Deere & Co. (DE) reported lower quarterly profit on Tuesday as U.S. farmers cut back on machinery purchases, and said that trend would continue into next year.

But Deere's results beat Wall Street forecasts, which were slashed after the company said in August it would cut production, and Deere shares rose more than 3.5 percent in early trading.

"What a nice little quarter for them, considering all the headwinds," Morningstar Inc. analyst Scott Burns said, adding that Deere's ability to pass on high raw materials costs was the quarter's highlight.

"It's the power of their brand," Burns said. "John Deere is a very powerful, recognized brand and it has allowed them to push price increases through and keep what could have been a really bad quarter from being a disaster."

Burns said a soft spot remained Deere's consumer division, which posted a $10 million operating loss for the quarter. The company said poor weather hurt sales of riding mowers.

The world's largest farm-equipment maker said U.S. sales of farm machinery could fall as much as 10 percent next year because of higher prices for fuel and fertilizer and the end of tax incentives, but added that overall sales and profits would be slightly above 2005 levels.

"The company remained solidly profitable for the quarter, even though our results were affected negatively by substantial production cutbacks," Deere's Chief Executive Robert Lane said in a statement.

Earnings fell almost 35 percent to $232.8 million, or 96 cents per share, in Deere's fiscal fourth quarter that ended on October 31, compared with $356.7 million, or $1.41 per share, a year earlier.

Analysts, on average, had expected a profit of 79 cents per share, according to Reuters Estimates. Wall Street lowered its estimates after the company said in August it would cut back production to avoid building up inventory.

Quarterly sales fell 1 percent to $5.18 billion, well above the $4.22 billion expected by Wall Street. Farm equipment sales fell 10 percent during the quarter to $2.4 billion.

Sales in the construction and forestry segment rose 10 percent in the quarter to $1.32 billion. Deere's commercial and consumer division reported a 3 percent increase in quarterly sales to $766 million.

Deere sees farm equipment sales in 2006 falling between 2 percent and 4 percent, while commercial and consumer equipment sales should rise to 12 percent next year. Construction and forestry equipment revenue are expected to rise 5 percent to 7 percent, Deere said.

Deere forecast fiscal 2006 sales would be 1 percent to 3 percent higher and it expects full-year profit of $1.5 billion, in line with analyst estimates. Deere said it sees fiscal first-quarter profit of $175 million to $200 million.

Rising interest rates, high fuel prices, and a depressed market for farm commodities have cut into demand for farm equipment, while high raw materials prices have pressured profit margins.

Deere shares rose $2.35, or 3.73 percent, to $65.35 on the New York Stock Exchange. They have lost 14 percent in 2005, lagging the Standard & Poor's 500 index, and far underperforming Caterpillar Inc. (CAT), another maker of heavy equipment, whose stock has jumped 18 percent this year.