CNH Gains From Farm Boom

The farming business is seeing greener pastures.

Crop prices are up, thanks largely to increasing corn production in response to ethanol demand. A trade group last week reported a 13.6% rise in August sales of medium-horsepower tractors vs. a year ago. Heavy-duty tractor sales jumped 30.8%. Sales of combines grew 46.5%.

That's a welcome trend for CNH Global CNH, a Netherlands-based maker of farm and construction machinery sold under the Case, Steyr and other brands.

CNH posted earnings gains of 58%, 129%, 120% and 60% the past four quarters.

Sales growth accelerated over the same periods. Analysts' consensus estimate for the current year is for a 63% increase.

Revenue fell in the third quarter of 2006, but then increased 6%, 10% and 17%.

After-tax profit margin was 5.7% in the latest quarter, the best mark in at least 12 periods. Return on equity in 2006 was 7.2%, lower than the levels of most market winners but the best in six years.

UBS analyst David Bleustein expects demand for agricultural equipment to continue to improve, but sees the risk that corn prices will fall and pressure CNH share.