Rightly and candidly, it had warned as early as 2023 ? an exceptional vintage in every respect ? that the coming years would be difficult. See on this point our earnings commentary at the time, Deere & Company: Cycle reversal.
The collapse in activity is indeed vertiginous, with revenue falling by a quarter in two years, from 61.2 billion to 45.8 billion dollars, and operating profit shrinking by half, from $13.4bn to $6.6bn.
The good news is that the equipment manufacturer is suffering less from inflation than its farmer customers. But the latter's delicate situation is inevitably slowing replacement rates and demand for new equipment.
The recovery has yet to begin and 2026 should also prove to be a difficult year, Deere warns again, foreseeing net income that could fall by another fifth relative to 2025.
The market is reacting badly to the news. It should however be acknowledged that it had greeted the group's previous warnings with exceptional leniency. The share is indeed pulling back from its highs; but those highs also reflected valuation multiples at their historic peaks.
Investors therefore remained confident - no doubt too confident - in the prospect of a short-term rebound. The group's perfectly rational management also had reason to reassure them: Deere indeed took advantage of the valuation trough in 2023 and 2024 to lean hard into share buybacks.
Opportunistic, well sequenced and financed by debt, these transactions made it possible to retire almost 8% of the shares outstanding at valuations ranging from 10x to 30x earnings.
As soon as this multiple rebounded, Deere eased off. For the first time in ten years, it also began - albeit timidly - to initiate a semblance of deleveraging. All of this borders on common sense.
The share is back to a multiple of 25x earnings, that is, at its historical valuation ceiling. With the gloomy backdrop set to persist, a prolonged pullback would therefore be anything but surprising.
This of course in no way tarnishes the group's exceptional run, having halved its share count over twenty years, sextupled its EPS over the period, and increased its dividend payout tenfold.
