Forecast & Trends

With their most recent earnings reports, each of the major farm equipment manufacturers easily surpassed analysts’ projections for revenues and raised their forecasts for the remainder of 2011. With the rising costs of materials and the additional outlays associated with Tier 4 interim engines, the equipment makers also expect to increase product pricing before the year is out.

Strong Markets. AGCO, CNH and Deere & Co. expect the recent strength of ag markets to continue through the remainder of the calendar year.

Analysts following the equipment makers agree with the manufacturers sentiments for continued strong markets.

JP Morgan analyst Ann Duignan recently said in a notethat she believes the ag equipment replacement cycle “still has legs.”

Henry Kirn of UBS Investment Research adds, “Given our channel checks’ increased visibility to improved ag equipment sales in 2011, we remain bullish on the farm equipment cycle.”

AGCO +35%. On April 26, AGCO reported its first-quarter sales rose by 35% year-over-year to $1.8 billion compared to the industry consensus of $1.6 billion. Revenue growth was driven by improvements in all regions, with EAME (+51% ex-F/X), North America (+25%), South America (+1%) and Rest of World (+70%). Segment operating margins improved to 7.5% as segment operating income of $135 million came in ahead of estimates.

AGCO now expects “strong growth” in 2011 industry sales in Western Europe and the CIS (was “flat or increase modestly”), “modest growth” in North America (was “flat”) and expects “healthy market conditions” to continue in South America (previously saw “a softening of demand”).

To offset rising raw material costs, AGCO is implementing further price increases of ~1-4%. Overall management expects price increases of 10-15% as the company rolls out new emissions-compliant equipment over the next few years.

CNH +17%. On April 21, CNH, parent company of Case IH and New Holland brands of farm machinery, reported that its equipment revenues rose by 17% year-over-year to $3.8 billion. Equipment operating margins improved 6.5% compared to the same period in 2010.

CNH continues to forecast global farm tractor markets to improve by as much as 5% and raised industry forecast for combines to +15-20% vs. +5-10% in its earlier outlook. CNH expects to recover $110-$125 million in higher commodity costs via increased pricing.

Deere & Co. +27%. On May 19, the company reported total equipment sales of $8.3 billion, which was up 27% year-over-year. Ag and turf sales increased by 24% and construction and forestry equipment sales were up 46%.

Deere now expects 21-23% FY11 sales growth vs. the +18-20% previously forecast. The company is looking for the increase to come on the back of a stronger European and North American retail sales of roughly $28.5-29 billion. This would boost Deere’s FY11 net income forecast by $250 million.

— Ag Equipment Intelligence