Tickers in this Article: DE, MON, ADM, AGU, CF
Agricultural equipment maker Deere & Company (NYSE:DE) reported another quarter of record results for the period ending July 31. Deere's third quarter saw a healthy rise in revenue and income, and the company reinforced its strong outlook for demand in the upcoming quarters. Although Deere's profits beat analyst estimates, the market was concerned about margins and sent Deere shares down. (To learn more about earnings, read Getting The Real Earnings.)

TUTORIAL: Earnings Quality

A High Demand Quarter
The farm equipment maker had net income of $712.3 million or $1.69 a share, compared to $617 million in the year ago quarter, a 15% increase. Sales were $8.37 billion, up from $6.84 billion, a 22% increase. Equipment net sales in the US and Canada increased 10% for the quarter. Sales outside the U.S. rose 49% for the quarter. The higher volumes shipped along with improved pricing were partially offset by higher raw material costs as well as higher selling, general and administrative expenses. The profit margin on new sales, Deere's incremental margin, was up roughly 6%, which was lower than some analysts' expectations. Expenses increased with raw material costs rising by $165 million in the quarter, along with additional costs which the company largely termed "growth initiative" costs, which increased $75 million. The stock retreated nearly 2% after the earnings report.

Global Agriculture Still Strong
Despite the market's negative reaction to Deere's earnings, or more precisely, questions about its growth going forward, agriculture is still a strong sector. Seed, genomics and herbicide company Monsanto (NYSE:MON), is up 19% this year. Archer Daniels Midland (NYSE:ADM), with its seed processing and other diverse agricultural operations, hasn't benefited this year as far as its stock price is concerned, but sees strong demand for its corn processing.

Fertilizer producers are doing well, reaping the agricultural boom. Agrium (NYSE:AGU), fertilizer and farm products company, is on a high growth trajectory, as its latest earnings results showed. Agrium notched a nearly 40% net earnings gain. CF Industries (NYSE:CF) is another agricultural star, as its stock has risen nearly 100% in the last 12 months. The stock is trading at a new high and estimates for its earnings growth in the coming years are strong.

Sustained Agricultural Demand
Deere increased its forecasts for upcoming business. It now sees equipment sales increasing approximately 20% in its fourth quarter, and rising 25% for its full 2011 fiscal year. Deere also predicted its incremental margins would return to its historical levels. The company reiterated its belief in the macroeconomic trends for agriculture in the coming years, though it did admit the global economy's recent problems as well as those of the financial markets have added an "element of uncertainty" to the near term.

The Bottom Line
Deere stock isn't enjoying the run-up that some of its agricultural brethren, such as CF Industries or Monsanto are. The stock trades in the mid-range of its 52-week share prices, which has pushed its yield up to 2.2%. The market isn't rewarding Deere for its results so much as it's showing its skepticism on the future (most likely that troubling "near term" that Deere mentioned). Still, with agriculture still booming, Deere's business performance and prospects for continued high demand despite economic headwinds warrants a close look at its shares. (For other agricultural stocks, read 5 Agriculture Stocks You Need To Know.)

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