CNH Global profit tops Street view, shares surge

CHICAGO (Reuters) - Farm equipment maker CNH Global NV (CNH.N) reported a better-than-expected quarterly profit on Monday, sending its shares up 7 percent, as surging crop prices tied to demand for ethanol lifted sales of its tractors and combines.

The news buoyed the shares of CNH rivals, including Agco Corp. AG.N and Deere & Co. (DE.N), which are also likely to see sales get a lift as a result of the year-long run-up in the prices of corn, soybeans and other commodities.

CNH, which also makes construction equipment, reported a first-quarter net profit of $95 million, or 40 cents a share, compared with $43 million, or 18 cents a share, a year earlier.

Excluding restructuring charges, CNH, an affiliate of Italian automaker Fiat SpA (FIA.MI), earned 44 cents a share, well above analysts' average forecast of 31 cents as compiled by Reuters Estimates.

Revenue increased 10 percent to $3.47 billion.

CNH said strong demand from farmers in North America -- plus the market recovery in Brazil -- boosted sales of higher-horsepower tractors and combines.

Strong construction equipment sales outside North America made up for weaker sales in that market, it said.

Sales of construction equipment were strong outside North America but weak within that market, it said.

The company stood by its full-year profit forecast of $2.15 to $2.30 a share. Analysts, on average, expect $2.09.

CNH said U.S. farm income in 2007 should remain at 2006 levels, bolstered by increased demand for corn for ethanol. North American sales of tractors of over 40 horsepower should be flat to up slightly, while sales of combines in that market should be higher, it said.

CNH said sales of tractors and combines outside North America should also be higher.

Worldwide, tractor sales could rise up to 5 percent compared with 2006, while combine sales could be up about 10 percent, the company said.

U.S. farmers hoping to capitalize on the boom in ethanol are expected to plant more than 90 million acres to corn this spring, according to a report released last month by the U.S. Department of Agriculture. It would be the largest corn acreage since 1944.

In its first acreage estimate of the year based on farmer surveys, USDA put U.S. soybean seedings at 67 million acres, down from 69 million last year. The highest corn prices in 10 years have encouraged farmers to divert acreage away from soybeans and other crops.

The story behind those numbers is the ramp-up in production of ethanol, the pollution-reducing additive that replaced methyl tertiary butyl ether (MTBE) in U.S. gasoline due to a 2005 law.

Corn benefits from the switch because it is the basic building block of ethanol, which reduces emissions without contaminating ground water the way MTBE did.

Soybeans have enjoyed a spillover benefit because as farmers switch into corn to take advantage of higher prices, it leaves fewer acres for beans.

As commodity prices have risen, so too have the shares of farm equipment makers because of the historically strong correlation between farm cash receipts and tractor and combine sales.

CNH shares were up $2.79 at $43.04 in morning trade on the New York Stock Exchange. Deere was up 2.5 percent at $114.30, and Agco was up 3.5 percent at $40.51.

(Additional reporting by Paritosh Bansal in New York)