Deere margins impacted by tariffs as agriculture industry remains steady

Deere & Co. unveiled its latest financial results highlighting the detrimental effects tariffs have imposed on the agricultural and heavy machinery industries. The company is headquartered in Moline, Illinois, and anticipates direct costs of tariffs to amount to $1.2 billion for the fiscal year 2026, which signifies a significant increase compared to the previous year.

With a quarter-by-quarter tariff run-rate of approximately $300 million equally distributed, Deere & Co. finds itself under sustained pressure due to margins being affected across its key business units. Despite an encouraging 14% rise in net sales from equipment operations in fiscal Q4’25 that reached $10.58 billion compared to the previous year, net income experienced a decline down by 14% year over year to $1.065 billion in the quarter that concluded on Nov. 2.

On a recent earnings call, executives emphasized the consecutive year of downsizing witnessed in the agriculture cycle throughout 2025. The Construction & Forestry segment, Deere & Co.’s most tariff-sensitive business line, managed to secure a 10.3% operating margin in Q4 alongside elevated production costs, benefiting from robust shipment volumes and gains in the product mix. Yet, company officials cautioned that the backdrop of persistent tariffs would continue to burden Deere & Co. unless addressed through pricing adjustments or cost-saving initiatives. The sector is expected to close Q1’26 with margins in the low single digits.

In contrast, the Production Ag and Precision Ag business segment anticipates a more pronounced decline in margins. Deere & Co. foresees Q1’26 sales to be on par with the previous year, but margins are expected to plummet to the low single digits due to factors such as reduced price realization and absorption of tariffs, compounded with a decline in fixed overhead absorption stemming from fewer tractors shipped early in the year.

Regarding material expenses exclusive of tariffs, Deere & Co. reported favorable developments in 2025. However, with tariffs, indirect inflation, and amplified labor costs in North America, management anticipates a net headwind in 2026. Despite the challenges, the company strives to maintain a positive trend between price and cost for the entire year, recapturing part of the erstwhile negative tariff effect via pricing modifications and strategic production forecasting. Emphasizing their lean production strategies and stringent inventory management, Deere & Co. remains primed to adapt swiftly to market demands if the need arises. The organization projects gradual growth in Small Ag and Turf, as well as flexes in Large Ag in North America to bolster production later in the year if demand picks up.

In the outlook for 2026, John May, the chairman and CEO of John Deere, expressed optimism that the year would represent the nadir of the large ag cycle. While acknowledging persistent tariff pressures and prevailing adversities in the large ag sector, he highlighted Deere & Co.’s dedication to inventory control, cost management, and the anticipated growth in Small Ag and Turf, as promising factors to effectively navigate the business terrain and capitalize on potential opportunities as market conditions improve.