AGCO, Your Agriculture Company, a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $2.1 billion for the fourth quarter of 2016, an increase of approximately 6.9% compared to net sales of approximately $2.0 billion for the fourth quarter of 2015. Reported net income was $0.77 per share and adjusted net income, which excludes restructuring expenses, was $0.84 per share for the fourth quarter of 2016. These results compare to reported net income of $0.73 per share and adjusted net income, which excludes restructuring expenses, of $0.80 per share for the fourth quarter of 2015. Excluding unfavorable currency translation impacts of approximately 1.8%, net sales in the fourth quarter of 2016 increased approximately 8.7% compared to the fourth quarter of 2015.
Net sales for the full year of 2016 were approximately $7.4 billion, a decrease of approximately 0.8% compared to 2015. Excluding the unfavorable impact of currency translation of approximately 2.6%, net sales for the full year of 2016 increased approximately 1.9% compared to 2015. For the full year of 2016, reported net income was $1.96 per share and adjusted net income, which excludes restructuring expenses and a non-cash deferred income tax adjustment, was $2.47 per share. These results compare to reported net income of $3.06 per share and adjusted net income, which excludes restructuring expenses, of $3.24 per share for the full year of 2015.
Highlights
- Reported fourth quarter regional sales results(1): Europe/Africa/Middle East (EAME) (2.0)%, North America +3.0%, South America +63.6%, Asia/Pacific (APAC) +21.8%
- Constant currency fourth quarter regional sales results(1)(2): EAME +1.8%, North America +4.4%, South America +53.9%, APAC +22.7%
- Generated $370 million in cash flow from operations and $168 million in free cash flow in 2016
- Share repurchase program resulted in reduction of 4.4 million shares during 2016
- New $300 million share repurchase program authorized through December 2019
- Quarterly dividend increased to $0.14 per share effective first quarter 2017
- Full-year earnings per share forecast for 2017 remains at approximately $2.50
(1) As compared to fourth quarter 2015
(2) Excludes currency translation impact.
“The past year was a challenging year due to continued weakening global market demand for agricultural equipment,” states Martin Richenhagen, AGCO’s Chairman, President and Chief Executive Officer. “Despite these difficult conditions, our solid operational execution during 2016 allowed us to exceed our financial targets and be well-positioned to seek new opportunities for growth. Looking forward to 2017, industry conditions are expected to remain near the bottom of the agricultural equipment cycle in key markets. In response to the industry challenges, our focus continues to be on cost and expense reduction through globalizing processes, reducing complexity and better leveraging scale. In addition to diligent cost management, we will continue to make long-term investments to raise the efficiency of our factories, improve our service levels and strengthen our product offering.”
Market Update
“The record grain harvest in the U.S., combined with healthy crop production across Europe and Brazil, resulted in increased grain inventories and lower soft commodity prices,” continues Richenhagen. “Difficult farm economics negatively impacted farmer sentiment, and we experienced softer industry equipment demand in all major markets. In North America, industry sales declined throughout the year. Sales declines were most pronounced in the row crop and professional hay producer sectors, with significantly lower industry retail sales of high-horsepower tractors, combines and grain storage and handling equipment. Industry retail demand declines from 2015 levels were less significant in Western Europe. Low milk prices for dairy producers lessened demand, while sales in the arable farming sector also remained weak due to lower commodity prices. A smaller wheat harvest hurt retail demand in France, especially in the second half of the year. Market declines also occurred in Germany, offset by modest growth in Scandinavia and Finland. Industry demand in South America stabilized throughout the year with fourth quarter 2016 industry unit retail tractor sales up 35% from very depressed conditions in the fourth quarter of 2015. While the market was down for the full year in Brazil, the improving political landscape contributed to industry growth in the second half of the year. Supportive government policies and improved crop production in Argentina resulted in higher sales in that market. Despite the global market difficulties we are facing today, our long-term view remains positive as increasing global demand for commodities driven by the growing world population, rising emerging market protein consumption and biofuel use, are expected to support elevated farm income and healthy conditions in our industry.”
Regional Results
North America
Net sales in the North American region decreased 6.7% in the full year of 2016 compared to 2015, excluding the negative impact of currency translation. Weaker industry demand and dealer inventory reduction efforts contributed to lower sales. Sales declines in grain storage equipment, hay tools and sprayers were partially offset by sales growth in medium and small tractors. Lower sales and production volumes, a weaker sales mix and other cost increases contributed to a reduction in income from operations of approximately $84.3 million for the full year of 2016 compared to 2015.
South America
Excluding unfavorable currency translation impacts, AGCO’s South American net sales increased 4.3% in the full year of 2016 compared to 2015. Higher sales in Argentina were partially offset by slightly lower sales in Brazil due to weak, but improving, industry conditions. Income from operations decreased approximately $14.5 million for the full year of 2016 compared to 2015 due the negative impact of currency translation and material cost inflation.
Europe/Africa/Middle East
EAME net sales increased 3.5% in the full year of 2016 compared to 2015, excluding unfavorable currency translation impacts. The increase resulted from the benefit of acquisitions along with growth in the United Kingdom and Scandinavia and was offset by declines in Africa, Germany and France. Income from operations increased approximately $1.0 million for the full year of 2016 compared to 2015 due to higher sales partially offset by unfavorable currency translation impacts.
Asia/Pacific
AGCO’s APAC net sales, excluding the negative impact of currency translation, increased 21.2% in the full year of 2016 compared to 2015. Income from operations increased approximately $39.0 million in the full year of 2016 compared to 2015 due to higher sales across the region and increased small tractor production in China.
Outlook
Softer industry demand is anticipated across North America and Europe, partially offset by growth in South America. AGCO’s net sales for 2017 are expected to reach approximately $7.4 billion. Gross and operating margins are expected to improve from 2016 levels, reflecting the positive impact of pricing and cost reduction efforts partially offset by a weaker sales mix. Based on these assumptions, 2017 earnings per share is targeted to be approximately $2.50.
