Aug. 15 (Bloomberg) -- Deere & Co., the world's largest farm-equipment maker, increased its full-year profit forecast after third-quarter earnings rose 23 percent on orders for tractors overseas. The shares gained 3.1 percent.

Net income climbed to $537.2 million, or $2.37 a share, from $436 million, or $1.85, a year earlier. Revenue grew 5.9 percent to $6.63 billion, the Moline, Illinois-based company said today in a statement.

Earnings topped analysts' estimates as sales of machinery outside the U.S. rose 30 percent, helping counter a 20 percent drop in construction and forestry equipment. Deere predicts agricultural revenue in South America will climb about 30 percent this year as Brazilian farmers buy more to plant sugarcane for ethanol production.

``Deere has been fairly conservative thus far in projecting the rebound in its key ag markets, but today's numbers suggest the story continues to unfold as planned,'' Stephen Volkmann, an analyst with J.P. Morgan Securities Inc. in New York, wrote in a note to investors. He rates the stock ``overweight.''

Deere gained $3.60 to $120.69 at 4 p.m. in New York Stock Exchange composite trading. The stock has jumped 75 percent in the past year.

The average of 16 analyst estimates compiled by Bloomberg was for profit of $1.99 a share on sales of $6.21 billion in the quarter ended July 31. Deere in May forecast net income of $400 million to $425 million.

Raises Forecast

Deere raised its full-year net income forecast to $1.7 billion from the $1.55 billion it projected in May. Analysts estimate profit of $1.57 billion and revenue of $21.8 billion.

The company also forecast 2007 equipment sales will increase 7 percent, up from its May estimate of 6 percent. It still projects industry sales of agricultural equipment in the U.S. and Canada will rise 5 percent, led by high-horsepower tractors.

For the fourth quarter, Deere predicted a 16 percent increase in overall equipment sales.

``They raised their forecast by more than their third- quarter beat,'' said Ann Duignan, an analyst at Bear Stearns Cos. in New York. ``They beat their own guidance on the high end by about $112 million in the quarter and they raised the full year by $150 million.''

Price Increases

Deere said it increased prices at all three of its equipment divisions in the quarter. Currency translation added about $16 million to operating profit, mostly from the agricultural segment.

Sales at the agricultural unit increased 16 percent to $3.36 billion. Operating profit climbed 73 percent to $431 million, fueled by the higher prices. Deere forecast global agricultural-equipment revenue will increase 16 percent this year, helped by European markets.

``Deere indicated several times on its conference call that it plans to ramp up raw material and sub-component inventories by roughly $200 million, primarily in the fourth quarter, to plan for the strong demand it is seeing heading into 2008,'' Volkmann wrote.

Commercial and consumer equipment sales rose 15 percent to $1.35 billion, helped by the acquisition of lawn-care company Lesco Inc. Deere affirmed its forecast for an 11 percent increase this year. Operating profit jumped 63 percent to $127 million.

Global Sales

Revenue at construction and forestry fell to $1.28 billion and operating profit declined 41 percent to $150 million. Deere forecast deteriorating global sales in the division this year, projecting a decline of 12 percent, compared with an earlier prediction of 11 percent.

The company raised its agriculture-equipment sales forecast for South America to an increase of about 30 percent from 20 percent. Revenue in Brazil is being helped by higher commodity prices and ``a proposed resolution'' of issues concerning government-backed financing of farm machinery.

``South America is strong and it's accelerating at a tremendous pace,'' said Bill Batcheller, director of investment management at Butler Wick & Co. in Youngstown, Ohio, in an interview last week. The firm owns more than 16,000 Deere shares as part of the $85 million it manages. ``Crop prices are strong, and this bio-fuel demand has a lot to do with it.''

U.S. farm income is forecast to gain 9.9 percent to $66.6 billion this year, as corn and soybean prices increase, the Department of Agriculture said in February.

North American tractor sales are climbing as ethanol demand spurs more corn planting. The USDA projects corn acres will rise 15 percent to 90.5 million this year, the most since 1944.

To contact the reporter on this story: Will Daley in Chicago at wdaley2@bloomberg.net; Courtney Dentch in New York at cdentch1@bloomberg.net.

Last Updated: August 15, 2007 16:05 EDT