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AGCO Corp's EPS Beats, Revenue Lags

AGCO DE

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AGCO Corporation (AGCO - Analyst Report) reported second quarter 2012 adjusted earnings of $2.08 per share, which exceeded the Zacks Consensus Estimate of $1.81 as well as the year-ago quarter’s earnings of $1.35.

Results benefitted from sales and production growth, improved pricing in North America and Western Europe, low levels of material cost inflation, and savings from strategic as well as recent GSI acquisition. Including special items, EPS in the quarter was $2.08 compared with $1.36 in the year ago quarter.

Total revenue increased 14% year over year to $2.69 billion, falling short of the Zacks Consensus Estimate of $2.8 billion. Total revenue included an unfavorable currency translation impact of 11.2%, excluding which total revenue soared 25.3% in the quarter. The growth was mainly driven by an increase in sales in North America and Europe.

The North American region reported an 85.8% improvement in sales to $733.4 million and the Asia / Pacific region experienced a 51.7% improvement amounting to $101.3 million. In the EAME region, sales improved 0.5% to $1,406.9 million, while sales in South America declined 9.7% to $448.5 million.

Cost and Margins

Cost of goods sold increased 11% to $2.08 billion in the quarter. Gross profit also rose 25% to $611 million. Consequently, gross margin jumped 200 basis-points (bps) to 22.7%.

Selling, general and administrative expenses increased 18% to $255 million in the quarter. Adjusted operating income increased 32% to $265 million. Operating margin soared 130 bps to 9.8%.

Financial Updates

Cash and cash equivalents were $393.4 million as of June 30, 2012, compared to $426.7 million as of March 31, 2012. Long-term debt excluding current portion amounted to $1,471.2 million as of June 30, 2012, compared to $1,331.1 million as of March 31, 2012. Debt-to-capitalization ratio increased to 32.2% as of June 30, 2012, compared to 30.5% as of March 31, 2012.   

AGCO’s Board of Directors has approved a share repurchase program under which the company can repurchase up to $50 million of its common stock.

Outlook for 2012

The company expects adjusted earnings in the range of $5.50 to $5.75 per share for the year, up from the prior guidance of $5.50 per share. It has also revised its revenue guidance in the range of $10.1 billion to $10.3 billion from its previous range of $10.2-$10.5 billion.

Our Take

The acquisition of GSI will help to AGCO in a new market sector and extend its achievement in the agricultural industry. Moreover, it plans to invest in new products to expand its product line. In addition, its strategy of entering the emerging markets of Russia, CIS, China and Africa is slated to achieve significant growth. Further, the demand for AGCO s products may increase as the U.S. Department of Agriculture expects worldwide corn production to rise 10% to 946 million tons in 2012.

AGCO is a leading manufacturer and distributor of agricultural equipment and related replacement parts. It competes with companies like Deere & Company (DE - Analyst Report) and CNH Global NV .

Currently, we have a long-term Outperform recommendation on AGCO Corp. The stock retains a short-term Zacks #3 Rank (Hold rating).

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