Deere & Co. said on Wednesday its net earnings in the latest quarter rose a better-than-expected 23 percent, driven by strong overseas sales of tractors and other equipment.

The company, whose shares rose 2 percent in early premarket trading, also credited the strong results to its ability to pass along higher prices to farmers, who are enjoying higher prices for many of the crops they grow thanks to excitement over ethanol and other biofuels.

The margins were very big, said Eli Lustgarten, an analyst at Longbow Research.

The Moline, Illinois-based company also raised its forecast for fiscal 2007 earnings to $1.7 billion, up from $1.55 billion, saying it expected an increase in its agricultural equipment and commercial and consumer businesses to offset a decline in sales to builders and foresters.

Global farm conditions remain positive, driven by growing economic prosperity, relatively high commodity prices, and robust demand for renewable fuels, Deere said in a statement.

But Deere, which competes with Caterpillar Inc. (CAT.N: Quote, Profile, Research) in the construction machinery market, said the slump in the U.S. real estate market was taking a toll on that business.

U.S. markets for construction and forestry equipment are remaining under pressure, Deere said. Although nonresidential spending is growing, housing construction has experienced a significant downturn.

For the most recent quarter, Deere reported earnings of $537.2 million, or $2.37 a share, up from $436.7 million, or $1.85 a share, last year.

Net revenue rose 6 percent to $6.634 billion, lifted by a 30 percent rise in sales outside the United States and Canada, where sales actually dipped 5 percent despite the ethanol-fueled ramp up in corn production.

Analysts on average expected the Moline, Illinois-based company to report earnings of $1.99 a share on sales of $6.063 billion, according to Reuters Estimates.

The results were well above expectations and reflected, in part, Deere's ability to charge higher prices for its tractors, combines and other equipment, the company said.

Looking forward, the company expects worldwide equipment sales to rise 16 percent in the fourth quarter and 7 percent for the full year.

(Reporting by James B. Kelleher)