Company Announcements
December 1, 2025
Tariffs bite Deere margins as ag chugs along
Written by Laura Miller
Deere & Co.’s latest earnings report put a spotlight on the mounting costs of tariffs across the agricultural and heavy machinery sectors.
The Moline, Ill.-based global equipment manufacturer expects direct pretax tariff expenses of $1.2 billion for fiscal 2026 – double the prior year’s burden. Management confirmed a tariff run-rate of roughly $300 million per quarter, evenly spread. This has created sustained margin pressure across its key business units.
All told, Deere’s net sales from equipment operations grew 14% year over year to $10.58 billion in fiscal Q4’25. Still, net income dropped 14% year over year (y/y) to $1.065 billion in the quarter ended Nov. 2.
Executives were clear on an earnings conference call last week that 2025 marked the second straight year of contraction in the ag cycle.
Deere’s most tariff-exposed segment, Construction & Forestry (C&F), delivered a 10.3% operating margin in Q4 despite higher production costs. Strong shipment volumes and mix gains helped offset tariff-driven headwinds. But executives cautioned that persistent duties will continue to weigh unless fully mitigated through pricing or cost actions. C&F’s margins are expected to be in the low single digits in Q1’26.
The Production & Precision Ag (Large Ag) segment faces sharper margin compression. Q1’26 sales are expected to match prior-year levels. But margins will fall into the low single digits, the company said, driven by lower price realization, tariff absorption, and lower fixed overhead absorption from shipping fewer tractors early in the year.
Management emphasized that material costs, excluding tariffs, were favorable in 2025. But the combination of tariffs, indirect inflation, and a step-up in North American labor contracts creates a net headwind in 2026.
Deere expects to remain price/cost positive for the full year, recovering part – but not all – of past tariff exposure through price increases and production planning. The execs highlighted lean production plans and inventory discipline as positioning the company to respond quickly if demand inflects.
The company sees some growth in Small Ag and Turf, as well as flexibility in Large Ag in North America to ramp production later in the year if order velocity improves.
“Looking ahead, we believe 2026 will mark the bottom of the large ag cycle,” stated John May, chairman and CEO of John Deere. “While ongoing margin pressures from tariffs and persistent challenges in the large ag sector remain, our commitment to inventory management and cost control, coupled with expected growth in small agriculture & turf and construction & forestry, positions us to effectively manage the business and seize emerging opportunities as market conditions begin to recover.”
