AGCo Sales up 5.8%, Net Income up 59%
Thursday, February 10th, 2011
AGCO, Your Agriculture Company (NYSE:AGCO), a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $2.2 billion for the fourth quarter of 2010, an increase of 18.7% compared to the fourth quarter of 2009. Reported net income was $0.87 per share, and adjusted net income, excluding restructuring and other infrequent expenses, was $0.88 per share.
These results compare to reported net income of $0.35 per share and adjusted net income, excluding restructuring and other infrequent expenses, of $0.42 per share for the fourth quarter of 2009. Excluding unfavorable currency translation impacts of approximately 4.5%, net sales in the fourth quarter of 2010 increased 23.2% compared to the same period in 2009.
Net sales for the full year of 2010 were approximately $6.9 billion, an increase of approximately 5.8% compared to the full year of 2009. Excluding the favorable impact of currency translation of approximately 0.3%, net sales for the full year of 2010 increased approximately 5.6% compared to 2009. For the full year of 2010, reported net income was $2.29 per share and adjusted net income, excluding restructuring and other infrequent expenses, was $2.32 per share. These results compare to reported net income of $1.44 per share and adjusted net income, excluding restructuring and other infrequent expenses, of $1.55 per share for the full year of 2009.
"AGCO finished 2010 with a robust fourth quarter performance highlighted by strong sales growth and margin expansion," stated Martin Richenhagen, chairman, president and chief executive officer. "Improving order flow along with increased production levels in our North American and European factories resulted in strong revenue and margin improvement in those regions in the fourth quarter. This improvement drove sales growth of over 20%, excluding currency translation impacts, with operating margins doubling to 6.6% in the fourth quarter. In 2009, our focus was on reducing inventory. As we finished 2010, with company and dealer inventories at targeted levels, we efficiently increased production and are well positioned to take advantage of 2011 market opportunities."
"Throughout the year, we managed our working capital carefully and generated over $270 million of free cash flow for the full year of 2010," continued Mr. Richenhagen. "AGCO's strong balance sheet enables us to make important investments in our business. In 2010, we increased our research and development efforts by approximately 14% compared to 2009, focusing on new products and new engine technology. During December 2010, we expanded our high margin replacement parts business with the purchase of Sparex Holdings, Ltd. in Europe for approximately $85 million. In early 2011, we will complete two previously announced acquisitions which will bolster our European combine business and provide advanced air-seeding products to our distribution network. AGCO's solid financial position and ability to generate cash will allow us to increase our strategic investments in 2011."
AGCO's North American region reported a sales increase in the fourth quarter of 2010 of approximately 47.3% compared to the fourth quarter of 2009, excluding favorable currency translation impacts. Increased sales of combines, tractors and sprayers contributed to higher sales in the North American region.
Europe/Africa/Middle East (EAME) sales in the fourth quarter of 2010 increased approximately 28.9% compared to the same period in 2009, excluding unfavorable currency translation impacts. The increase was supported by stabilizing Western European industry conditions in the fourth quarter of 2010.
AGCO's South American region reported a sales increase of approximately 0.9% in the fourth quarter of 2010 compared to the elevated levels in the fourth quarter of 2009, excluding favorable currency translation impacts. Industry demand increased in Argentina during the fourth quarter of 2010 but declined in Brazil compared to the fourth quarter of 2009.
In the fourth quarter of 2010, income from operations grew to $142.4 million, an increase of nearly 200% compared to the fourth quarter of 2009. Gross margins were 18.9% in the fourth quarter of 2010 compared to 14.6% in the fourth quarter of 2009. The margin improvement was driven by higher production, improved mix and pricing benefits. Income from operations for the full year of 2010 increased approximately $105.5 million compared to the full year of 2009, primarily due to improved margins partially offset by higher engineering expenses to support new product development and tier 4 engine emission upgrades.
Industry unit retail sales of tractors increased modestly in North America for the full year of 2010, compared to the full year of 2009. Strong growth in high horsepower tractors was partially offset by a small decline in utility tractors. Robust economics for the professional farming segment contributed to the strength in retail sales of high horsepower tractors and combines. Softness in the dairy and livestock sectors contributed to lower industry unit retail sales of mid-range tractors and hay equipment, which both declined compared to the full year of 2009.
For the full year of 2010, industry unit retail sales of tractors in South America grew sharply compared to the same period in 2009. Strong farm fundamentals and favorable government financing programs in Brazil contributed to the strong industry demand, which began to decelerate in the second half of 2010.
Industry unit retail tractor sales were down approximately 10% in Western Europe during the full year of 2010 compared to the prior year, but did stabilize during the second half of 2010. The slow pace of macro-economic recovery, weak farmer sentiment and soft demand in the dairy and livestock sectors contributed to the decline in 2010. Industry unit retail tractor sales declines were most pronounced in France, Spain, Italy and the United Kingdom in the full year of 2010 compared to 2009.
"Year-end global stocks of food crops are at low levels and demand for soft commodities is growing," stated Mr. Richenhagen. "Elevated crop prices are driving profitable farm economics and incentivizing farmers to invest to increase their production capabilities. Western European farm equipment demand is expected to strengthen in 2011 due to improved farmer profitability for grain and dairy producers. In North America, higher levels of farm income are projected to maintain demand for large tractors and combines. Farm economics remain strong in Brazil, but equipment demand in 2011 is expected to soften due to less generous financing subsidies. We are optimistic regarding the long-term potential of our industry resulting from favorable trends in demand for soft commodities, which should support crop prices and farmer profitability."