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AGCO Corporation (AG)
Q1 FY8 Earnings Call
April 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
Stephen Volkmann - JPMorgan
Ann Duignan - Bear Stearns
Terry Darling - Goldman Sachs
Andrew Obin - Merrill Lynch
Andrew Casey - Wachovia Securities
Jamie Cook - Credit Suisse
Mark Koznarek - Cleveland Research
Charlie Rentschler - Wall Street Access
Barry Bannister - Stifel Nicolaus
Robert Wertheimer - Morgan Stanley
Previous Statements by AG
» AGCO Q4 2008 Earnings Call Transcript
» AGCO Corp. Q3 2008 Earnings Conference Call Transcript
» AGCO Corp. Q2 2008 Earnings Call
Greg Peterson - Director of Investor Relations
Thank you Cynthia and good morning and thank you for joining us for AGCO's first quarter 2008 earnings conference call. 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 agcocorp.com.
The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix to the slides. On the call with me this morning are, Mr. Martin Richenhagen, our Chairman, President and Chief Executive Officer and Andy Beck, our Senior Vice President and Chief Financial Officer.
Before we get started this morning, let me remind you that 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, farm income, working capital improvement, cash flow, margins effective tax rate, capital expenditure 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. These documents discuss important factors that could cause 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. I'll begin my remarks on slide 3 where you can see that we had a very good start to the year. We posted record quarterly sales and earnings. Our sales increased approximately 34% compared to the first quarter of 2007 and our adjusted earnings per share in the first quarter were up 142% compared to the first quarter last year. We used our well positioned brands to leverage very healthy market conditions and produce strong results in the quarter.
Our EAME [Europe/Africa/Middle East] segment continues to grow strongly and improve its profitability. In Europe, our Fendt brand performed well, showing the best sales and margin improvement. Recall that during the first quarter of 2007, our Fendt sales were artificially low as we were initiating production on our new high horsepower series tractors and experienced supply constraints. Both of these events negatively impacted our sales during the first quarter of 2007. The South American market continues to respond to strong commodity prices. In Brazil, acreage devoted to corn, soybeans and sugarcane has expanded and crop production is expected to be up from 2007 levels.
Market conditions in Argentina also were very good in the first quarter. However, government restrictions on grain export resulted in a disruption in the market late in the quarter that may impact industry demand there in the coming months.
In North America, record 2007 farm income is driving strong sales in high horsepower tractor and combines. The slowing in the general economy softened demand for compact and utility tractors that are more often used in non-farming applications.
On slide 4, you can see our production schedule for 2007 and 2008. Tractor and combine production levels were up 25% in the first quarter of 2008 compared to the first quarter of 2007. Production was up to support the strong growth in global demand. The increased production occurred across all regions with nearly all of our production facilities experiencing double-digit unit growth compared to the first quarter of 2007.
Our current 2008 forecast calls for unit production of tractors and combines to increase 12% to 14% compared to the 2007 levels in order to satisfy the forecasted increase in the market demand. The strong global demand for industrial and farm equipment continued to put stress on AGCO's supply chain. As we told you last quarter, we are working with our existing suppliers to prepare them for expected demand levels and we are also working to qualify new suppliers to mitigate future supply constraints. The strong market conditions have at or near capacity in some internal assembly and production operations and we are making investments in some of our facilities to expand capacity.
Slide 5 details industry retail farm equipment volumes by region for the first quarter of 2008. Industry tractor sales in North America were down 11% compared to 2007 levels. The weakest segment continued to be tractors under 40 horsepower that are more closely tied to the general economy.