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Brazil bump hurts Agco results, sending shares lower

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Shares in Agco dropped after the machinery maker, citing “challenging market conditions”, unveiled worse-than-expected results and a weaker 2020 outlook than investors have factored in too.

 

Shares in the US-based group, the maker of equipment under marques such as Fendt and Massey Ferguson, tumbled by 6.1% to a five-month low of $68.77 in early trading in New York, before paring losses to stand at $70.55m a drop of 3.8% on the day.

 

The decline followed the group’s unveiling of a loss of $88.3m for the October-to-December period, compared with earnings of $98.7m a year before, on revenues down 3.0% at $2.51bn.

 

Excluding one-time effects this was equivalent to earnings of $0.94 per share - down from $1.31 per share a year before, and below a $1.55-per-share figure that Wall Street had expected.

 

‘Remain challenged’

For 2020, Agco forecast earnings of $5.00-5.30 per share, on revenues of “approximately” $9.2bn.

 

While representing improvements year on year – with the group reported full-2019 earnings of $4.44 per share on revenues of $9.04bn - the guidance was a little shy of the figures of $5.30 per share and $9.28bn that analysts have pencilled in.

 

The forecast factored in expectations of declines of up to 5% in 2020 industry tractor sales in both North America, reflecting official forecasts that US farmer income will “remain challenged due to low commodity prices”, and in the group’s key western European market.

 

In Europe, “we expect sentiment to remain weak and 2020 industry demand to continue to soften”, Agco chief executive Martin Richenhagen said, adding that “European Union farm income is expected to be down modestly driven primarily by lower milk prices, partially offset by more normal crop production”.

 

‘Demand expected to improve’

In Oceania, industry sales will “likely remain down in 2020”, after being depressed last year by drought in Australia, although the group forecast expansion of up to 5% in the South American tractor market.

 

“Industry demand is expected to improve in Brazil in 2020,” Mr Richenhagen said.

 

“Brazilian farmers should benefit from a weaker real and strong crop production,” he said, although adding that “uncertainty around export demand and potential changes to the subsidised financing programme are likely to temper farmer sentiment”.

 

‘Challenging market conditions’

The brighter South America outlook follows a soft finish to 2019, with Agco reporting a loss of $18.2m from the region for the October-to-December period – compared with income of $10.6m a year before – on sales down 20% at $220.9m.

 

“Fourth quarter industry retail sales in Brazil did not recover as we expected,” Mr Richenhagen said, with costs of upgrading Brazilian factories for new products also undermining profitability.

 

Indeed, the group’s overall four quarter results “reflect the impact of challenging market conditions, particularly in Europe and South America”, he said.

 

However, he also noted that “despite the lower sales, we made solid progress with our margin improvement efforts.

 

“We remain well-positioned to continue investing in premium technology, smart farming solutions and enhanced digital capabilities for our customers in order to improve our global market position.”

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