[Deere & Q2 2026 Earnings Call] Deere Q2 Profit $1.77B as Construction Surges 29%; Raises Sales Outlook, Sees Ag Bottom in 2026

Deere & Company rode a red-hot construction market to a 5% revenue gain and a robust profit in its fiscal second quarter, overcoming a deep slump in large agricultural equipment and a tangled tariff landscape. The company boosted its 2026 construction sales growth target to about 20%, saying its order book has leaped 60% since November and that more than 80% of production slots for the year are already spoken for.

CFO Brent Norwood declared that 2026 will mark the bottom of the large ag cycle, setting the stage for a recovery next year. “Our baseline view remains that 2026 will represent the bottom of the ag cycle,” Norwood said on the earnings call. “We’ve managed field inventories tightly of new equipment and made significant progress on used. All the while, machine hours continue to accrue, aging out the fleet and driving a base-level need for replacement.”

Total net sales and revenues reached $13.369 billion, while equipment operations net sales hit $11.778 billion, both up 5% from a year earlier. Net income attributable to Deere was $1.773 billion, or $6.55 per diluted share, including a one-time $272 million benefit from IEPA tariff refund claims that padded margins by roughly 2.5 percentage points.

Key Financial Metrics (Q2 FY2026 vs. Q2 FY2025)

Metric	Q2 FY2026	Q2 FY2025	Change
Total Net Sales & Revenues	$13.369B	$12.76B	+5%
Equipment Operations Net Sales	$11.778B	$11.17B*	+5%
Net Income	$1.773B	–	–
Diluted EPS	$6.55	–	–
Equipment Operations Margin	16.9%	–	–

*Equipment ops exact prior-year figure from briefing not specified in dollars; growth aligns with disclosed 5% increase.

Segment net sales highlighted the sharply divergent cycles Deere’s businesses are navigating. Construction & Forestry rocketed 29% higher to $3.79 billion, while Small Ag & Turf climbed 16% to $3.485 billion. In contrast, Production & Precision Ag fell 14% to $4.503 billion.

Construction boom and a raised bar

Construction & Forestry was the quarter’s engine. Earthmoving demand in the U.S. and Canada is tracking up about 5%, but road building is surging at a 10% industry pace, and Deere’s order book has ballooned to its highest level since April 2024. Management lifted the segment’s full-year net sales forecast to “up approximately 20%” and margin guidance to 10%–12%.

“Construction demand remains robust, supported by infrastructure spending, rental activity, and accelerating data center investments,” Norwood said. “Our order book continues to strengthen, up more than 60% since November, now at its highest level since April of 2024, with over 80% of production slots filled for the year.”

The company’s new Deere-designed excavator, built in Kernersville, North Carolina, following a $70 million investment, has almost completely sold out its initial production windows. At the CONEXPO trade show, more than 140,000 contractors attended, and Deere generated a buzz around its integrated jobsite technology, including SmartGrade machine control and connectivity through the Operations Center.

Analysts pressed on whether the 29% sales leap reflected strong industry growth or outsized share gains. Josh Beal, director of investor relations, said both factors were at play: “We did some underproduction last year in our Earthmoving segment. As we build alignment with retail demand this year, you do get that natural lift. On top of that, we have seen some pickup in share over the past 12 months.”

Small Ag & Turf: a quiet but powerful contributor

Small Ag & Turf continued its steady climb, with net sales rising 16% year over year to $3.485 billion and an operating margin of 20.6% — the highest among Deere’s equipment segments. Turf markets are recovering after several years of decline, and dairy and livestock operations are enjoying strong margins that support equipment replacement. The full-year outlook calls for sales up about 15% and a margin of 13.5% to 15%.

Large Ag in the trough, but green shoots appear

The Production & Precision Ag segment bore the brunt of the down cycle, with net sales dropping 14% to $4.503 billion. Lower shipment volumes and higher production costs were only partially offset by favorable currency translation and modest price realization of about 1 percentage point. Operating margin held at 15.7%.

Yet management underscored that the worst may be over. North American high-horsepower tractor and combine inventories have been slashed by more than 50% from mid-2024 peaks. On the used side, combine inventories are down by mid-teens from their March 2024 peak, and model-year 2022–2023 8R tractors have fallen about 45% from peak levels.

“We’ve made meaningful progress on North American used inventories,” Beal noted. “Used tractor inventory is down mid-teens from this cycle’s peak and down low single digits sequentially during the quarter, a period we typically see seasonal inventory builds.”

Deere is now kicking off early-order programs for model-year 2027 sprayers and planters. Beal said the first two weeks of sprayer orders support the view that 2026 is the trough, though he cautioned against reading too much into early data.

Brazil presents a near-term drag. Deere lowered its South American industry forecast to a decline of 15% (from down 5%) as elevated interest rates, a stronger real, and the conflict in Iran’s impact on fertilizer prices pressure grower margins just ahead of the September planting season. Still, CFO Norwood stressed that Deere is gaining market share across all tractor categories in Brazil and generating double-digit margins even at trough levels. “The team in the region continues to do an excellent job navigating volatility,” he said.

Tariffs: $1.2 billion headache, but no surcharges

Trade policy remains a significant variable. Deere’s direct tariff expense run-rate for fiscal 2026 is unchanged at approximately $1.2 billion, equivalent to a 3-percentage-point headwind on equipment operations margins. The one-time $272 million IEPA refund reduced the net burden to about $900 million.

Beal broke down the tariff exposure: about 45% lands on Construction & Forestry, about a third on Small Ag & Turf, and roughly 20% on Production & Precision Ag. The refund was split in similar proportions.

Crucially, Deere is not passing the cost to customers through surcharges. “Given the fact that tariff rates have been somewhat inconsistent and very dynamic here in the recent months, we are focusing on reducing our tariff exposure through cost actions — resourcing, reshoring, exemption submissions, ensuring USMCA compliance,” Norwood said. “I have full confidence that we will largely counter the negative financial impact of tariffs over the coming periods, largely through cost measures.”

Net price realization for equipment operations is forecast at 1.5% to 2% for the year, in line with general inflation excluding tariffs, underscoring that tariff costs remain incremental and margin-dilutive in the near term.

Guidance and back-half dynamics

Deere kept its full-year net income forecast steady at $4.5 billion to $5.0 billion and equipment operations cash flow at $4.5 billion to $5.5 billion. The outlook assumes an effective tax rate of 24%–26%.

Beal outlined that revenue will be modestly higher in the back half, with the fourth quarter stronger than the third. The large ag segment will see an atypical pattern — more Waterloo large-tractor shipments to North America in the second half — which should improve factory absorption and margins. “Price-cost will improve as we move through the balance of the fiscal year,” Beal said, as the company laps prior-year tariff and material inflation while price realization gets a favorable comparison from last year’s incentive programs.

Q&A: analysts dig into construction gap, pricing, and dealer sentiment

• Construction outperformance: When asked if the 29% sales growth means share gains, Beal said both underproduction catch-up and market share improvement were contributing. Pricing adjustments made late last year also helped.
• Tariff breakdown: Beal detailed the segment splits for the $1.2 billion run-rate and the $272 million refund, confirming the full-year net tariff cost of approximately $900 million.
• Pricing conservatism: Analysts questioned Deere’s low price realization relative to peers. Beal attributed the modest outlook partly to slightly lower expectations in Brazil and noted that North America would be a bit better.
• Ag bottom confirmation: Asked about dealer sentiment, Norwood said dealers who aggressively managed used inventories are most optimistic, with some even looking to add to their used fleets. Overall, orders for 2027 seasonal products so far support the trough view.

The bottom line

Deere’s second quarter underscored the power of a diversified industrial portfolio. While large ag cyclically depressed the top line, construction, turf, and financial services more than compensated. With inventories in far better shape and technology adoption — like See & Spray, JDLink Boost, and harvest automation — accelerating globally, management signaled that the company is positioned not just to weather the cycle but to emerge with structurally higher returns. Norwood summed it up: “Our organization demonstrated strong execution. We are delivering structurally higher levels of profitability compared to the last time we were at a similar point in the cycle, despite the headwind that comes from tariffs.”