Four Things the Market Is Missing About Deere's Transformation

Deere's precision agriculture technology — See & Spray, ExactApply, and the Operations Center platform — now touches over 400 million acres globally. The subscription and licensing revenue from these platforms runs at approximately $1.5-2 billion annually, growing 25-30% per year, at software-like gross margins above 70%.

These revenues are buried within the Production & Precision Agriculture segment alongside hardware sales, making them invisible in segment reporting. When Deere's equipment revenue declines cyclically, the software revenue keeps compounding. By 2028, precision ag software could contribute $4-5 billion in revenue at margins that would make the segment's consolidated profitability look dramatically different from historical cycles.

We've tracked Deere's technology investment for six years now. The inflection point arrived when autonomous tractors moved from pilot programmes to commercial deployment in 2025. That is not a future promise — it is current revenue.

Deere Financial — the company's captive finance arm — carries a $55 billion loan portfolio and generated approximately $3.5 billion in pre-tax income in FY2025. During equipment downturns, Deere Financial actually benefits: used equipment values decline, driving trade-in customers toward new financing arrangements, and interest rate spreads widen as competitors pull back from ag lending.

The financial services segment provided 40% of Deere's pre-tax income in FY2025 while the equipment segments contracted. That stability is unique among industrial companies and entirely absent from comparisons to Caterpillar, CNH Industrial, or AGCO.

Deere repurchased $7.2 billion in shares across FY2024-2025 — a period when the stock corrected 20% from its all-time high. Management bought back shares at an average price roughly 25% below the current level. That is capital allocation competence, full stop.

The company reduced shares outstanding by approximately 6% over two years while maintaining a fortress balance sheet. The 1.1% dividend yield is modest, but when combined with buybacks, total shareholder return from capital allocation alone exceeds 4.5% annually.

Deere's operating margin in FY2025 was 17.5%, down from the peak of 22.3% in FY2023 but dramatically above the 11-13% range that characterised prior mid-cycle years. The company has permanently reduced manufacturing costs through automation of its Waterloo, Iowa and Mannheim, Germany facilities, and the shift to a platform-based product architecture reduces engineering costs per model by 30-40%.

When the farm cycle inevitably turns — US farm income is stabilising and global grain prices have found a floor — Deere's peak margins in the next upcycle will exceed 25%. At 32.5x forward earnings on trough-cycle earnings, the effective PE on normalised mid-cycle earnings is closer to 20-22x. For a company with software-like recurring revenue, a captive finance profit stabiliser, and best-in-class capital allocation, that is cheap.