Deere & Company (DE) shares tumbled Wednesday despite beating quarterly estimates, as the agricultural equipment giant painted a sobering picture of fiscal 2026 that has investors bracing for the worst year of the current downcycle.

The Numbers Tell Two Stories

Here's the paradox investors are wrestling with: Deere actually delivered a solid fourth quarter. Earnings per share came in at $3.93, topping the $3.88 consensus. Revenue surged 11% year-over-year to $12.39 billion, crushing expectations of $9.85 billion.

So why the selloff? It's all about what comes next.

"This past year brought its share of challenges and uncertainty, but thanks to the structural improvements we've made and the diverse customer segments and geographies we serve, we were able to achieve our best results yet for this point in the cycle," said John May, chairman and CEO.

That "for this point in the cycle" qualifier is doing some heavy lifting there.

Where the Pain Is Showing Up

Production and precision agriculture sales grew 10% year-over-year to $4.74 billion in the quarter, helped by higher shipment volumes and better pricing. But operating profit in that segment fell 8% to $604 million. The culprits? Higher production costs and tariffs taking a bite.

The small agriculture and turf segment tells an even grimmer story. Sales increased 7% to $2.46 billion on higher volumes, but operating profit collapsed 89% to just $25 million. Tariffs, warranty expenses, and production costs essentially vaporized the segment's profitability.

Construction and forestry provided a bright spot, with sales up 27% to $3.38 billion and operating profit rising 6% to $348 million, both driven by stronger shipment volumes.

Deere's financial services arm also delivered, with net income jumping 69% to $293 million thanks to lower credit loss provisions and better financing spreads.

The Outlook Everyone's Worried About

May laid it out plainly: "Looking ahead, we believe 2026 will mark the bottom of the large ag cycle. 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."

Translation: It's going to get worse before it gets better, but we think we've found the floor.

Deere expects fiscal 2026 net income between $4.0 billion and $4.75 billion, representing a decline of 5.5% to 20% year-over-year. Operating cash flow is projected at $4.0 billion to $5.0 billion.

The segment guidance breaks down like this: Production and precision agriculture sales are expected to fall 5% to 10%, while both small agriculture and turf revenue and construction and forestry sales should each rise about 10%.

The Bigger Picture

Deere anticipates industrywide U.S. and Canada large agriculture equipment sales will decline 15% to 20% in fiscal 2026. That's a significant contraction in the company's core market. Small agriculture and turf equipment demand should be flat to up 5%, while construction equipment sales in the U.S. and Canada are forecast flat to up 5%.

The message is clear: farmers are pulling back on big-ticket purchases, squeezed by their own margin pressures and economic uncertainty. Meanwhile, tariffs continue to eat into Deere's profitability across multiple segments.

Price Action: DE shares were trading down 4.71% to $474.65 in premarket trading Wednesday.