June 15, 2024

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Agco (AGCO) Down 11.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Agco (AGCO). Shares have lost about 11.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Agco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

AGCO’s Earnings & Revenues Trail Estimates in Q4

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%.

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.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -32.12% due to these changes.

VGM Scores

Currently, Agco has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Agco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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