Deere’s Reckoning: When the Cycle Turns on a High-Expectation Giant – C-Suite Transitions

A few years ago, as I was driving along a rural California highway, I was surprised to see a Mahindra tractor on the side of the road. While Mahindra is a global company that supplies farm equipment and cars to nearly 100 countries, I had not expected to see an Indian tractor in rural California. The story of why farmers were willing to buy tractors from an Indian company when a seemingly superior product existed from Deere & Company (DE) is fascinating. On a side note, Mahindra’s acquisition of Italian design firm Pininfarina to create a series of electric super cars is also very interesting.

We don’t focus on too many opportunities on the short side, and while we have had success with shorts in the past, including WeWork, GameStop, and others, we also had a terrible experience being short Carvana (CVNA) in the model portfolio. However, since we track sudden management departures, we figured we would write about a company that is suffering from cyclical headwinds and saw a sudden CFO departure. Shorting is inherently extremely difficult, but there may be value in having some shorts in a portfolio as a hedge against frothy market conditions, and in many ways, Deere fits the bill of a company with a premium valuation that is already in decline.

For two decades, Deere & Company sold farmers and investors the promise of efficiency at scale: bigger machines, smarter software, and a steadily rising tide of productivity powered by data and automation. In the process, the world’s largest agricultural equipment maker gradually recast itself not as a manufacturer of products subject to the vagaries of cycles, but as a technology-driven industrial platform with tractors attached.

That story worked. Until it didn’t.

As crop prices soften, credit tightens, and farmers delay purchases, the old rules are reasserting themselves: demand for big iron is never linear. For Deere, this has triggered an uncomfortable collision between a business built for growth and an environment that now demands restraint. Revenues have stalled, inventories are being worked down, and yet the stock still reflects far more optimistic assumptions about the cycle.

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