Deere & Co. delivered a fiscal third-quarter performance that came in ahead of Wall Street's expectations, and analysts at RBC Capital Markets say the company's push into precision technology is starting to change the shape of its business. In a note released Friday, RBC argued that rising adoption of Deere's See & Spray system suggests the farm-equipment maker is becoming less vulnerable to the sharp ups and downs that have long defined the agricultural machinery industry.
What the numbers show
RBC pointed to Deere's early-order programs for sprayers and planters, which are running up in the mid-single digits compared with a year ago. Pricing, meanwhile, is roughly keeping pace with inflation. That combination, the bank said, points to healthier underlying demand than many investors had feared.
The more notable shift, however, is in what customers are actually ordering. Deere said adoption of See & Spray — a system that uses cameras and artificial intelligence to target herbicide only where weeds are present — doubled from the same period a year earlier. The technology is now factory-installed on about one-third of North American orders. In addition, roughly 40% of planter orders include other advanced precision features.
For context, See & Spray is part of Deere's broader effort to embed software and sensors into its equipment. The system can cut herbicide use significantly, which appeals to farmers looking to reduce costs and meet environmental goals. But for investors, the appeal is more about the business model than the agronomy.
Why the tech mix matters
Traditionally, Deere's fortunes have swung with the agricultural cycle. When farm incomes are strong, farmers buy new tractors and combines; when commodity prices fall or interest rates rise, they delay purchases, and Deere's profits take a hit. That boom-bust dynamic has been a central concern for shareholders, especially as the current farm slump has dragged on.
But when a growing share of machines leaves the factory with premium technology already attached, the economics change. Revenue per machine rises, and the company gains a follow-on stream of income from software updates, subscriptions, and service tied to the installed base. That recurring revenue is generally steadier than the one-time sale of a big-ticket machine.
RBC's view is that this mix shift is starting to improve Deere's "through-cycle" operating leverage — meaning profits may not fall as steeply when equipment volumes soften. The agricultural cycle doesn't disappear, but Deere can look less like a pure cyclical machinery maker and more like a manufacturer with a larger, stickier technology layer supporting earnings.
What it means for investors
For everyday investors, the key takeaway is that Deere's results and order trends are better than the market expected, and the company's tech strategy appears to be gaining traction. That could provide a cushion if the farm economy remains weak.
Still, it's worth remembering that Deere's overall outlook remains cautious. The company's fourth-quarter guidance was soft, and the broader farm slump is far from over. As we noted in our earlier coverage of Deere's Q3 results and soft Q4 outlook, the recovery is likely to be gradual.
Investors should also keep an eye on how much of Deere's growth is coming from technology versus traditional equipment sales. If See & Spray adoption continues to climb, it could signal a more durable shift in the company's earnings quality. But if farmers pull back on all spending, even tech-laden machines could see slower demand.
The broader picture
Deere's situation is part of a larger trend in manufacturing, where companies are trying to smooth out cyclical swings by adding software and services. The strategy isn't unique to farm equipment — similar dynamics are playing out in construction and other heavy industries. For instance, Deere's construction segment has been a bright spot, with demand holding up even as agriculture weakens.
For now, RBC's note adds to a cautiously optimistic narrative: Deere may be closer to the bottom of the cycle than many feared, and its tech investments could make the eventual recovery more profitable. But the path is still uncertain, and investors should weigh the potential for steadier earnings against the reality that farm incomes remain under pressure.
This article is for informational purposes only and does not constitute investment advice. Always do your own research before making investment decisions.
