DULUTH, Ga. — AGCO (NYSE:AGCO) a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $1.8 billion for the third quarter of 2016, an increase of approximately 1.5% compared to net sales of approximately $1.7 billion for the third quarter of 2015. Reported net income was $0.50 per share for the third quarter of 2016 and adjusted net income, which excludes restructuring expenses, was $0.51 per share. These results compare to reported and adjusted net income of $0.77 per share for the third quarter of 2015. Excluding unfavorable currency translation impacts of approximately 1.2%, net sales in the third quarter of 2016 increased approximately 2.6% compared to the third quarter of 2015. 

Net sales for the first 9 months of 2016 were approximately $5.3 billion, a decrease of approximately 3.5% compared to the same period in 2015. Excluding unfavorable currency translation impacts of approximately 2.9%, net sales for the first 9 months of 2016 decreased approximately 0.6% compared to the same period in 2015. For the first 9 months of 2016, reported net income was $1.20 per share and adjusted net income, which excludes restructuring expenses and a non-cash deferred income tax adjustment, was $1.63 per share. These results compare to reported net income of $2.33 per share and adjusted net income, excluding restructuring expenses, of $2.45 per share for the first 9 months of 2015. 

Third Quarter Highlights 

• Reported regional sales results(1): North America (8.5)%, Europe/Africa/Middle East (“EAME”) +1.7%, South America +13.1%, Asia/Pacific (“APAC”) +18.6% 
• Constant currency regional sales results(1)(2): North America (7.7)%, EAME +3.5%, South America +13.9%, APAC +17.1% 
• Regional operating margin performance: North America 4.7%, EAME 8.6%, South America 2.3%, APAC 3.4% 
• Full-year net income per share guidance remains unchanged 
• Share repurchase program reduced outstanding shares by 0.9 million during the third quarter and 3.6 million during the first 9 months of 2016 
• AGCO completed the acquisition of Cimbria Holdings Limited (Cimbria) on September 12, 2016. Cimbria is a leading manufacturer of products and solutions for the processing, handling and storage of seed and grain. 

⁽¹⁾As compared to third quarter 2015 
⁽²⁾Excludes currency translation impact. 

“AGCO’s 2016 results reflect the adverse impact of operating in the lower end of the agricultural equipment cycle, particularly in North and South America,” stated Martin Richenhagen, AGCO’s chairman, president and chief executive officer. “In this environment, we are taking the necessary steps to ensure AGCO remains competitive by maintaining investment levels and serving our customers with superior products and services. Our long-term optimism within the agricultural industry and our business remains high. 

“We are making significant investments in order to provide new products, new technology and improved distribution over the next few years aimed at further improving our competitive position. We also are investing for long-term growth as evidenced by our acquisition of Cimbria, which closed during the third quarter. This new investment significantly enhances our market position in the European grain handling and storage industry and provides an attractive opportunity to grow our business and expand our margins.”

Market Update

⁽¹⁾Excludes compact tractors.

“Improving farm technology and nearly ideal weather conditions are supporting record global crop production,” continued Richenhagen. “Growing global demand for grain is being satisfied by peak production and grain inventories are forecasted to grow during 2016, further pressuring commodity prices and farmer income levels. Facing these conditions, industry demand remains weak across all the major markets. The farm equipment fleet remains relatively young in North America and industry retail sales have declined in the first 9 months of 2016, with a significant drop in demand from the row-crop segment. Sales of high-horsepower tractors, combines, sprayers and grain storage and handling equipment remained well below last year’s levels. 

“Industry retail sales in Western Europe remained more stable in the first 9 months of 2016, but are being impacted by weak economics for dairy producers and lower commodity prices for the arable farming segment. Industry retail sales declines were most pronounced in the United Kingdom and Germany. Industry retail sales in South America during the first 9 months of 2016 were negatively influenced by political and economic uncertainty that weakened farmer confidence. The improving political landscape in Brazil contributed to third quarter industry growth from last year’s depressed levels. More supportive government policies in Argentina have contributed to higher sales in that market. Longer term, we expect elevated grain demand driven by population growth and increased protein consumption to result in favorable conditions for our industry.” 

Regional Results 

AGCO Regional Net Sales (in millions)

North America 

North America net sales decreased 9.8% in the first 9 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 large farm sector, contributed to lower sales. Sales declines were most significant in high margin high horsepower tractors, grain storage equipment and hay tools and were partially offset by increased sales of small and mid-size tractors. Lower sales and production volumes, along with a weaker sales mix, contributed to a reduction in income from operations of approximately $72.4 million for the first 9 months of 2016 compared to the same period in 2015. 

South America 

Net sales in AGCO’s South American region decreased 8.0% in the first 9 months of 2016 compared to the first 9 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 $32.5 million for the first 9 months of 2016 compared to the same period in 2015 due to lower sales and production volumes, the negative impact of currency translation, as well as material cost inflation. 

Europe/Africa/Middle East 

AGCO’s EAME net sales increased 4.2% in the first 9 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 and Africa. Income from operations increased approximately $7.9 million for the first 9 months of 2016, compared to the same period in 2015, due to increased sales partially offset by the negative impact of currency translation. 

Asia/Pacific 

Net sales in AGCO’s Asia/Pacific region, excluding the negative impact of currency translation, increased 20.5% in the first 9 months of 2016 compared to the same period in 2015 due primarily to increased sales in China and Australia. Income from operations improved approximately $29.3 million in the first 9 months of 2016, compared to the same period in 2015, due to higher sales and production levels in China. 

Outlook 

Lower global demand for farm equipment is expected to continue to negatively impact AGCO’s sales and earnings in 2016. AGCO’s net sales for 2016 are expected to reach $7.2 billion. Gross and operating margins are expected to be below 2015 levels due to the negative impact of lower sales and production volumes along with a weaker sales mix. Benefits from the company’s cost reduction initiatives are expected to partially offset the volume-related impacts. Based on these assumptions, 2016 reported earnings per share are targeted at approximately $1.85 and adjusted earnings per share, excluding restructuring expenses and the non-cash deferred income tax adjustment, are targeted at approximately $2.30.