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Agco shares tumble, as it stands by below-forecast earnings outlook

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Shares in Agco tumbled, far outpacing a broader share recovery, as the tractor maker stood by below-market forecasts for its earnings this year, based on relatively downbeat outlooks for industry sales.

 

Shares in the maker of Fendt and Massey Ferguson machinery plunged 6.5% in early deals in New York, before staging some recovery to stand at $66.88 after an hour of trading, a drop of 5.3%.

 

Even so, this was a marked underperformance compared with broader Wall Street shares, which stood down 0.8% as measured by the Dow Jones industrial average.

 

The share fall – which at its nadir took nearly to 10% the stock’s slump so far this week – followed the group’s release of results for the October-to-December quarter.

 

Besides showing underlying earnings per share, at $1.10, modestly short of the $1.13-per-share figure that investors had expected, the announcement restated a forecast for 2018 earnings of “approximately” $3.50 per share.

 

While up from the $3.02-per-share figure reported for 2017, Wall Street has pencilled in a $3.77-per-share result for this year.

 

Cyclical recovery

 

Martin Richenhagen, the Agco chief executive, said that in 2017 “global industry farm equipment demand started to recover following three years of strong declines”.

 

In 2018, “we are forecasting further earnings improvement as industry conditions trend positively from the lower end of the agricultural equipment cycle in key markets”.

 

However, some of its forecasts for regional tractor market growth came in shy of those last week from rival CNH Industrial, the make of Case and New Holland machinery.

 

In North America, for instance, Agco forecast a “relatively flat” tractor market this year, compared with a CNH forecast of growth of up to 5%.

 

Agco VS CNH

 

For western Europe too, Agco forecast a “relatively flat” tractor market in 2018, despite an expectation that “farmer sentiment [will] remain positive.

 

Farm income in the region, Agco’s biggest earner, “is expected to improve modestly driven primarily by better dairy economics and higher 2017 wheat production”, Mr Richenhagen said.

 

CNH forecast the European, African and Middle Eastern market overall growing by about 5% this year.

 

However, the rival ag manufacturers were in line on forecasts for South America, seeing market growth of 0-5%.

 

Agco noted that while in Argentina, industry demand had proven “robust” last year as “more supportive government policies continued to stimulate growth”, in Brazil, industry sales “slowed in the second half of 2017… as ongoing macroeconomic weakness continued to hurt farmer confidence”.

 

Dairy support

 

Agco’s own South American sales grew by 2.5% to $315.9m in the October-to-December period, behind the growth of 18.9% to $531.8m reported for North America.

 

However, in Europe and the Middle East, sales soared 26% to $1.43bn, helped by the recovery in milk prices.

 

“Recovery in the dairy sector provided support to retail sales and helped improve overall confidence in the region,” Mr Richenhagen said, adding that sales growth was “strongest in Germany, Italy and the UK”.

 

Nonetheless, industry equipment sales “remained below historic levels” in the key western European market.

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