A month has gone by since the last earnings report for Agco (AGCO - Free Report) . Shares have added about 5.6% in that time frame, outperforming 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 Corp Beats Earnings & Revenue Estimates in Q3
AGCO reported third-quarter 2018 adjusted earnings of 91 cents, which climbed 15% year over year. The reported figure also surpassed the Zacks Consensus Estimate of 83 cents.
Including restructuring and other infrequent expenses, the company reported earnings of 89 cents per share in the quarter, which increased 17% year over year.
AGCO generated revenues of $2,215 million, up around 11.5% from $1,986 million recorded in the year-ago quarter. Additionally, the revenue figure surpassed the Zacks Consensus Estimate of $2,137 million. Excluding favorable currency-translation impact of around 6%, net sales climbed approximately 17% year over year.
Cost of sales went up 12% to $1,741 million from the year-earlier quarter. Gross profit came in at $474 million in the quarter, jumping around 11% from $429 million reported in the year-ago quarter. Gross margin contracted 20 basis points (bps) year over year to 21.4%.
Selling, general and administrative expenses flared up 12% year over year to $261 million. Adjusted income from operations increased 12.7% year over year to $113 million. Consequently, operating margin shrunk 10 bps year over year to 5.1%.
Sales in the North America segment improved around 13% year over year to $546 million in the third quarter. The segment reported operating income of $33 million, which climbed around 17% year over year.
Sales in the South America segment increased around 3% year over year to $281 million. The segment reported operating income of around $13 million compared to $9 million posted in the prior-year quarter.
The EAME (Europe/ Africa/ Middle East) segment’s sales came in at $1,165 million, up 14% from the year-ago quarter. EAME’s operating income jumped 12% to $109 million from $97 million reported in the prior-year quarter.
Sales in the Asia/Pacific segment ascended around 6% year over year to $224 million from $212 million recorded in the comparable period last year. The segment reported income of $18 million, up from $15 million in the year-ago quarter.
AGCO reported cash and cash equivalents of $293 million at the end of the reported quarter, down from $368 million at the end of 2017. The company used $19 million of cash in operating activities during the nine-month period ended Sep 30, 2018, compared with cash usage of $29 million reported in the comparable period last year.
AGCO has 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 raised its 2018 adjusted earnings per share guidance to around $3.75 from $3.70. It also anticipates gross and operating margins to improve from the 2017 levels, driven by higher net sales, as well as the benefits resulting from cost-reduction initiatives, partially offset by elevated engineering expenses and higher material costs.
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 to last year. Furthermore, the company anticipates that industry demand in Western Europe will remain at the same level compared with 2017.
In addition, industry demand in South America will remain flat for the full year compared to 2017. Elevated retail sales in Brazil might be muted by lower sales in Argentina due to the impact of lower crop production on farm income. Moreover, AGCO remains optimistic about commodity prices, farm income, as well as growth in industry, which will drive its 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.
At this time, Agco has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
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.