DOW JONES NEWSWIRES
Agco Corp.'s (AGCO) fourth-quarter profit more than doubled, but the company expects only a modest increase at best in worldwide demand for farm machinery this year.
Agco forecast this year's earnings will be $2.50 to $2.75 per share on $7.6 billion to $7.9 billion in sales. Analysts expect the company to earn $2.94 a share on $7.45 billion in sales.
Rising prices for farm commodities are providing farmers with more money to spend on equipment. But after strong sales growth in 2010, the Georgia company expects farmers to take a breather from purchases in some of Agco's key markets. Agco also warned that higher expenses for materials and a new emissions system for its engines will weigh on profit in 2011.
"We do expect most of the earnings improvement in the first half of the year and then level out to some extent," said Chief Financial Officer Andy Beck during a conference call with analysts Tuesday. "The thing that could be a question is the additional expenses and engineering expenses we expect in the second half" of the year.
Rival Deere & Co. (DE) offered a similarly cautious outlook in November. In South America, where Agco is the market leader in tractors, the company sees equipment demand softening as the Brazilian government scales back some of the loan assistance offered to farmers in recent years to purchase equipment. Fourth-quarter sales from South America rose 2.6% from a year earlier.
Meanwhile, in North America, Agco expects flat demand for machinery coming off strong sales levels in 2010. Agco sees modest improvement in demand in western Europe as farmers there benefit from rising prices for grain and dairy products.
Agco, the third largest farm machinery manufacturer behind Deere and CNH Global NV (CNH), reported that sales accelerated at the end of 2010, particularly in Europe and North America.
Fourth-quarter sales in Europe, the Middle East and Africa, which account for the largest share of Agco's sales, rose 20%. North America sales surged 49%, allowing the company to register its best operating margin from the region in a decade. For 2010, Agco's operating margin more than doubled from 2009 to 3.3%.
Agco, whose brands include Massey Ferguson and Challenger, reported an overall fourth-quarter profit of $85.2 million, or 87 cents a share, up from $33.5 million, or 35 cents a share, a year earlier. Excluding items such as restructuring charges, per-share earnings rose to 88 cents from 42 cents. Net sales climbed 19% to $2.17 billion and were up 23% excluding currency translation.
Analysts polled by Thomson Reuters anticipated earnings of 76 cents a share on $2.03 billion in sales.
Gross margin widened to 18.9% from 14.6% on higher production and rising sales of higher-priced machinery. But the company warned that gross margin improvement in 2011 would likely be offset by rising expenses for growth initiatives and new product launches. The company predicted its engineering expenses will rise 10% to 15% this year as the company complies with stricter U.S. standards for engine exhaust.
The company revealed it's likely to raise equipment prices in 2011 above the 2.5% increase anticipated at the start of the year to recover recent jumps in costs for steel, rubber and other materials used in machinery.
"Were evaluating our prices and we expect to increase prices in the second quarter to offset" the higher material expenses, Beck said.
For all of 2010, Agco's net income rose 62.4% from 2009 to $220.5 million, or $2.29 a share. Sales increased 5.8% to $6.9 billion.
Agco's stock was recently trading down 1.20% at $52.82 a share.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; email@example.com
(Matt Jarzemsky contributed to this report.)