AGCO Prepares For Slower Machinery Sales.

Oct 09, 2014

AGCO News

AGCO, the leading farm machinery company cut its forecast for full-year earnings, noting "lower sales levels across all regions".

Shares in Agco tumbled 10% after the maker of Massey Ferguson and Fendt farm equipment reduced to $4.10-4.30 per share, from $5.00 per share, its forecast for underlying, full-year earnings.

While Wall Street had allowed some scope for disappointment from AGCO's previous guidance, which the group cut from $6.00 per share in July, analysts were forecasting full-year results to hit $4.84 per share excluding one-time effects.

The group attributed its downgrade to "lower sales levels across all regions, lower production and foreign currency translation", with the rise of the dollar to a four-year high against a basket of currencies denting the value, in dollar terms, of takings made in the like of euros.

"During the third quarter, we experienced weaker-than-anticipated levels of demand," said Martin Richenhagen, the AGCO chairman and chief executive.

The comments are the latest in a series of downbeat statements from farm machinery groups, with Deere & Co, the maker of John Deere equipment, in August cutting its profits forecast, and retailer Titan Machinery last month reducing its earnings expectations.

A farm machinery sales index compiled by Creighton University from major US agricultural states fell last month to its lowest since the survey began eight years ago.

The sector's malaise has been blamed by cuts to farm spending prompted by lower crop prices, which have for many growers fallen below production costs.

"The rapid decline in agriculture commodity prices has pushed farmers to shrink their equipment purchases," Creighton University said.

Mr Richenhagen said that AGCO was responding to the market deterioration by "making more aggressive cuts in production schedules and expenses".

He said in July that the group had taken "aggressive actions to cut production, manage inventory levels, reduce operating expenses and generate cash flow", adding that "short-term cost reduction actions and production cuts should see us through the current market softness".

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