DULUTH, Ga. — AGCO reported net sales of approximately $2.5 billion for the fourth quarter of 2014, a decrease of approximately 13.1% compared to net sales of approximately $2.9 billion for the fourth quarter of 2013. Reported net income was $0.85 per share and adjusted net income, excluding restructuring and other infrequent expenses, was $1.18 per share for the fourth quarter of 2014. These results compare to reported and adjusted net income per share of $1.40 for the fourth quarter of 2013. Excluding unfavorable currency translation impacts of approximately 7.0%, net sales in the fourth quarter of 2014 decreased approximately 6.1% compared to the fourth quarter of 2013.
Net sales for the full year of 2014 were approximately $9.7 billion, a decrease of approximately 9.9% compared to the same period in 2013. Excluding the unfavorable impact of currency translation of approximately 2.4%, net sales for the full year of 2014 decreased approximately 7.5% compared to the same period in 2013. For the full year of 2014, reported net income was $4.36 per share and adjusted net income, excluding restructuring and other infrequent expenses, was $4.70 per share. These results compare to reported and adjusted net income of $6.01 per share for the full year of 2013.
Excluding the negative impact of currency translation, net sales in the North American region declined 11.5% in the full year of 2014 compared to the same period in 2013. The most significant decreases were in high-horsepower tractors and implements, with growth in small tractor sales and hay tools partially offsetting the declines. Lower sales and production volumes and a weaker sales mix contributed to a reduction in income from operations of $106.7 million for the full year of 2014 compared to the same period in 2013.
Fourth Quarter and Full Year Highlights
- Fourth quarter regional sales results(1): North America (15.6)%, Europe/Africa/ Middle East (“EAME”) (6.1)%, South America +2.2%, Asia/Pacific (“APAC”) +12.7%
- Fourth quarter regional operating margin performance: EAME 9.8%, North America 5.6%, South America 9.6%, APAC (4.0)%
- Inventory reduced significantly in the fourth quarter; approximately $80 million below year-end 2013 on a constant currency basis
- Expense and workforce reduction program initiated; fourth quarter operating expenses 8% below 2013 levels on a constant currency basis
- Full year earnings per share guidance for 2015 remains at approximately $3.00
- Share repurchase program resulted in reduction of 10 million shares during the full year of 2014. Initial $500 million program completed in December 2014. New $500 million repurchase program authorized through 2016
- Quarterly dividend increased 9% to $0.12 effective first quarter 2015
(1)Excludes currency translation impact. See reconciliation of Non-GAAP measures in appendix.
“Despite softening market demand in the fourth quarter, we made solid progress with both inventory reduction and our expense savings program,” stated Martin Richenhagen, AGCO’s chairman, president and chief executive officer. “By lowering production approximately 20% compared to the fourth quarter of 2013, inventories ended the year well below December 31, 2013 levels. We also took steps to adjust our cost structure in response to lower demand and production levels. Our restructuring plan to significantly reduce SG&A and manufacturing support costs is on track to achieve our 2015 targets. Through a combination of layoffs, temporary furloughs, and the dismissal of temporary employees, we lowered our workforce by over 9% from year-ago levels. Our short-term focus will remain on managing working capital, reducing expenses and generating free cash flow while balancing near-term cost reductions with continued investment in longer-term growth initiatives.”
“Nearly ideal growing conditions produced record global harvests during 2014, resulting in higher grain inventories. The increased grain stocks pressured soft commodity prices and farm income across the major agricultural markets. Farmer sentiment was negatively impacted by the deteriorating farm economics, and we experienced softer industry equipment demand. Retail sales in North America declined, with the largest drop in high-horsepower tractors, combines and sprayers, partially offset by growth in the lower-horsepower categories due to improved conditions in the region’s dairy and livestock sectors. Industry demand remained soft across most of Western Europe. Industry sales decreased significantly in France, declined modestly in Germany and were more stable in the United Kingdom and parts of Southern Europe. Lower industry sales in South America were the result of softer demand from sugar producers in Brazil, falling commodity prices and delays in the Brazilian government financing program early in 2014. For 2015, we expect the trends to continue resulting in softer demand in all major farm equipment markets. Our long-term view remains positive as increasing global demand for commodities driven by biofuel use, the growing world population and increasing emerging market protein consumption are expected to support elevated farm income and healthy conditions in our industry.”
Lower commodity prices relative to 2014 are expected to negatively impact farm income, pressuring industry demand across the developed agricultural equipment markets in 2015. Net sales for 2015 are expected to range from $8.1 to $8.3 billion, reflecting the impacts of softer market conditions and unfavorable currency translation. Gross and operating margins are expected to be below 2014 levels due to the negative impact of lower sales and production volumes along with a weaker sales mix. Benefits from the Company’s restructuring and other cost reduction initiatives are expected to partially offset the volume related impacts. Based on these assumptions, 2015 earnings per share are targeted at approximately $3.00, excluding restructuring and other infrequent expenses. In the first quarter of 2015, earnings per share is expected to be significantly lower than reported for the first quarter of 2014 due to lower production levels associated with inventory reduction efforts.
“As we look ahead, we expect weaker end market demand and currency headwinds to make 2015 more challenging than 2014,” continued Mr. Richenhagen. “Despite the market challenges, our priorities remain unchanged, focusing on margin performance and cash generation while providing superior products and services to our customers. When we look beyond the softer market conditions we face today, the healthy, long-term fundamentals of our industry remain intact. We will continue to invest in new product development, distribution enhancements and productivity improvements to enable our long-term growth and improve our financial performance.”