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AGCO Corp (AGCO) Q2 Earnings Beat on Solid Margin Expansion

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AGCO Corporation (AGCO - Free Report) reported second-quarter adjusted earnings per share of $1.82 per share, up 37.8% year over year. The reported figure also surpassed the Zacks Consensus Estimate of $1.59, delivering a positive earnings surprise of 14.4%.

Revenues declined 4.5% year over year to $2,422.6 million. The revenue figure also missed the Zacks Consensus Estimate of $2,554 million. Excluding unfavorable currency-translation impact of around 4.6%, net sales inched up 0.1% year over year.

The company witnessed strong margin expansion across all regions and significant earnings per share growth during the April-June quarter. Further, price-realization initiatives to counter raw-material inflation and rising productivity drove the company’s profitability significantly during the reported quarter.

Operational Update

Cost of sales went down 6.2% to $1,858.7 million from the year-earlier quarter. Gross profit increased 1.4% to $564 million in the quarter from the $556 million recorded in the year-ago quarter. Gross margin came in at 23.2% during the second quarter, up from the prior-year quarter’s 22.0%.

Selling, general and administrative expenses slipped 4% year over year to $260.7 million. Adjusted income from operations grew 16.8% year over year to $199.6 million. Consequently, operating margin improved 8.2% year over year from the year-ago quarter’s 6.7%. 

AGCO Corporation Price, Consensus and EPS Surprise

AGCO Corporation Price, Consensus and EPS Surprise

AGCO Corporation price-consensus-eps-surprise-chart | AGCO Corporation Quote

Segment Performance

Sales in the North America segment were up around 3% year over year to $619 million during the June-end quarter. The segment reported operating income of $51.4 million, reflecting year-over-year jump of 36.7%.

Sales in the South America segment dipped around 15.4% year over year to $186 million. The segment posted an operating loss of $7.1 million, narrower than the loss of $16.7 million witnessed in the year-earlier quarter.

The EME (Europe / Middle East) segment’s sales came in at $1,457.2 million, down 5.7% from the year-ago quarter’s reported tally. EME’s operating income inched up to $208.8 million from the $208.5 million recorded in the prior-year quarter.

Sales in the Asia/Pacific segment dropped 6.7% year over year to $160.7 million from $172.3 million reported in the comparable period last year. The segment reported income of $7 million, up from the prior year’s $4.6 million.

Financial Update

AGCO reported cash and cash equivalents of $280 million at the end of the second quarter, down from the $326 million registered at the end of 2018. The company used $212.9 million of cash in operating activities during the six-month period ended Jun 30, 2019, compared with cash usage of $188.6 million reported in the comparable period last year.

AGCO now projects its net sales 2019 outlook at $9.4 billion, flat with the prior fiscal, backed by higher sales volumes and positive pricing, offset by unfavorable impact of foreign currency translation. Considering a reduced market outlook, the company lowered its full-year net sales projection from the prior estimate of $9.5 billion.

Nevertheless, the company anticipates gross and operating margin improvement from the 2018 level, driven by positive impact of pricing and cost reduction. Excluding restructuring expenses, adjusted EPS for fiscal 2019 is projected at $5.10 compared with the prior expectation of $4.90. Moreover, the company forecasts continued global industry demand in 2019 compared with the prior-year levels.

Zacks Rank & Stocks to Consider

AGCO currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are John Bean Technologies Corp. (JBT), CECO Environmental Corp. (CECE) and Roper Technologies, Inc. (ROP). While John Bean Technologies and CECO Environmental sport a Zacks Rank #1 (Strong Buy), Roper Technologies carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

John Bean Technologies has an expected earnings growth rate of 5.9% for the current year. The stock has appreciated 10.2% in a year’s time.

CECO Environmental has an impressive projected earnings growth rate of 84.8% for the ongoing year. The company’s shares have rallied 30.2% over the past year.

Roper Technologies has an estimated earnings growth rate of 9.8% for 2019. The company’s shares have gained 20.4% in the past year.

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