Shares of agriculture machinery manufacturer,
) slipped around 2% and closed at $55.70 on Apr 30, a day after
the company reported first-quarter 2014 results. Earnings per
share declined 13% year over year to $1.03. However, the figure
surpassed the Zacks Consensus Estimate of 79 cents per share.
In the reported quarter, the company's revenues decreased 2.9%
year over year to $2.33 billion and fell short of the Zacks
Consensus Estimate of $2.55 billion. Excluding an unfavorable
currency translation impact of 2.1%, net revenue dropped
Cost of sales declined 2.8% to $1.82 billion from $1.87 billion
in the year-ago quarter. Gross profit in the reported quarter was
$514.9 million, down 3.4% from $533 million in the prior-year
quarter. Gross margin was 22.2%, relatively flat as compared with
the prior-year quarter.
Selling, general and administrative expenses amounted to $267
million, up 4.4% from the year-ago quarter. Segment income from
operations decreased 12.5% year over year to $165.7 million.
Consequently, operating margin contracted 80 bps to 7.1% from the
Sales in the North America segment rose 3.7% year over year to
$647.5 million in the quarter. The segment's income from
operations declined 23% year over year to $55.5 million.
Sales in the South America segment fell 24% year over year to
$353.6 million in the reported quarter. Income from operations
for the segment decreased 42% year over year to $27.9 million.
The EAME (Europe/ Africa/ Middle East) segment's sales were
$1,235.9 million, up 3.6% from the year-ago quarter. EAME's
operating income grew 21% year over year to $120.9 million.
Sales in the Asia/Pacific segment declined 19.7% year over year
to $96.4 million from $120 million a year ago. The segment
reported a loss from operations of $1.3 million against the
year-ago profit of $5.5 million.
As of Mar 31, 2014, AGCO reported cash and cash equivalents of
$193.9 million versus $1047.2 million as of Dec 31, 2013. Cash
used in operating activities was $511 million in the reported
quarter versus $261 million in the prior-year quarter.
Long-term debt was $1.13 billion as of Mar 31, 2014, compared
with $1.05 billion as of Dec 31, 2013. The debt-to-capitalization
ratio remained flat at 22.6% as of Mar 31, 2014.
AGCO believes that the global industry demand will soften in 2014
in comparison to 2013. The company reiterated its full-year 2014
earnings per share of approximately $6.00. Net sales guidance has
also been maintained in the range of $10.8-$11.0 billion.
The company anticipates second-quarter 2014 sales volumes to fall
due to adjustments in dealer and company inventory levels. This,
along with a weaker sales mix, is expected to lead second-quarter
2014 earnings per share in the range of $1.65 to $1.70.
Additionally, capital expenditures for 2014 will be $400-$425
million and free cash flow is projected to exceed $250 million.
The company believes that gross margin improvement will be
somewhat offset by increased engineering expenditures to meet
Tier 4 final emission requirements and market development
Profitability improvement and working capital reduction
throughout 2014 are the key areas of focus for the company. AGCO
is also targeting to increase productivity and deliver high-tech
solutions to help farmers improve their efficiency.
AGCO is set to benefit from strong free cash flow and a focus on
earnings growth. The company's strategic investments in
production facilities and higher technology products will improve
efficiency. Moreover, AGCO's expansion of its business in
international markets bodes well going forward. Nevertheless,
2014 will be a challenging year for the company due to the
expected decline in demand across most of its markets.
Duluth, GA-based AGCO is a global leader in the design,
manufacture and distribution of agricultural machinery. It
supports productive farming through a wide range of tractors,
combines, hay tools, sprayers, forage equipment, tillage,
implements, grain storage and protein production systems as well
as other related replacement parts.
Currently, AGCO has a short-term Zacks Rank #3 (Hold). Some
better-ranked machinery makers worth consideration include
Alamo Group, Inc.
Broadwind Energy, Inc.
Altra Industrial Motion Corp.
). All of these have a Zacks Rank #2 (Buy).
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