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Can DE Weather the Persistent Weakness in Equipment Volumes?
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Key Takeaways
DE's Agricultural & Turf segment has posted eight straight quarters of volume contraction.
DE expects 2025 large ag equipment sales in the US and Canada to drop 30% year over year.
Construction equipment orders at DE are also under pressure from trade uncertainty and high interest rates.
Deere & Company (DE - Free Report) continues to grapple with persistent volume pressures in its equipment operations, marking eight consecutive quarters of decline. The most pronounced weakness was noted in the Agricultural & Turf segment, which has now seen eight straight quarters of contraction. Meanwhile, the Construction & Forestry division has registered six quarters of declines.
Weak farmer sentiment, subdued by soft commodity prices, high input costs and elevated interest rates, has dampened demand for agricultural machinery. Despite U.S. net farm income forecasts being revised higher on government aid, this is not expected to boost the demand for farm equipment in the near term. Trade uncertainty and high interest rates have also curtailed order activity for both construction and compact construction equipment.
Deere anticipates a challenging industry outlook for fiscal 2025, particularly in the large agriculture equipment market in the United States and Canada, which is expected to decline 30%. The small agriculture and turf equipment market in the United States and Canada is projected to decline 10-15%. European agricultural markets are expected to decline approximately 5%, while South American agricultural markets are forecast to remain flat. Asia market is expected to be down slightly.
Construction equipment demand is similarly under pressure. Deere expects a 10% drop in U.S. and Canadian construction equipment sales, with compact equipment down 5%. While infrastructure spending remains a tailwind, trade uncertainty and high interest rates are pressuring order activity for both construction and compact construction equipment. Global forestry equipment is forecast to be flat to down 5%, while the global roadbuilding market is expected to remain flat.
Our model projects a 17.6% drop in volumes in the Production & Precision AG segment for fiscal 2025 and a 14.2% decline in the Small AG & Turf segment’s volumes. This is expected to lead to a 16.4% decline in volumes in the Agricultural & Turf segment. The Construction & Forestry segment is expected to see a 12.4% decline in volumes in 2025. Overall, the Equipment Operations’ volumes are expected to decline 15.3% in 2025.
Industry peers like AGCO Corporation (AGCO - Free Report) and CNH Industrial N.V (CNH - Free Report) are also struggling. AGCO has seen six straight quarters of negative organic growth due to weak volumes. AGCO expects this trend to continue through the year and be a drag on 2025 sales and operating margins. Our model projects a 12.1% decline in organic growth in 2025 for AGCO.
In North America, AGCO expects sales volumes of large agricultural equipment to be down 25-30% and small agricultural equipment to be flat to down 5%. In Westen Europe, sales will be down 5%, and Brazil sales will be flat to up 5%.
CNH Industrial has also seen its volumes declining for eight straight quarters in the Agriculture segment. Volumes for the Construction segment have also been in the negative in the last five quarters for CNH Industrial. CNH Industrial forecasts that 2025 global industry retail sales will be lower in both the agriculture and construction equipment markets compared with 2024.
DE’s Price Performance, Valuation & Estimates
DE shares have gained 24.4% so far this year compared with the industry’s 18.3% growth. In comparison, the Zacks Industrial Products sector has dipped 2.2%. The S&P 500 has gained 1.2% in the same time frame.
Image Source: Zacks Investment Research
Deere is currently trading at a forward 12-month price/earnings (P/E) ratio of 25.16X compared with the industry average of 22.84X. With a Value Score of D, DE stock does not appear to be a compelling value proposition at these levels.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for DE’s fiscal 2025 earnings indicates a year-over-year decline of 26.5%. The consensus mark for revenues implies a drop of 15% for the year. The earnings estimate for fiscal 2026 indicates 17% growth, with revenues rising 7.3%.
The earnings estimate for Deere for 2025 has moved down 0.79% while the same for fiscal 2026 has moved up 3.52% over the past 60 days.
Image Source: Zacks Investment Research
Deere stock currently carries a Zacks Rank #3 (Hold).
Image: Bigstock
Can DE Weather the Persistent Weakness in Equipment Volumes?
Key Takeaways
Deere & Company (DE - Free Report) continues to grapple with persistent volume pressures in its equipment operations, marking eight consecutive quarters of decline. The most pronounced weakness was noted in the Agricultural & Turf segment, which has now seen eight straight quarters of contraction. Meanwhile, the Construction & Forestry division has registered six quarters of declines.
Weak farmer sentiment, subdued by soft commodity prices, high input costs and elevated interest rates, has dampened demand for agricultural machinery. Despite U.S. net farm income forecasts being revised higher on government aid, this is not expected to boost the demand for farm equipment in the near term. Trade uncertainty and high interest rates have also curtailed order activity for both construction and compact construction equipment.
Deere anticipates a challenging industry outlook for fiscal 2025, particularly in the large agriculture equipment market in the United States and Canada, which is expected to decline 30%. The small agriculture and turf equipment market in the United States and Canada is projected to decline 10-15%. European agricultural markets are expected to decline approximately 5%, while South American agricultural markets are forecast to remain flat. Asia market is expected to be down slightly.
Construction equipment demand is similarly under pressure. Deere expects a 10% drop in U.S. and Canadian construction equipment sales, with compact equipment down 5%. While infrastructure spending remains a tailwind, trade uncertainty and high interest rates are pressuring order activity for both construction and compact construction equipment. Global forestry equipment is forecast to be flat to down 5%, while the global roadbuilding market is expected to remain flat.
Our model projects a 17.6% drop in volumes in the Production & Precision AG segment for fiscal 2025 and a 14.2% decline in the Small AG & Turf segment’s volumes. This is expected to lead to a 16.4% decline in volumes in the Agricultural & Turf segment. The Construction & Forestry segment is expected to see a 12.4% decline in volumes in 2025. Overall, the Equipment Operations’ volumes are expected to decline 15.3% in 2025.
Industry peers like AGCO Corporation (AGCO - Free Report) and CNH Industrial N.V (CNH - Free Report) are also struggling. AGCO has seen six straight quarters of negative organic growth due to weak volumes. AGCO expects this trend to continue through the year and be a drag on 2025 sales and operating margins. Our model projects a 12.1% decline in organic growth in 2025 for AGCO.
In North America, AGCO expects sales volumes of large agricultural equipment to be down 25-30% and small agricultural equipment to be flat to down 5%. In Westen Europe, sales will be down 5%, and Brazil sales will be flat to up 5%.
CNH Industrial has also seen its volumes declining for eight straight quarters in the Agriculture segment. Volumes for the Construction segment have also been in the negative in the last five quarters for CNH Industrial. CNH Industrial forecasts that 2025 global industry retail sales will be lower in both the agriculture and construction equipment markets compared with 2024.
DE’s Price Performance, Valuation & Estimates
DE shares have gained 24.4% so far this year compared with the industry’s 18.3% growth. In comparison, the Zacks Industrial Products sector has dipped 2.2%. The S&P 500 has gained 1.2% in the same time frame.
Image Source: Zacks Investment Research
Deere is currently trading at a forward 12-month price/earnings (P/E) ratio of 25.16X compared with the industry average of 22.84X. With a Value Score of D, DE stock does not appear to be a compelling value proposition at these levels.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for DE’s fiscal 2025 earnings indicates a year-over-year decline of 26.5%. The consensus mark for revenues implies a drop of 15% for the year. The earnings estimate for fiscal 2026 indicates 17% growth, with revenues rising 7.3%.
The earnings estimate for Deere for 2025 has moved down 0.79% while the same for fiscal 2026 has moved up 3.52% over the past 60 days.
Image Source: Zacks Investment Research
Deere stock currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.