The news: Deere expects its net tariff costs to reach about $1 billion in fiscal 2027, up from this year, when one-time refunds offset part of the bill. The tariff rates it pays came down in June, but the increase comes from the end of those refunds, not from new tariffs.
“Going into next year, we would expect a run rate that is going to be closer to, or right around, $1 billion for the year,” CFO Brent Norwood said on the company's Q3 call on August 20. “There will be a bit of a step up.”
Any company that collected refunds this year has the same question in its 2027 budget. Companies have spent this year collecting refunds of duties paid under the International Emergency Economic Powers Act, the tariffs the Supreme Court struck down on February 20.
Those refunds made 2026 net tariff numbers lower than the ongoing cost of the tariffs still in place. And Deere just put full-year numbers on what happens when they stop.
By the numbers:
Deere expects about $1.1 billion in direct tariff expense in fiscal 2026, per the call, down from a prior estimate of about $1.2 billion. The estimate came down after the Section 232 steel and aluminum rate fell from 25% to 15% on June 1.
It recognized $110 million of IEEPA refunds in Q3 and $382 million for the fiscal year to date, according to its release, and assumes no further refunds this year.
For fiscal 2027, Norwood pointed to a run rate right around $1 billion.
Deere absorbs the cost rather than passing it on. “We are not surcharging our customers on tariffs,” Norwood said last quarter. At the time, the company also said about 80% of its products are built in U.S. factories, and about 75% of components are sourced domestically.
In Q3, the tariff expense sat inside each segment's production costs. Price realization offset it, ranging from about 1 point in small ag to 8 points in construction.
The pattern: Deere is the second large manufacturer in about three weeks to put a number on the 2027 step-up.
Ford CFO Sherry House told analysts on July 28 that next year brings “the non-repeat of that IEEPA tariff EBIT benefit,” the $1.3 billion the automaker booked in Q1. Both companies took the refund into this year’s earnings, and both now name its absence as a 2027 headwind.
The mechanism has run before: Section 301 exclusions on Chinese imports expired at the end of 2020. The 25% duty then applied in full for more than a year, until USTR reinstated 352 exclusions in March 2022, retroactive to October 2021.
What companies did with this year’s refunds split several ways: Nike kept its $986 million in earnings, while FedEx returned $800 million to shippers. McCormick put its $28 million against freight inflation. Whatever companies did with the money, next year they pay the full gross bill with no refunds against it.
The counter: Not every refund recipient faces a step-up, and two large ones say so on the record.
Home Depot received $730 million of refunds in Q2 and put $685 million of it into reducing cost of goods sold, CFO Richard McPhail said on its August 18 call. “There shouldn’t be a lap from an annual perspective when we head into 2027,” he said, because the refund is being absorbed by input costs that rose this year. Tapestry, initiating fiscal 2027 guidance, assumed a roughly net-neutral tariff impact year over year.
The difference is where the refund went: a refund spent against costs that persist leaves no favorable comparison to lose. A refund booked against a flat gross tariff bill, as at Deere and Ford, does.
What’s next: CBP had paid out about $86.3 billion of $121.75 billion in accepted refund claims as of mid-July, per the agency’s declaration in the refund litigation. Litigation over the remaining tranche continues, and Deere reports Q4 and gives its first full fiscal 2027 guidance in late November.
