AGCO Reports First Quarter Results
Full-year Outlook Increased
AGCO, Your Agriculture Company (NYSE:AGCO), a worldwide manufacturer and distributor of agricultural equipment and solutions, reported net sales of approximately $2.0 billion for the first quarter of 2019, a decrease of approximately 0.6% compared to the first quarter of 2018. Reported net income was $0.84 per share for the first quarter of 2019, and adjusted net income, excluding restructuring expenses, was $0.86 per share. These results compare to a reported net income of $0.30 per share and adjusted net income, excluding restructuring expenses, of $0.35 per share for the first quarter of 2018. Excluding unfavorable currency translation impacts of approximately 7.1%, net sales in the first quarter of 2019 increased approximately 6.5% compared to the first quarter of 2018.
First Quarter Highlights
“Focused operational performance across our regional business units and supportive market conditions are driving sales and earnings growth,” stated Martin Richenhagen, AGCO’s Chairman, President and Chief Executive Officer. “AGCO’s first quarter results demonstrated solid progress towards our margin improvement goals for 2019. Led by our Europe/Middle East region, AGCO’s first quarter 2019 adjusted operating margins improved over 190 basis points compared to the first quarter of 2018. Our margin expansion resulted from organic sales growth, an improved pricing environment and initiatives aimed at lowering material costs and improving productivity. We have raised our outlook for the full year to reflect our confidence in our continued strong performance and in the market recovery.”
Industry Unit Retail Sales
“Farm economics remained challenged across many of the major crop-producing regions and global trade tensions continue to weigh on farmer sentiment,” continued Mr. Richenhagen. “Global farm equipment demand continues on a slow recovery path following an extended period of decline. Planting across much of the U.S. farm belt is delayed due to cold, wet weather and flooding in portions of the Midwest. Farmer concerns over the lingering trade disputes with China and the resulting increase in soybean inventories has curtailed replacement demand from row crop farmers. North American industry retail sales decreased in the first three months of 2019 compared to the same period in 2018. We expect North American industry retail tractor sales to increase modestly in 2019 with improved retail sales in the row crop segment and flat retail sales of small tractors compared to last year. Relatively warm weather across much of Europe has been positive for the development of the winter wheat crop. Milk prices remain supportive of the dairy sector in Western Europe. Industry retail sales in Western Europe increased modestly in the first three months of 2019, following a year of mixed results in 2018 for the arable farming segment. Industry sales growth in France and Germany was partially offset by declines in the United Kingdom and Italy. For the full year of 2019, industry demand in Western Europe is expected to be flat compared to 2018. Industry retail sales in South America decreased during the first three months of 2019. Industry sales declined significantly in Argentina in response to lower crop production and farm income in 2018 while industry demand in Brazil improved modestly. Grain production in South America is ahead of last year’s pace and industry demand is expected to increase modestly compared to 2018. Looking ahead, we are optimistic about the long-term outlook for the global agricultural equipment industry supported by healthy fundamentals for commodity prices and farm income.”
AGCO Regional Net Sales (in millions)
AGCO’s North American net sales decreased 0.6% in the first three months of 2019 compared to the same period of 2018, excluding the negative impact of currency translation. Lower sales of tractors and grain and protein production equipment were mostly offset by growth in the sales of application equipment as well as hay and forage equipment. Income from operations for the first three months of 2019 improved approximately $3.8 million compared to the same period in 2018. The benefit of improved pricing and sales mix contributed most of the increase.
Net sales in the South American region decreased 2.6% in the first three months of 2019 compared to the first three months of 2018, excluding the impact of unfavorable currency translation. Income from operations improved approximately $8.1 million in the first quarter compared to the same period in 2018. The South America results in the first quarter reflect seasonally low levels of industry demand and company production, as well as cost impacts associated with the transition of newer product technology into our Brazilian factories.
Europe/Middle East net sales increased 13.2% in the first three months of 2019 compared to the same period in 2018, excluding unfavorable currency translation impacts. Sales growth was strongest in France, the United Kingdom and Spain. Income from operations improved approximately $28.7 million for the first three months of 2019, compared to the same period in 2018, due to the benefit of higher sales and production, pricing and the timing of engineering costs compared to the prior year.
Net sales in AGCO’s Asia/Pacific/Africa region decreased 9.6%, excluding the negative impact of currency translation, in the first three months of 2019 compared to the same period in 2018. Lower sales in Asia and Australia produced most of the decrease. Income from operations declined approximately $1.3 million in the first three months of 2019, compared to the same period in 2018, due to lower sales levels.
Global industry demand is projected to improve modestly in 2019. AGCO’s net sales for 2019 are expected to reach approximately $9.5 billion reflecting improved sales volumes and positive pricing, offset by unfavorable foreign currency translation impacts. Gross and operating margins are expected to improve from 2018 levels, reflecting the positive impact of pricing and cost reduction efforts. Based on these assumptions, 2019 earnings per share are targeted at approximately $4.88 on a reported basis, or approximately $4.90 on an adjusted basis, which excludes restructuring expenses.
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AGCO will be hosting a conference call with respect to this earnings announcement at 10:00 a.m. Eastern Time on Thursday, May 2, 2019. 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.
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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.
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. AGCO disclaims any obligation to update any forward-looking statements except as required by law.
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 $9.4 billion in 2018. 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
1. STOCK COMPENSATION EXPENSE
The Company recorded stock compensation expense as follows:
2. RESTRUCTURING EXPENSES
From 2014 through 2019, the Company announced and initiated several actions to rationalize employee headcount at various manufacturing facilities and administrative offices located in Europe, South America, China and the United States in order to reduce costs in response to softening global market demand and lower production volumes. The aggregate headcount reduction was approximately 3,890 employees between 2014 and 2018. The Company had approximately $7.1 million of severance and related costs accrued as of December 31, 2018. During the three months ended March 31, 2019, the Company recorded an additional $1.7 million of severance and related costs associated with further rationalizations associated with the termination of approximately 30 employees, and paid approximately $2.6 million of severance and associated costs. The $1.7 million of costs incurred during the three months ended March 31, 2019 included a $0.3 million write-down of property, plant and equipment. The remaining $5.8 million of accrued severance and other related costs as of March 31, 2019, inclusive of approximately $ 0.1 million of negative foreign currency translation impacts, are expected to be paid primarily during 2019.
Long-term debt at March 31, 2019 and December 31, 2018 consisted of the following:
As of March 31, 2019 and December 31, 2018, the Company had short-term borrowings due within one year of approximately $181.5 million and $138.0 million, respectively.
Inventories at March 31, 2019 and December 31, 2018 were as follows:
5. ACCOUNTS RECEIVABLE SALES AGREEMENTS
The Company has accounts receivable sales agreements that permit the sale, on an ongoing basis, of a majority of its wholesale receivables in North America, Europe and Brazil to its U.S., Canadian, European and Brazilian finance joint ventures. As of both March 31, 2019 and December 31, 2018, the cash received from receivables sold under the U.S., Canadian, European and Brazilian accounts receivable sales agreements was approximately $1.4 billion.
Losses on sales of receivables associated with the accounts receivable financing facilities discussed above, reflected within “Other expense, net” in the Company’s Condensed Consolidated Statements of Operations, were approximately $8.7 million and $7.8 million, respectively, during the three months ended March 31, 2019 and 2018, respectively.
The Company’s finance joint ventures in Europe, Brazil and Australia also provide wholesale financing directly to the Company’s dealers. As of March 31, 2019 and December 31, 2018, these finance joint ventures had approximately $88.1 million and $82.5 million, respectively, of outstanding accounts receivable associated with these arrangements. In addition, the Company sells certain trade receivables under factoring arrangements to other financial institutions around the world.
6. NET INCOME PER SHARE
A reconciliation of net income attributable to AGCO Corporation and subsidiaries and weighted average common shares outstanding for purposes of calculating basic and diluted net income per share for the three months ended March 31, 2019 and 2018 is as follows:
7. SEGMENT REPORTING
The Company’s four reportable segments distribute a full range of agricultural equipment and related replacement parts. The Company evaluates segment performance primarily based on income from operations. Sales for each segment are based on the location of the third-party customer. The Company’s selling, general and administrative expenses and engineering expenses are charged to each segment based on the region and division where the expenses are incurred. As a result, the components of income from operations for one segment may not be comparable to another segment. Segment results for the three months ended March 31, 2019 and 2018 are as follows:
A reconciliation from the segment information to the consolidated balances for income from operations is set forth below:
RECONCILIATION OF NON-GAAP MEASURES
This earnings release discloses adjusted income from operations, adjusted net income and adjusted net income per share, each of which exclude amounts that are typically included in the most directly comparable measure calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). A reconciliation of each of those measures to the most directly comparable GAAP measure is included below.
The following is a reconciliation of reported income from operations, net income and net income per share to adjusted income from operations, net income and net income per share for the three months ended March 31, 2019 and 2018 (in millions, except per share data):
The following is a reconciliation of targeted net income per share to adjusted targeted net income per share for the year ended December 31, 2019:
The following tables set forth, for the three months ended March 31, 2019, the impact to net sales of currency translation by geographical segment (in millions, except percentages):
AGCO Reports First Quarter Results