Agco warns of 'challenging year' in farm equipment

Agco warned of a "challenging year" ahead for agricultural equipment makers - forecasting volume declines in all major markets, and a stagnation in its own profits growth after a "solid" close to 2013.

The US-based group, owner of the Fendt and Massey Ferguson marques, revealed earnings up 36% at $139.3m in the October-to-December quarter, helped by a 5.8% rise to $2.86bn in revenues and a boost to margins from improved factory productivity.

Sales in Europe were particularly strong in the quarter, soaring 14.0%, helped by "favourable farm economics" in France and Germany, the European Union's top agricultural economies.

Earnings per share, at $1.40 for the quarter, came in narrowly ahead of the $1.34 that Wall Street had pencilled in.

Full year earnings, at $6.01 a share on revenues up 8.3% at $10.79bn, set company records on both scores.

'Demand to weaken'

However, Agco cautioned that growth would slow, or potentially stall, this year thanks to the decline in farm prosperity prompted by lower crop prices, which have fallen close to, or below, output costs in many major producing areas.

"In 2014, industry demand is expected to weaken due to lower commodity prices and reduced farm income," Martin Richenhagen, the Agco chief executive, said, echoing a warning last week from rival CNH, the maker of Case and New Holland equipment.

While long-term agricultural prosperity will be underpinned by increasing demand for crops, "2014 will be a challenging year for our industry", he said.

The group forecast declines of potentially 5% in industry sales volumes in North America, South America and Western Europe this year, representing, in the Americas, a sharp contrast to 2013.

Last year, tractor sales grew by 9% in North America and by nearly twice as much in South America, with combine volumes up 8% and 35% respectively.

Profit guidance

However, Agco would offset the impact of slower trade through "pricing benefits and market share improvements".

The group forecast sales of $10.8bn-11.0bn and earnings of about $6.00 per share, in line with last year's results, and contrasting with the growth seen in 2013.

The guidance was higher than the $10.5bn in sales, and $5.76 in earnings per share, that analysts have forecast.

Nonetheless, Agco shares eased 1.2% to $52.03 in early deals in New York.

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