Deere & Company: FY2025 Risk Disclosure Highlights Tariff Pressures, Credit Deterioration, and Strategic Execution Challenges

What happened

Deere disclosed that fiscal year 2025 was marked by unfavorable market conditions that resulted in lower sales volumes, greater reliance on sales incentives, and elevated receivable write-offs. The company expects certain of these conditions to persist in fiscal year 2026. Incremental import tariffs adversely affected the cost of products and components by approximately $600 million, excluding the broader impact on suppliers and market demand. New tariffs were imposed in the U.S. for imports from a broad range of countries and materials during FY2025, and several countries implemented or proposed retaliatory tariffs on imports from the U.S. As a net exporter of agriculture and turf equipment from the U.S., these trade policies directly impact the company. The allowance for credit losses on retail notes and financing lease receivables increased in FY2025 primarily due to higher expected losses on agriculture and turf customer accounts as a result of elevated delinquencies and a decline in market conditions. The company occasionally grants contractual modifications to customers experiencing financial difficulties, with no guarantee that customers will be able to satisfy their obligations. In 2025, elevated used inventory levels in late model-year machines impacted demand for products in North America, resulting in lower price realization and actions to reduce inventory levels. Interest rates in the U.S. decreased while Brazil remained elevated in 2025, with higher rates and volatility impacting demand for products, financing spreads for financial services operations, and the financial health of dealers.

Why it matters for investors

The combination of tariff headwinds, credit quality deterioration, and volume pressures signals a challenging operating environment that is compressing profitability and raising capital intensity for Deere's financial services segment. The $600 million tariff impact represents a direct cost headwind that may not be fully recoverable through pricing, particularly in a market where the company is already relying more heavily on sales incentives to move inventory. The increase in credit loss provisions indicates weakening end-market fundamentals, as farmers and equipment buyers face financial stress from declining commodity prices, elevated interest rates, and softening agricultural conditions. This credit deterioration creates a dual risk: reduced equipment demand and higher financial services losses. The persistence of elevated used equipment inventory and the need for price concessions suggests that the company is operating with excess supply relative to demand, which can pressure margins and require manufacturing adjustments. The ongoing legal challenges around repair services introduce regulatory uncertainty that could alter the company's aftermarket business model and dealer network economics. The disclosure that the company shifted production of certain equipment to Mexico in 2024, which then became subject to additional tariffs in 2025, illustrates the complexity of optimizing global manufacturing footprints in a volatile trade policy environment. Management's acknowledgment that these conditions are expected to persist into FY2026 indicates that near-term recovery is not anticipated, requiring continued focus on cost management and operational efficiency.

Key highlights

Deere's risk disclosures emphasize the challenging intersection of trade policy volatility, weakening agricultural fundamentals, and credit quality deterioration. The company's position as a net exporter of agriculture and turf equipment from the U.S., with nearly 80% of domestic sales assembled domestically, creates significant exposure to both import tariffs on components and retaliatory export tariffs on finished goods. The $600 million direct tariff impact understates total exposure, as it excludes supplier cost inflation and demand destruction from higher prices. The financial services segment is experiencing stress, with rising credit losses driven by elevated delinquencies among agriculture and turf customers facing income pressures from lower commodity prices and higher input costs. The need for contractual modifications for customers experiencing financial difficulties suggests widespread stress rather than isolated cases. The shift of certain production to Mexico in 2024, which subsequently became subject to additional tariffs in 2025, illustrates the difficulty of optimizing global operations amid rapidly changing trade policies. The company's disclosure that it is monitoring the Supreme Court's review of IEEPA tariffs and working to qualify for USMCA exemptions indicates active efforts to mitigate costs, though outcomes remain uncertain. The legal challenges around repair services represent a potentially significant business model risk, as adverse outcomes could limit aftermarket revenue and alter dealer economics. Management's acknowledgment that unfavorable conditions are expected to persist into FY2026 suggests a prolonged period of margin pressure and operational adjustment.

Management commentary

Management disclosed that in fiscal year 2025, unfavorable market conditions resulted in lower sales volumes, greater reliance on sales incentives, and elevated receivable write-offs, with expectations that certain of these conditions will persist in fiscal year 2026. The company stated that changes in the economic environment and the agricultural market business cycle are driven by factors outside of its control, and as a result cannot reasonably foresee when these conditions will fully subside. Management noted that incremental import tariffs adversely affected the cost of products and components in FY2025 and may continue to do so in 2026, with the direct impact of incremental tariffs incurred in 2025 approximately $600 million, excluding the impact on suppliers and market demand. The company is monitoring developments in the Supreme Court case regarding tariffs imposed under the International Emergency Economic Powers Act and its impact on future financial statements and business. Management acknowledged that even though the company is taking actions to qualify for an exemption under the USMCA to mitigate elevated tariff costs on products shifted to Mexico, there is no guarantee of obtaining such qualification. Regarding credit quality, management stated there is no guarantee that customers experiencing financial difficulty will be able to satisfy their obligations in accordance with original or modified terms, and the allowance for credit losses may continue to increase in future periods. Management also disclosed that the development and resolution of the consolidated class action lawsuit and FTC lawsuit alleging monopolization of repair services could have a material adverse effect on business, operations, and financial results.

What to watch next

Investors should monitor:

• Resolution of the United States Supreme Court review of tariffs imposed under the International Emergency Economic Powers Act, which could provide tariff relief and potential recovery of approximately $600 million previously paid.

• Success of efforts to qualify for exemptions under the United States-Mexico-Canada Agreement (USMCA) to mitigate elevated tariff costs on products manufactured in Mexico.

• Trajectory of credit losses and delinquency rates in the financial services segment, particularly for agriculture and turf customer accounts, as management indicated the allowance for credit losses may continue to increase in future periods.

• Development and resolution of the consolidated class action lawsuit and Federal Trade Commission lawsuit regarding repair services monopolization, which could materially affect business operations, aftermarket revenue, and dealer network economics.

• Management's assessment in FY2026 reporting regarding whether unfavorable market conditions have begun to subside or continue to persist, given the acknowledgment that timing of recovery cannot be reasonably foreseen.

This summary is based solely on excerpts from the company's Form 10-K filing.