In the midst of raw materials cost creeps and Japan's tsunami, I find it difficult to frown on Deere's (NYSE: DE) results. Nevertheless, the market concluded that the Moline, Ill. company's expectations were insufficient, and has reduced its share price by 1% since Deere's quarterly release.

For the quarter, the company recorded income of $904.3 million, or $2.12 per share. That's up an impressive $547.5 million, or $1.28 a share, year over year. The numbers represented a healthy beat, since the consensus among analysts who follow the company pegged earnings expectations at $2.06 per share. Revenue rose 25% to $8.9 billion.

Obviously, Deere's management was not chagrinned by the quarter's results. As Chairman and CEO Samuel R. Allen, noted, "With our record second-quarter performance, John Deere is well on its way to a year of exceptional results. Our success reflects strong demand for our innovative lines of equipment and the continued skillful execution of our business plans."

The company's sales of large farm machinery are buoying its results, especially in the U.S., Canada, and Brazil. And with both residential and commercial construction still looking less than robust, sales of Deere's construction equipment nevertheless maintain upward momentum.

Within the Equipment Division, Agriculture & Turf sales improved by 24% for the year to date, while Construction & Forestry quarterly sales rose by 46%. Looking ahead, management expects farmers throughout most of the world's largest markets to experience improved income on the basis of strong demand and higher commodity prices.

For 2011, farm machinery sales in the U.S. and Canada are expected to increase about 5% to 10% during 2011, while the 27 nations of Western and Central Europe will likely expand by about 15%.

On the flip side of the coin, while global sales of construction and forestry equipment are expected to improve by about 35%, the company predicts that industry sales in South America will follow a strong 2010 with a decline of 5% to 10% this year.

Deere has more bad news ahead. The costs of raw materials rose roughly $175 million in the company's second quarter. Research and development costs and administrative costs also expanded by 12% and 19%, respectively. In addition, the Japanese tsunami will probably affect the year's sales by about $300 million.

Despite all these headwinds, management expects an 18% to 20% hike in sales his year, leading to net income of $2.65 billion in 2011 -- an increase from the prior $2.5 billion forecast.

While Deere's income growth fell short of its fellow Midwest equipment manufacturer Caterpillar (NYSE: CAT) and Amsterdam's CNH Global (NYSE: CNH), it nevertheless topped agriculture-dependent Monsanto (NYSE: MON). However, given the few caveats that management has noted -- higher costs and a slowing South American market -- I'm inclined to monitor the company carefully by adding it to my Watchlist. Care to join me?

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Fool contributor David Lee Smith doesn't own shares in any of the companies named in this article.  Motley Fool newsletter services have recommended creating a synthetic long position in Monsanto. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.