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Agco shares plunge as it warns that downturn 'will persist'

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Agco shares tumbled after the machinery giant warned that "difficult" markets, which have driven its South American division into the red, were to "persist through 2016", heralding a bigger profits drop than investors have forecast.

Shares in the maker of Fendt and Massey Ferguson equipment dropped more than 11% in morning deals in New York, wiping more than $400m from the group's stockmarket value, and underperforming a weak performance by Wall Street shares, which stood down 1.3%.

The slump followed the release of results which, while showing that the group's earnings had fallen in line with market expectations in the October-to-December quarter, "market difficulties" would drive a further drop profits in 2016 to the equivalent of $2.30 per share.

That is, besides being well below the $3.24 per share reported for 2015, beneath the $2.40 per share that investors have factored in.

'Difficult global industry conditions'

"Looking forward to 2016, market conditions are expected to remain challenging in key markets," said Martin Richenhagen, the Agco chief executive, flagging the dent to farmers' incomes from lower agricultural commodity prices.

"We expect difficult global industry conditions to persist through 2016, with farmers delaying purchases and industry inventory levels being managed down."

The group added, that "softer industry demand for farm equipment across all regions and the unfavourable effects of foreign currency translation are expected to negatively impact Agco's sales and earnings for 2016".

'Extremely low demand'

Agco was particularly downbeat over sector prospects in the Americas, seeing tractor sales volumes in North America, which "progressively declined throughout" 2015, falling by a further 10-15% this year.

In South America too, where "industry demand deteriorated significantly throughout" 2015, the tractor market will shrink by 10-15% in 2016 - although this represents an improvement on last year's 28% decline.

Indeed, sector sales in South America plunged by 40% in the October-to-December period, fuelled by weakness in Brazil – a bogey market for many agricultural suppliers, thanks to economic uncertainty and a weak currency which has sent prices of imported goods soaring.

"In Brazil, demand was extremely low due to weakness in the general economy, funding interruptions in the government financing programme and softness in the sugar sector," Mr Richenhagen said.

Regional breakdowns

Agco's South American division sank to a $4.4m loss in the October-to-December quarter, from a $39.8m profit a year before, on sales down 55% at $188.3m.

North American earnings tumbled by 77% to $7.0m, on revenues down 21% at $434.5m.

However, Europe, Agco's biggest division, a relatively small profits drop, of 1.1% to $132.7m, on revenues down 11.9% at $1.21bn.

"Industry retail demand declines from 2014 levels were less significant in Western Europe," Agco said.

Profits fall

Group earnings for the quarter were, at $62.1m, down 20% year on year.

Underlying earnings per share, at $0.80, were in line with market expectations of a $0.79-per-share figure, although sales, down 21% at $1.96bn, came in a little shy of the $2.03bn that investors had expected.

Agco shares stood 10.8% lower at $43.10 in midday deals.

By Agrimoney.com

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