AGCO Corp. (AG)
Q3 FY08 Earnings Call
October 29, 2008, 10:00 AM ET
Greg Peterson - Director of IR
Martin H. Richenhagen - Chairman, President, and CEO
Andrew H. Beck - Sr. VP and CFO
Ann Duignan - J.P. Morgan
Robert Wertheimer - Morgan Stanley
Terry Darling - Goldman Sachs
Andrew Casey - Wachovia Securities
Jamie Cook - Credit Suisse
Mark Koznarek - Cleveland Research Company
Barry Bannister - Stifel Nicolaus
Henry Kirn - UBS
Joel Tiss - Buckingham Research
Previous Statements by AG
» AGCO Q4 2008 Earnings Call Transcript
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» AGCO Corp. Q1 2008 Earnings Call Transcript
Greg Peterson - Director of Investor Relations
Thank you Samarian, good morning. We appreciate you joining us for AGCO's third quarter 2008 earnings conference call. Joining 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 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, supplier and production constraints, inflation, foreign income, working capital improvement, cash flow, margins, effective tax rate, 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 June 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. I will now turn the call over to Martin.
Martin H. Richenhagen - Chairman, President, and Chief Executive Officer
Thank you, Greg and good morning everybody. We appreciate your attention this sunny October morning. We've experienced volatility over the last few weeks and you'll likely see more in the weeks and months ahead.
We believe AGCO, Your Agriculture Company, is well positioned financially, strategically, and operationally to serve our customers and execute on the positive long-term fundamentals of the agriculture sector. These maintained a high level of financial discipline and it's reflected on our balance sheet with our low level of net debt.
Given our overall financial health we're comfortable that we've the right policies in place to protect and grow our business even 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 general their access to credit remains very good. Today AGCO Finance, our joint venture with Rabobank provides financing for about 50% of AGCO's retail sales, AGCO Finance is well capitalized. It does not rely on the commercial paper or securitization markets for its funding and its stands ready to increase its participation in financing our retail sales should other credit sources tighten. I also am pleased to tell you that despite the challenges in the financial markets AGCO's backlog remains strong and we have not seen a significant change in the flow of orders. 2008 harvest are at or above last years robust levels. And we expect healthy farm income in all the world's major agricultural markets.
Let's turn our attention now to AGCO's third quarter results. I'll begin my remarks on slide 3. You can see from this slide that we have continued our momentum for the third quarter of 2008 which resulted in record quarterly sales and earnings. Strong demand for our high horse power tractors and combines produced an increase in our sales of approximately 29% compared to the third quarter of 2007. And our drafted earnings per share rose to $1.04. We managed through significant material cost increases during the quarter and experienced no debt deterioration of our operating margins. This is quite impressive given the rich mix of sales in the third quarter of 2007 within an unseasonable high percentage of our sales coming from our premium price and products.
Slide 4 now illustrates our production schedules for 2007 and 2008. Tractor and combine production levels were up 11% in the third quarter of 2008 compared to the third quarter of 2007. Production was up to support the increased demand across the globe. Our current 2008 forecast calls for unit production of tractors and combines to increase 18% to 19% compared to 2007 levels in order to satisfy the forecasted increase in the market demand. The elevated demand for industrial and farm equipment continued to put stress on AGCO's supply chain. We are working with our suppliers and focusing on key internal processes to meet our production schedules by the end of the year.
Slide 5, details in that preview the farm equipments volume by region for the first nine month of 2008. Industry tractor sales in North America were down 5% compared to 2007 levels. The weakest segment continued to be tractors under 40 horsepower that are more closely tied to the general economy. We also experienced declines in the 400 to 100 horsepower category. The professional farming segment continues to benefit from positive cash crop economics and sales are up approximately 33% in the overrun in the horsepower tractor segment and the combine market grew approximately 25% in the first nine months of 2008 compared to the same period in 2007.