Will Deere’s (DE) Smart Strategy Beat the Farm Slump? |
Deere (DE) investors are wrestling with a stark reality: management sees equipment demand falling 30% in 2025. That forecast sparked intense interest from financial pros, with DE searches nearly triple its closest competitor, according to our TrackStar data. The key question: can Deere’s structural improvements maintain profitability as the cycle turns? Deere’s Business Deere is the world’s largest agricultural equipment manufacturer, with $51.7 billion in revenue and operations spanning over 70 countries. The company’s product lineup ranges from compact tractors to massive combines, supported by cutting-edge precision agriculture technology that helps farmers improve efficiency and reduce input costs. Deere segments its business into the following areas:
In Q4 2024, Deere reported revenue down 28% to $11.1 billion as demand weakened across all segments. Net income fell 47% to $1.2 billion. The company has aggressively managed inventory levels, cutting production below retail demand to prevent oversupply. Deere reduced field inventory of large tractors by 50% year-over-year. |
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Management is doubling down on precision agriculture technology investments despite the downturn. Their See & Spray technology covered 1 million acres in 2024, reducing herbicide use by 60%. Financials
Source: Stock Analysis What stands out in Deere’s 2024 performance isn’t just the numbers – it’s the story they tell about structural improvements. Despite revenues falling 16% to $51.7 billion, Deere managed to generate $9.2 billion in operating cash flow, with equipment operations running well below mid-cycle levels. The 18.1% operating margin, while down from 2023’s exceptional 25.4%, demonstrates how far Deere has come since its last downturn. Back in 2020, margins were only 10.9% at a similar point in the cycle. Management’s proactive decisions shine through in the inventory numbers. By cutting production early and aggressively managing working capital, Deere reduced field inventory without sacrificing its technology investments. R&D spending held steady at $2.3 billion, showcasing the company’s commitment to innovation even in leaner times. Valuation
Source: Seeking Alpha Deere commands premium multiples that reflect its technology leadership position. At 17.5x earnings, it trades notably higher than Paccar (PCAR) at 12.8x and CNH (CNH) at 8.9x. The market’s willingness to pay up becomes clearer when looking at enterprise value – Deere’s 15.8x EBITDA multiple stands well above Paccar’s 11.3x and CNH’s 15.9x. Growth
Source: Seeking Alpha While Deere’s 15.5% revenue decline appears concerning, it tells only part of the story. The company’s 5.6% three-year compound annual growth rate demonstrates its ability to grow through cycles, outpacing CNH’s -1.2% decline through trailing Paccar’s impressive 15.9% growth. More importantly, Deere can maintain pricing power even as volumes decline. Profitability
Source: Seeking Alpha Here’s where Deere truly separates itself from the pack. Its 34.9% gross margin towers above competitors, with nearest rival Paccar at 18.5%. The gap in EBITDA margins is equally striking – Deere’s 22.2% versus Paccar’s 17.0%. This superior profitability stems from technology-enabled pricing power and operational excellence that should help cushion the cyclical downturn ahead. Our Opinion 8/10 Deere enters this downcycle fundamentally transformed from previous ones. Its 18% operating margins at what management considers “sub-trough” volumes speak to structural improvements that should help maintain profitability even as large agriculture equipment demand drops 30% in 2025. The premium valuation reflects these strengths but could face pressure if the farm economy weakens more than expected. However, Deere’s sustained investment in precision agriculture technology through the cycle positions it to emerge even stronger when conditions improve. The company isn’t just weathering the storm – it’s building the future of farming. |
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Proprietary Data Insights Financial Pros’ Top Farm Equipment Stock Searches in the Last Month
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