Agco cuts profit hopes as tractor demand 'softens'

Agco warned of "softening" demand for agricultural equipment worldwide as it cut its forecast for full-year results, despite a less severe drop in its performance in the latest quarter than investors had expected.

The farm equipment maker, whose brands include Fendt and Massey Ferguson, cut to $10.1bn-10.3bn, from $10.8bn-11.0bn, its forecast for full-year sales, implying the first decline in five years.

On 2014 profits, Agco cut its forecast by $1.00 per share to $5.00 per share, a four-year low, and below the $5.45 a share that Wall Street has pencilled in.

"Global industry demand is softening compared to 2013 and declines are anticipated across all major global agricultural markets, particularly in the professional producer segment," the group said.

'Softer demand'

Agco lowered expectations for all the major farm machinery markets, ditching last hopes of a flat North American market, and forecasting a slump of up to 20% in South America, where "weak demand from sugar producers", facing increasing financial pressures from low prices, has dented demand.

In Europe, industry tractor sales will fall by 5-10%, having "remained soft in France and weakened in Germany", with the decline in fortunes led by arable farmers.

Indeed, Martin Richenhagen, the Agco chief executive, stressed the impact of lower crop prices in undermining the agricultural equipment sector.

"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," Mr Richenhagen said.

"With prospects for lower farm income impacting farmer sentiment, we are experiencing softer industry equipment demand."

'Aggressive actions'

The downturn had prompted a 9.8% drop to $2.75bn in Agco sales in the April-to-June quarter, an acceleration from the 2.8% decline in the quarter before.

"Agco faced more challenging market conditions," Mr Richenhagen said, noting a "difficult operating environment" and "weakening order trends".

The group had taken "aggressive actions" to lower its production, manage its inventories and cut operating expenses during the period, he said.

"We will maintain these priorities during the third and fourth quarters."

Earnings in the April-to-June period fell by 21% to $168.2m, equivalent to $1.77 a share, a result a little above the $1.69 a share that Wall Street had expected.

Agco shares fell 2.2% to $1.145 in early deals in New York.

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