AGCO, Your Agriculture Company, a worldwide manufacturer and distributor of agricultural equipment and solutions, reported net sales of approximately $2.0 billion for the first quarter of 2019, a decrease of approximately 0.6% compared to the first quarter of 2018. Reported net income was $0.84 per share for the first quarter of 2019, and adjusted net income, excluding restructuring expenses, was $0.86 per share. These results compare to a reported net income of $0.30 per share and adjusted net income, excluding restructuring expenses, of $0.35 per share for the first quarter of 2018. Excluding unfavorable currency translation impacts of approximately 7.1%, net sales in the first quarter of 2019 increased approximately 6.5% compared to the first quarter of 2018.
First Quarter Highlights
- Reported regional sales results: North America (1.3)%, Europe/Middle East (EME) +4.0%, South America (14.3)%, Asia/Pacific/Africa (APA) (16.3)%
- Constant currency regional sales results: North America (0.6)%, EME +13.2%, South America (2.6%), APA (9.6)%
- Operating margin improvement of 190 basis points vs. first quarter of 2018
- Regional operating margin performance: North America 6.2%, EME 10.5%, South America (5.4)%, APA 2.6%
- Share repurchase program reduced outstanding shares by approximately 0.4 million during the first three months of 2019
- Increased full-year outlook for net income per share
“Focused operational performance across our regional business units and supportive market conditions are driving sales and earnings growth,” stated Martin Richenhagen, AGCO’s Chairman, President and Chief Executive Officer. “AGCO’s first quarter results demonstrated solid progress towards our margin improvement goals for 2019. Led by our Europe/Middle East region, AGCO’s first quarter 2019 adjusted operating margins improved over 190 basis points compared to the first quarter of 2018. Our margin expansion resulted from organic sales growth, an improved pricing environment and initiatives aimed at lowering material costs and improving productivity. We have raised our outlook for the full year to reflect our confidence in our continued strong performance and in the market recovery.”
“Farm economics remained challenged across many of the major crop-producing regions and global trade tensions continue to weigh on farmer sentiment,” continues Richenhagen. “Global farm equipment demand continues on a slow recovery path following an extended period of decline. Planting across much of the U.S. farm belt is delayed due to cold, wet weather and flooding in portions of the Midwest. Farmer concerns over the lingering trade disputes with China and the resulting increase in soybean inventories has curtailed replacement demand from row crop farmers. North American industry retail sales decreased in the first three months of 2019 compared to the same period in 2018. We expect North American industry retail tractor sales to increase modestly in 2019 with improved retail sales in the row crop segment and flat retail sales of small tractors compared to last year. Relatively warm weather across much of Europe has been positive for the development of the winter wheat crop. Milk prices remain supportive of the dairy sector in Western Europe. Industry retail sales in Western Europe increased modestly in the first three months of 2019, following a year of mixed results in 2018 for the arable farming segment. Industry sales growth in France and Germany was partially offset by declines in the United Kingdom and Italy. For the full year of 2019, industry demand in Western Europe is expected to be flat compared to 2018. Industry retail sales in South America decreased during the first three months of 2019. Industry sales declined significantly in Argentina in response to lower crop production and farm income in 2018 while industry demand in Brazil improved modestly. Grain production in South America is ahead of last year’s pace and industry demand is expected to increase modestly compared to 2018. Looking ahead, we are optimistic about the long-term outlook for the global agricultural equipment industry supported by healthy fundamentals for commodity prices and farm income.”
AGCO’s North American net sales decreased 0.6% in the first three months of 2019 compared to the same period of 2018, excluding the negative impact of currency translation. Lower sales of tractors and grain and protein production equipment were mostly offset by growth in the sales of application equipment as well as hay and forage equipment. Income from operations for the first three months of 2019 improved approximately $3.8 million compared to the same period in 2018. The benefit of improved pricing and sales mix contributed most of the increase.
Net sales in the South American region decreased 2.6% in the first three months of 2019 compared to the first three months of 2018, excluding the impact of unfavorable currency translation. Income from operations improved approximately $8.1 million in the first quarter compared to the same period in 2018. The South America results in the first quarter reflect seasonally low levels of industry demand and company production, as well as cost impacts associated with the transition of newer product technology into our Brazilian factories.
Europe/Middle East net sales increased 13.2% in the first three months of 2019 compared to the same period in 2018, excluding unfavorable currency translation impacts. Sales growth was strongest in France, the United Kingdom and Spain. Income from operations improved approximately $28.7 million for the first three months of 2019, compared to the same period in 2018, due to the benefit of higher sales and production, pricing and the timing of engineering costs compared to the prior year.
Net sales in AGCO’s Asia/Pacific/Africa region decreased 9.6%, excluding the negative impact of currency translation, in the first three months of 2019 compared to the same period in 2018. Lower sales in Asia and Australia produced most of the decrease. Income from operations declined approximately $1.3 million in the first three months of 2019, compared to the same period in 2018, due to lower sales levels.
Global industry demand is projected to improve modestly in 2019. AGCO’s net sales for 2019 are expected to reach approximately $9.5 billion reflecting improved sales volumes and positive pricing, offset by unfavorable foreign currency translation impacts. Gross and operating margins are expected to improve from 2018 levels, reflecting the positive impact of pricing and cost reduction efforts. Based on these assumptions, 2019 earnings per share are targeted at approximately $4.88 on a reported basis, or approximately $4.90 on an adjusted basis, which excludes restructuring expenses.