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Why Is Agco (AGCO) Down 10% Since Last Earnings Report?

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A month has gone by since the last earnings report for Agco (AGCO - Free Report) . Shares have lost about 10% in that time frame, underperforming the S&P 500.

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

AGCO Corp Beats on Earnings & Revenue Estimates in Q1

AGCO Corporation reported first-quarter adjusted earnings per share of 86 cents, up a whopping 145.7% year over year. The reported figure also surpassed the Zacks Consensus Estimate of 42 cents by a wide margin.

Including restructuring and other infrequent expenses, the company reported earnings of 84 cents per share in the quarter, which soared 180% year over year.

Revenues edged down 0.6% year over year to $1,995.8 million. The revenue figure, however, outpaced the Zacks Consensus Estimate of $1,970 million. Excluding unfavorable currency-translation impact of around 7.1%, net sales increased approximately 6.5% year over year.

Operational Update

Cost of sales went down 2.5% to $1,539 million from the year-earlier quarter. Gross profit increased 6.7% to $456.7 million in the quarter from $428.0 million recorded in the year-ago quarter. Gross margin came in at 22.8% during the first quarter, up from the prior-year quarter’s 21.3%.

Selling, general and administrative expenses fell 0.9% year over year to $262.2 million. Adjusted income from operations surged 66.8% year over year to $94.1 million. Consequently, operating margin improved 4.7% year over year from the year-ago quarter’s 2.8%.

Segment Performance

Sales in the North America segment declined around 1.3% year over year to $496.2 million in the March-end quarter. The segment reported operating income of $30.6 million, down around 14% year over year.

Sales in the South America segment dipped around 14.2% year over year to $156 million. The segment posted operating loss of $8.5 million, narrower than the loss of $16.6 million witnessed in the year-earlier quarter.

The EME (Europe / Middle East) segment’s sales came in at $1,210.6 million, up 4% from the year-ago quarter’s reported tally. EME’s operating income jumped 29% to $127.7 million from $99 million recorded in the prior-year quarter.

Sales in the Asia/Pacific segment dropped roughly 16.3% year over year to $133 million from $158.8 million reported in the comparable period last year. The segment reported income of $3.4 million, down from the prior year’s $4.7 million.

Financial Update

AGCO reported cash and cash equivalents of $292.8 million at the end of the January-March quarter, down from $326.1 million recorded at the end of 2018. The company used $329.9 million of cash in operating activities during the three-month period ended, Mar 31, 2019, compared with cash usage of $361.3 million reported in the comparable period last year.

Guidance
    
AGCO projected its net sales 2019 outlook at $9.5 billion backed by improved sales volumes and positive pricing, offset by unfavorable impact of foreign currency translation. It also anticipates gross and operating margins improvement from the 2018 level, driven by positive impact of pricing and cost reduction. Considering these, the company expects 2019 adjusted earnings per share of around $4.90. Moreover, the company projects global industry demand to improve modestly in 2019.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Agco has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Agco has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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