AGCO AGCO Corp

Agco Corp. (AGCO) warned Tuesday that demand for farm machinery will be weak through the first half of 2010, as the company's fourth-quarter profit plunged by two-thirds.

While the results topped analysts' expectations, equipment sales fell 14% from a year earlier, led by a 40% drop in North American sales and a 19% reduction in Europe.

Agco, whose brands include Massey Ferguson and Challenger, said it is temporarily idling factories to reduce bulging equipment inventories. The company predicted the shutdowns will lower its overall production volume by 20% in the first quarter from the same period in 2009. Agco predicted cutbacks will result in a first-quarter loss.

Agco said its order backlogs in Europe and North America at the end of 2009 were about half the size of the year-end backlogs for 2008.

Demand for tractors and combines are being held down by volatile commodity prices, a late North American fall harvest caused by weather conditions and farmers' continued reluctance to purchase expensive new equipment amid the lingering effects of the economic recession.

"What we see in the first half [of 2010] is continued weakness in demand," said Andy Beck, chief financial officer, during a conference call with analysts.

Beck said he expects demand to improve in the second half of the year but acknowledged "we have limited visibility for the entire year."

Agco, the world's third-largest farm machinery maker behind Deere & Co. (DE) and CNH Global N.V. (CNH), reiterated the 2010 industry wide sales outlook it offered in December. Agco sees equipment sales in North America falling 5% to 10%, with sales down about 10% in Western Europe. The lone bright spot is South America, where Agco is the market leader in farm tractors. Agco forecast South American industry sales will be flat to up 5%, as soft demand from Argentina is offset by expected sales growth in Brazil.

The Georgia-based company forecast 2010 earnings of $1.55 to $1.65 a share on sales of $6.6 billion to $6.8 billion. Analysts surveyed by Thomson Reuters expected earning of $1.63 a share on $6.35 billion of sales.

Agco reported a fourth-quarter profit of $33.5 million, or 35 cents a share, down from $98.5 million, or $1.05, a year earlier. The latest quarter included 7 cents of charges. Revenue in the quarter dropped 14% to $1.85 billion.

Analysts had forecast earnings of 31 cents, without charges, on $1.7 billion in revenue.

For 2009, Agco earned $135.7 million, or $1.44 a share, down from $385.9 million, or $3.95 a share, in 2008. Net sales fell 21.3% to $6.63 billion.

Agco's shares were recently trading up 2.9% at $31.35 a share.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

(Nathan Becker contributed to this report)

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