion.
Where The Cycle Still Bites
Production and Precision Agriculture, the company’s largest segment, told a different story. Net sales fell 6% to $3.998 billion, and operating margin slipped to 13.2% from 13.6%, weighed down by lower shipment volumes in South America and Europe. Management now expects the segment’s full-year sales to be down roughly 10%, even after narrowing the margin guide to 11% to 12%.
South American farmers kept facing elevated production costs, particularly fertilizer, and higher interest rates that weighed on equipment affordability, prompting Deere to cut the region’s industry outlook to down 15% to 20% for the year. In Europe, elevated input costs and uncertainty tied to heat and drought kept arable farmers cautious about capital spending, even as improving wheat prices offered some relief.
Closer to home, the U.S. and Canada large ag industry outlook remains down 15% to 20% as farm profitability stays muted, and global forestry is expected to fall about 10% as softer log and lumber prices weigh on demand. None of this comes free of cost pressure either: Deere still expects roughly $1.1 billion in direct tariff expense for the fiscal year, refunds notwithstanding.
The Market’s Mixed Signals
Hedge fund ownership slipped from 62 funds to 59 in the most recent quarter, a modest pullback rather than a rush for the exits. Short interest sits at just 1.88% of the float, which suggests little organized skepticism about where the stock goes next. Yet shares trade at 27.03 times forward earnings, as of August 26, a multiple that assumes the recovery management keeps describing actually shows up in 2027. That combination leaves little room for the “bottom of the cycle” call to be wrong.
Betting On A Slow Turn
Deere’s diversified portfolio absorbed a tough ag cycle this quarter, letting construction and small ag carry results while the company’s biggest segment shrank. The tension for investors sits in the timing of the recovery management keeps promising: early order programs for planters and sprayers are up only mid-single digits, and South America and Europe remain pressured by costs farmers can’t easily escape. For the construction and technology story to keep paying off, infrastructure spending and precision ag adoption need to hold up as broadly as they have this year.
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