Deere & Company (NYSE: DE) reported its first quarterly profit increase in three years, driven by robust demand for construction equipment linked to artificial intelligence data center expansion. The company's fiscal third-quarter 2026 results, released Thursday, showed a 69% jump in segment profit, with the Construction & Forestry division contributing the lion's share of the gains.
Shares of the Moline, Illinois-based machinery maker advanced 2.7% in premarket trading following the earnings release, which beat analyst expectations on both profit and revenue.
Construction & Forestry Leads the Charge
Deere's Construction & Forestry segment delivered an 84% surge in operating profit to $436 million, on an 18% increase in net sales to $3.618 billion. The segment's operating margin expanded to 12.1%, up from 7.7% in the year-ago period. This performance added $199 million to the company's total segment operating profit increase of $288 million, representing 69% of the overall gain.
The strength in construction equipment is directly tied to the ongoing buildout of AI data centers, which require heavy machinery for site preparation and infrastructure development. This demand is helping to counterbalance a prolonged downturn in the agricultural equipment market.
Agriculture Remains in Downturn
Deere's Production & Precision Agriculture segment continued to struggle, with sales falling 6% to $3.998 billion and operating profit declining 9% to $527 million. The segment's margin narrowed to 13.2% from 13.6% a year earlier. Weakness in large farm equipment sales reflects lower crop prices and reduced farm incomes, which have prompted farmers to defer purchases of new tractors and combines.
However, the Small Ag & Turf segment provided some offset, with sales rising 12% to $3.383 billion and operating profit up 28% to $622 million.
Quality of Earnings Questioned
While the headline earnings beat was impressive, analysts noted a significant caveat: Deere recorded $110 million in tariff refunds during the quarter, which exceeded the total net income increase of $90 million. This suggests that the underlying operational performance, excluding these one-time benefits, was weaker than the reported figures imply.
Net income for the quarter came in at $1.379 billion, up 7% year over year, with diluted earnings per share of $5.10, well above the $4.69 consensus estimate. Equipment net sales of $10.999 billion also topped expectations, rising 6.2% from the prior year.
Guidance Raised, But Cautiously
Deere management raised the lower end of its full-year 2026 net income guidance to $4.75 billion, from a previous range of $4.50 billion to $5.00 billion. The new range is $4.75 billion to $5.00 billion, narrowing the outlook slightly. However, the midpoint increase of $125 million is nearly equal to the single quarter's tariff recovery, raising questions about the sustainability of the improvement.
Chief Executive John May reiterated that the company expects 2026 to mark the bottom of the agricultural equipment cycle, citing initial orders and improved used-equipment inventory levels. "We continue to believe 2026 will mark the bottom of the current ag equipment cycle," he said.
Analyst Divergence
Wall Street remains divided on Deere's prospects, with price targets ranging from $500 to $812, according to a survey of 24 analysts by S&P Global. The average target stands at $647.62, reflecting a consensus Buy rating. JPMorgan maintains a Neutral rating with a $550 target, while Barclays and Argus are more bullish, with Overweight and Buy ratings respectively.
The wide range of targets highlights the tension between the cyclical downturn in farming and the potential for construction and precision technology to drive long-term value.
Risks Ahead
Key risks include potential shifts in crop prices and farm income that could delay large-equipment orders, as well as changes in tariff policy that could reverse reported gains. Additionally, any slowdown in data center construction would diminish the effectiveness of Deere's portfolio hedge.
Investors will be watching closely to see if Deere can sustain its construction momentum while agriculture remains weak, and whether the company can achieve operational improvements without relying on one-time benefits.
