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Tractor makers set for tougher times, Agco warns

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Agco has warned of a drop in earnings of up to 27% this year as tight credit conditions and choppy economic conditions sap farm equipment spending.

The US machinery maker, which owns the Massey Ferguson, Fendt and Valtra brands, beat Wall Street forecasts by reporting 2008 earnings up 62% at $400m, equivalent to $4.09 per share.

However, Agco forecast that earnings would fall to $3.00-3.25 a share in 2009 as farmers as the credit crunch and "significant uncertainty" prompted by commodity market volatility took their toll. Group sales would fall to $7.0bn-7.5bn, including a currency hit of $800m-900m, after rising 23% to $8.42bn last year.

"The farm equipment industry is not immune to the global economic downturn," Martin Richenhagen, the Agco chairman and chief executive, said. "Tighter financial and credit conditions are expected to negatively impact demand."

The Eastern European, Russian and South American markets, where credit was particularly tight, were likely to show the greatest declines. In South America, much of which has also been hit by drought, the decline had already set in, with combine sales falling 6% in the October-to-December quarter, compared with the same period a year before.

Agco forecast sales would "decline moderately" in its core North American market, with sales of small tractors, favoured by non-farm users such as homebuilders, particularly hit.

"The outlook for the 2009 farm equipment industry reflects significant uncertainty and softening demand in all major farm equipment markets," the group said.

The group credited demand for US commercial farmers for helping keep group sales stable at $2.16bn in the fourth quarter despite the impact of the strong dollar on the value of foreign revenues. Excluding exchange rate differences, revenues rose 12.0% year on year, Agco said.

Earnings were, at $102.0m, 26% higher than a year before.

Agco shares stood $1.16, or 4.6%, lower at $23.88 in afternoon trade in New York.

By Agrimoney.com

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