AGCO Reports Fourth Quarter Results

DULUTH, Ga.–(BUSINESS WIRE)–#AGCOIR–AGCO, Your Agriculture Company (NYSE: AGCO), a worldwide manufacturer and distributor of agricultural equipment and solutions, reported net sales of approximately $2.5 billion for the fourth quarter of 2019, a decrease of approximately 3.0% compared to the fourth quarter of 2018. Reported net loss was $1.17 per share for the fourth quarter of 2019, and adjusted net income(3), excluding non-cash impairment charges, restructuring expenses and a tax gain, was $0.94 per share. These results compare to reported net income of $1.26 per share and adjusted net income, excluding restructuring expenses, debt retirement costs and a U.S. tax reform benefit, of $1.31 per share for the fourth quarter of 2018. Excluding unfavorable currency translation impacts of approximately 2.4%, net sales in the fourth quarter of 2019 decreased approximately 0.6% compared to the fourth quarter of 2018. During the fourth quarter of 2019, AGCO recorded non-cash goodwill and intangible asset impairment charges of approximately $176.6 million, or $2.33 per share, primarily related to the Company’s European grain and protein operations.

Net sales for the full year of 2019 were approximately $9.0 billion, which is a decrease of approximately 3.3% compared to 2018. Excluding unfavorable currency translation impacts of approximately 4.2%, net sales for the full year of 2019 increased approximately 0.8% compared to 2018. For the full year of 2019, reported net income was $1.63 per share, and adjusted net income(3), excluding non-cash impairment charges, restructuring expenses and certain tax charges and gains, was $4.44 per share. These results compare to reported net income of $3.58 per share and adjusted net income, excluding restructuring expenses, debt retirement costs and a U.S. tax reform benefit, of $3.89 per share for 2018.

Highlights

  • Reported fourth quarter regional sales results(1): Europe/Middle East (“EME”) 0.2%, North America 1.8%, South America (20.0)%, Asia/Pacific/Africa (“APA”) (13.3)%
  • Constant currency fourth quarter regional sales results(1)(2)(3): EME 3.0%, North America 1.6%, South America (14.6)%, APA (10.8)%
  • Fourth quarter adjusted earnings per share were negatively impacted by softer than anticipated market demand in EME, APA and South America; higher warranty expense; brand and product rationalization costs for grain and protein equipment and a higher effective tax rate
  • Warranty expense increased approximately $23 million compared to the fourth quarter of 2018 due primarily to field product improvement campaign costs to support new harvesting products
  • Grain and protein brand and product rationalization resulted in charges of approximately $7 million to reduce complexity and improve product offerings
  • Generated approximately $696 million in cash flow from operations and approximately $423 million in free cash flow(3) in 2019
  • Share repurchase program reduced outstanding shares by approximately 1.8 million during 2019
  • Full-year earnings forecast for 2020 remains in a range from $5.00 to $5.20 per share

(1)As compared to fourth quarter 2018.

(2)Excludes currency translation impact.

(3)See reconciliation of Non-GAAP measures in appendix.

“AGCO’s fourth quarter results reflect the impact of challenging market conditions, particularly in Europe and South America,” stated Martin Richenhagen, AGCO’s Chairman, President and Chief Executive Officer. “In addition, our results were impacted by higher than anticipated new product warranty costs as well as charges associated with brand and product rationalizations within our grain and protein business. Despite the lower sales, we made solid progress with our margin improvement efforts and delivered adjusted earnings growth and strong cash flow for the full year. We remain well-positioned to continue investing in premium technology, smart farming solutions and enhanced digital capabilities for our customers in order to improve our global market position. Looking forward to 2020, we are forecasting relatively flat global market demand with further earnings improvement driven by margin development actions targeted in the areas of pricing, purchasing, factory productivity and new product development. As we enter a new decade, I am confident in our industry and AGCO’s long-term strategies to deliver growth and improved returns.”

Market Update

 

 

Industry Unit Retail Sales

 

 

Tractors

 

Combines

Year ended December 31, 2019

 

Change from

Prior Year Period

 

Change from

Prior Year Period

North America(1)

 

(1)%

 

(6)%

South America

 

(16)%

 

(5)%

Western Europe(2)

 

(2)%

 

(18)%

(1) Excludes compact tractors.

(2) Based on Company estimates.

“A late harvest and lower crop production in North America were mostly offset by better production in Brazil and the European Union, keeping grain inventories relatively high and pressuring commodity prices during 2019,” continued Mr. Richenhagen. “Global industry retail sales of farm equipment in 2019 were lower across AGCO’s key markets with fourth quarter industry retail sales significantly lower than the prior year in both Europe and South America. For the full year, industry retail sales were down modestly in North America during 2019 due to a difficult growing season and concerns involving trade. The USDA is projecting 2020 farm income in the U.S. to remain challenged due to low commodity prices and uncertainty with Market Facilitation Program payments. We project North American industry tractor sales to be modestly down in 2020 compared to 2019. In Western Europe, industry demand trended progressively lower throughout 2019 due to the impact of lower wheat and milk prices and higher input costs for dairy producers. Industry sales declines across most of Western Europe were partially offset by growth in France, Finland and Spain. For 2020, EU farm income is expected to be down modestly driven primarily by lower milk prices, partially offset by more normal crop production. Based on these assumptions, we expect sentiment to remain weak and 2020 industry demand to continue to soften modestly across the European markets. Industry sales in Australia and New Zealand were down significantly in 2019 from 2018 levels to due drought conditions and will likely remain down in 2020. Fourth quarter industry retail sales in Brazil did not recover as we expected, resulting in a strong decline for the full year. Industry demand is expected to improve in Brazil in 2020. Brazilian farmers should benefit from a weaker Real and strong crop production, however, uncertainty around export demand and potential changes to the subsidized financing program are likely to temper farmer sentiment. Our long-term global view remains positive. Increasing demand for commodities, driven by the growing world population, rising emerging market protein consumption and biofuel use, are expected to support elevated farm income and healthy conditions in our industry.”

Regional Results

AGCO Regional Net Sales (in millions)

Three Months Ended December 31,

 

2019

 

2018

 

% change

from 2018

 

% change from

2018 due to

currency

translation(1)

 

% change

excluding

currency

translation

North America

 

$

540.5

 

 

$

531.2

 

 

1.8%

 

0.1%

 

1.6%

South America

 

220.9

 

 

276.2

 

 

(20.0)%

 

(5.4)%

 

(14.6)%

EME

 

1,515.3

 

 

1,511.7

 

 

0.2%

 

(2.7)%

 

3.0%

APA

 

236.9

 

 

273.1

 

 

(13.3)%

 

(2.5)%

 

(10.8)%

Total

 

$

2,513.6

 

 

$

2,592.2

 

 

(3.0)%

 

(2.4)%

 

(0.6)%

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2019

 

2018

 

% change

from 2018

 

% change from

2018 due to

currency

translation(1)

 

% change

excluding

currency

translation

North America

 

$

2,191.8

 

 

$

2,180.1

 

 

0.5%

 

(0.4)%

 

0.9%

South America

 

802.2

 

 

959.0

 

 

(16.4)%

 

(5.2)%

 

(11.1)%

EME

 

5,328.8

 

 

5,385.1

 

 

(1.0)%

 

(5.5)%

 

4.4%

APA

 

718.6

 

 

827.8

 

 

(13.2)%

 

(4.3)%

 

(8.9)%

Total

 

$

9,041.4

 

 

$

9,352.0

 

 

(3.3)%

 

(4.2)%

 

0.8%

(1) See Footnotes for additional disclosures

 

 

 

 

 

 

 

 

 

 

North America

Net sales in the North American region increased 0.9% for the full year of 2019 compared to 2018, excluding the negative impact of currency translation. Increased sales of compact tractors, combines and parts were mostly offset by lower sales of protein production equipment and utility tractors. Income from operations for the full year of 2019 improved approximately $18.5 million compared to 2018. The benefit of improved pricing and cost control initiatives contributed to operating margin improvement.

South America

AGCO’s South American net sales decreased 11.1% for the full year of 2019 compared to 2018, excluding the impact of unfavorable currency translation. The loss from operations increased approximately $29.3 million for the full year of 2019 compared to 2018. The South America results reflect low levels of industry demand and company production, as well as unfavorable cost impacts of newer product technology into our Brazilian factories.

Europe/Middle East

AGCO’s Europe/Middle East net sales increased 4.4% in the full year of 2019 compared to 2018, excluding unfavorable currency translation impacts. Sales growth in France, Germany and Italy was partially offset by declines in the United Kingdom and Eastern Europe. Income from operations increased approximately $37.1 million for the full year of 2019 compared to 2018, due to the benefit of higher sales and margin improvement resulting from pricing, improved factory productivity and a favorable sales mix.

Asia/Pacific/Africa

Asia/Pacific/Africa net sales decreased 8.9%, excluding the negative impact of currency translation, in the full year of 2019 compared to 2018. Lower sales in China, South East Asia and Africa accounted for most of the decline. Income from operations dropped approximately $6.2 million for the full year of 2019 compared to 2018, due to lower sales and production.

Outlook

AGCO’s net sales for 2020 are expected to reach approximately $9.2 billion reflecting improved sales volumes and positive pricing. Gross and operating margins are expected to improve from 2019 levels, reflecting the positive impact of pricing and cost reduction efforts. Based on these assumptions, 2020 earnings per share is targeted in a range from $5.00 to $5.20.

* * * * *

AGCO will host a conference call with respect to this earnings announcement at 10:00 a.m. Eastern Time on Thursday, February 6th. The Company will refer to slides on its conference call. Interested persons can access the conference call and slide presentation via AGCO’s website at www.agcocorp.com in the “Events” section on the “Company/Investors” page of our website. A replay of the conference call will be available approximately two hours after the conclusion of the conference call for twelve months following the call. A copy of this press release will be available on AGCO’s website for at least twelve months following the call.

* * * * *

Safe Harbor Statement

Statements that are not historical facts, including the projections of earnings per share, sales, industry demand, market conditions, commodity prices, currency translation, farm income levels, margin levels, investments in product and technology development, new product introductions, restructuring and other cost reduction initiatives, production volumes, tax rates and general economic conditions, are forward-looking and subject to risks that could cause actual results to differ materially from those suggested by the statements. The following are among the factors that could cause actual results to differ materially from the results discussed in or implied by the forward-looking statements.

  • Our financial results depend entirely upon the agricultural industry, and factors that adversely affect the agricultural industry generally, including declines in the general economy, adverse weather, tariffs, increases in farm input costs, lower commodity prices, lower farm income and changes in the availability of credit for our retail customers, will adversely affect us.
  • A majority of our sales and manufacturing take place outside the United States, and, many of our sales involve products that are manufactured in one country and sold in a different country, and as a result, we are exposed to risks related to foreign laws, taxes and tariffs, trade restrictions, economic conditions, labor supply and relations, political conditions and governmental policies. These risks may delay or reduce our realization of value from our international operations. Among these risks are the uncertain consequences of Brexit, Russian sanctions and tariffs imposed on exports to and imports from China.
  • Most retail sales of the products that we manufacture are financed, either by our joint ventures with Rabobank or by a bank or other private lender. Our joint ventures with Rabobank, which are controlled by Rabobank and are dependent upon Rabobank for financing as well, finance over 50% of the retail sales of our tractors and combines in the markets where the joint ventures operate. Any difficulty by Rabobank to continue to provide that financing, or any business decision by Rabobank as the controlling member not to fund the business or particular aspects of it (for example, a particular country or region), would require the joint ventures to find other sources of financing (which may be difficult to obtain), or us to find another source of retail financing for our customers, or our customers would be required to utilize other retail financing providers. As a result of the recent economic downturn, financing for capital equipment purchases generally has become more difficult in certain regions and in some cases, can be expensive to obtain. To the extent that financing is not available or available only at unattractive prices, our sales would be negatively impacted.
  • Both AGCO and our finance joint ventures have substantial accounts receivable from dealers and end customers, and we would be adversely impacted if the collectability of these receivables was not consistent with historical experience; this collectability is dependent upon the financial strength of the farm industry, which in turn is dependent upon the general economy and commodity prices, as well as several of the other factors listed in this section.
  • We have experienced substantial and sustained volatility with respect to currency exchange rate and interest rate changes, which can adversely affect our reported results of operations and the competitiveness of our products.
  • Our success depends on the introduction of new products, particularly engines that comply with emission requirements, which requires substantial expenditures.
  • Our production levels and capacity constraints at our facilities, including those resulting from plant expansions and systems upgrades at our manufacturing facilities, could adversely affect our results.
  • Our expansion plans in emerging markets, including establishing a greater manufacturing and marketing presence and growing our use of component suppliers, could entail significant risks.
  • Our business increasingly is subject to regulations relating to privacy and data protection, and if we violate any of those regulations or otherwise are the victim of a cyber attack, we could incur significant losses and liability.
  • We depend on suppliers for components, parts and raw materials for our products, and any failure by our suppliers to provide products as needed, or by us to promptly address supplier issues, will adversely impact our ability to timely and efficiently manufacture and sell products. It remains unclear, how, if at all, the recent outbreak of the coronavirus will impact the agricultural industry, our suppliers, or our global operations.
  • We are subject to raw material price fluctuations, which can adversely affect our manufacturing costs.
  • We face significant competition, and if we are unable to compete successfully against other agricultural equipment manufacturers, we would lose customers and our net sales and profitability would decline.
  • We have a substantial amount of indebtedness, and, as a result, we are subject to certain restrictive covenants and payment obligations that may adversely affect our ability to operate and expand our business.

Further information concerning these and other factors is included in AGCO’s filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2018 and subsequent Form 10-Qs. AGCO disclaims any obligation to update any forward-looking statements except as required by law.

* * * * *

About AGCO

AGCO (NYSE: AGCO) is a global leader in the design, manufacture and distribution of agricultural solutions and delivers high-tech solutions for farmers feeding the world through its full line of equipment and related services. AGCO products are sold through five core brands, Challenger®, Fendt®, GSI®, Massey Ferguson® and Valtra®, supported by Fuse® smart farming solutions. Founded in 1990 and headquartered in Duluth, Georgia, USA, AGCO had net sales of $9.0 billion in 2019. For more information, visit http://www.AGCOcorp.com. For company news, information and events, please follow us on Twitter: @AGCOCorp. For financial news on Twitter, please follow the hashtag #AGCOIR.

Please visit our website at www.agcocorp.com

 

AGCO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in millions)

 

 

December 31, 2019

 

December 31, 2018

ASSETS

 

 

 

Current Assets:

 

 

 

Cash and cash equivalents

$

432.8

 

 

$

326.1

 

Accounts and notes receivable, net

800.5

 

 

880.3

 

Inventories, net

2,078.7

 

 

1,908.7

 

Other current assets

417.1

 

 

422.3

 

Total current assets

3,729.1

 

 

3,537.4

 

Property, plant and equipment, net

1,416.3

 

 

1,373.1

 

Right-of-use lease assets

187.3

 

 

 

Investment in affiliates

380.2

 

 

400.0

 

Deferred tax assets

93.8

 

 

104.9

 

Other assets

153.0

 

 

142.4

 

Intangible assets, net

501.7

 

 

573.1

 

Goodwill

1,298.3

 

 

1,495.5

 

Total assets

$

7,759.7

 

 

$

7,626.4

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current Liabilities:

 

 

 

Current portion of long-term debt

$

2.9

 

 

$

72.6

 

Short-term borrowings

150.5

 

 

138.0

 

Accounts payable

914.8

 

 

865.9

 

Accrued expenses

1,654.2

 

 

1,522.4

 

Other current liabilities

162.1

 

 

167.8

 

Total current liabilities

2,884.5

 

 

2,766.7

 

Long-term debt, less current portion and debt issuance costs

1,191.8

 

 

1,275.3

 

Operating lease liabilities

148.6

 

 

 

Pension and postretirement health care benefits

232.1

 

 

223.2

 

Deferred tax liabilities

107.0

 

 

116.3

 

Other noncurrent liabilities

288.7

 

 

251.4

 

Total liabilities

4,852.7

 

 

4,632.9

 

 

 

 

 

Stockholders’ Equity:

 

 

 

AGCO Corporation stockholders’ equity:

 

 

 

Common stock

0.8

 

 

0.8

 

Additional paid-in capital

4.7

 

 

10.2

 

Retained earnings

4,443.5

 

 

4,477.3

 

Accumulated other comprehensive loss

(1,595.2

)

 

(1,555.4

)

Total AGCO Corporation stockholders’ equity

2,853.8

 

 

2,932.9

 

Noncontrolling interests

53.2

 

 

60.6

 

Total stockholders’ equity

2,907.0

 

 

2,993.5

 

Total liabilities and stockholders’ equity

$

7,759.7

 

 

$

7,626.4

 

 

See accompanying notes to condensed consolidated financial statements.

 
 

AGCO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in millions, except per share data)

 

 

Three Months Ended December 31,

 

2019

 

2018

Net sales

$

2,513.6

 

 

$

2,592.2

 

Cost of goods sold

2,000.1

 

 

2,053.5

 

Gross profit

513.5

 

 

538.7

 

Selling, general and administrative expenses

272.4

 

 

272.5

 

Engineering expenses

89.1

 

 

88.0

 

Impairment charges

176.6

 

 

 

Amortization of intangibles

15.5

 

 

15.5

 

Restructuring expenses

6.0

 

 

1.9

 

Bad debt expense

3.7

 

 

1.7

 

(Loss) income from operations

(49.8

)

 

159.1

 

Interest expense, net

4.0

 

 

15.3

 

Other expense, net

20.1

 

 

17.1

 

(Loss) income before income taxes and equity in net earnings of affiliates

(73.9

)

 

126.7

 

Income tax provision

25.0

 

 

37.1

 

(Loss) income before equity in net earnings of affiliates

(98.9

)

 

89.6

 

Equity in net earnings of affiliates

9.3

 

 

8.0

 

Net (loss) income

(89.6

)

 

97.6

 

Net loss attributable to noncontrolling interests

1.3

 

 

1.1

 

Net (loss) income attributable to AGCO Corporation and subsidiaries

$

(88.3

)

 

$

98.7

 

Net (loss) income per common share attributable to AGCO Corporation and subsidiaries:

 

 

Basic

$

(1.17

)

 

$

1.28

 

Diluted

$

(1.17

)

 

$

1.26

 

Cash dividends declared and paid per common share

$

0.16

 

 

$

0.15

 

Weighted average number of common and common equivalent shares outstanding:

 

 

 

Basic

75.6

 

 

77.4

 

Diluted

75.6

 

 

78.6

 

 

See accompanying notes to condensed consolidated financial statements.

 
 

AGCO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in millions, except per share data)

 

 

Years Ended December 31,

 

2019

 

2018

Net sales

$

9,041.4

 

 

$

9,352.0

 

Cost of goods sold

7,057.1

 

 

7,355.3

 

Gross profit

1,984.3

 

 

1,996.7

 

Selling, general and administrative expenses

1,040.3

 

 

1,069.4

 

Engineering expenses

343.4

 

 

355.2

 

Impairment charges

176.6

 

 

 

Amortization of intangibles

61.1

 

 

64.7

 

Restructuring expenses

9.0

 

 

12.0

 

Bad debt expense

5.8

 

 

6.4

 

Income from operations

348.1

 

 

489.0

 

Interest expense, net

19.9

 

 

53.8

 

Other expense, net

67.1

 

 

74.9

 

Income before income taxes and equity in net earnings of affiliates

261.1

 

 

360.3

 

Income tax provision

180.8

 

 

110.9

 

Income before equity in net earnings of affiliates

80.3

 

 

249.4

 

Equity in net earnings of affiliates

42.5

 

 

34.3

 

Net income

122.8

 

 

283.7

 

Net loss attributable to noncontrolling interests

2.4

 

 

1.8

 

Net income attributable to AGCO Corporation and subsidiaries

$

125.2

 

 

$

285.5

 

Net income per common share attributable to AGCO Corporation and subsidiaries:

 

 

 

Basic

$

1.64

 

 

$

3.62

 

Diluted

$

1.63

 

 

$

3.58

 

Cash dividends declared and paid per common share

$

0.63

 

 

$

0.60

 

Weighted average number of common and common equivalent shares outstanding:

 

 

 

Basic

76.2

 

 

78.8

 

Diluted

77.0

 

 

79.7

 

 

See accompanying notes to condensed consolidated financial statements.

 
 

AGCO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in millions)

 

 

Years Ended December 31,

 

2019

 

2018

Cash flows from operating activities:

 

 

 

Net income

$

122.8

 

 

$

283.7

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation

210.9

 

 

225.2

 

Impairment charges

176.6

 

 

 

Amortization of intangibles

61.1

 

 

64.7

 

Stock compensation expense

41.3

 

 

46.3

 

Equity in net earnings of affiliates, net of cash received

 

 

(3.2

)

Deferred income tax provision (benefit)

15.1

 

 

(14.7

)

Loss on extinguishment of debt

 

 

24.5

 

Other

6.9

 

 

2.6

 

Changes in operating assets and liabilities:

 

 

 

Accounts and notes receivable, net

63.8

 

 

63.3

 

Inventories, net

(216.3

)

 

(214.3

)

Other current and noncurrent assets

(14.4

)

 

(85.6

)

Accounts payable

35.7

 

 

(24.3

)

Accrued expenses

114.5

 

 

161.3

 

Other current and noncurrent liabilities

77.9

 

 

66.4

 

Total adjustments

573.1

 

 

312.2

 

Net cash provided by operating activities

695.9

 

 

595.9

 

Cash flows from investing activities:

 

 

 

Purchases of property, plant and equipment

(273.4

)

 

(203.3

)

Proceeds from sale of property, plant and equipment

4.9

 

 

3.2

 

Investment in unconsolidated affiliates

(3.1

)

 

(5.8

)

Other

 

 

0.4

 

Net cash used in investing activities

(271.6

)

 

(205.5

)

Cash flows from financing activities:

 

 

 

Repayments of indebtedness, net

(108.4

)

 

(176.1

)

Purchases and retirement of common stock

(130.0

)

 

(184.3

)

Payment of dividends to stockholders

(48.0

)

 

(47.1

)

Payment of minimum tax withholdings on stock compensation

(28.1

)

 

(4.0

)

Payment of debt issuance costs

(0.5

)

 

(2.7

)

Investments by noncontrolling interests, net

1.6

 

 

0.9

 

Net cash used in financing activities

(313.4

)

 

(413.3

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(4.2

)

 

(18.7

)

Increase (decrease) in cash, cash equivalents and restricted cash

106.7

 

 

(41.6

)

Cash, cash equivalents and restricted cash, beginning of year

326.1

 

 

367.7

 

Cash, cash equivalents and restricted cash, end of year

$

432.8

 

 

$

326.1

 

 

See accompanying notes to condensed consolidated financial statements.

 

Contacts

Greg Peterson

Vice President, Investor Relations

770-232-8229

greg.peterson@agcocorp.com

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