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Titan foresees tractor market 'uptick'. But Agco not so sure

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Titan International unveiled hopes of an "uptick" in North America's particularly difficult farm equipment market, even as Agco stuck by downbeat expectations, despite unveiling above-forecast result.

Both groups highlighted a two-tier tractor market in North America, with the knock-on effects of lower crop prices hurting sales of high horsepower tractors – down "significantly" according to Agco – while relatively resilient conditions in livestock markets have held up the market for smaller machines.

However, Titan International, which sells farm tyres under brands such as Goodyear, flagged optimism over a recovery even in trade in the larger equipment sector.

"The market for high horsepower tractors and combines continue to decline in North America, but in talking with equipment dealers, they have been moving used equipment and look forward to an uptick this fall," said Maurice Taylor, the Titan chairman and chief executive.

"I believe the agriculture market is at or near the bottom."

'Challenging backdrop'

The comments contrasted with a more cautious outlook from Agco, which stuck by expectations of a 10-15% decline in North America's overall tractor market in 2016, after 10% shrinkage in the first half of the year, noting pressure on crop values from larger inventories.

Agco's forecast for the North American market is also more downbeat than that of rival CNH Industrial, the maker of Case and New Holland equipment, which last week forecast shrinkage of 5% this year.

"After a brief weather-related run up in the second quarter, commodity prices have fallen below last year's levels," said Martin Richenhagen, the chairman and chief executive of Agco, which owns marques including Fendt and Massey Ferguson.

"The USDA is estimating grain inventories will grow during 2016, further pressuring commodity prices."

'Industry demand remains weak'

Mr Richenhagen added: "Against this challenging backdrop, industry demand remains weak across all the major markets," with the group sticking by expectations of a 15-20% slide in the South American tractor market this year, although western Europe will see shrinkage of at most 5%.

However, the comments came as the group unveiled earnings for the April-to-June quarter which, while down 53% at $49.4m, beat market expectations, once one-time items were removed.

The earnings came in at the equivalent of $1.02 per share on an underlying basis, compared with the $0.92 per share that Wall Street had forecast.

Agco also nudged higher by $200m, to $7.2bn, its forecast for full-year sales, although kept its estimate for 2016 earnings per share at $2.30, flagging a "weaker sales mix" - that is a greater emphasis on lower-margin products.

France vs Germany, Argentine vs Brazil

Agco's sales in the April-to-June quarter eased by 3.6% to $2.00bn, with rises in takings in the important European market, and in Asia, offsetting much of a decline in North American and South American revenues.

In Europe, by far Agco's biggest market, higher sales in France, helped by a tax break on equipment purchases which has been extended to the end of 2016, as well as in Scandinavia more than offset a weakness in the Germany.

South America saw a particular decline in sales, of 27% to $203.4m, although this was half down to currency movements, and disguised some recovery in Argentina, helped by the improved agribusiness environment fostered by the country's new government.

"Reduced industry sales in South America were the result of lower demand in Brazil due to political and economic uncertainty that continues to impact farmer confidence," Mr Richenhagen said.

"More supportive government policies in Argentina have contributed to higher sales in that market."

Into the red

Titan International, meanwhile, reported a net loss of $3.8m for the April-to-June period, compared with earnings of $9.4m a year before, on sales down 12% at $330.2m.

The group reported "flat" volumes in agriculture, and some improvement in construction and consumer tyre markets, but with dents to trade from currency effects and a move by buyers to lower margin products.

Titan's quarterly loss equated to $0.04 per share, excluding one-time effects, in line with market expectations.

Titan International shares soared 8.3% to $7.44 in New York, where Agco shares stood 1.3% higher at $49.43.

By Mike Verdin

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