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Agco (AGCO) Up 0.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Agco (AGCO - Free Report) . Shares have added about 0.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Agco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

AGCO Tops Q2 Earnings & Sales Estimates, Affirms View

AGCO’s adjusted earnings amounted to $1.32 in second-quarter 2018, up from $1.15 in second-quarter 2017. Earnings also surpassed the Zacks Consensus Estimate of $1.28.

Including restructuring and other infrequent expenses, the company reported earnings of $1.14 in the quarter, which remained flat year over year.

AGCO generated revenues of $2.54 billion, up around 17% from $2.17 billion in the year-ago quarter. Additionally, revenues surpassed the Zacks Consensus Estimate of $2.43 billion. Excluding favorable currency-translation impact of around 3%, net sales climbed approximately 14% year over year.

Moreover, AGCO’s strong earnings and sales results are backed by improved market demand in North America, and healthy industry conditions in Western Europe.

Operational Update

Cost of sales went up 17% to $1.98 billion from the year-earlier quarter. Gross profit came in at $556 million in the quarter, jumping around 17% from $476 million reported in the year-ago quarter. Gross margin came in at 22%, which remained flat year over year.

Selling, general and administrative expenses flared up 15.9% year over year to $271.8 million. Adjusted income from operations increased 14.9% year over year to $170.8 million. Consequently, operating margin shrunk 20 bps year over year to 6.7%.

Segment Performance

Sales at the North America segment increased around 25% year over year to $601 million in the second quarter. The segment reported operating income of $38 million, which climbed significantly around 59% year over year.

Sales in the South America segment dipped around 13% year over year to $220 million. The segment reported operating loss of $17 million compared to earnings of $3 million posted in the year-earlier quarter.

The EAME (Europe/ Africa/ Middle East) segment’s sales came in at $1,545 million, up 21.7% from the year-ago quarter. EAME’s operating income jumped 22% to $208 million from $170 million reported in the prior-year quarter.

Sales in the Asia/Pacific segment ascended around 4% year over year to $172 million from $165 million recorded in the comparable period last year. The segment reported income of $5 million, which declined from $6 million in the year-ago quarter.

Financial Update

AGCO reported cash and cash equivalents of $281 million at the end of the reported quarter, down from $368 million at the end of 2017. The company used $204 million of cash in operating activities during the six-month period ended Jun 30, 2018, compared with cash usage of $66 million reported in the comparable period last year.

Guidance

AGCO reaffirmed its net sales 2018 outlook of $9.3 billion, on the back of improved sales volumes, positive pricing, as well as acquisition and foreign currency-translation impact. The guidance reflects year-over-year growth of 12%. AGCO also affirmed its 2018 adjusted earnings per share (EPS) guidance of around $3.70. It also anticipates gross and operating margins to improve from the 2017 levels, backed by the favorable impact of pricing and cost-reduction efforts, partially offset by elevated engineering expenses.

AGCO projects that industry retail tractor sales will increase moderately in 2018, with improved retail sales in the row crop segment and flat retail sales of small tractors compared with prior-year levels. Further, the company anticipates that industry demand in Western Europe will be relatively flat with 2017.

Furthermore, industry demand in South America is expected to improve in the second half of 2018, and remain relatively flat with the prior-year levels. Elevated retail sales in Brazil might be offset by lower sales in Argentina due to the impact of lower crop production on farm income. Moreover, AGCO is optimistic about commodity prices, farm income, as well as growth in industry, which will drive performance over the long term.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Agco has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Agco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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