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Agco raises hopes for South America's troubled machinery market

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Agco raised hopes that the slump in South American tractor market had passed its worst as the maker of Massey Ferguson and Fendt tractors unveiled a smaller drop in earnings than investors had expected.

The group, citing political developments in both Brazil and Argentina, reduced to 10-15%, from 15-20%, its forecast for the drop in industry tractor sales in South America this year, from the 52,000 vehicles shifted in 2015.

Indeed, in Brazil, "the improving political landscape" contributed in the July-to-September quarter "to industry growth from last year's depressed levels", said Agco chairman and chief executive Martin Richenhagen, who in February warned that government corruption in the country was hurting businesses.

Brazil, where former president Dilma Rousseff has been impeached, last week cut its interest rates for the first time in four years, as signs of easing inflation allowed the central bank to raise efforts to pull the country from recession.

Meanwhile, in Argentina, where Mauricio Macri's more market friendly government took office last year, "more supportive government policies in Argentina have contributed to higher sales in that market", Mr Richenhagen said.

Ahead of forecasts

Agco's own sales in South America rose 13.1% to $261.8m in the July-to-September quarter - a sharp contrast to the 34% tumble recorded in the first six months of 2016.

The increase helped Agco report a 1.5% rise to $1.76bn in sales for the period – well ahead of the $1.65bn figure that investors had expected.

While earnings fell by 40% to $40.0m, at the equivalent of $0.51 per share, in underlying terms, that was also well ahead of the $0.36 per share that analysts had expected.

'Demand remains weak'

Nonetheless, Mr Richenhagen, citing the pressure on farm incomes from weak crop prices, cautioned over farm equipment industry prospects, despite the signs that the South American downturn may have passed its nadir.

"Growing global demand for grain is being satisfied by peak production and grain inventories are forecasted to grow during 2016, further pressuring commodity prices and farmer income levels," he said.

"Facing these conditions, industry demand remains weak across all the major markets."

The group added: "Lower global demand for farm equipment is expected to continue to negatively impact Agco's sales and earnings in 2016."

The company stood by expectations of full-year sales reaching $7.2bn, and of reported earnings per share coming in at $1.85.

Agco shares stood 0.1% higher at $51.75 in lunchtime deals in New York.

By Tanya Ashreena and Mike Verdin

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