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AGCO Reports First Quarter Results

DULUTH, Ga., Apr 27, 2016 (BUSINESS WIRE) -- AGCO, Your Agriculture Company AGCO, -2.27% a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $1.6 billion for the first quarter of 2016, a decrease of approximately 8.4% compared to net sales of approximately $1.7 billion for the first quarter of 2015. Reported net income was $0.09 per share for the first quarter of 2016 and adjusted net income, excluding restructuring and other infrequent expenses, was $0.11 per share. These results compare to reported net income of $0.34 per share and adjusted net income, excluding restructuring and other infrequent expenses, of $0.43 per share for the first quarter of 2015. Excluding unfavorable currency translation impacts of approximately 5.2%, net sales in the first quarter of 2016 decreased approximately 3.2% compared to the first quarter of 2015.

First Quarter Highlights

  • Regional sales results [(1)] : North America (11.6)%, Europe/Africa/Middle East (“EAME”) +4.2%, South America (21.2)%, Asia/Pacific (“APAC”) +19.4%
  • Regional operating margin performance: EAME 7.6%, North America (0.2)%, South America 0.3%, APAC (3.5)%
  • Inventory at March 31, 2016: approximately $109 million lower than March 31, 2015 on a constant currency basis [(1)]
  • Full-year earnings per share guidance remains at $2.30
  • Share repurchase program reduced outstanding shares by 1.4 million
  • Quarterly dividend increased 8% to $0.13, effective first quarter of 2016

[(1)] As compared to first quarter 2015, excludes currency translation impact.See reconciliation of Non-GAAP measures in appendix.

“AGCO’s first quarter results reflect the cyclicality and seasonality of our industry,” stated Martin Richenhagen, AGCO’s Chairman, President and Chief Executive Officer. “As anticipated, global market conditions continued to weaken, impacting our revenue and margin performance. In addition, our first quarter results reflect the impact of lower production to manage dealer and company inventory levels in advance of the spring selling season. At the end of March, inventory levels at AGCO were approximately $110 million below prior year levels on a constant currency basis, and we continue to make progress reducing dealer inventory as well. While our focus on cost management to mitigate market pressures continues, we are maintaining a strong level of investment in new products and technologies, as demonstrated by an increase in engineering expense planned for 2016 compared to 2015. We are confident that these investments along with initiatives in market development, factory efficiency and improved service levels will drive long-term benefits for AGCO.”

Market Update

Industry Unit Retail Sales

Tractors

Combines

Change from

Change from

Three months ended March 31, 2016

Prior Year Period

Prior Year Period

North America [(1)] (12)% (17)%
South America (42)% (20)%
Western Europe (3)% (2)%

[(1)] Excludes compact tractors.

“Growing global grain stocks are pressuring commodity prices, and estimates call for 2016 farm income to remain below 2015 levels,” continued Mr. Richenhagen. “In North America, weaker income prospects for row crop farmers resulted in significantly lower industry retail sales of high-horsepower tractors, combines and sprayers. Higher industry sales of small and mid-size tractors, due to more normal conditions in the livestock sector and general economy, have provided a partial offset to the decline in large agricultural equipment. First quarter industry retail sales in Western Europe declined more modestly from 2015 levels. Milk prices declined further, and demand from dairy producers remained weak, while lower commodity prices kept market demand soft from the arable farming segment. Significantly lower industry retail sales in the United Kingdom and Germany were partially offset by increases in France and Finland. Regional industry demand declined more severely in South America during the first quarter. In Brazil, growing political and economic uncertainty is impacting farmer confidence, resulting in substantially lower end-market demand for equipment. More supportive government policies in Argentina have contributed to higher sales in that market. Despite the difficult conditions experienced in the first quarter, we remain confident in the long-term fundamentals supporting commodity prices and farm income as well as healthy growth in our industry.”

Regional Results

AGCO Regional Net Sales (in millions)

% change from
2015 due to
% change currency

Three Months Ended March 31,

2016 2015 from 2015

translation [(1)]

North America $ 408.4 $ 472.5 (13.6)% (1.9)%
South America 144.2 249.0 (42.1)% (20.9)%
Europe/Africa/Middle East 924.1 908.1 1.8% (2.5)%
Asia/Pacific 82.6 73.0 13.2% (6.3)%
Total $ 1,559.3 $ 1,702.6 (8.4)% (5.2)%
[(1)] See appendix for additional disclosures

North America

AGCO’s North America net sales decreased 11.6% in the first three months of 2016 compared to the same period of 2015, excluding the negative impact of currency translation. Dealer inventory reduction efforts and softer industry demand, particularly from the row crop sector, contributed to lower sales. Declines in sales of sprayers, implements and high horsepower tractors were partially offset by modest growth in parts and low horsepower tractor sales. Lower sales and production volumes along with a weaker sales mix contributed to a reduction in income from operations of approximately $18.2 million for the first three months of 2016 compared to the same period in 2015.

South America

Net sales in the South American region decreased 21.2% in the first three months of 2016 compared to the first three months of 2015, excluding the impact of unfavorable currency translation. Significant sales declines in Brazil were partially offset by growth in Argentina. Income from operations decreased approximately $12.7 million for the first three months of 2016 compared to the same period in 2015 due to lower sales and production volumes, the negative impact of currency translation and a weaker mix of sales.

Europe/Africa/Middle East

Net sales in AGCO’s EAME region increased 4.2% in the first three months of 2016 compared to the same period in 2015, excluding unfavorable currency translation impacts. Higher sales in France and Scandinavia were partially offset by sales declines in Germany, the United Kingdom and Italy. Income from operations decreased approximately $10.2 million for the first three months of 2016, compared to the same period in 2015, due to a weaker sales mix, higher engineering expenses as well as unfavorable currency translation impacts.

Asia/Pacific

Net sales in AGCO’s Asia/Pacific region, excluding the negative impact of currency translation, increased 19.4% in the first three months of 2016 compared to the same period in 2015 due primarily to increased sales in China. Losses from operations decreased approximately $9.1 million in the first three months of 2016, compared to the same period in 2015, due to higher sales and production levels in China.

Outlook

Lower industry demand for farm equipment across all regions is expected to continue to negatively impact AGCO’s sales and earnings for the remainder of 2016. AGCO’s 2016 net sales are expected to reach $7.0 billion. Gross and operating margins are expected to be below 2015 levels due to the negative impact of lower sales and production volumes, a weaker sales mix and increased investment in product development. Benefits from the Company’s cost reduction initiatives are expected to partially offset the volume-related impacts. Based on these assumptions, 2016 earnings per share are targeted at approximately $2.30, excluding restructuring and other infrequent expenses.

* * * * *

AGCO will be hosting a conference call with respect to this earnings announcement at 10:00 a.m. Eastern Time on Wednesday, April 27, 2016. The Company will refer to slides on its conference call. Interested persons can access the conference call and slide presentation via AGCO’s website at www.agcocorp.com in the “Events” section on the “Company/Investors” page of our website. A replay of the conference call will be available approximately two hours after the conclusion of the conference call for twelve months following the call. A copy of this press release will be available on AGCO’s website for at least twelve months following the call.

* * * * *

Safe Harbor Statement

Statements that are not historical facts, including the projections of earnings per share, sales, industry demand, market conditions, commodity prices, currency translation, farm income levels, margin levels, investments in product and technology development, restructuring and other cost reduction initiatives, production volumes, tax rates, and general economic conditions, are forward-looking and subject to risks that could cause actual results to differ materially from those suggested by the statements. The following are among the factors that could cause actual results to differ materially from the results discussed in or implied by the forward-looking statements.

  • Our financial results depend entirely upon the agricultural industry, and factors that adversely affect the agricultural industry generally, including declines in the general economy, increases in farm input costs, lower commodity prices, lower farm income and changes in the availability of credit for our retail customers, will adversely affect us.
  • A majority of our sales and manufacturing take place outside the United States, and, as a result, we are exposed to risks related to foreign laws, taxes, economic conditions, labor supply and relations, political conditions and governmental policies. These risks may delay or...

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