Deere & Company (NYSE: DE) delivered a clean beat in its fiscal third quarter. Diluted EPS of $5.10 topped the $4.71 consensus by $0.39 on net sales and revenues of $12.608 billion, up 5% from a year ago. The headline numbers alone tell a story of cyclical resilience, but the real texture is in the segments. Construction & Forestry is roaring. Small Ag & Turf is accelerating. The core Production & Precision Ag business is still contracting, albeit more slowly than feared.
Net income rose 7% to $1.379 billion from $1.289 billion a year ago. That improvement came despite a $110 million tariff recovery tailwind that padded the quarter. Strip that out and underlying earnings still cleared the bar, driven by volume and price in the non-ag segments. Management raised full-year net income guidance to $4.75 billion to $5.00 billion from a prior range, signaling confidence that the second half of fiscal 2026 will hold up.
Construction & Forestry was the standout. Net sales jumped 18% to $3.618 billion, and operating profit surged 84% to $436 million, pushing operating margin from 7.7% to 12.1%. That margin expansion is the story: price realization and higher shipment volumes more than offset elevated selling, administrative, and R&D costs. The segment is benefiting from U.S. infrastructure spending and a still-healthy non-residential construction market. Deere's full-year outlook for Construction & Forestry net sales growth of roughly 20% implies the fourth quarter will maintain this momentum.
Small Ag & Turf was nearly as strong. Net sales rose 12% to $3.383 billion, and operating profit climbed 28% to $622 million, with margin expanding 240 basis points to 18.4%. Higher shipment volumes and favorable price realization drove the gain, partially offset by higher production costs. This segment's performance is notable because it captures the smaller farmer and turf customer, a cohort that tends to be more rate-sensitive. That it is growing at double-digit rates suggests demand is holding up better than many feared.
Production & Precision Ag, the largest segment by revenue, continued to contract. Net sales fell 6% to $3.998 billion, and operating profit declined 9% to $527 million, with margin slipping 40 basis points to 13.2%. Lower shipment volumes were the primary drag, partially offset by favorable price realization and currency. The segment is tracking toward Deere's full-year outlook of roughly 10% net sales decline. Management's characterization of 2026 as the bottom of the ag equipment cycle is the key framing: early order program trends and improving used-equipment inventories are cited as evidence that the worst is behind. The data supports that view, but the recovery is not yet visible in the P&L.
Financial Services net income rose 7% to $219 million, driven by favorable financing spreads, partially offset by a smaller average portfolio. The full-year outlook of roughly $870 million was reiterated.
Capital allocation remains disciplined. Deere repurchased $697 million of stock in the first nine months, down from $1.136 billion a year ago, and maintained the quarterly dividend at $1.62. The balance sheet is solid, with equipment operations net cash of $6.607 billion and total debt at $40.6 billion. The company's stated priority is maintaining an "A" rating, funding growth investments, and returning capital through dividends and opportunistic buybacks.
The guidance raise is the most important signal in this release. By lifting the net income range while reiterating segment-level sales forecasts, management is effectively saying that the mix of business is improving faster than the top-line trajectory alone suggests. The tariff recoveries are a temporary tailwind, but the structural story is that Construction & Forestry and Small Ag & Turf are carrying the weight while Production & Precision Ag stabilizes. If the ag cycle does bottom in fiscal 2026 as management expects, Deere's earnings power in a normalized environment is meaningfully higher than the current run rate implies. The fourth quarter will test whether that confidence is warranted.