DULUTH, Ga. — AGCO, (NYSE:AGCO), a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $1.6 billion for the first quarter of 2017, an increase of approximately 4.4% compared to the first quarter of 2016.
Reported net loss was $0.13 per share for the first quarter of 2017, and adjusted net loss, which excludes restructuring expenses and a non-cash expense related to waived stock compensation, was $0.02 per share. These results compare to reported net income of $0.09 per share and adjusted net income, excluding restructuring expenses, of $0.11 per share for the first quarter of 2016. Excluding unfavorable currency translation impacts of approximately 0.9%, net sales in the first quarter of 2017 increased approximately 5.2% compared to the first quarter of 2016.
First Quarter Highlights
• Reported regional sales results (1): North America (6.3)%, Europe/Middle East (“EME”) (0.7)%, South America +54.1%, Asia/Pacific/Africa (“APA”) +21.1%
• Constant currency regional sales results (1)(2): North America (5.7)%, EME +4.0%, South America +31.1%, APA +22.1%
• Regional operating margin performance: North America 0.7%, EME 7.3%, South America 1.0%, APA 1.6%
• Full-year targeted net sales and net income per share increased
• Quarterly dividend increased approximately 8% to $0.14, effective first quarter of 2017
“In the first quarter, AGCO executed well against its business plan,” stated Martin Richenhagen, AGCO’s chairman, president and chief executive officer. “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, as demonstrated by an increase in engineering expense planned for 2017 compared to 2016. We are continuing to refresh our full line of equipment with a focus on high horsepower products for the growing professional farming sector as well as new products that will expand our current product offering.
“Our new products are being very well received in the market as evidenced by a number of awards received in February at the SIMA Farm Show in Paris, including the Machine of the Year Award for our Massey Ferguson 6718 S. At 200 horsepower, the 6718 S is the most powerful four cylinder tractor on the market.”
“Four consecutive years of near record harvests are satisfying the growing global demand for grain,” continued Richenhagen. “Higher grain inventories are pressuring commodity prices, and estimates call for 2017 farm income below 2016 levels. Industry demand remains near trough levels but is showing some signs of stabilization.
“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 and handling equipment remained well below last year’s levels.
“Industry retail sales in Western Europe were down modestly in the first 3 months of 2017 and are being impacted by weak demand from dairy producers and marginal economics for the arable farming segment. Sales declined most significantly in France from high levels in the first quarter of 2016, which were stimulated by tax benefits. Growth in the United Kingdom and Germany offset most of the decline in the French market.
“Industry retail sales in South America during the first 3 months of 2017 grew strongly from depressed levels last year. A more stable political environment in Brazil is contributing to equipment replacement in that market, and more supportive government policies in Argentina continue to stimulate industry sales.
“Our long-term view remains very optimistic for demand in the agricultural equipment industry. We expect elevated grain demand driven by population growth and increased protein consumption to result in favorable income levels for farmers.”
AGCO’s North America net sales decreased 5.7% in the first 3 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. Sales declines were most significant in hay tools, grain storage equipment and sprayers and were partially offset by increased sales of tractors. Income from operations for the first 3 months of 2017 improved approximately $3.2 million compared to the same period in 2016. The benefit of improved factory productivity and expense reduction efforts were mostly offset by lower sales and production volumes.
Net sales in the South American region increased 31.1% in the first 3 months of 2017 compared to the first 3 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 3 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 4.0% in the first 3 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 3 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 3 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 3 months of 2017, compared to the same period in 2016, due to higher sales levels.
Weak global demand for farm equipment is expected to continue to negatively impact AGCO’s sales and earnings in 2017. AGCO’s net sales for 2017 are expected to reach $7.7 billion. Gross and operating margins are expected to be improved from 2016 levels due to higher sales along with the benefits from the company’s cost reduction initiatives. Based on these assumptions, 2017 earnings per share are targeted at approximately $2.70 excluding restructuring expenses and the non-cash expense related to waived stock compensation.