AGCO Corp's (AGCO) Earnings & Revenues Trail Estimates In Q4

AGCO Corporation (NYSE:AGCO) reported fourth-quarter 2019 adjusted earnings per share of 94 cents, down 28.2% year over year. The figure also missed the Zacks Consensus Estimate of $1.55, reflecting a negative earnings surprise of 39.3%.

Including one-time items, the company reported net loss of $1.17 per share in the fourth quarter as against the net income of $1.26 per share recorded in the prior-year quarter.

Revenues declined 3% year over year to $2,513.6 million. In addition, the figure missed the Zacks Consensus Estimate of $2,662.2 million. Excluding unfavorable currency-translation impact of 2.4%, net sales edged down 0.6% year over year.

The quarterly results reflect the impact of challenging farming conditions, primarily in Europe and South America. The results were also adversely impacted by higher-than-expected new product-warranty costs, and charges related with brand and product rationalizations within the grain and protein business.

Operational Update

Cost of sales dropped 2.6% to $2,000.1 million in the fourth quarter from the year-earlier period. Gross profit decreased 4.6% to $513.5 million in the December-end quarter from the $538.7 million recorded in the year-ago period. Gross margin came in at 20.4% for the fourth quarter compared with the prior-year quarter’s 20.7%.

Selling, general and administrative expenses edged down to $272.4 million from the prior-year quarter’s $272.5 million. Adjusted income from operations declined 17.5% year over year to $132.8 million. Consequently, operating margin came in at 5.2% compared with the year-earlier quarter’s 6.2%.

AGCO Corporation Price, Consensus and EPS Surprise

Segment Performance

Sales in the North America segment inched up 1.8% year over year to $540.5 million during the October-December period. The segment reported operating income of $7.1 million compared with the prior-year quarter’s $6.2 million.

Sales in the South America segment dipped 20% year over year to $220.9 million. The segment reported an operating loss of $18.2 million, as against the prior year’s operating profit of $10.6 million.

The EME (Europe / Middle East) segment’s sales came in at $1,515.3 million compared with the $1,511.7 million recorded in the year-ago period. The EME’s operating income slipped 2.8% year over year to $179.7 million.

Sales in the Asia/Pacific segment were down 13.3% year over year to $236.9 million. The segment reported income of $21.5 million, down from the previous year’s $22.7 million.

Financial Update

AGCO reported cash and cash equivalents of $432.8 million at the end of the reported quarter, up from the $326.1 million witnessed at the end of 2018. The company recorded $695.9 million of cash in operating activities during the 12-month period ended Dec 31, 2019, compared with $595.9 million reported in the prior-year period.

2019 Results

AGCO reported adjusted earnings per share of $4.44 in 2019, up 14% from the prior year’s $3.89. Sales were down 3.3% year over year to $9 billion from the $9.3 billion reported in 2018.

Guidance

AGCO now projects current-year net sales at around $9.2 billion, reflecting improved sales volumes and positive pricing. The company anticipates year-over-year gross and operating margin improvement, aided by positive impact of pricing and cost-reduction actions. Considering these, the company now estimates EPS in the band of $5.00 to $5.20.

Per the USDA’s projection, the U.S farm income in 2020 will remain challenging due to low commodity prices and uncertainty with Market Facilitation Program payments.

The company projects North American industry tractor sales to be modestly down in the current year from the prior-year level. For the ongoing year, European farm income is expected to be softer due to lower milk prices, partly offset by more normalized crop production.

Consequently, AGCO expects sluggish industry demand across the European markets. However, industry demand in Brazil is anticipated to improve, while uncertainty regarding export demand and potential changes to the subsidized financing program might dampen farmer sentiment.

Share Price Performance

Over the past year, AGCO’s stock has gained around 5.8%, outperforming the industry’s growth of 3.4%.

Zacks Rank and Stocks to Consider

AGCO currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the Industrial Products sector are SPX FLOW, Inc. (NYSE:FLOW) , Tennant Company (NYSE:TNC) and Cintas Corporation (NASDAQ:CTAS) . While SPX FLOW flaunts a Zacks Rank #1 (Strong Buy), Tennant and Cintas carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

SPX FLOW has a projected earnings growth rate of 9.1% for 2020. The company’s shares have gained 37.6% in the past year.

Tennant has an estimated earnings growth rate of 30.7% for the ongoing year. In a year’s time, the stock has appreciated 28.7%.

Cintas has an expected earnings growth rate of 15.6% for the current year. The stock has surged 49.3% over the past year.

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