Kudos to my colleague Elizabeth Harrow for pointing out that shares of Deere & Company (NYSE: DE) may be heading for a fall. As today's earnings report shows, her post was on the money.

Net income rose to $575.2 million, or $1.32 per share. Revenue soared 17% to $7.74 billion. Analysts had expected profit of $1.36 per share on revenue of $7.23 billion. Shares of the largest farm equipment maker had their biggest drop in two decades, according to Bloomberg.

What's killing Deere is rising raw material costs. The company's overall business is doing fine. Agricultural sales rose 35% in the quarter. Not surprisingly Commercial and Consumer revenue fell 1% and Construction and Forestry declined 7%.

Construction spending continues to decline with no end in sight yet, therefore construction industry stocks continue to tank. But there are bits of good news in the sector. Gehl Company (Nasdaq: GEHL), a small construction company in terms of both products and balance sheet, offers some upbeat news. True, FY 2007 net sales declined 6% to $457.6 million, but the company did report income from continuing operations of $25 million, or $2.00 per diluted share. What is more encouraging is that Gehl's market share in the domestic market continues to increase despite an overall contracting market. International sales of smaller-sized skid loaders and telehandlers, two of Gehl's best-selling products, grew 31% over 2006 sales by volume, accounting for 29% of Gehl's total sales for FY 2007.

Gehl managed to hold administrative expenses essentially flat in FY 2007, while improving gross margins. Income from financing contracts declined as expected in a slowing market, and bad debt expenses increased by $3.7 million as clients defaulted on their payments. Gehl CEO William Gehl remains optimistic that FY 2008 net sales will be in the $405-$425 million range, with increasing emphasis on international sales. The company is enhancing its international supply-chain distribution network. The company's order backlog is up 142% to $95 million, so Gehl anticipates FY 2008 diluted earnings per share (EPS) of $0.95 to $1.20. Given the growing construction industries in Brazil, China and India, Gehl's smaller-sized equipment just may fit their bill. The stock is currently trading at $14 and change.

Ever wonder how your local construction company can afford those big earthmovers and cranes it uses all over town? The odds are it does not own them at all. It rents. A leader in sales and rental of the heavy equipment is headquartered in Baton Rouge.

H&E Equipment Services (NASDAQ: HEES) provides heavy construction and industrial equipment, dealing in industrial lift trucks, aerial platforms, cranes and earthmovers. It rents and sells new and used equipment and also provides repair and maintenance services. Customers include construction contractors, manufacturers, public utilities, municipalities, maintenance contractors and other large industrial concerns. The firm serves nearly 28,000 U.S. accounts.

H&E surprised the Street last week, when it reported Q3 EPS of 53 cents and revenues of $270.6 million. Analysts had been expecting 45 cents and $243.3 million. Management also guided FY07 revenues to $0.995-$1.0 billion ($944.12M consensus) and announced a $100 million stock repurchase program. The CEO noted that a recent mid-Atlantic acquisition was expected to generate" significant growth opportunities." HEES shares broke through 30-day/50-day moving average resistance on the news and has now begun to form a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the issue with one "strong buy," three "buys" and one "hold." Analysts see a 17% growth rate, through the next year. The HEES P/E ratio (10.61), Price to Sales ratio (0.78), Price to Book ratio (2.55), Price to Cash Flow ratio (4.36), Sales Growth rate (32.58%), EPS Growth rate (17.78%), Return on Assets (7.94%), Return on Investment (12.87%) and Return on Equity (27.32%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 50% of the outstanding shares. Over the past 52 weeks, the stock has traded between $15 and $30.59. A stop-loss of $16.70 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.