Deere's Harvest

At Deere & Co., It hasn't been so easy being green lately. Since the Great Recession began in December 2007, Deere, the world's largest maker of farm equipment and a major builder of construction machinery, has watched earnings plummet by half. Construction sales worldwide fell by 45% last year alone, and agricultural sales sank more than 15%.

It is no small feat, then, that Deere earned $873 million in 2009 on sales of $23 billion. That's because the iconic manufacturer today is more focused on making profits than on just making tractors. Indeed, over the past decade, the firm's production capabilities have become leaner, smarter and faster as it has eliminated waste, pushed innovation and expanded its global footprint. "Deere's competitive advantage has always been a superior product and tremendous brand loyalty," says Morgan Joseph & Co. analyst Charles Rentschler. "But it performed better this down cycle than ever before because of the tight cost controls and excellent execution it already had in place." (See 10 big recession surprises.)

Deere, of course, operates in two of the most cyclic industries around. The $87 billion agribusiness sector, dependent on commodity prices, is about as predictable as the weather. Still, Deere can count on the fact that people need to eat. Growing populations and incomes in places like China and India mean food output must increase. Indeed, it could double by 2050; globally, farmers have planted more corn, soybeans, rice and wheat for two straight years.

Construction remains troubled. Volumes shrank as much as 80% during the downturn's lowest point, about as much as in the Great Depression. Still, housing starts showed some signs of life in January, and after such a protracted drop, the $30 billion construction-machinery business can "expect a bounce as people simply need to replace equipment again," says Morgan Stanley analyst Robert Wertheimer. "So we do think there is a recovery at hand, though it could be in 2011, not 2010."

John Deere is a brand about as American as apple pie. It's headquartered in Moline, Ill., not far from where it started in 1837 as a one-man blacksmith shop making steel plows for sod-busting pioneers. Under John's son Charles, who served as CEO for 49 years, the modern Deere emerged, a network of factories and dealers supplying tractors, wagons and combines to farms nationwide. It expanded to Mexico and Europe in the 1950s, complete with construction products and then credit operations. (See pictures of urban farming.)

Yet Deere's strong performance in the most recent downturn is hitched to CEO Bob Lane, who stepped down in June. Lane diligently cut costs, pared unprofitable businesses and inventories. He also added a novel profit driver: a capital charge of about 1% a month that managers must "pay" before they can report any gain internally — in other words, 12% annual profit before break-even. During Lane's tenure, Deere saw record earnings, soaring free cash flow and a quintupling of its stock price.

When the housing bubble burst, a streamlined Deere was ready. Despite collapsing sales, it was able, for instance, to avoid major staff reductions — most of the 1,500 workers Deere laid off or furloughed are already back on the job — while maintaining enviable margins of nearly 10%. "Deere was ahead of the curve when it came to cost controls and data collection, so as soon as demand started to drop, it could shut down production and keep inventories low," says Alex Blanton, an analyst at Ingalls & Snyder. "That also means there will be little lag time in its recovery."

See TIME's photo-essay "From Farm to Fork."

See pictures of the world's harvests.