Message #12 From:
NewsBot Date: November 1, 2006 05:42:00 AM
AG News AGCO Reports Third Quarter Results
DULUTH, Ga.--(BUSINESS WIRE)--AGCO Corporation (NYSE:AG), a worldwide manufacturer and distributor of
agricultural equipment, reported net income of $0.06 per share for the
third quarter of 2006. Adjusted net income, which excludes restructuring
and other infrequent expenses, was $0.07 per share for the third quarter
of 2006. For the third quarter of 2005, AGCO reported both net income
and adjusted net income of $0.31 per share. Net sales for the third
quarter of 2006 were $1.2 billion, a decrease of approximately 4.3%
compared to the same period in 2005.
For the first nine months of 2006, net income was $0.69 per share
compared to $1.01 per share in 2005. Adjusted net income, excluding
restructuring and other infrequent expenses, was $0.70 per share for the
first nine months of 2006 compared to adjusted net income, excluding
restructuring and other infrequent expenses and costs associated with a
June 2005 bond redemption, of $1.16 per share in 2005. Net sales for the
first nine months of 2006 decreased approximately 6.5% to $3.8 billion.
“As we previously announced, our results were
negatively impacted by weaker markets in both our North American and
Asia/Pacific segments,” stated Martin
Richenhagen, Chairman, President and Chief Executive Officer. “In
addition, the continued reduction of dealer inventories in North America
resulted in lower sales and operating income in the region. This
reduction is part of our plan to reduce both inventory and accounts
receivable throughout the year. As of September 30, 2006, our worldwide
inventory and accounts receivable were approximately $250 million lower
than September 2005 levels. The working capital management also
generated an improvement in free cash flow for the first nine months of
2006 of approximately $200 million compared to the same period in 2005.
While our balance sheet focus has impacted our current results, we
believe these actions, along with our product and distribution
initiatives, will provide a foundation for better returns in the future.”
“AGCO’s third
quarter sales were led by continued strong performance in the
Europe/Africa/Middle East region,” Mr.
Richenhagen continued. “Despite relatively
flat industry sales, our European revenues increased approximately 7.5%
in the third quarter of 2006, excluding currency impacts, which
demonstrates the value of our products and our strong distribution
network.”
Third Quarter and Year-to-Date Results
For the third quarter of 2006, AGCO reported net sales of $1,180.9
million and net income of $5.4 million, or $0.06 per share. Adjusted net
income, excluding restructuring and other infrequent expenses, was $6.0
million, or $0.07 per share, for the third quarter of 2006. For the
third quarter of 2005, AGCO reported net sales of $1,233.6 million and
net income of $27.8 million, or $0.31 per share. Adjusted net income,
excluding restructuring and other infrequent income, was $27.7 million,
or $0.31 per share, for the third quarter of 2005.
For the first nine months of 2006, AGCO reported net sales of $3,801.2
million and net income of $63.6 million, or $0.69 per share. Adjusted
net income, excluding restructuring and other infrequent expenses, was
$64.3 million, or $0.70 per share for the first nine months of 2006. For
the first nine months of 2005, AGCO reported net sales of $4,064.8
million and net income of $95.4 million, or $1.01 per share. Adjusted
net income, excluding restructuring and other infrequent income and bond
redemption costs, in the first nine months of 2005 was $109.4 million,
or $1.16 per share. A reconciliation of adjusted income from operations,
net income and earnings per share to reported income from operations,
net income and earnings per share for the three and nine months ended
September 30, 2006 and 2005 is provided in Note 8 to our Condensed
Consolidated Financial Statements.
AGCO’s net sales decreased 4.3% for the third
quarter and 6.5% for the first nine months of 2006 compared to the same
periods in 2005. Excluding the impact of currency translation, AGCO’s
net sales decreased 7.6% during the third quarter and 7.0% for the first
nine months of 2006 compared to the same periods in 2005. Net sales
declined in the North America, South America and Asia/Pacific regions,
partially offset by sales increases in the Europe/Africa/Middle East
region. In North America, net sales were significantly lower during 2006
compared to 2005 primarily due to weaker market conditions and lower
deliveries to dealers resulting in a reduction in dealer inventory
levels. In the South America and Asia/Pacific regions, weaker market
conditions contributed to the sales decline.
Adjusted income from operations decreased $25.7 million for the third
quarter of 2006 and $61.5 million for the first nine months of 2006
compared to 2005 resulting from the decrease in net sales. Gross margins
in 2006 were slightly below 2005, due to lower production levels, sales
mix and currency impacts. Unit production of tractors and combines for
the first nine months of 2006 was approximately 16% below 2005.
In AGCO’s Europe/Africa/Middle East region,
income from operations increased $2.6 million in the third quarter and
$11.5 million for the first nine months of 2006 compared to 2005. Income
from operations in the third quarter and the first nine months of 2006
increased due to an approximate 3% and 6% increase in net sales,
respectively, excluding currency impact, resulting from stronger market
conditions in key regions of Europe, particularly in Germany. Operating
margins remained strong due to new products and productivity
improvements.
Income from operations in AGCO’s South
America region decreased $0.9 million for the third quarter and $4.1
million for the first nine months of 2006 compared to 2005. Industry
demand in South America was below 2005 levels, resulting in a decline in
AGCO’s net sales in South America, excluding
currency impact, of approximately 4% and 15% for the third quarter and
first nine months of 2006, respectively.
In North America, income from operations decreased $20.9 million in the
third quarter and $46.5 million for the first nine months of 2006
compared to 2005. Income from operations in the third quarter and the
first nine months of 2006 was lower primarily due to an approximate 27%
and 24% reduction in net sales, respectively, excluding currency impact,
compared to 2005. The sales decline is a result of lower retail sales of
AGCO products due to weaker industry conditions as well as the impact of
dealer inventory reductions, which influence wholesale sales levels.
Income from operations in the Asia/Pacific region decreased $4.1 million
in the third quarter and $12.0 million for the first nine months of 2006
compared to 2005 primarily due to lower sales in Australia, New Zealand
and Asia.
Regional Market Results
North America –Industry retail demand
softened considerably in the third quarter of 2006. Industry unit retail
sales of tractors were down nearly 8% and combines were down over 18%
compared to the third quarter of 2005. Third quarter 2006 industry
retail sales of tractors over 100 horsepower were 24% below those in the
third quarter of 2005. Industry unit retail sales of tractors for the
first nine months of 2006 decreased approximately 2% over the comparable
prior year period resulting from decreases in the compact and high
horsepower tractor segments, offset by a slight increase in the utility
tractor segment. Industry unit retail sales of combines for the first
nine months of 2006 were approximately 8% lower than the prior year
period. AGCO’s unit retail sales of tractors
and combines were also lower in the third quarter and first nine months
of 2006 compared to 2005.
Europe –Industry unit retail sales of
tractors for the first nine months of 2006 increased approximately 1%
compared to the prior year period. Retail demand declined in France,
Italy, Finland and Spain, but improved in Germany, the United Kingdom,
Scandinavia and Central and Eastern Europe. AGCO’s
unit retail sales for the first nine months of 2006 were higher when
compared to the prior year period.
South America –Industry unit retail
sales of tractors and combines for the first nine months of 2006
decreased approximately 8% and 40%, respectively, compared to the prior
year period. Retail sales in the major market of Brazil for tractors
increased approximately 7% compared to 2005 and declined approximately
47% for combines during the first nine months of 2006 compared to 2005.
AGCO’s South American unit retail sales of
tractors and combines declined in the first nine months of 2006 compared
to 2005.
Rest of World Markets –Outside of
North America, Europe and South America, AGCO’s
net sales for the first nine months of 2006 were approximately 25% lower
than 2005 due to lower sales in Asia and the Middle East.
“Global industry demand in the third quarter
showed mixed results,” stated Mr.
Richenhagen. “In Europe, industry retail
sales improved slightly with increases in Germany and Scandinavia. In
North America, third quarter industry retail sales were down sharply,
especially in the large equipment sectors. In South America, industry
demand remains weak overall with some recent improvement in Brazil
driven by the sugar cane, coffee, and citrus sectors.”
Outlook
Industry retail sales of farm equipment in 2006 in all major markets are
expected to be relatively flat or below 2005 levels. In North America,
2006 farm income is projected to be below the prior year resulting in
lower demand for equipment. In South America, the strength of the
Brazilian currency and high farm debt levels are expected to continue to
result in lower retail sales. Industry demand in Europe is expected to
be flat to slightly increased compared to 2005.
AGCO’s net sales for the full year of 2006
are expected to decline 2 to 3% versus 2005 based on lower industry
demand and planned dealer inventory reductions. AGCO is targeting full
year earnings per share to be approximately $1.00 per share. In
addition, improved working capital utilization in 2006 is expected to
result in strong free cash flow.
AGCO will be hosting a conference call with respect to this earnings
announcement at 10:00 a.m. Eastern Time on Wednesday, November 1, 2006.
The Company will refer to slides on its conference call. Interested
persons can access the conference call and slide presentation via AGCO’s
website at www.agcocorp.com on the “Investors/Media”
page. A replay of the conference call will be available approximately
two hours after the conclusion of the conference call for twelve months
following the call. A copy of this press release will be available on
AGCO’s website for at least twelve months
following the call.
Safe Harbor Statement
Statements which are not historical facts, including projections of
industry demand, sales, adjusted earnings per share and free cash flow,
are forward-looking and subject to risks which could cause actual
results to differ materially from those suggested by the statements.
These forward-looking statements involve a number of risks and
uncertainties. The following are among the factors that could cause
actual results to differ materially from the results discussed in or
implied by the forward-looking statements. Further information
concerning these and other factors is included in AGCO’s
filings with the Securities and Exchange Commission, including its Form
10-K for the year ended December 31, 2005. AGCO disclaims any obligation
to update any forward-looking statements.
Our financial results depend entirely upon the agricultural industry,
and factors that adversely affect the agricultural industry generally
will adversely affect us.
Our success depends on the introduction of new products which require
substantial expenditures.
We depend on suppliers for components and parts for our products, and
any failure by our suppliers to provide products as needed, or by us
to promptly address supplier issues, will adversely impact our ability
to timely and efficiently manufacture and sell our products.
A majority of our sales and manufacturing takes place outside of the
United States, and, as a result, we are exposed to risks related to
foreign laws, taxes, economic conditions, labor supply and relations,
political conditions and governmental policies. These risks may delay
or reduce our realization of value from our international operations.
Currency exchange rate and interest rate changes can adversely affect
the profitability of our products.
We are subject to extensive environmental laws and regulations, and
our compliance with, or our failure to comply with, existing or future
laws and regulations could delay production of our products or
otherwise adversely affect our business.
Our labor force is heavily unionized, and our contractual and legal
obligations under collective bargaining agreements and labor laws
subject us to the risks of work interruption or stoppage and could
cause our costs to be higher.
We have significant pension obligations with respect to our employees.
We are subject to fluctuations in raw material prices and
availability, which may cause delays in the production of our products
or otherwise adversely affect our manufacturing costs.
The agricultural equipment industry is highly seasonal, and seasonal
fluctuations significantly impact our results of operations and cash
flows.
We face significant competition and, if we are unable to compete
successfully against other agricultural equipment manufacturers, we
would lose customers and our revenues and profitability would decline.
We have a substantial amount of indebtedness, and, as a result, we are
subject to certain restrictive covenants and payment obligations that
may adversely affect our ability to operate and expand our business.
About AGCO
Founded in 1990, AGCO Corporation (NYSE: AG) (www.agcocorp.com)
is a global manufacturer of agricultural equipment and related
replacement parts. AGCO offers a full product line including tractors,
combines, hay tools, sprayers, forage, tillage equipment and implements,
which are distributed through more than 3,600 independent dealers and
distributors in more than 140 countries worldwide. AGCO products include
the following well-known brands: AGCO®,
Challenger®, Fendt®,
Gleaner®, Hesston®,
Massey Ferguson®,
New Idea®, RoGator®,
Spra-Coupe®,
Sunflower®,
Terra-Gator®, Valtra®,
and White™Planters.
AGCO provides retail financing through AGCO Finance. The company is
headquartered in Duluth, Georgia and, in 2005, had net sales of $5.4
billion.
