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Deere Consolidates in Brazil

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Deere & Company (DE - Free Report) recently announced its plan to build two new factories in Brazil to further consolidate its position and tap the growing market for construction equipment products in Brazil and other South American countries.

Deere already boasts a strong presence in Brazil and caters to the agricultural and forestry equipment market with three manufacturing facilities, a parts distribution center, a bank operated under the John Deere Financial Services brand , and a John Deere Water facility, which is one of the world's largest irrigation companies.

Both the factories are expected to be built in Indaiatuba, Sao Paulo, with one producing backhoe loaders and four-wheel-drive loaders while the other producing excavators. The factory to produce loaders will be solely owned by Deere while the other will be through a joint venture with Hitachi Construction Machinery Co., Ltd, a Hitachi Ltd. group company.

The total cost of the project is estimated to be approximately $180 million with Deere contributing almost $124 million of the total cost.

In the last reported quarter, Deere delivered earnings of $1.69 per share, up 17% from $1.44 earned in the year-ago quarter. Net income improved 15% from the year-ago quarter to $712.3 million in the third quarter of 2011. The better-than-expected result was largely driven by strong demand for farm machinery, increased sales of construction equipment and effective cost management.

Deere’s worldwide total sales increased 22% year over year to $8.4 billion. Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) were $6.4 billion, up 22% year over year and included a favorable currency translation effect of 6% and a price increase of 3%. On a geographic basis, equipment net sales were up 10% in the United States and Canada and 49% in rest of the world.

Deere expects equipment sales to grow 20% in the fourth quarter and about 25% for fiscal 2011. The company’s guidance includes a favorable currency-translation impact of 4% for both the fourth quarter and fiscal year.

Full-year guidance, however, includes an adverse effect of about $70 million in sales and $10 million in operating profit due to the earthquake and tsunami in Japan. Net income is estimated to be $2.7 billion in 2011.

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