DULUTH, Ga., Apr 26, 2011 (BUSINESS WIRE) — AGCO (NYSE:AGCO) reported net sales of $1.8 billion for the first quarter of 2011, an increase of 35.3% compared to net sales of $1.3 billion for the first quarter of 2010. Reported and adjusted net income per share were $0.81 for the first quarter of 2011. These results compare to reported net income per share of $0.10 and adjusted net income per share, which excludes restructuring and other infrequent expenses, of $0.12 for the first quarter of 2010. Excluding favorable currency translation impacts of 3.3%, net sales in the first quarter of 2011 increased 32.1% compared to the same period in 2010.
Robust farm economics are stimulating markets in Western Europe and sustaining market strength in North and South America," stated Martin Richenhagen, Chairman, President and Chief Executive Officer. "AGCO capitalized on strong industry demand and delivered record first quarter sales and earnings. We demonstrated operational execution by raising production significantly, growing sales over 30%, and expanding margins. Margin expansion in the first quarter was led by the Europe/Africa/Middle East (EAME) and North American regions. EAME operating margins rebounded to nearly 9% driven by the strong European market recovery and North American operating margins improved 600 basis points over a year ago. First quarter 2010 operating margins were exceptionally low in both regions due to weak market conditions and the adverse impacts of our inventory reduction efforts."
"Industry fundamentals improved over the last quarter, and our 2011 sales and earnings outlook has been increased," continued Mr. Richenhagen. "We will maintain our focus on improving profitability during 2011, while our important investments in new product development and market expansion will accelerate in the coming quarters, limiting our margin improvement. In 2011, we expect to increase both our engineering efforts and capital expenditures as we work to meet Tier 4 final emission requirements, refresh and expand our product line, improve our factory productivity in Germany and make investments in China and Russia."
All four geographic segments reported sales growth in the first quarter of 2011 compared to the first quarter of 2010. AGCO's EAME region reported a sales increase of approximately 50.7% in the first quarter of 2011 compared to the production-constrained first quarter of 2010, excluding favorable currency translation impacts. In the North American region, sales in the first quarter of 2011 improved 25.4% compared to the first quarter of 2010, excluding favorable currency translation impacts. Strong growth in tractors and combines highlighted the results. AGCO's South American region reported a sales increase of 1.4% in the first quarter of 2011 compared to the first quarter of 2010, excluding favorable currency translation impacts. Stronger industry demand in Argentina and other South American markets offset sales declines in Brazil.
Sales growth and improved gross margins contributed to higher income from operations for the first quarter of 2011 compared to the first quarter of 2010. Production increases in Europe and North America, and a richer product mix, partially offset by higher material costs, produced improved gross margins. The Company increased its investment in new product development in order to meet new emission standards, resulting in increased engineering expenses in the first quarter of 2011 compared to the same period last year.
In the first quarter of 2011, industry unit retail sales of tractors were up modestly compared to the same period in 2010, while industry retail sales of combines were up substantially. Higher commodity prices and the expectation of record farm income resulted in the strength in retail sales of tractors and combines. Improvement in the dairy and livestock sector contributed to higher industry unit retail sales of mid-range tractors and hay equipment, which both increased compared to 2010 levels.
Industry unit retail sales of tractors and combines in the first quarter of 2011 were relatively flat compared to the high levels in the same period in 2010. Growth in Argentina and other South American markets offset industry sales declines in Brazil in the first quarter of 2011 compared to record levels in the first quarter of 2010. Industry unit retail sales in Brazil declined, but remained strong due to attractive farm economics and supportive government financing rates that have been extended through the end of 2011.
Industry demand in Western Europe increased sharply during the first quarter of 2011 compared to the prior year period. Higher commodity prices and the prospect for higher farm income contributed to the growth in the first quarter of 2011 compared to weak industry unit retail sales in the comparable prior year period. The tractor sales growth was strongest in Germany, Finland, Scandinavia and France.
"The global demand for grain and protein is growing and inventories of grain have fallen to historically low levels on a stocks-to-use basis," stated Mr. Richenhagen. "The elevated soft commodity prices, resulting from tight supply, are providing positive support for farm income and for our industry. In Western Europe, industry conditions continued to recover throughout the first quarter and are well above the weak levels that existed in early 2010. Farm fundamentals are healthy and market demand remains strong in North and South America. We expect these conditions to remain positive throughout 2011."
Favorable farm economics and strong industry demand produced growth of 25.4% in North American sales in the first quarter of 2011 compared to the production- constrained level in the first quarter of 2010, excluding the impact of favorable currency translation. The most significant increases were in combines, implements and hay equipment. Higher sales, the benefit of increased production, and expense control initiatives all contributed to growth in income from operations of $20.0 million for the first quarter of 2011 compared to the same period in 2010.
AGCO's sales in South America were relatively flat compared to the first quarter of 2010 on a constant currency basis. Sales increases in Argentina and other South American markets were offset by lower sales in Brazil. Income from operations decreased a $9.4 million in the first quarter of 2011 compared to the same period in 2010 due primarily to a less favorable geographic sales mix and higher engineering and product introduction expenses.
Strengthening market conditions and the improved outlook for farm income in Western Europe resulted in robust sales growth in the EAME region compared to exceptionally low sales levels in the first quarter of 2010. Sales in the first quarter of 2010 were negatively impacted by weak market conditions and inventory reduction efforts. AGCO experienced the largest increases in Germany, France and the United Kingdom. Income from operations increased by $86.4 million in the first quarter of 2011 compared to the same period in 2010. Higher sales and production levels and a richer mix of products contributed to the improvement.
Rest of World
Net sales in AGCO's Rest of World segment increased by approximately 69.6% during the first quarter of 2011 compared to the prior year period, excluding the impact of currency translation. Growth in Eastern Europe and Russia compared to depressed 2010 levels produced most of the increase. Income from operations in the Rest of World region increased $4.6 million in the first quarter of 2011 compared to the same period in 2010.
Global industry sales are expected to grow in 2011 compared to 2010. Strong growth is expected in Western Europe and the CIS due to market recovery. Modest growth is projected for North America and healthy market conditions are expected to continue in South America.
AGCO is targeting adjusted earnings per share in a range from $3.50 to $3.75 for the full year of 2011. Net sales are expected to range from $8.3 billion to $8.5 billion. Gross margin improvement is expected to be offset by increased engineering and market expansion expenditures.