News

DULUTH, Ga.--(BUSINESS WIRE)--Apr. 28, 2009-- AGCO, Your Agriculture Company (NYSE:AG), a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $1.6 billion and net income of $0.36 per share for the first quarter of 2009. These results compare to net sales of approximately $1.8 billion and net income of $0.59 per share for the first quarter of 2008. Excluding unfavorable currency translation impacts of approximately 14.5%, net sales in the first quarter of 2009 increased approximately 2.9% compared to the same period in 2008.

“Demand for agricultural equipment is weakening in all the major world markets as the global economic turmoil and constrained credit markets begin to impact our industry,” stated Martin Richenhagen, AGCO’s Chairman, President and Chief Executive Officer. “In the first quarter, the credit-challenged markets of Eastern Europe and Russia experienced significant declines, while industry demand continues to erode in South America where dry weather conditions and credit availability are factors. Despite the disruption in the general economy, farm fundamentals remain strong, and we continue to be optimistic about long-term world grain demand and the future growth prospects for our company.”

“We are taking aggressive actions to control expenses, reduce our production and lower our investment in working capital in line with weaker market conditions,” Mr. Richenhagen continued. “We are balancing near-term cost reductions with continued investment in longer-term growth initiatives. We remain positioned to focus on operational improvements and additional investment in new products. The short-term cost reduction actions and production cuts should see us through this downturn, while our strategic investments should position us for profitable growth as market conditions improve.”

First Quarter Results

Net sales were $1,579.0 million for the first quarter of 2009, compared to $1,786.6 million for the first quarter of 2008. AGCO’s North American sales grew approximately 12.7% in the first quarter of 2009 compared to the first quarter of 2008, excluding unfavorable currency translation impacts of approximately 5.8%. In the North American region, stronger sales of balers and tillage equipment produced much of the improvement. Net sales in the first quarter of 2009 in the Europe/Africa/Middle East (EAME) region increased approximately 8.7% when compared to the first quarter of 2008, excluding unfavorable currency translation impacts of approximately 16.3%. Growth in Germany, France and the United Kingdom was partially offset by lower sales in Scandinavia, Spain, Eastern Europe and Russia. Weaker market conditions in Brazil and Argentina during the first quarter of 2009 drove a net sales decrease of approximately 26.6% in the South American region, excluding unfavorable currency translation impacts of approximately 17.6%, compared to the same period in 2008. Net sales in AGCO’s Asia/Pacific region decreased approximately 1.8% during the first quarter of 2009 compared to the same period in 2008, excluding unfavorable currency translation impacts of approximately 20.8%.

Gross profit percentage declined approximately 40 basis points in the first quarter of 2009 compared to the same period in 2008, primarily due to lower production volumes. Income from operations for the first quarter of 2009 was $58.6 million compared to $94.2 million for the same period in 2008. Lower margins, unfavorable currency translation impacts and higher levels of engineering expense accounted for most of the decrease. Unit production of tractors and combines for the first quarter of 2009 was down approximately 5% compared to 2008 levels.

AGCO’s EAME region reported a decline of approximately $19.7 million in income from operations for the first quarter of 2009 compared to the same period in 2008. Reduced gross margins, unfavorable currency translation impacts and increased engineering expenses all contributed to the decline.

AGCO’s South American region reported a decrease in income from operations of approximately $29.0 million in the first quarter of 2009 compared to the same period in 2008. Significantly lower sales in Brazil and Argentina, the unfavorable impact of currency translation and a shift in sales mix to lower horsepower tractors in Brazil produced lower income from operations compared to the first quarter of 2008.

Results in AGCO’s North American region benefited from sales growth, expense control initiatives and the improvement in the profitability of AGCO’s sprayer operations. In the first quarter of 2009, income from operations grew approximately $18.2 million compared to the same period in 2008.

Income from operations in our Asia/Pacific region decreased approximately $3.4 million in the first quarter of 2009 compared to the same period in 2008, due to a decrease in sales and unfavorable currency translation impacts.

Regional Market Results

North America– Industry unit retail sales of tractors for the first quarter of 2009 decreased approximately 20% over the comparable prior year period. Industry unit retail sales of tractors over 100 horsepower were down modestly compared to strong levels in the prior year, while industry unit retail sales of tractors under 100 horsepower declined significantly compared to the prior year. Industry unit retail sales of combines for the first quarter of 2009 increased approximately 33% from the same period in 2008. AGCO’s unit retail sales of tractors and combines were down in the first quarter of 2009 compared to the same period in 2008.

Europe – Industry unit retail sales of tractors for the first quarter of 2009 decreased approximately 8% compared to the prior year period. Weaker retail demand in Central and Eastern Europe, Russia, and Spain was partially offset by improved demand in France, Germany, and the United Kingdom. AGCO’s unit retail sales of tractors for the first quarter of 2009 were lower when compared to the prior year period.

South America – Industry unit retail sales of tractors decreased approximately 19% and industry unit retail sales of combines decreased approximately 44% for the first quarter of 2009 compared to the same period last year. Industry unit retail sales of tractors in Brazil increased approximately 3% while industry unit retail sales in Argentina declined approximately 60%, during the first quarter of 2009 compared to 2008. In January 2009, the Brazilian government initiated a special financing program for small tractors. The new program drove an increase in small tractor sales which offset declines in high horsepower tractors in the professional farming segment. AGCO’s South American unit retail sales of tractors and combines decreased in the first quarter of 2009 compared to 2008.

Rest of World Markets – Outside of North America, Europe and South America, AGCO’s net sales for the first quarter of 2009 increased approximately 3.5% compared to 2008, primarily due to higher sales in Africa partially offset by lower sales in the Middle East.

“With commodity prices expected to stay above historical levels and input costs trending down, farmers are generally expected to be profitable in 2009. However, the drop in commodity prices from last year’s record levels and decreased crop production in some regions are expected to result in reduced farm income,” stated Mr. Richenhagen. “The global recession has hurt farmer sentiment and prompted them to be more cautious about their equipment investment decisions. Credit limitations are also a major factor in some regions. We have seen a general softening in demand for our products and our order trends have weakened. There is significant uncertainty regarding market demand for the remainder of the year and AGCO will continue to adjust its production schedule in line with changing demand.”

Outlook

Worldwide industry retail sales of farm equipment in 2009 are expected to decrease from strong 2008 levels. In North America, weaker general economic conditions are expected to produce declines in industry retail sales of low and medium horsepower tractors. A decline in 2009 farm income and increased farmer conservatism is projected to result in softer industry retail sales of high horsepower tractors and combines compared to 2008. In South America, industry volumes are expected to be down significantly due to dry weather conditions and the impact of the tightened credit environment on planted acreage and crop production. European industry volumes are expected to decline in 2009, with stronger declines in the credit-challenged markets of Central and Eastern Europe and Russia.

For the full year of 2009, AGCO is targeting earnings per share in a range from $2.00 to $2.50. Net sales are expected to range from $6.7 billion to $7.0 billion including unfavorable currency translation impacts of approximately $900 million to $1.0 billion. AGCO’s earnings are expected to be impacted by lower sales and production volumes and by increased engineering expenses for new product development and Tier 4 emission requirements. The largest impacts from production cuts and working capital reduction initiatives are expected to be incurred in the second quarter. As a result, AGCO’s earnings per share in the second quarter are expected to be significantly lower than reported for the second quarter of 2008.

AGCO will be hosting a conference call with respect to this earnings announcement at 10:00 a.m. Eastern Time on Tuesday, April 28, 2009. The Company will refer to slides on its conference call. Interested persons can access the conference call and slide presentation via AGCO’s website at www.agcocorp.com on the “Investors/Calendar of Events” page. A replay of the conference call will be available approximately two hours after the conclusion of the conference call for twelve months following the call. A copy of this press release will be available on AGCO’s website for at least twelve months following the call.

Safe Harbor Statement

Statements that are not historical facts, including the projections of earnings per share, sales, market conditions, availability of financing, production volumes, industry demand, general economic conditions, working capital and strategic initiatives, currency translation impacts and engineering expense increases, are forward-looking and subject to risks which could cause actual results to differ materially from those suggested by the statements. These forward-looking statements involve a number of risks and uncertainties. The following are among the factors that could cause actual results to differ materially from the results discussed in or implied by the forward-looking statements. Further information concerning these and other factors is included in AGCO’s filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2008. AGCO disclaims any obligation to update any forward-looking statements.

• Our financial results depend entirely upon the agricultural industry, and factors that adversely affect the agricultural industry generally, including declines in the general economy, increases in farm input costs, lower commodity prices and changes in the availability of credit for our retail customers, will adversely affect us.
• The recent poor performance of the general economy may result in a decline in demand for our products. However, we are unable to predict with accuracy the amount or duration of this decline, and our forward-looking statements reflect merely our best estimates at the current time.
• A majority of our sales and manufacturing takes place outside of the United States, and, as a result, we are exposed to risks related to foreign laws, taxes, economic conditions, labor supply and relations, political conditions and governmental policies. These risks may delay or reduce our realization of value from our international operations.
• Most of the retail sales of our products are financed either by our retail finance joint ventures with Rabobank or by a bank or other private lender. During 2008, our joint ventures with Rabobank, which are dependent upon Rabobank for financing as well, financed approximately 50% of the retail sales of our tractors and combines, in the markets where the joint ventures operate. Any difficulty by Rabobank to continue to provide that financing, or any business decision by Rabobank as the controlling member of the joint ventures not to fund the business or particular aspects of it (for example, a particular country or region), would require the joint ventures to find other sources of financing (which may be difficult to obtain), or us to find another source of retail financing for our customers, or our customers would be required to utilize other retail financing providers. To the extent that financing is not available or available at unattractive prices, our sales would be negatively impacted.
• Both AGCO and AGCO Finance have substantial accounts receivables from dealers and end-customers, and we would be adversely impacted if the collectability of these receivables was not consistent with historical experience; this collectability is dependent upon the financial strength of the farm industry, which in turn is dependent upon the general economy and commodity prices, as well as several of the other factors listed in this section.
• We recently have experienced substantial and sustained volatility with respect to currency exchange rate and interest rate changes, which can adversely affect our reported results of operations and the competitiveness of our products.
• We are subject to extensive environmental laws and regulations, and our compliance with, or our failure to comply with, existing or future laws and regulations could delay production of our products or otherwise adversely affect our business.
• We have significant pension obligations with respect to our employees and our available cash flow may be adversely affected in the event that payments become due under any pension plans that are unfunded or underfunded. Declines in the market value of the securities used to fund these obligations result in increased pension expense in future periods.
• The agricultural equipment industry is highly seasonal, and seasonal fluctuations significantly impact our results of operations and cash flows.
• Our success depends on the introduction of new products, which require substantial expenditures.
• We depend on suppliers for raw materials, components and parts for our products, and any failure by our suppliers to provide products as needed, or by us to promptly address supplier issues, will adversely impact our ability to timely and efficiently manufacture and sell our products. We also are subject to raw material price fluctuations, which can adversely affect our manufacturing costs.
• We face significant competition and, if we are unable to compete successfully against other agricultural equipment manufacturers, we would lose customers and our net sales and profitability would decline.
• We have a substantial amount of indebtedness, and as result, we are subject to certain restrictive covenants and payment obligations that may adversely affect our ability to operate and expand our business.

About AGCO

AGCO, Your Agriculture Company (NYSE: AG), was founded in 1990 and offers a full product line of tractors, combines, hay tools, sprayers, forage, tillage equipment, implements and related replacement parts. AGCO agricultural products are sold under the core brands of Challenger®, Fendt®, Massey Ferguson® and Valtra®, and are distributed globally through more than 2,800 independent dealers and distributors, in more than 140 countries worldwide. AGCO provides retail financing through AGCO Finance. AGCO is headquartered in Duluth, Georgia, USA. In 2008, AGCO had net sales of $8.4 billion.

Please visit our website at www.agcocorp.com.

2. INDEBTEDNESS

Indebtedness at March 31, 2009 and December 31, 2008 consisted of the following:

In May 2008, the Financial Accounting Standard Board (“FASB”) issued FASB Staff Position (“FSP”) Accounting Principles Board (“APB”) 14-1, “Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (including Partial Cash Settlement)” (“FSP APB 14-1”). The FSP requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), commonly referred to as an Instrument C under EITF Issue No. 90-19, “Convertible Bonds with Issuer Options to Settle for Cash Upon Conversion,” be separated to account for the fair value of the debt and equity components as of the date of issuance to reflect the issuer’s nonconvertible debt borrowing rate. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and is applied retrospectively to all periods presented (retroactive restatement) pursuant to the guidance in SFAS No. 154, “Accounting Changes and Error Corrections.” The adoption of the FSP on January 1, 2009 impacted the accounting treatment of the Company’s 1¾% convertible senior subordinated notes due 2033 and its 1¼% convertible senior subordinated notes due 2036 by reclassifying a portion of the convertible notes balances to additional paid-in capital representing the estimated fair value of the conversion feature as of the date of issuance and creating a discount on the convertible notes that will be amortized through interest expense over the life of the convertible notes. The adoption of the FSP also resulted in a significant increase in interest expense and, therefore, reduced net income and basic and diluted earnings per share within the Company’s Condensed Consolidated Statements of Operations. On January 1, 2009, the Company reduced its “Retained earnings” and “Convertible senior subordinated notes” balance by approximately $37.2 million and $57.0 million, respectively, and increased its “Additional paid-in capital” balance by approximately $94.2 million. Due to a tax valuation allowance established in the United States, there was no deferred tax impact upon adoption. In accordance with the provisions of FSP APB 14-1, prior periods have been retroactively restated to reflect the adoption of the standard.

Holders of the Company’s 1¾% convertible senior subordinated notes due 2033 and 1¼% convertible senior subordinated notes due 2036 may convert the notes, if, during any fiscal quarter, the closing sales price of the Company’s common stock exceeds, respectively, 120% of the conversion price of $22.36 per share for the 1¾% convertible senior subordinated notes and $40.73 per share for the 1¼% convertible senior subordinated notes, for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter. As of March 31, 2009 and December 31, 2008, the closing sales price of the Company’s common stock did not exceed 120% of the conversion price of both notes for at least 20 trading days in the 30 consecutive trading days ending March 31, 2009 and December 31, 2008, and, therefore, the Company classified both notes as long-term debt. Future classification of the notes between current and long-term debt is dependent on the closing sales price of the Company’s common stock during future quarters.

3. INVENTORIES

Inventories are valued at the lower of cost or market using the first-in, first-out method. Market is current replacement cost (by purchase or by reproduction dependent on the type of inventory). In cases where market exceeds net realizable value (i.e., estimated selling price less reasonably predictable costs of completion and disposal), inventories are stated at net realizable value. Market is not considered to be less than net realizable value reduced by an allowance for an approximately normal profit margin.

Inventories at March 31, 2009 and December 31, 2008 were as follows:

4. ACCOUNTS RECEIVABLE SECURITIZATION

The Company sells wholesale accounts receivable on a revolving basis to commercial paper conduits either on a direct basis or through a wholly-owned special purpose U.S. subsidiary under its United States and Canadian securitization facilities and through a qualifying special purpose entity in the U.K. under its European securitization facility. Outstanding funding under these facilities totaled approximately $477.5 million at March 31, 2009 and $483.2 million at December 31, 2008. The funded balance has the effect of reducing accounts receivable and short-term liabilities by the same amount. Losses on sales of receivables primarily from securitization facilities included in other expense, net were $5.0 million and $6.2 million for the three months ended March 31, 2009 and 2008, respectively.

The Company has an agreement to permit transferring, on an ongoing basis, the majority of its wholesale interest-bearing receivables in North America to AGCO Finance LLC and AGCO Finance Canada, Ltd., its United States and Canadian retail finance joint ventures. The Company has a 49% ownership interest in these joint ventures. The transfer of the receivables is without recourse to the Company, and the Company continues to service the receivables. As of March 31, 2009, the balance of interest-bearing receivables transferred to AGCO Finance LLC and AGCO Finance Canada, Ltd. under this agreement was approximately $66.9 million compared to approximately $59.0 million as of December 31, 2008.

5. EARNINGS PER SHARE

The Company’s convertible senior subordinated notes provide for (i) the settlement upon conversion in cash up to the principal amount of the converted notes with any excess conversion value settled in shares of the Company’s common stock, and (ii) the conversion rate to be increased under certain circumstances if the notes are converted in connection with certain change of control transactions. Dilution of weighted shares outstanding will depend on the Company’s stock price for the excess conversion value using the treasury stock method. A reconciliation of net income attributable to AGCO Corporation and subsidiaries and weighted average common shares outstanding for purposes of calculating basic and diluted earnings per share for the three months ended March 31, 2009 and 2008 is as follows:

6. SEGMENT REPORTING

The Company has four reportable segments: North America; South America; Europe/Africa/Middle East; and Asia/Pacific. Each regional segment distributes a full range of agricultural equipment and related replacement parts. The Company evaluates segment performance primarily based on income from operations. Sales for each regional segment are based on the location of the third-party customer. The Company’s selling, general and administrative expenses and engineering expenses are charged to each segment based on the region and division where the expenses are incurred. As a result, the components of income from operations for one segment may not be comparable to another segment. Segment results for the three months ended March 31, 2009 and 2008 are as follows:

A reconciliation from the segment information to the consolidated balances for income from operations is set forth below:

Source: AGCO

AGCO
Greg Peterson, 770-232-8229
Director of Investor Relations
greg.peterson@agcocorp.com