AGCO, Your Agriculture Company (NYSE:AGCO), a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $2.8 billion for the second quarter of 2014, a decrease of approximately 9.8% compared to net sales of approximately $3.0 billion for the second quarter of 2013. Net income for the second quarter of 2014 was $1.77 per share. This result compares to net income of $2.15 per share for the second quarter of 2013. Excluding favorable currency translation impacts of approximately 0.3%, net sales in the second quarter of 2014 decreased approximately 10.1% compared to the second quarter of 2013.

Net sales for the first six months of 2014 were approximately $5.1 billion, a decrease of approximately 6.7% compared to the same period in 2013. Excluding the unfavorable impact of currency translation of approximately 0.7%, net sales for the first six months of 2014 decreased approximately 6.0% compared to the same period in 2013. For the first six months of 2014, net income was $2.79 per share. This result compares to net income of $3.34 per share for the first six months of 2013.

Second Quarter Highlights

• Regional sales results⁽¹⁾: North America -12.2%, Europe/Africa/ Middle East (“EAME”) -8.6%, South America -10.7%, Asia/Pacific (“APAC”) -13.3%
• Regional operating margin performance: EAME 12.4%, North America 13.9%, South America 6.8%, APAC -3.2%
• Full year earnings per share guidance reduced to approximately $5.00
• Share repurchase program reduces outstanding shares by 4.2 million during 1H 2014

⁽¹⁾Excludes currency translation impact.

"In the second quarter, AGCO faced more challenging market conditions which resulted in a sales decline of about 10%," stated Martin Richenhagen, AGCO’s Chairman, President and Chief Executive Officer. "Falling commodity prices negatively impacted farmer sentiment, and demand for agricultural equipment softened across end markets in North America and Europe while remaining weak in South America. Despite the difficult operating environment, our increased emphasis on new products with advanced technologies has been well received by our customers, and our retail market performance continues to be positive. AGCO experienced weakening order trends throughout the second quarter, and in response, the Company took aggressive actions to cut production, manage inventory levels, reduce operating expenses and generate cash flow. We will maintain these priorities during the third and fourth quarters.”

Market Update

Industry Unit Retail Sales

“The outlook for crop production has improved dramatically during the second quarter,” stated Mr. Richenhagen. "Warm dry weather across the U.S. allowed farmers to complete their planting and be in position for attractive yields. Favorable growing conditions in most of Western Europe are resulting in forecasts for improved 2014 harvests. The potential for near record crops in North and South America as well as Europe is producing higher estimates for end of year grain inventories and is driving down soft commodity prices. With prospects for lower farm income impacting farmer sentiment, we are experiencing softer industry equipment demand in all major markets. Industry demand in North America has weakened with declines in sales of high-horsepower tractors, combines and sprayers, partially offset by growth in the lower-horsepower categories due to improved conditions in the region's dairy and livestock sectors. Retail sales of farm equipment remains mixed across Western Europe, with weakness in demand from the arable farming sector. Industry sales have remained soft in France and weakened in Germany while modest recovery was experienced in the United Kingdom. Delays with government financing programs and weak demand from sugar producers negatively impacted industry sales in Brazil. Our long-term view remains optimistic as the growing population, increasing emerging market protein consumption and biofuels use are expected to positively support grain demand and healthy growth in our industry."

Regional Results

AGCO Regional Net Sales (in millions)

North America

AGCO’s North American sales declined 4.5% in the first half of 2014 compared to the first half of 2013, excluding the impact of unfavorable currency translation. The most significant decreases were in high-horsepower tractors and implements with growth in small tractor sales partially offsetting the declines. Lower sales, a weaker sales mix and lower production volumes contributed to a decline in income from operations of $42.7 million for the first six months of 2014 compared to the same period in 2013.

South America

South American net sales decreased 10.1% in the first six months of 2014 compared to the first six months of 2013, excluding the negative impact of currency translation. Lower sales in Brazil produced most of the decrease. Income from operations decreased $50.2 million for the first half of 2014 compared to the same period in 2013 due to lower sales and production volumes as well as increased expenditures on engineering.

EAME

Net sales, excluding favorable currency translation impacts, decreased 4.5% in AGCO’s EAME region in the first half of 2014 compared to the same period in 2013 due to softer market conditions. Sales declines in France, Germany and Austria were partially offset by growth in Africa and Turkey. EAME operating income increased $4.4 million in the first six months of 2014 compared to the same period in 2013. Improved factory productivity and the benefit of cost reduction initiatives were partially offset by the negative impact of lower sales and production levels.

Asia/Pacific

Excluding the negative impact of currency translation, net sales in the Asia/Pacific region declined 14.9% in the first six months of 2014 compared to the same period of 2013. Income from operations in the Asia/Pacific region declined $9.3 million in the first half of 2014, compared to the same period in 2013, due to lower sales and increased market development costs in China.

Outlook

Global industry demand is softening compared to 2013 and declines are anticipated across all major global agricultural markets, particularly in the professional producer segment. AGCO is targeting earnings per share of approximately $5.00 for the full year of 2014. Net sales are expected to range from $10.1 billion to $10.3 billion. The negative impact of lower sales and production volumes on gross margins, increased engineering expenditures to meet Tier 4 final emission requirements and market development expenses are expected to be partially offset by improved productivity and cost reduction initiatives.

“We are balancing near-term cost reductions with continued investment in longer-term growth initiatives,” continued Richenhagen. "We remain positioned to focus on operational improvements and additional investment in new products. The short-term cost reduction actions and production cuts should see us through the current market softness, while our strategic investments should position us for profitable growth as market conditions improve.”

Source: AGCO Corp.