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On Dec 25, Zacks Investment Research downgraded AGCO Corporation (AGCO - Analyst Report), a manufacturer of agricultural equipment, to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

On Oct 29, AGCO reported its third-quarter 2013 financial results. Even though earnings improved 32% year over year to $1.27 per share, it missed the Zacks Consensus Estimate of $1.29. Revenues in the reported quarter increased 7.9% year over year to $2.5 billion, mainly driven by strong market demand in South America and the Asia Pacific region.

Despite improved results, AGCO reiterated its full-year 2013 earnings per share guidance of $6.00. The company also maintained its full-year revenue outlook at $10.8–$11 billion. Strong growth in South America and modest performance in North America is expected to be offset by moderate declines in Western Europe. Global industry demand is estimated to be relatively flat in 2013 compared to 2012.

AGCO’s North American operating performance has been higher-than-expected year to date. However, the peak demand conditions that benefited results in North America may be unsustainable going forward.

In addition, demand in Western Europe is predicted to be weak, particularly in the U.K. and Central and Eastern Europe. However, solid demand across France and Germany is anticipated to mitigate some of the weakness in other regions.

AGCO's purchasing actions, factory efficiency projects and new product developments are all contributing to its improved margins. However, margins will be under pressure from lower crop prices and higher engineering expenditures as the company strives to meet Tier 4 emission requirements.

Following the third-quarter earnings announcement, AGCO’s Zacks Consensus Estimate for 2013 has gone down 2.6% to $5.97 per share. Likewise, the Zacks Consensus Estimate for 2014 dropped 5.6% to $5.76.

Other Stocks to Consider
 
Other machinery makers with favorable Zacks Rank are Xylem Inc. (XYL - Analyst Report) and Kubota Corporation (KUBTY) both with a Zacks Rank  #1 (Strong Buy), and Alamo Group, Inc. (ALG - Snapshot Report) carrying a Zacks Rank #2 (Buy).

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