How Does Deere & Company Make its Money?
Deere & Company, widely known as John Deere, is the world’s largest manufacturer of agricultural equipment and a major producer of construction, forestry, and turf care machinery. Founded in 1837, the company’s green-and-yellow equipment is an iconic presence on farms globally.
John Deere has been transforming from a traditional equipment manufacturer into a precision agriculture technology company. Its strategy centers on integrating hardware (tractors, combines, planters) with software (guidance systems, AI-powered crop analytics, autonomous operation) to help farmers increase yields while reducing input costs. The company’s technology ecosystem — including GPS guidance, machine learning, and cloud-connected equipment — creates recurring revenue and competitive moats.
Revenue Breakdown
| Segment | FY2024 (Oct) | FY2023 (Oct) | YoY Growth |
|---|---|---|---|
| Production & Precision Ag | $18.0B | $22.5B | -20.0% |
| Small Ag & Turf | $9.5B | $11.5B | -17.4% |
| Construction & Forestry | $12.2B | $14.0B | -12.9% |
| Financial Services | $6.1B | $5.5B | +10.9% |
| Total Net Revenue | $45.1B | $55.7B | -19.0% |
Production & Precision Agriculture — 40% of Revenue
Large tractors (>200 horsepower), combines, cotton pickers, sprayers, and precision agriculture technology for large-scale farming operations. This is Deere’s most profitable segment and the home of its technology investment. Revenue declined 20% as the agricultural equipment cycle turned lower — farmers pulled back on equipment purchases after a strong replacement cycle in 2022-2023 and as crop prices (corn, soybeans) declined from their peaks.
Small Agriculture & Turf — 21% of Revenue
Smaller tractors (under 200 HP), hay and forage equipment, riding mowers, golf course maintenance equipment, and compact utility tractors. This segment serves small and mid-size farms, landscapers, and homeowners. Revenue declined as the same cyclical pressures affected smaller equipment buyers.
Construction & Forestry — 27% of Revenue
Excavators, crawler dozers, loaders, dump trucks, and forestry equipment. Deere competes with Caterpillar in construction equipment, though it is smaller in this segment. Revenue fell as construction equipment demand normalized.
Financial Services — 14% of Revenue
John Deere Financial provides financing for equipment purchases (retail loans and leases) and revolving credit to farmers. Revenue grew as higher interest rates increased the yield on the loan portfolio. Deere Financial also helps facilitate sales by making equipment affordable through financing.
Income Statement Overview
| Metric | FY2024 | FY2023 |
|---|---|---|
| Total Revenue | $45.1B | $55.7B |
| Cost of Sales | $32.5B | $38.5B |
| Gross Profit | $12.6B | $17.2B |
| Operating Expenses | $5.3B | $5.5B |
| Operating Income | $7.3B | $11.7B |
| Net Income | $7.1B | $10.2B |
Key Financial Metrics
- Gross Margin: 27.9% — Lower than historical peaks as lower production volumes reduced factory utilization and fixed cost absorption. Deere has structurally improved margins through its technology premium.
- Operating Margin: 16.2% — Down from 21% in FY2023, reflecting the cyclical downturn. Still significantly better than prior-cycle troughs thanks to pricing discipline and cost management.
- Revenue Growth: -19.0% — A sharp decline as the agricultural cycle turned. Cyclicality is innate to equipment manufacturing — crop prices, farm income, and equipment replacement cycles drive multi-year ups and downs.
- Free Cash Flow: ~$5.0B — Still strong despite lower earnings, demonstrating improved cash conversion through the cycle.
- Technology Premium — Deere’s precision ag technology (AutoTrac guidance, See & Spray, ExactApply) allows it to price equipment at a premium while delivering provable ROI to farmers.
What to Watch
- Agricultural cycle timing — The key question is when the equipment downturns troughs and recovery begins. Crop prices, farmer income, and equipment fleet age are leading indicators.
- Precision agriculture adoption — Deere’s technology stack (autonomous tractors, AI-powered spraying, satellite-connected equipment) creates recurring software/subscription revenue and competitive differentiation. Measuring technology attach rates and recurring revenue growth is important.
- Autonomous equipment — Deere has commercially available autonomous tractors and is expanding autonomous capabilities across more machine types. Full autonomy could transform farm economics and deepen Deere’s moat.
- Trade and tariff policy — Global trade policy directly impacts farmers (export markets for crops) and equipment costs (steel tariffs). Uncertainty around trade policy can delay farmer purchasing decisions.
- Used equipment values — High inventory of used equipment depresses new equipment demand. Monitoring used equipment inventory levels and pricing is a leading indicator for new equipment orders.