• Expense and Working Capital Management Highlight First Quarter
• Company Achieves First Quarter Adjusted EPS of $0.43 and Reported EPS of $0.34
DULUTH, Ga. — AGCO reported net sales of approximately $1.7 billion for the first quarter of 2015, a decrease of approximately 27.0% compared to net sales of approximately $2.3 billion for the first quarter of 2014. Reported net income was $0.34 per share and adjusted net income, excluding restructuring and other infrequent expenses, was $0.43 per share for the first quarter of 2015.
These results compare to reported and adjusted net income per share of $1.03 for the first quarter of 2014. Excluding unfavorable currency translation impacts of approximately 11.7%, net sales in the first quarter of 2015 decreased approximately 15.3% compared to the first quarter of 2014.
First Quarter Highlights
- First quarter regional sales results(1): North America (25.3)%, Europe/Africa/ Middle East (“EAME”) (10.4)%, South America (14.4)%, Asia/Pacific (“APAC”) (14.7)%
- First quarter regional operating margin performance: EAME 8.9%, North America 3.7%, South America 5.3%, APAC (16.4)%
- Inventory at March 31, 2015 approximately $175 million lower than March 31, 2014 on a constant currency basis(1)
- Significant progress with expense and workforce reduction program; first quarter operating expenses 9% below 2014 levels on a constant currency basis(1)
- Full-year earnings per share guidance for 2015 remains at approximately $3.00, despite additional negative currency translation impact
- Share repurchase program reduced outstanding shares by 1.3 million during the first quarter of 2015
- Quarterly dividend increased 9% to $0.12 effective first quarter 2015
(1)Excludes currency translation impact. See reconciliation of Non-GAAP measures in appendix.
“Demand for agricultural equipment softened in all the major world markets during the first quarter as weaker farm economics continued to impact our industry,” stated Martin Richenhagen, AGCO’s Chairman, President and Chief Executive Officer. “In the first quarter, we made substantial progress with our inventory reduction efforts and cost reduction initiatives. We reduced production hours by approximately 21% compared to the first quarter of 2014, and inventories were lower by over $175 million compared to March 31, 2014, on a constant currency basis. In addition, we significantly reduced the size of our workforce to achieve meaningful cuts in our operating expenses. While these actions are a response to current market conditions, we are also maintaining key strategic investments in product and market development to position AGCO for future profitable growth.”
|Industry Retail Unit Sales|
|Tractors Change from Prior Year Period||Combines CHange from Prior Year Period|
|* Excludes compact tractors|
“Global grain inventories across the major crops have increased over the last 12 months,” continued Mr. Richenhagen. “The increased grain stocks and preliminary crop production forecasts continue to pressure soft commodity prices and farm income across the key agricultural markets. Weaker farm economics produced softer industry equipment demand during the first quarter of 2015. Retail sales in North America declined, with the largest drop in high-horsepower tractors and combines partially offset by growth in hay and forage equipment due to healthy conditions in the region’s livestock sector. Difficult economics for the dairy producers and lower grain prices kept market demand soft across Western Europe. Industry sales decreases were most pronounced in France, the United Kingdom, Germany and Finland. Lower industry sales in South America were the result of softer demand from sugar producers in Brazil, weakness in the general economy and uncertainty around the Brazilian government financing program. We expect these shorter-term trends to continue resulting in lower demand in all major farm equipment markets in 2015. Despite these near-term challenges, the longer-term trends of population growth and increased protein consumption that have increased demand for grains are expected to intensify, supporting healthy long-term fundamentals for the agricultural industry.”
AGCO Regional Net Sales (in millions)
|Three Months Ended March 31||2015||2014||% Change from 2014||% Change from 2014 due to Curre|
Net sales in the North American region decreased 25.3% in the first quarter of 2015 compared to the first quarter of 2014, excluding the impact of unfavorable currency translation, due to softer end-market demand and dealer inventory reduction efforts. Significant decreases in sales of high-horsepower tractors, implements and combines were partially offset by growth in grain storage and protein production products. Lower sales and production volumes and a weaker sales mix contributed to a reduction in income from operations of approximately $38.0 million for the first quarter of 2015 compared to the same period in 2014.
AGCO’s South American net sales decreased 14.4% in the first quarter of 2015 compared to the first quarter of 2014, excluding the negative impact of currency translation. Softer market demand and reduced equipment sales, primarily in Brazil, were partially offset by increased grain storage sales. Income from operations decreased approximately $14.8 million for the first quarter of 2015 compared to the same period in 2014 due to lower sales and production volumes, as well as a weaker mix of sales.
Excluding the negative impact of currency translation, net sales in EAME declined 10.4% in the first quarter of 2015 compared to the same period in 2014. Weaker end-market demand resulted in sales declines with the most pronounced declines in Germany, Scandinavia and Russia. Operating income decreased approximately $40.4 million in the first quarter of 2015 compared to the same period in 2014. The negative impacts of reduced production levels were partially offset by cost reduction initiatives and the benefits of new products.
Net sales, excluding unfavorable currency translation impacts, decreased 14.7% in AGCO’s Asia/Pacific region in the first quarter of 2015 compared to the same period in 2014. Income from operations declined approximately $10.7 million in the first quarter of 2015, compared to the same period in 2014, due to lower sales and increased market development costs in China.
AGCO Acquires Farmer Automatic
In April, AGCO completed the acquisition of Farmer Automatic from The Clark Companies. Farmer Automatic is a leading manufacturer of poultry systems for layers, pullets and broilers and is headquartered in Laer, Germany. The acquisition expands AGCO’s product offering and enables it to serve the commercial egg sector. Farmer Automatic’s 2014 sales were approximately $19.0 million.
Challenging farm economics are expected to negatively impact industry demand across the developed agricultural equipment markets in 2015. Net sales for 2015 are expected to range from $7.7 to $7.9 billion, reflecting the impacts of weaker 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.
AGCO will be hosting a conference call with respect to this earnings announcement at 10:00 a.m. Eastern Time on Tuesday, April 28, 2015. 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.