AGCO, a worldwide manufacturer and distributor of agricultural equipment and solutions, reported its results for the first quarter ended March 31, 2020. “AGCO delivered solid results for the first quarter under challenging conditions,” stated Martin Richenhagen, AGCO’s chairman, president and chief executive Officer. “AGCO’s current priorities are the safety of our employees and serving the world’s farmers as we do our part to minimize the impact of the COVID-19 pandemic on the world’s food supply. We are facing a very dynamic environment requiring rigorous and coordinated business planning to manage our manufacturing, supply chain and aftermarket operations, to effectively serve our dealers and end-customers as well as to maintain a productive workforce. In addition to restarting factories and ramping up production, we remain focused on maintaining parts and service support for our dealers and our customers. It is rewarding to see our employees rise to the challenge to find innovative solutions to keep our business running effectively and support farmers as they continue their important work.”
Net sales for the first quarter were approximately $1.9 billion, a decrease of approximately 3.4% compared to the first quarter of 2019. Reported net income was $0.85 per share for the first quarter of 2020 and adjusted net income, excluding restructuring expenses, was $0.86 per share. These results compare to reported net income of $0.84 per share and adjusted net income, excluding restructuring expenses, of $0.86 per share for the first quarter of 2019. Excluding unfavorable currency translation impacts of approximately 3.6%, net sales in the first quarter of 2020 increased approximately 0.2% compared to the first quarter of 2019.
First Quarter Highlights
- Reported regional sales results(1): Europe/Middle East (“EME”) (8.0)%, North America 11.2%, South America (1.4)%, Asia/Pacific/Africa (“APA”) (17.8)%
- Constant currency regional sales results(1)(2): EME (4.7)%, North America 11.7%, South America 13.8%, APA (13.4)%
- Regional operating margin performance: EME 9.2%, North America 11.0%, South America (5.7)%, APA (1.2)%
- New Term Loan - $520 million facility completed in April to provide incremental liquidity
- Repurchases reduced outstanding shares by approximately 1.0 million in the first three months of 2020
- Full-year outlook withdrawn on March 23rd
“Our first quarter results demonstrated strong execution as we overcame COVID-19 related production disruptions in China and Europe to expand operating margins compared to the first quarter of last year,” stated Richenhagen. “Strong performance in our North America region highlighted our results driven by improved product availability and an increase in the retail demand of our products. The Precision Planting business also produced significantly improved results over the prior year in its seasonally important first quarter. Our Europe/Middle East region results remained solid but were impacted by production interruptions late in March despite a strong order board. In April, we also added over $500 million in liquidity with the completion of a new term loan facility.”
In most areas, AGCO’s business has been deemed essential, thereby allowing the company to maintain operations. However, production has been severely impacted by component supply availability, particularly during late March and throughout April, which has directly impacted sales levels. The affected plants all resumed production in late April, and all but one of AGCO’s major production facilities are currently operational. The ability to maintain full-time production remains uncertain for the foreseeable future due to potential supply chain constraints, workforce limitations, safety equipment availability and government restrictions. To date, AGCO’s regional production was impacted as follows:
- China production was suspended early in the first quarter; now producing near normal levels.
- All major European factories suspended production in late March through most of April, with production currently resumed with one exception; Suolahti Finland facility suspended production as of April 30 due to a supplier fire with restart date expected in June. Summer maintenance and vacation shutdown period are planning to be pulled forward to increase production capacity for the balance of the year.
- Primary South American factories production suspended during the majority of April with restart dates in late April.
- North American factory production maintained with no interruption. Capacities are limited in some cases due to workforce constraints.
“I am very proud of the considerable effort given by the AGCO team to secure components from our supply chain partners and to develop protocols for safe working conditions in order to support our customer’s requirements,” continued Richenhagen.
The COVID-19 pandemic is projected to have minimal impact on global crop production. Most farm operations, which generally have been deemed essential, are working at normal levels. Soybeans and other crops are being harvested in the Southern Hemisphere, fields are being planted in the Northern Hemisphere and farm equipment is being used intensively in most regions. However, the consumption of grain for food, fuel and livestock feed is being negatively impacted by the economic constraints caused by the pandemic. As a result, grain inventories are expected to increase in 2020, and soft commodity prices have trended significantly lower in the first quarter.
North American industry retail sales decreased in the first three months of 2020 compared to the same period in 2019. Sales of low horsepower tractors softened, while demand for high horsepower tractors was relatively stable. While the need to replace a relatively aged fleet remains, lower commodity prices and a cautious farmer sentiment are also influencing equipment demand. The recently announced $16 billion CV-19 Aid Package by the USDA for U.S. farmers and livestock producers could offset some of the impact of lower commodity prices. Industry retail sales in Western Europe decreased modestly in the first three months of 2020. Market demand was weakest in Spain and Italy but was mitigated by growth in Germany. Dry weather across much of Western Europe is negatively impacting the development of the winter wheat crop, limiting production estimates. Conversely, stronger grain export demand and supportive wheat prices project to favorable farm economics for Western European farmers. European dairy and livestock fundamentals are mixed. Milk prices have come under pressure as demand is being negatively impacted by the effects of the pandemic, while strong pork exports are supporting pork prices. Industry retail sales in South America decreased during the first three months of 2020, with most of the decline in markets outside of Brazil. While the benefit of a strong first crop in Brazil and Argentina as well as favorable exchange rates are supporting relatively positive economics, farmers are exhibiting a cautious approach to equipment purchases due to the current economic and political environment. Richenhagen added, “While the effects of the COVID-19 pandemic will impact demand in 2020, there are promising indicators that the agricultural equipment industry is relatively resilient. Although our production has been reduced in some geographic areas, we continue to aggressively support retail sales activity in our global markets.”
AGCO’s North American net sales increased 11.7% in the first three months of 2020 compared to the same period of 2019, excluding the negative impact of currency translation. Increased sales of high horsepower tractors, Precision Planting equipment and hay equipment accounted for most of the increase. Income from operations for the first three months of 2020 improved approximately $30.3 million compared to the same period in 2019. The benefit of higher sales and a richer mix of products, as well as cost control initiatives contributed most of the increase.
Net sales in the South American region increased 13.8% in the first three months of 2020 compared to the first three months of 2019, excluding the impact of unfavorable currency translation. Loss from operations in the first three months of 2020 was relatively flat compared to the same period in 2019. The South America results reflect low levels of industry demand and company production, as well as unfavorable cost impacts associated with newer product technology into our Brazilian factories.
AGCO’s Europe/Middle East net sales decreased 4.7% in the first three months of 2020 compared to the same period in 2019, excluding unfavorable currency translation impacts. Sales declines were driven primarily by lost production caused by the impacts from COVID-19 crisis. Income from operations dropped approximately $25.4 million for the first three months of 2020, compared to the same period in 2019, due to lower sales and production as well as the costs associated with factory closures.
Asia/Pacific/Africa net sales decreased 13.4%, excluding the negative impact of currency translation, in the first three months of 2020 compared to the same period in 2019. Sales were weakest in Africa and Asia. Income from operations reduced by approximately $4.7 million in the first three months of 2020, compared to the same period in 2019, due to lower sales and production.
Given the uncertainty caused by the COVID-19 pandemic, AGCO withdrew all guidance for its 2020 results on March 23, 2020. A considerable amount of uncertainty remains for the balance of 2020 relating to industry demand, production constraints and other impacts of the pandemic. AGCO’s focus is on employee safety, serving customers and operating as effectively as possible under these challenging conditions.