AGCO AGCO Corp

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.

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 engineering related to a new emissions-reduction system on its engines will weigh on profit in 2011.

Agco on Tuesday reiterated its 2011 guidance from December, forecasting earnings of $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.

"We do expect most of the earnings improvement in the first half of the year and then level out to some extent," Chief Financial Officer Andy Beck said during a conference call with analysts. "The amount of additional expense and engineering expenses we're expecting to invest in the third and fourth quarter is offsetting some of the sales and margin gains we still expect."

In South America, where Agco is the market leader in tractors, the company sees equipment demand softening this year as the Brazilian government scales back some of the loan assistance offered to farmers in recent years to purchase equipment.

Meanwhile, in North America, Agco expects industry-wide demand for machinery to be flat in 2011, after strong sales growth in 2010 that was likely propelled by higher prices in 2011 for additional emissions-reduction components. Agco sees modest improvement in demand in western Europe as farmers there benefit from rising prices for grain and dairy products. Rivals Deere & Co. (DE) CNH Global NV (CNH, NHL.XE) have offered similarly cautious industry outlooks for 2011.

Agco's fourth-quarter sales in Europe, the Middle East and Africa, which account for the largest share of the company's sales, rose 20% from the severely depressed levels a year earlier. North America sales surged 49%, allowing the company to register a 7% operating margin, the highest from the region in a decade. For 2010, Agco's operating margin from North America more than doubled from 2009 to 3.3%. In South America, sales rose 2.6% against a tough year-earlier comparison.

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.

Analysts cautioned the robust sales growth in the fourth-quarter could lead to disappointing first-quarter sales, especially in the U.S. where farmers likely moved up purchases to avoid higher prices and an unfamiliar emissions system on Agco's 2011 models.

"Yes, you have very strong row-crop economics," said Adam Fleck, an analyst for Morningstar Inc. "But you probably had some sales being pulled forward as well. Farmers are a conservative group of customers. Most don't want to be the early adopters of [Agco's emissions] technology."

Agco predicted its engineering expenses will rise 10% to 15% this year to roll out the emissions system, which is being added to comply with stricter U.S. standards for nitrogen oxide in engine exhaust.

The also company revealed it's likely to raise equipment prices in 2011 above the 2.5% increase already anticipated at the start. Other manufacturers have resorted to price increases as well to cover rising expenses for steel, copper, plastic resins and other materials.

"We expect we'll increase prices starting in the second quarter to offset" the rising material expenses, Beck said. "We haven't set those numbers yet, but certainly it's going to be well over 2.5%."

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 flat at $53.47.

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

--Matt Jarzemsky contributed to this article.

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