AGCO AGCO Corp

Adjusted EPS at AGCO Corporation (AGCO), for the first quarter of 2011, was 81 cents, almost seven times the EPS of 12 cents in the year-ago quarter. AGCO’s EPS in the quarter breezed past the Zacks Consensus Estimate of 37 cents by a considerable 44 cents.

The outperformance was driven by sales growth across all segments and improved gross margins resulting from production increases in Europe and North America, and a richer product mix, partially offset by higher material costs.

In the reported quarter, there was was no discrepancy between reported and adjusted EPS. AGCO recorded restructuring and other infrequent expenses of a penny a share in the year-ago quarter. Including the one-time expense, EPS in the year-ago quarter stood at 10 cents.

Revenues

Total revenue improved 35% to $1,797.7 million, outperforming the Zacks Consensus Estimate of $1,612 million, driven by sales growth across all geographic segments. Excluding an unfavorable currency translation impact of approximately 3.3%, revenues increased 32.1% year over year.

Excluding currency translation, revenues in North America increased 25.4% to $359.4 million while sales in South America inched up 1.4% to $410.5 million. Europe/Africa/Middle East (EAME) reported an increase of 50.7% (excluding currency translation) to $928.7 billion in the quarter and the Rest of the World increased 69.6% (excluding currency translation) to $99.1 million.

Cost & Margin Performance

Cost of goods sold upped 31% to $1.44 billion in the quarter ,but based on revenue, contracted 290 basis points to 80.2%. Gross profit went up 58% to $355.9 million and gross margin expanded 290 basis points to 19.8%.

Selling, general, administrative and engineering expenses increased 18% to $184.7 million in the quarter and, based on sales, dipped 150 basis points to 10.3%. The company’s adjusted operating profit in the quarter was $108.9 million, a substantial leap from $11 million in the year-ago quarter. Operating margin was 6.1% in the quarter compared with 0.8% in the year-ago quarter.

Financial Position

As of March 31, 2011, AGCO had cash and cash equivalents of $314.3 million, down from $719.9 million as of December 31, 2010. During the quarter, the company used operating cash flows of $167.4 million compared with $202.3 million in the year-ago period.

As of March 31, 2011, the debt-to-capitalization ratio went down to 9.4% from 14.3% as of December 31, 2010.

Fiscal 2011 Outlook

For fiscal 2011, AGCO is expecting adjusted EPS in the range of $3.50 to $3.75 driven by net sales in the range of $8.3 billion to $8.5 billion. Gross margin improvement is expected to be offset by increased engineering and market expansion expenditures. The company has increased its investment in new product development in order to meet new emission standards, which are expected to aggravate engineering expenses in 2011.

Global industry sales are anticipated to grow in 2011 from 2010 levels. Strong growth is expected in Western Europe and the CIS due to market recovery. Modest growth is projected for North America and healthy market conditions are expected to continue in South America.

Our Take

With a full product line of farm equipment and a wide network of dealers and distributors, we believe AGCO is well positioned, over the long term, to capitalize on the need for increased food production driven by worldwide population growth. Moreover, the company is also looking to expand operations in high-growth emerging markets, which bode well for future operating performance. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.

AGCO Corporation is a leading manufacturer and distributor of agricultural equipment and related replacement parts. Its product line is categorized under five groups: tractors, replacement parts, combines, application equipment/sprayers and other machinery. The company operates in four geographical segments: Europe/Africa/Middle East (EAME), South America, North America and Asia-Pacific. AGCO competes with CNH Global NV (CNH), Deere & Company (DE) and Kubota Corporation (KUB).

 
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