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The Machine Already in the ShedNarrow moat

Deere & Company (DE) — moat facet

Deere's most frequent rival is the customer's own machine: production agriculture sales fell 36% from the peak while farmers kept running what they had.

A farmer who does not buy a new combine this year keeps running last year's, and that is the competitor Deere loses to most often. Its 10-K lists "the value, age, and level of used equipment" among the key factors affecting new agricultural equipment sales1. In Australia, Canada and the U.S. there are typically several used trade-in transactions for most new agricultural equipment sales2.

Deere production agriculture product-line sales ($bn)26.45FY202320.57FY202416.96FY2025Deere Form 10-K FY2025, Note 5 net sales and revenues by product line
Farmers waited rather than switched.

Deere manages this competitor rather than fighting it. It provides dealers with "pools of funds" awarded as a percentage of the dealer price on new equipment, to help them carry and sell the used inventory they take in trade3. Its finance arm lends against used machines too4. The aim is to keep the used machine moving through the dealer, and the farmer buying the next new one.

In a downturn the used lot fills up. On the third-quarter call Deere said late-model used inventory continues to improve, that model year 2023 and 2024 high-horsepower tractors in used inventory are "down nearly 40% from a year ago," and that the spread between new and used values "has largely normalized"5. That is the condition for farmers to trade up again.

The scale of the deferral shows in the product lines. Production agriculture sales fell from $26,450 million in fiscal 2023 to $16,960 million in fiscal 20256, 35.9%7. Deere's own explanation is demand, not rivals: backlog orders decreased "as demand has declined"8.

The pools of funds are the visible cost of managing this competitor. Deere's auditor singled out the sales incentive accrual as a critical audit matter9, because the incentives depend on estimates of how much dealers will need to clear used machines.

This competitor is temporary but never beaten. Flat or falling production agriculture sales in fiscal 2027, with the used channel already cleared, would mean farmers are keeping machines longer by choice rather than necessity.

Moat trajectory: Widening

Used high-horsepower tractor inventory down nearly 40% in a year.

The number that tests this moat
Reported
Production agriculture product-line sales, fiscal year
$16,960M (FY2025), from $20,574M in FY2024 and $26,450M in FY2023

How long farmers defer replacement; no rise in FY2027 with used inventory cleared would mean they are keeping machines longer by choice.

Source: Deere & Company Form 10-K, FY2025 ↗
References
  1. ReportedIts 10-K lists "the value, age, and level of used equipment" among the key factors affecting new agricultural equipment sales.
    Deere & Company Form 10-K for fiscal 2025 (year ended 2 November 2025), $ millions - Item 1 business: dealers, distribution, parts, used-equipment trade-ins, sales incentives and manufacturing. — FY2025 · publ. 18 December 2025 · source ↗
  2. ReportedIn Australia, Canada and the U.S. there are typically several used trade-in transactions for most new agricultural equipment sales.
    Deere & Company Form 10-K for fiscal 2025 (year ended 2 November 2025), $ millions - Item 1 business: dealers, distribution, parts, used-equipment trade-ins, sales incentives and manufacturing. — FY2025 · publ. 18 December 2025 · source ↗
  3. ReportedIt provides dealers with "pools of funds" awarded as a percentage of the dealer price on new equipment, to help them carry and sell the used inventory they take in trade.
    Deere & Company Form 10-K for fiscal 2025 (year ended 2 November 2025), $ millions - Item 1 business: dealers, distribution, parts, used-equipment trade-ins, sales incentives and manufacturing. — FY2025 · publ. 18 December 2025 · source ↗
  4. ReportedIts finance arm lends against used machines too.
    Deere & Company Form 10-K for fiscal 2025 (year ended 2 November 2025), $ millions - selected financial data, MD&A and the supplemental consolidating data for equipment operations and financial services. — FY2025 · publ. 18 December 2025 · source ↗
  5. ReportedOn the third-quarter call Deere said late-model used inventory continues to improve, that model year 2023 and 2024 high-horsepower tractors in used inventory are "down nearly 40% from a year ago," and that the spread between new and used values "has largely normalized".
    Deere & Company third-quarter fiscal 2026 earnings call, FactSet corrected transcript - engaged and highly engaged acres, See & Spray adoption, early order programs, construction backlogs, tariffs, equipment cash flow guidance and the FTC settlement - outlook, early order programs, construction backlogs, tariffs, cash flow and the FTC settlement. — Q3 FY2026 · publ. 20 August 2026 · source ↗
  6. ReportedProduction agriculture sales fell from $26,450 million in fiscal 2023 to $16,960 million in fiscal 2025, 35.9%.
    Deere & Company Form 10-K for fiscal 2025 (year ended 2 November 2025), $ millions - selected financial data, MD&A and the supplemental consolidating data for equipment operations and financial services. — FY2025 · publ. 18 December 2025 · source ↗
  7. Moat Explorer calcProduction agriculture sales fell from $26,450 million in fiscal 2023 to $16,960 million in fiscal 2025, 35.9%.
    Moat Explorer calculation from Deere & Company reported figures ($ millions unless stated; fiscal years end on the Sunday nearest 31 October). Cycle: net income FY2025 over FY2023 5,027 / 10,166 - 1 = -50.6%; net sales and revenues 45,684 / 61,251 - 1 = -25.4%; FY2025 over FY2024 45,684 / 51,716 - 1 = -11.7%; equipment net sales 38,917 / 55,565 - 1 = -30.0%; Production & Precision Ag sales 17,311 / 26,790 - 1 = -35.4%, FY2025 over FY2024 17,311 / 20,834 - 1 = -16.9%; Small Ag & Turf 10,224 / 13,980 - 1 = -26.9%; Construction & Forestry 11,382 / 14,795 - 1 = -23.1%; PPA operating profit 2,671 / 6,996 - 1 = -61.8%; PPA sales 2020-2023 26,790 / 12,962 = 2.07 times, more than double; PPA U.S. net sales and revenues 7,753 / 13,917 - 1 = -44.3%; U.S. net sales and revenues 23,974 / 34,105 - 1 = -29.7%; Latin America 5,607 / 8,197 - 1 = -31.6%; production agriculture product line 16,960 / 26,450 - 1 = -35.9%; roadbuilding 3,552 / 3,794 - 1 = -6.4%; roadbuilding over Construction & Forestry net sales 3,552 / 11,382 = 31.2%. Construction & Forestry product lines FY2023 to FY2025: construction 4,570 / 6,842 - 1 = -33.2%; compact construction 1,922 / 2,451 - 1 = -21.6%; forestry 1,124 / 1,429 - 1 = -21.3%; roadbuilding -6.4%. Segment margins (operating profit over segment net sales): PPA 2020 1,969 / 12,962 = 15.2%; 2021 3,334 / 16,509 = 20.2%; 2022 4,386 / 22,002 = 19.9%; 2023 6,996 / 26,790 = 26.1%; 2024 4,514 / 20,834 = 21.7%; 2025 2,671 / 17,311 = 15.4%. SAT 2020 1,000 / 9,363 = 10.7%; 2021 2,045 / 11,860 = 17.2%; 2022 1,949 / 13,381 = 14.6%; 2023 2,472 / 13,980 = 17.7%; 2024 1,627 / 10,969 = 14.8%; 2025 1,207 / 10,224 = 11.8%. CF 2020 590 / 8,947 = 6.6%; 2021 1,489 / 11,368 = 13.1%; 2022 2,014 / 12,534 = 16.1%; 2023 2,695 / 14,795 = 18.2%; 2024 2,009 / 12,956 = 15.5%; 2025 1,028 / 11,382 = 9.0%. Equipment operations operating profit 2,671 + 1,207 + 1,028 = 4,906 (FY2025), 4,514 + 1,627 + 2,009 = 8,150 (FY2024), 6,996 + 2,472 + 2,695 = 12,163 (FY2023); equipment operating margin 4,906 / 38,917 = 12.6%, 8,150 / 44,759 = 18.2%, 12,163 / 55,565 = 21.9%; first nine months FY2026 (1,372 + 1,538 + 1,134 = 4,044) / 30,779 = 13.1%; Q3 FY2026 527 + 622 + 436 = 1,585 against Q3 FY2025 580 + 485 + 237 = 1,302, an increase of 283. Nine-month operating profit change: PPA 1,372 / 2,066 - 1 = -33.6%; SAT 1,538 / 1,182 - 1 = +30.1%; CF 1,134 / 681 - 1 = +66.5%. PPA share of segment operating profit FY2023 6,996 / 12,958 = 54.0%; FY2025 2,671 / 6,020 = 44.4%. FS segment operating profit 1,114 / 795 - 1 = +40.1%. Equipment gross margin (net sales less consolidated cost of sales): FY2023 55,565 - 37,715 = 17,850, / 55,565 = 32.1%; FY2024 (44,759 - 30,775) / 44,759 = 31.2%; FY2025 38,917 - 28,159 = 10,758, / 38,917 = 27.6%. Equipment share of net sales and revenues 38,917 / 45,684 = 85.2% (FY2025); 55,565 / 61,251 = 90.7% (FY2023). Financial Services band (total net sales and revenues less equipment net sales): 2020 35,540 - (12,962 + 9,363 + 8,947 = 31,272) = 4,268; 2021 44,024 - (16,509 + 11,860 + 11,368 = 39,737) = 4,287; 2022 52,577 - (22,002 + 13,381 + 12,534 = 47,917) = 4,660; 2023 61,251 - 55,565 = 5,686; 2024 51,716 - 44,759 = 6,957; 2025 45,684 - 38,917 = 6,767 = finance and interest income 5,748 + other income 1,019; share of revenue 6,767 / 45,684 = 14.8% (FY2025), 5,686 / 61,251 = 9.3% (FY2023). Financial Services share of consolidated assets 70,021 / 105,996 = 66.1%; share of net income 890 / 5,027 = 17.7%; return on equity 890 / ((7,069 + 7,454) / 2 = 7,262) = 12.3%; Financial Services borrowings 13,382 + 6,595 + 34,788 = 54,765; consolidated borrowings 13,796 + 6,596 + 43,544 = 63,936; FS share 54,765 / 63,936 = 85.7%; Financial Services equity over assets 7,069 / 70,021 = 10.1%, about a tenth (debt to equity 8.6 to 1). Interest compensation to Financial Services 414 / 687 - 1 = -39.7%. Financing receivables 44,575 (about $44.6bn) / 23,702 = 1.88 times. Write-offs six months FY2026 150 / 44,575 = 0.3%. Equipment operations: net debt 9,171 - 6,557 = 2,614 (FY2025); 2,614 / 4,137 = 0.63 years of net income, less than eight months; return on invested capital estimate FY2025 (4,137 + 372 x 0.8 = 4,435) / (18,887 + 9,171 - 6,557 = 21,501) = 20.6%; FY2024 (6,404 + 396 x 0.8 = 6,721) / (15,389 + 7,516 - 5,740 = 17,165) = 39.2%; 20% tax on interest is an approximation. Equipment operations cash flow 5,100 / 11,919 - 1 = -57.2%. Costs and people: R&D over equipment net sales 2,177 / 55,565 = 3.9% (FY2023), 2,290 / 44,759 = 5.1% (FY2024), 2,311 / 38,917 = 5.9% (FY2025), 1,704 / 30,779 = 5.5% (nine months FY2026); nine-month R&D 1,704 / 1,631 - 1 = +4.5%; R&D at the FY2023 ratio 38,917 x 3.9% = about 1,520, difference 2,311 - 1,520 = about 790, about 2 points of 38,917. Employees 82,956 - 73,146 = 9,810, about 9,800, 9,810 / 82,956 = 11.8%. Tariff cost about 600 / 4,906 = 12.2% of equipment operating profit; 1,100 / 4,906 = 22%, about a fifth. Trade receivables 7,723 / 6,103 - 1 = +26.5%. Wirtgen first-year operating profit 116 / 5,327 = 2.2%; CF operating profit 1,028 / 5,327 = 19.3%, about a fifth; CF goodwill 3,051 / 4,188 = 72.9%. Tenna goodwill 286 / 439 = 65%. Backlog CF 3.8 / 2.2 - 1 = +73%. Engaged acres per connected machine 520 million / 1.2 million = about 433. Capital returns: cash returned FY2023 dividends paid 1,427 + repurchases 7,216 = 8,643; FY2025 1,720 + 1,138 = 2,858; 2,858 / 8,643 - 1 = -66.9%; diluted shares 271.7 / 316.6 - 1 = -14.2%; dividend payout 6.48 / 18.50 = 35.0%. Fiscal 2016 net margin 1,523.9 / 26,644.0 = 5.7%. Diluted EPS FY2025 over FY2023 18.50 / 34.63 - 1 = -46.6%. Equipment segment identifiable assets 8,787 + 3,987 + 7,792 = 20,566, over Financial Services 70,021 = 29.4%, less than a third. Valuation: trailing twelve months to 2 August 2026 net sales and revenues 45,684 - 33,290 + 35,589 = 47,983; net income 5,027 - 3,962 + 3,808 = 4,873; diluted EPS 18.50 - 14.57 + 14.06 = 17.99; P/E 185,230 / 4,873 = 38.0; P/S 185,230 / 47,983 = 3.86; market value over FY2023 net income 185,230 / 10,166 = 18.2 times; market value change since FY2025 year end 185,230 / 124,792 - 1 = +48.4%; trailing net income 4,873 / 5,027 - 1 = -3.1%; analyst target 691.83 / 687.00 - 1 = +0.7%; Deere over CNH and AGCO 185.23 / (16.67 + 8.03 = 24.70) = 7.5 times; Deere over Caterpillar 185.23 / 388.62 = 47.7%, about half; Caterpillar over Deere 388.62 / 185.23 = 2.1 times. Year-end P/E and P/S: 2015 24.15bn / 1,940 = 12.45, / 28,863 = 0.837; 2016 32.65 / 1,524 = 21.42, / 26,644 = 1.225; 2017 50.49 / 2,159 = 23.39, / 29,738 = 1.698; 2018 47.52 / 2,368 = 20.07, / 37,358 = 1.272; 2019 54.28 / 3,253 = 16.69, / 39,258 = 1.383; 2020 84.31 / 2,751 = 30.65, / 35,540 = 2.372; 2021 106.137 / 5,963 = 17.80, / 44,024 = 2.411; 2022 119.777 / 7,131 = 16.80, / 52,577 = 2.278; 2023 104.011 / 10,166 = 10.23, / 61,251 = 1.698; 2024 111.610 / 7,100 = 15.72, / 51,716 = 2.158; 2025 124.792 / 5,027 = 24.82, / 45,684 = 2.732. Guidance: fiscal 2026 net income midpoints (4,000 + 4,750) / 2 = 4,375 (November 2025); (4,500 + 5,000) / 2 = 4,750 (February and May 2026); (4,750 + 5,000) / 2 = 4,875, $4.875bn (August 2026); 4,875 / 5,027 - 1 = -3.0%; nine months 3,808 / 4,875 = 78.1%; implied fourth quarter 4,750 - 3,808 = 942 to 5,000 - 3,808 = 1,192. U.S. share of net sales and revenues 23,974 / 45,684 = 52.5% (FY2025), 34,105 / 61,251 = 55.7% (FY2023) - segments, product lines, margins and backlog. — FY2015-Q3 FY2026 · publ. October 2026 · source ↗
    Method: Arithmetic on figures reported in Deere & Company Forms 10-K, 10-Q, results releases, the 2026 proxy statement, the Q3 FY2026 call, and stockanalysis.com market data; each operand is stated in the source line.
  8. ReportedDeere's own explanation is demand, not rivals: backlog orders decreased "as demand has declined".
    Deere & Company Form 10-K for fiscal 2025 (year ended 2 November 2025), $ millions - segment net sales and operating profit (Note 27), revenue by product line and geography (Note 5), backlog and goodwill. — FY2025 · publ. 18 December 2025 · source ↗
  9. ReportedDeere's auditor singled out the sales incentive accrual as a critical audit matter, because the incentives depend on estimates of how much dealers will need to clear used machines.
    Deere & Company Form 10-K for fiscal 2025 (year ended 2 November 2025), $ millions - Item 1 business: dealers, distribution, parts, used-equipment trade-ins, sales incentives and manufacturing. — FY2025 · publ. 18 December 2025 · source ↗
Sources
Generated October 5, 2026