AGCO sales up despite difficult market

by Holly Demaree
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DULUTH, GEORGIA, U.S. — Net sales at AGCO in the quarter ended March 31 were $1.627 billion, up slightly from $1.559 billion in the first quarter of 2016. The gains came in the face of a challenging market environment.

AGCO_Martin_Richenhagen_CEO
Martin Richenhagen, chairman, president and chief executive officer of AGCO.

“In the first quarter, AGCO executed well against its business plan,” Martin Richenhagen, chairman, president and chief executive officer of AGCO, said during a call with analysts on April 28. “Our results reflect the weak but stabilizing global demand for agricultural equipment. Despite softer market conditions in both Europe and North America, we managed sales growth and higher adjusted operating income in the quarter. While our focus on cost management to mitigate market pressures continues, we are maintaining a strong level of investment in new products and technologies.”

AGCO sustained a loss of $8.2 million in the first quarter of 2017, which compared with net income of $10.2 million in the same period of last year.

Sales for GSI, the grain storage and handling business based in Assumption, Illinois, U.S., were up 11%, excluding currency impacts but including the benefits of acquisition. Excluding the positive impact of acquisitions, GSI sales were down 13% on a constant currency basis. GSI sales for the first quarter were $201 million, of which 51% was grain and 49% was protein. Sales are expected to reach $1 billion in 2017, the company said.

AGCO_ Andy Beck_senior vicepresident and chief financial officer
Andrew Beck, chief financial officer and senior vice-president of AGCO.

“Growth in protein production equipment was partially offset by declines in grain storage equipment across most regions,” said Andrew Beck, chief financial officer (CFO) and senior vice-president of AGCO.

There was protein production growth in the regions of North America, Europe-Middle East and Asia-Pacific-Africa but grain storage declined in all regions but Asia-Pacific-Africa.

In terms of the North American grain storage business, AGCO said it believes the market has bottomed out. Longer term, macro trends are driving growth in demand for grain storage and protein production.

“We saw some improved sales in certain parts of the grain business, like conditioning equipment in the first quarter, which helped our margins and our mix,” said Greg Peterson, director of investor relations. “So there are some positives there we're starting to see in that market.”

AGCO’s North America net sales decreased 5.7% in the first three months of 2017 compared to the same period of 2016, excluding the negative impact of currency translation. Dealer inventory reduction efforts and softer industry demand contributed to lower sales.

“Growing global grain stocks are pressuring commodity prices and estimates call for 2017 farm income to remain below 2016 levels,” Richenhagen said. “Weak farm fundamentals negatively impacted farmer sentiment and experienced lower industry equipment demand in Europe and North America. In the first quarter, North America industry sales were down due to continued weakness in sales in the row crop sector. Industry sales of high-horsepower tractors, combines, sprayers, and grain storage enhancing equipment remained well below last year's levels. Industry retail sales in Western Europe declined modestly compared to 2016 levels and profitability is improving for dairy producers while lower commodity prices have kept market demand soft from the arable farming segment.”

Net sales in the South American region increased 31.1% in the first three months of 2017 compared to the first three months of 2016, excluding the impact of favorable currency translation. Significant sales increases in Brazil and Argentina produced most of the growth. Income from operations improved approximately $1.8 million for the first three months of 2017 compared to the same period in 2016, as the benefit of higher sales and production volumes, and positive impact of currency translation was mostly offset by material inflation and the costs associated with transitioning to the new tier 3 emission standards.

AGCO’s EME net sales increased 4% in the first three months of 2017 compared to the same period in 2016, excluding unfavorable currency translation impacts, primarily due to the benefit of acquisitions. Higher sales in Germany and the United Kingdom were partially offset by sales declines in France. Income from operations decreased approximately $2.8 million for the first three months of 2017, compared to the same period in 2016, due to higher engineering expenses and the negative impact of currency translation, partially offset by the benefit of higher sales.

Net sales in AGCO’s Asia/Pacific/Africa region, excluding the negative impact of currency translation, increased 22.1% in the first three months of 2017 compared to the same period in 2016 due primarily to increased sales in Australia and China. Income from operations improved approximately $2.8 million in the first three months of 2017, compared to the same period in 2016, due to higher sales levels.

“Our long-term view remains very optimistic for demand in the agricultural equipment industry,” Richenhagen said. “We expect elevated grain demand driven by population growth and increased protein consumption to result in favorable income levels for farmers.” 

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