John Deere, the world’s largest manufacturer of agricultural equipment, has a secret business line that’s driving its success in a sector unrelated to farming.

Source: s.yimg.com

The company’s fiscal third-quarter earnings report showed a significant boost in revenue, with the construction business proving to be a major beneficiary of the AI infrastructure boom. Deere’s revenue climbed 6.2% year over year to $11 billion, and income rose 7% to $1.4 billion, both figures beating Wall Street forecasts.

The results demonstrated Deere’s crushing dominance in a new field, as its construction and forestry sales rose 18% to $3.6 billion. Investor Relations Director Chris Seibert stated on an analyst call that ‘customer backlogs now extend well into fiscal year 2027.’ This suggests that the AI boom is providing a welcome respite for Deere’s construction business, which is facing a cyclical downturn in demand.

Goldman Sachs predicts that $1 trillion will be spent on AI this year, with $800 billion of that coming from US hyperscalers. To make this happen, the world will need a lot of heavy machinery, including dump trucks, backhoes, bulldozers, and excavators – all of which Deere has in abundance.

Deere’s Construction Business Rides the AI Wave

Deere’s construction and forestry sales rose 18% to $3.6 billion in the third quarter. This significant increase is attributed to the growing demand for heavy machinery in the construction industry, driven by the AI infrastructure boom. The company’s construction business is poised to benefit from the expected growth in AI spending, which is expected to reach $1 trillion this year.

According to Deere CEO John May, the company is ‘well positioned for long-term value creation.’ May’s statement suggests that Deere is confident in its ability to capitalize on the AI boom and ride the wave of growth in the construction industry.

However, not all of Deere’s business lines are performing well. The company’s largest unit, its agriculture division, reported a 6.4% decline in sales year over year in the third quarter. This decline is attributed to a cyclical downturn in demand for Deere’s tractors and harvesters, as well as the impact of the war in Ukraine on farm incomes.

Farm incomes have tumbled from record highs in 2022, forcing farmers to cut back on capital spending and reducing demand for Deere’s agricultural equipment. The war in Ukraine has also sent diesel fuel and fertilizer prices soaring, adding to the stress on farm budgets.

Despite the challenges facing its agriculture division, Deere’s construction business is expected to continue to grow in the coming years. The company’s full-year industry outlook forecasts large agriculture equipment volumes will fall 15% to 20% this year in the US and Canada, while construction equipment volumes will rise 5% to 10%.

Deere’s success in the construction industry is a testament to the company’s ability to adapt to changing market conditions and capitalize on emerging trends. As the AI boom continues to grow, it’s likely that Deere’s construction business will remain a key driver of the company’s success.