Deere & Company (NYSE: DE) is having a good day on the stock market, and it's not just because of tractors. The company's fiscal third-quarter results beat Wall Street expectations, and they've raised their full-year outlook. But the real story here is how an unlikely hero—construction equipment—is stepping up to offset a slump in the traditional farming business.
Let's break down the numbers. Deere reported net income of $1.379 billion, or $5.10 per diluted share, compared with $1.289 billion, or $4.75 per share, a year earlier. That $5.10 per share beat the $4.70 estimate. Net sales and revenue rose 5% to $12.608 billion, topping the $10.730 billion estimate. Not too shabby.
But here's where it gets interesting. The Production & Precision Agriculture segment, which is the core of Deere's business, saw net sales fall 6% to $3.998 billion. Operating profit declined 9% to $527 million, and operating margin narrowed to 13.2% from 13.6%. Favorable pricing and currency effects partly offset lower shipment volumes and higher production costs. So, the farming side is still struggling.
Meanwhile, the Small Agriculture & Turf segment did better, with net sales up 12% to $3.383 billion. Operating profit increased 28% to $622 million, and margin expanded to 18.4% from 16%. That's a nice bounce.
But the star of the show is Construction & Forestry. Net sales jumped 18% to $3.618 billion, and operating profit surged 84% to $436 million. Margin improved to 12.1% from 7.7%. That's a massive improvement. What's driving this? According to a Reuters report, rising U.S. infrastructure spending and the AI-driven data center buildout are fueling construction equipment demand. That's right, the same AI boom that's driving tech stocks is also helping sell bulldozers and excavators. It's a different kind of pick-and-shovel play.
Financial Services also chipped in, with net income up 7% to $219 million.
Now, let's talk cash flow and special items. Operating cash flow totaled $3.250 billion for the first nine months of the fiscal year. Deere ended the quarter with $8.928 billion in cash and cash equivalents. The company reported $17.115 billion in short-term borrowings, $6.095 billion in short-term securitization borrowings, and $40.626 billion in long-term borrowings. That's a lot of debt, but it's manageable for a company this size.
Deere also recorded $110 million in tariff recoveries during the quarter and $382 million year to date. The year-ago quarter included a $61 million pretax noncash impairment charge. And they completed their $439 million acquisition of Tenna LLC, which expands their construction technology capabilities. Smart move, given the construction boom.
Looking ahead, Deere raised its fiscal 2026 net income outlook to between $4.75 billion and $5 billion. They expect equipment operations net operating cash flow of $5 billion to $5.5 billion. Capital expenditures are projected at about $1.3 billion, and R&D expenses are expected to increase slightly.
Segment-wise, Production & Precision Agriculture sales are expected to fall about 10%, with margins of 11% to 12%. Small Agriculture & Turf sales are projected to rise about 15%, with margins of 14.5% to 15.5%. Construction & Forestry sales are expected to grow about 20%, with margins of 10.5% to 11.5%. So, the trend continues: farming down, construction up.
Deere expects large-agriculture industry volumes in the U.S. and Canada to decline 15% to 20%. Construction equipment volumes are expected to rise 5% to 10%, while global roadbuilding volumes are projected to increase about 10%. The company said early order trends, improving used-equipment inventories, and greater adoption of its technology support its view that 2026 will mark the bottom of the agricultural equipment cycle.
Chairman and CEO John C. May echoed this sentiment: "As we look ahead, we continue to believe 2026 will mark the bottom of the current ag equipment cycle." He added, "Across our business, early order program trends, improving used-equipment inventories, and increasing customer adoption of our advanced technologies give us confidence that Deere is well positioned for long-term value creation."
So, what's the takeaway? Deere is navigating a tough agricultural market by leaning into construction, which is booming thanks to infrastructure spending and the AI data center frenzy. It's a classic case of diversification paying off. And with the company raising its outlook, investors seem to be buying it. Deere shares were up 2.76% at $596.67 at the time of publication on Thursday.
It's not all smooth sailing, but for now, Deere has found a new engine for growth, and it's not green and yellow—it's concrete and steel.
