Deere Stock Dives After Earnings Beat Expectations. Why It Wasn’t Enough.

Deere reported equipment sales of $10.4 billion. (Scott Olson/Getty Images)

Deere stock dropped despite the farm equipment company reporting better-than-expected fiscal third-quarter earnings on Thursday.

It trimmed fiscal-year financial guidance, failing to live up to rising investor expectations.

The company reported earnings per share of $4.75 from equipment sales of $10.4 billion. Wall Street was looking for $4.58 and $10.3 billion, respectively. In last year’s third quarter, Deere reported earnings of $6.29 from sales of $11.4 billion.

Lower pricing in Deere’s large agricultural and construction equipment businesses contributed to the sales decline. That’s the third consecutive quarter that pricing has declined in the company’s construction segment.

The new midpoint of Deere’s net income guidance for fiscal 2025, which ends in October, is $5 billion—down from a midpoint of $5.15 billion in May. That implies fiscal fourth-quarter net income of about $1 billion. Analysts currently project about $1.1 billion.

Deere shares fell 6.8% to $478.84, while the S&P 500 and Dow Jones Industrial Average finished close to flat.

The May outlook was cut from a prior net-income outlook of about $5.25 billion. The May outlook, however, included the impact of President Donald Trump’s wide-ranging global tariffs, even though Deere didn’t call out a specific amount for import levies. Tariffs increased product costs in the quarter, according to the company, but Deere didn’t provide much detail.

Construction weakness drove the guidance reduction, wrote Jefferies analyst Stephen Volkmann in a Thursday report. “We see nothing in today’s results that calls into question the thesis that 2025 should mark a bottom in the [agriculture] cycle,” he added. “We suspect some of today’s margin weakness is likely tariff-related. Still, with corn now back to mid-20teens lows, the slope of any recovery looks modest at present.”

Higher crop prices typically help farmers and Deere. Volkmann rates shares Hold and has a $510 price target for the stock.

Farmers aren’t making as much as they used to. The Department of Agriculture reported net farm income of $139 billion in 2024, down from a 2022 peak of $182 billion. Crop prices were higher back then. Corn averaged roughly $6.50 a bushel in 2022, compared with $4 over the past 12 months.

Lower income constrains equipment purchases. Deere’s fiscal 2025 earned net income should be $5 billion, compared with $7.1 billion in fiscal 2024 and more than $10 billion in fiscal 2023.

Despite the dip, Deere stock is up roughly 45% over the past 12 months. Investors clearly expect things to improve. There are reasons for that. For starters, the government projects 2025 net farm income to be about $180 billion.

And Deere peer AGCO reported better-than-expected second-quarter earnings on July 31. Shares jumped 10.6% in response. CEO Eric Hansotia expects 2026 demand to improve around the globe, he told investors on the earnings conference call.

The industry is cautiously optimistic about a recovery. Deere and other equipment manufacturers still need to overcome some high inventories with dealers, though. High dealer inventory can translate into lower production and reduced wholesale volumes.

Deere has been working to reduce new and used inventory at dealers for months. New equipment inventories are in better shape, and the company is focused on reducing used inventory levels. “By proactively managing inventory, we’ve matched production to retail demand, enabling our company and dealers to respond swiftly to market shifts and customer needs,” said CEO John May in a news release. “By continuing to address the high levels of used equipment in the industry, we’re building a healthier market for everyone…even in these challenging times.”

Deere is preparing for a turnaround, but it hasn’t arrived yet.

Coming into Thursday trading, shares were up about 21% so far this year. Options markets implied shares would move about 5%, up or down, in Thursday trading. Shares moved an average of about 5% after the past four quarterly reports. Shares rose three times and fell once.

Write to Al Root at allen.root@dowjones.com