AGCO, Your Agriculture Company, a worldwide manufacturer and distributor of agricultural equipment and solutions, reported its results for the second quarter ended June 30, 2022. Net sales for the second quarter were approximately $2.9 billion, an increase of approximately 2.3% compared to the second quarter of 2021. Excluding unfavorable currency translation impacts of approximately 7.5%, net sales in the second quarter of 2022 increased approximately 9.8% compared to the second quarter of 2021. Reported net income was $2.37 per share for the second quarter of 2022, and adjusted net income, which excludes restructuring expenses, was $2.38 per share. These results compare to reported net income of $3.73 per share and adjusted net income, which excludes restructuring expenses and the reversal of a valuation allowance previously established against the Company's deferred tax assets in the United States, of $2.88 per share for the second quarter of 2021.
Net sales for the first six months of 2022 were approximately $5.6 billion, an increase of approximately 7.1% compared to the same period in 2021. Excluding unfavorable currency translation impacts of approximately 6.4%, net sales for the first six months of 2022 increased approximately 13.5% compared to the same period in 2021. For the first six months of 2022, reported net income was $4.40 per share, and adjusted net income, excluding impairment changes, restructuring expenses and other related items, was $4.77 per share. These results compare to reported net income of $5.71 per share, and adjusted net income, excluding restructuring expenses and the aforementioned reversal of a valuation allowance of $4.89 per share, for the first six months of 2021.
Second Quarter Highlights
- Reported regional sales results: Europe/Middle East ("EME") (10.3%), North America +0.7%, South America +86.6%, Asia/Pacific/Africa ("APA") (5.5%).
- Constant currency regional sales results: EME +3.2%, North America +1.4%, South America +77.2%, APA +1.7%
- Regional operating margin performance: EME 11.0%, North America 6.9%, South America 16.5%, APA 14.1%
- Fully operational within approximately two weeks of May 2022 cyberattack
- Q2 production, sales and net income were negatively impacted
- Paid a variable special dividend of $4.50 per share as compared to $4 in 2021
- Maintained full-year outlook for adjusted earnings per share
"AGCO delivered solid results in the second quarter by remaining focused on our farmer-first strategy, while effectively managing the challenges associated with the cyberattack, currency headwinds and ongoing supply chain constraints," stated Eric Hansotia, AGCO's Chairman, President and CEO. "Our results reflect substantial price increases to combat rising material costs, higher logistics expenses, and other manufacturing inefficiencies. Farm fundamentals remain favorable and are supporting healthy order boards that remain ahead of last year's level. Our farmer-first approach and expanding precision ag portfolio are contributing to strong end-market demand and robust growth in our margin-rich businesses."
Mr. Hansotia continued, "Our teams's ability to execute and adapt to the challenging environment along with the robust market conditions gives us confidence in delivering our 2022 outlook, which includes record sales, margin expansion and record earnings. These results reinforce our plan to continue investing in our smart farming solutions and enhanced digital capabilities to support further growth and margin expansion."
"Healthy grain production is forecasted for the major agricultural production regions. Although crop prices have declined from record levels earlier in 2022, they remain supportive and are helping farmers offset inflationary pressures from higher fuel, fertilizer and other input costs. Farm income estimates remain elevated and are expected to extend the strong end-market demand," stated Mr. Hansotia.
Global industry production and retail sales were down modestly in the first 6 months of 2022 compared to last year's elevated levels due primarily to supply chain limitations. Industry retail sales in North America were down approximately 7% in the first half of 2022 compared to last year. The decline was driven by weaker sales in smaller tractors partially offset by improved sales of high horsepower tractors which increased approximately 6% in the first half of 2022 compared to the same period in 2021.
Western European industry retail tractors decreased approximately 10% in the first six months of 2022 compared to strong levels in the first half of 2021. Farmer sentiment has been negatively impacted by the conflict in Ukraine, as well as input cost inflation, but forecasts for healthy farm income in Western Europe are expected to support improved retail demand for equipment in the second half of 2022.
In South America, industry retail sales increased during the first six months of 2022 in both Brazil and Argentina compared to 2021 levels. Healthy crop production levels and favorable margins for the farmer are supporting investments to replace an aged fleet.
"While dependent on supply chain performance, we continue to expect strong demand in the second half to support full year 2022 industry retail sales that are expected to be above 2021 levels in North and South America and approximately flat in Western Europe," continued Mr. Hansotia.
AGCO's North American net sales grew 7.6% in the first six months in 2022 compared to the same time period of 2021, excluding the negative impact of currency translation. The increase resulted from the effects of pricing to mitigate inflationary cost pressures, along with increased sales of tractors. Income from operations for the first six months of 2022 decreased approximately $73.1 million compared to the same time period in 2021. First half 2022 operating income was negatively impacted by a weaker sales mix, material and logistics cost inflation, higher production costs and increased operating expenses, including the effects of the recent cyberattack.
Net sales in the South American region increased 60.8% in the first six months of 2022 compared to the same time period of 2021, excluding the impact of favorable currency translation. Sales grew strongly across all markets, driven by robust industry demand and favorable pricing impacts. Income from operations in the first six months of 2022 increased by approximately $92.3 million compared to the same period in 2021 and operating margins reached approximately 15%. The improved South America results reflect the benefit of higher sales and production, a favorable sales mix, and pricing that offset material cost inflation.
Europe/Middle East net sales increased 8.5% in the first six months of 2022 compared to the same period in 2021, excluding unfavorable currency translation. The improvement was driven by higher sales of tractors and replacement parts along with favorable pricing actions. Sales growth in France and Scandinavia was partially offset by significantly lower sales in Russia and Ukraine. Income from operations decreased approximately $22.3 million in the first six months of 2022, compared to the same period in 2021. The decline was the result of foreign currency translation, weaker sales mix, higher production costs as well as increased operating expenses, which were magnified by the recent cyberattack.
Net sales in Asia/Pacific/Africa increased 9%, excluding the negative impact of currency translation, in the first six months of 2022 compared to the same period in 2021. Higher sales in Australia, Japan and Africa were partially offset by lower sales in China. Income from operations improved approximately $17.1 million in the first six months of 2022 and operating margins expanded by approximately 3.5% compared to the same time period in 2021 due to higher sales and a richer sales mix.
The ability of the Company's supply chain to deliver parts and components on schedule is currently difficult to predict. The following outlook is based on AGCO's current estimates of component deliveries. AGCO's results will be impacted if the actual supply chain delivery performance differs from these estimates.
- Net sales for 2022 of $12.4 billion to $12.6 billion
- Gross and operating margins are projected to improve from 2021 levels, reflecting the impact of higher sales and production, volumes as well as favorable pricing to offset material and labor cost inflation
- Increased investments in engineering and other technology investments to support AGCO's precision ag and digital initiatives
- Full year adjusted earnings per share of $11.70 to $11.90