Will Deere report FY2026 net income below $4.0 billion (the low end of current guidance)?

The guidance raise fundamentally reshapes this question. The new FY2026 NI guidance of $4.5-5.0B puts the low end $500M above the $4.0B threshold. To resolve YES, Deere would need to miss even the raised guidance floor by $500M — requiring incremental deterioration of roughly 11% below the new low end. Q1 FY2026 delivered $1.246B NI on $8.54B revenue with Equipment Ops margins at 5.9%, which came in better than the 'low single digits' guided for PPA. The $750M buyback resumption in Q1 signals management confidence in cash generation. The Perfect Storm tail risk has been reduced from 8-15% to 3-8% per post-earnings assessment. While PPA is still declining (-5% to -10% guide) and South America softened, these headwinds were already known. The path to sub-$4.0B now requires: (1) tariff escalation well beyond the $1.2B guided, (2) a PPA revenue collapse deeper than -10%, and (3) FS credit stress materializing simultaneously. The probability of this compound scenario is materially lower than the pre-earnings 28% estimate.

The structural question about whether the 450bps margin improvement is durable vs cyclical remains unresolved, but Q1 FY2026 results provide supporting evidence for the durable thesis. Equipment Ops at 5.9% margin in Q1 — a period that was supposed to be the weakest quarter — suggests the structural floor is holding. The raised guidance incorporates the same headwind framework ($1.2B tariffs, labor costs) with a higher starting point. The key residual risk is correlated adverse scenarios: tariff escalation from the current $1.2B run rate could add $500M+ incrementally if trade policy worsens materially, and a South America softness (industry now -5%, Brazil combine inventory above target) could drag PPA below the -10% floor. FS improving credit quality (lower provisions, favorable spreads) reduces the amplification risk identified pre-earnings. The probability of sub-$4.0B now sits in the range of true tail risk — scenarios that require multiple simultaneous adverse developments, each unlikely in isolation. I assign 11% to account for residual tariff escalation and geopolitical uncertainty.

A probability tree analysis: the path to sub-$4.0B NI from $4.5-5.0B guidance requires an incremental shortfall of $500M+ from the new floor. Three primary pathways exist: (1) Tariff escalation: tariffs would need to increase from $1.2B to $2.0B+ ($800M incremental, partially mitigated) — probability ~15%, NI impact ~$500M pretax after mitigation; (2) Extended PPA collapse: PPA revenue decline beyond -10% guidance into -20%+ territory — probability ~10%, NI impact ~$300-400M; (3) FS stress: delinquencies spike requiring $400-600M additional provisions — probability ~8% given improving trends. Even multiplying probabilities and assuming perfect correlation, the combined scenario (all three occur simultaneously) is well below 10%. The $12B Farmer Bridge Assistance Program and strong government farm support reduce demand-side downside. New guidance has absorbed Q1 actuals plus forward-looking adjustments. Sub-$4.0B NI is now a genuine extreme tail scenario.

The quantitative shift is decisive. Pre-earnings, the question was whether NI would miss a $4.0B guidance floor by any amount. Post-earnings, the new guidance floor is $4.5B — so the market question now effectively asks whether Deere misses its new guidance by $500M. Historical base rate for large industrials missing guidance floors by 10%+ is approximately 8-12% in non-recessionary environments. The Q1 beat vs guided margins (5.9% actual vs 'low single digits' expected) shows operational execution is solid. Cash flow guidance raised simultaneously ($4.5-5.5B vs $4.0-5.0B prior) confirms management's confidence is not just NI-line accounting. SAT and C&F each raised +5pts suggest momentum in the non-PPA segments. The remaining risk vectors — tariff escalation, Brazil softness, used equipment clearing dynamics — are real but individually insufficient to breach $4.0B given the new guidance floor. I land at 10%, consistent with the historical base rate for guidance floor misses under these conditions.

I retain slightly higher probability than the base case due to residual uncertainty around tariff policy and the incomplete resolution of South America. The $1.2B tariff estimate carries execution uncertainty — if retaliatory measures from the EU or China escalate materially, the mitigation progress management cited could reverse. The used equipment clearing at accelerated pace is a positive signal but also implies pricing pressure on new equipment as trade-in values compress. Brazil combine inventory above target is a concrete inventory overhang that requires resolution before South America contributes meaningfully to recovery. The 'Perfect Storm' tail risk reduction from 8-15% to 3-8% still leaves a meaningful tail. However, the core thesis is clear: Q1 execution was strong, guidance raised materially, and the $4.0B threshold now requires catastrophic multi-factor failure. 12% reflects appropriate conservatism about macro uncertainty without overstating the downside.

Running the math: Q1 NI of $1.246B represents a strong start. If Q2-Q4 average just $1.085B each (roughly flat sequential), full-year NI reaches $4.5B — the floor of new guidance. To reach sub-$4.0B from this trajectory, the remaining three quarters would need to average $918M each, approximately 15% below Q1's pace. Equipment Ops margins would need to compress from Q1's 5.9% toward the 2016-era 8.1% floor, but starting from a quarter where the seasonal headwinds (lean production, negative mix) were already most acute. The trade ladder freeing up as used equipment clears supports Q2+ momentum. FS credit quality improving means the provision risk identified pre-earnings is diminishing rather than materializing. The math requires a genuine deterioration in the remaining quarters, not just weak performance. 9% reflects this: it's possible but requires the situation to worsen from an already-improving trajectory.

Guidance raised to $4.5-5.0B — the $4.0B floor now has $500M of cushion. Q1 NI beat expectations at $1.246B. Buybacks resumed ($750M in Q1), signaling management confidence. FS credit improving. To miss the $4.0B threshold requires catastrophic multi-factor failure. Probability is at the low end of tail risk.

Guidance raised substantially — new low end of $4.5B is $500M above the question threshold. Q1 execution solid at 5.9% Equipment Ops margins. The only credible path to sub-$4.0B is tariff escalation well beyond $1.2B plus PPA deeper than -10% plus FS stress simultaneously. Slight bump above the lowest estimate for residual tariff and South America uncertainty. Still well below pre-earnings 28% probability.

New guidance of $4.5-5.0B is the headline. Q1 already delivered $1.246B. Government support ($12B Farmer Bridge program) reduces agricultural demand tail risk. FS credit quality improving. Perfect Storm risk cut to 3-8%. Reaching sub-$4.0B from here requires a true black swan — simultaneous tariff blowup, crop failure, and credit crisis. Probability at the low single digits.