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|Agco 'optimistic' despite drop in profits
By Agrimoney.com - Published 05/02/2013
Agco said it was "optimistic" about its prospects despite a 64% slump in earnings, blamed on a higher tax rate, factory start-up costs in Germany and a \$22.4m writedown at China operations.
The maker of Fendt and Massey Ferguson farm machinery said that elevated crop prices this year would "support healthy farm income and sustain stable equipment demand", enabling it to lift its revenues to \$1.02bn-10.4bn, from \$9.96bn in 2012.
While earnings per share would show little, if any growth, coming in at \$5.10-5.35, compared with last year's \$5.30-a-share result, this factored in an uplift of \$0.40-a-share in tax payments, following the recognition of deferred tax benefits in the US.
Wall Street had pencilled in a \$5.54-a-share result excluding the extra tax payment.
"We remain optimistic about Agco's ability to take advantage of the positive long-term demand drivers for our industry," Martin Richenhagen, the group's chairman and chief executive, said.
"We continue to have a positive long-term outlook for our industry and for Agco," he added, citing the company's decision from next month to start paying dividends.
The group's priorities for 2013 include devoting "significant resources to enhance our presence" in developing countries including China, despite swallowing a \$22.4m writedown in the value of its harvesting business there.
While failing to divulge details of the writedown, Agco said that an analysis of the business "concluded that the goodwill and certain other intangible assets were impaired".
The Chinese operations had, thanks to "increased market development costs", dragged profits in the group's Asia division down 95% to \$400,000, despite a 49% jump to \$132.7m in sales in the region.
Profits in the Europe, Africa and Middle East unit – the group's biggest division - also fell, by 39% to \$87.4m, thanks to start-up costs at a Fendt tractor factory in Germany, besides some setbacks in countries hit by poor climatic or economic conditions.
"A mixed weather pattern is partially offsetting attractive crop prices in Europe," Mr Richenhagen said.
"Industry sales remain soft in the weather impacted markets of Southern Europe, Scandinavia and Finland."
However, profits in North America rose 27% to \$54.0m, as farm insurance payouts and high crop prices made up to the hit to arable farm profits from drought-hit yields, although last year's poor harvest has undermined takings in silo operations.
"We are experiencing softness in demand for grain storage and protein production equipment as a result of lower crop production volumes."
In South America, profits soared 40% to \$51.0m, boosted by higher sales and margins.
"Industry demand in South America increased during the second half of 2012," Mr Richenhagen said.
"Improved crop yields, attractive government financing programmes in Brazil and favourable grain prices all supported farm equipment industry sales."
Excluding one-off items, earnings per share for the latest quarter, reached \$0.99, down nonetheless on the \$1.44 a share achieved a year before, but narrowly ahead of Wall Street estimates.
Agco shares closed 1.9% higher at \$53.54 in New York.
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