First Majestic Silver Corp. (AG)

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AGCO Corp. (AG)

Q4 2008 Earnings Call

January 09, 2009 10:00 AM ET

Executives

Greg Peterson - Director, Investor Relations

Martin H. Richenhagen - Chairman, President, and Chief Executive Officer

Andrew H. Beck - Senior Vice President and Chief Financial Officer

Analysts

Ann Duignan - JP Morgan

Charlie Rentschler - Wall Street Access

Andrew Owen - Bank of America

Henry Kirn - UBS

Mark Koznarek - Cleveland Research Company

Andrew Casey - Wachovia Capital Market

Joel Tiss - Buckingham Research

Jerry Revich - Goldman Sachs

Jamie Cook - Credit Suisse

Presentation

Operator

Good morning. My name is Britney, and I will be your conference operator. At this time, I would like to welcome everyone to the AGCO Corporation 2008 Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer period. (Operator Instructions)l. As a reminder, ladies and gentlemen, this conference is being recorded today, February 9, 2009.

Thank you. I would now like to introduce Greg Peterson. Mr. Peterson, you may begin your conference.

Greg Peterson

Thank you, Britney. Good morning, and thank you for joining us for AGCO's fourth quarter 2008 earnings conference call. On the call with me this morning are Martin Richenhagen, our Chairman, President and Chief Executive Officer and Andy Beck, our Senior Vice President and Chief Financial Officer.

During this conference call, we will refer to a slide presentation. The slides, earnings press release and our financial statements are posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix to the slides.

During the course of this conference call, we will make forward-looking statements including some related to future sales, earnings, production levels, market share improvements, availability of financing, general economic conditions, currency translations, foreign income, working capital, cash flow, margins, effective tax rate, interest expense, market conditions, retail sales financing, pricing levels, capital expenditures, and strategic initiatives.

We wish to caution you that these statements are predictions and that actual events or results may differ materially. We refer you to the periodic reports that we file from time-to-time with the Securities and Exchange Commission including the company's Form 10-K for the year ended December 31, 2007 and Form 10-Q for the quarter ended September 30, 2008.

These documents discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. A replay of this call will be available on our corporate website.

Now, I'd like to turn the call over to Martin.

Martin H. Richenhagen

Thank you Greg, and good morning everybody. Since we last spoke in December, we have seen continued slowdown in the global economy and the tightened credit markets are beginning to impact our industry, most notably, in the developing markets of Russia and Eastern Europe and South America.

We continue to believe AGCO is well positioned financially, strategically and operationally to serve our customers and execute on the positive long-term fundamentals of the agricultural sector. We've maintained a high level of financial discipline and it's reflected on our balance sheet with our low level of net debt.

Our strict focus on agriculture equipment has kept us less exposed to the ailing general economy. Given our overall financial health, we are comfortable that we have the right policies in place to manage our business through this current financial climate.

In general, our dealers and our farm customers are in the healthiest financial condition in recent memory. Their balance sheets are strong and in most of the developed markets they continue to have access to credits.

Today, AGCO Finance, our joint venture with Rabobank provides financing for about 50% of AGCO's retail sales in our major markets. AGCO Finance is well capitalized. It does not rely on the commercial paper or securitization, well I have to exercise a little more next time, markets for its funding, and it stands ready to increase its participation in financing our retail sales should other credit sources tighten.

Let's turn our attention now to the AGCO's 2008 results. I'll begin my remarks on slide 3. You can see from this slide that AGCO had a strong finish in 2008 with both record sales and record earnings for the full year. Our sales increased over 23% compared to 2007. Our margins expanded nearly 100 basis points, and earnings per share exceeded $4 for the first time in AGCO's history.

Slide 4 illustrates our production schedules for 2007 and 2008. Tractor and combine production levels were up 15% in the fourth quarter of 2008, compared to the fourth quarter of 2007. For the full year of 2008, our production of tractors and combines was up approximately 18% from 2007 levels. We did continue to see some supply constraints in the fourth quarter primarily for tires and wheels. As a result, our year-end inventory finished higher than planned and contributed to the decline in our free cash flow.

We are reducing our 2009 production schedules to drive down our inventory levels as well in response to the softer demand forecasted for 2009.

Slide 5 details industry retail farm equipment volumes by region for the full year of 2008. Industry tractor sales in North America were down 7% compared to 2007 levels. The weakest segment continued to be tractors under 40 horsepower that are more closely tied to residential construction and general economic conditions.

The industry also experienced declines in the 40 to 100 horsepower category. The professional farming segment continues to benefit from positive whole crop economics. Industry retail sales were up approximately 24% in the over 100 horsepower tractor segment and the combine market grew approximately 22% in the full year of 2008 compared to the same period in 2007.

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