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Ag machinery market 'stabilising', says Agco, as it lifts profit hopes

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Agco raised its hopes for full-year earnings as it unveiled a better-than-expected start to 2017, helped by "signs of stabilisation" in the global ag machinery market, with the South American market flying.

The maker of Massey Ferguson and Fendt equipment raised by $0.20 to $2.70 its forecast for full-year earnings per share, ahead too of the $2.50 a share that analysts have pencilled in.

The improvement reflected, besides expectations of smaller headwinds from currency moves and tax payments, an expectation that full-year sales would now grow this year, reaching $7.7bn.

While remaining well below the company record of $10.8bn set in 2013 - before a succession of strong harvests depressed crop values and farm incomes, with knock-on effects for agricultural suppliers – that was $300m above the previous forecast.

'Weak but stabilising demand'

The upgrade came as the group reported better-than-expected results for the first three months of the year, for which Agco reported an underlying loss of $0.02 per share, compared with market expectations of a $0.17-a-share figure.

"Our results reflect the weak but stabilising global demand for agricultural equipment," said Martin Richenhagen, the Agco chairman chief executive.

While acknowledging that "higher grain inventories are pressuring commodity prices, and estimates call for 2017 farm income below 2016 levels", he said that "industry demand remains near trough levels but is showing some signs of stabilisation".

In Europe, while industry sales in France saw a "significant" drop in sales from levels elevated a year ago by a tax perk, "growth in the UK and Germany offset most of the decline", Mr Richenhagen said.

And while the North American market continued to show "weakness in sales" of equipment to arable farmers, industry sales in South America "grew strongly from depressed levels last year.

'More supportive government policies'

Indeed, Agco which saw its own South American sales soar 54% to $222.2m in the January-to-March period, raised by 5 points to 15% its forecast for growth in the market over 2017.

"A more stable political environment in Brazil is contributing to equipment replacement in that market, and more supportive government policies in Argentina continue to stimulate industry sales," Mr Richenhagen said.

The comments echo those on Thursday from rival CNH Industrial, which reported a 67% surge in Latin American sales, and underlined a boost from government financial perks for farm machinery buyers.

"The financing packages are clear through June," said Richard Tobin, the CNH chief executive.

"There is enough noise in the marketplace that leads us to believe that packages it will be available in the second half of the year.

"It's just a question of what the rates is going to be on those packages and whether they are going to be skewed towards smaller customers or larger customers."

Europe upgrade

CNH was upbeat on Europe too, ditching ideas of 5% declines in industry combine and tractor sales this year in the region, which is now expected to see flat markets for both segments.

"We're feeling a lot better about the European demand," MrTobin said.

"We see good demand in small tractors, particularly in the Southern European states. Germany has actually returned to growth during the month of March, which I've been -- what we expected to be a little bit weaker.

"The UK despite Brexit fears has actually been performing quite robustly.

"Really, the only market in Europe that's significantly negative is France."

By Mike Verdin

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