AGCO's Q3 Earnings Beat, Sales View Up On Solid Volumes

AGCO Corporation (NYSE:AGCO) reported adjusted earnings of 79 cents per share in third-quarter 2017, up 55% from 51 cents per share recorded in third-quarter 2016. In addition, earnings beat the Zacks Consensus Estimate of 72 cents.

Including restructuring and other infrequent expenses, the company reported earnings of 76 cents per share in the quarter compared to 50 cents per share reported in the prior-year quarter.

AGCO generated revenues of $1.99 billion, up 12.8% from $1.76 billion in the year-ago quarter. Additionally, revenues surpassed the Zacks Consensus Estimate of $1.91 billion. Excluding favorable currency translation impacts of approximately 2.7%, net sales climbed approximately 10.1% year over year.

Operational Update

Cost of sales went up 10.6% to $1.56 billion from $1.41 billion in the year-ago quarter. Gross profit came in at $428.6 million in the quarter, jumping 21% from $353.5 million recorded in the year-earlier quarter. Gross margin came in at 21.6%, expanding 150 basis points (bps) year over year.

Selling, general and administrative expenses flared up 9.5% year over year to $234 million. Adjusted income from operations surged 65.3% year over year to $100 million. Consequently, operating margin advanced 160 bps year over year to 5%.

Segment Performance

Sales at the North America segment increased 6.7% year over year to $483.5 million in the third quarter. The segment reported operating income of $27.2 million, up 28.9% from $21 million incurred in the year-ago quarter.

Sales at the South America segment climbed 4.5% year over year to $273.5 million. The segment reported operating income of $9 million compared to $5.9 million in the year-earlier quarter.

The EAME (Europe/ Africa/ Middle East) segment’s sales came in at $1017.7 million, up 15.2 % from the year-ago quarter. EAME’s operating income climbed 30.5% to $98.9 million from $75.8 million reported in the prior-year quarter.

Sales at the Asia/Pacific segment jumped 29.4% year over year to $211.6 million from $163.5 million recorded a year ago. The segment reported income of $15.4 million, up a whopping 116.9% from the year-ago quarter.

Financial Update

AGCO reported cash and cash equivalents of $312.7 million at the end of third-quarter 2017, down from $429.7 million at 2016 end. The company used $29.4 million of cash in operating activities during the nine-month period ended Sep 30, 2017, compared with cash outflow of $127.4 million recorded in the comparable period last year.

Guidance

AGCO raised its net sales guidance to approximately $8.2 billion from the previous outlook of $8 billion for 2017. The improved guidance indicates improved sales volumes, positive pricing as well as acquisition and foreign exchange impacts. Gross and operating margins are likely to improve from 2016 levels due to higher sales, along with the benefits, resulting from the company’s cost-reduction initiatives. AGCO maintained its earnings per share target for 2017 to be around $3.00.

AGCO reaffirmed its capital expenditures to be nearly $200-$225 million and free cash flow to be in the band of $225-$250 million in 2017. The company remains focused on the expansion of its product offerings through internal product development efforts and bolt-on acquisitions.

The company recently completed two acquisitions. In September, it acquired Precision Planting, a leader in innovative planting technology. In October, AGCO purchased the forage division of the Lely Group, which will significantly enhance hay and forage product line in Europe.

Share Price Performance

In the last year, AGCO has underperformed the industry with respect to price performance. The stock has gained around 37.3%, while the industry recorded growth of 46.9%.

Zacks Rank & Key Picks

AGCO currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector are Lakeland Industries, Inc. (NASDAQ:LAKE) , China National Materials Company Limited (OTC:CASDY) and Caterpillar Inc. (NYSE:CAT) . All three stocks flaunt a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lakeland Industries has an expected long-term earnings growth rate of 10%.

China National Materials has an expected long-term earnings growth rate of 20%.

Caterpillar has an expected long-term earnings growth rate of 9.5%.

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