News

DULUTH, Ga., Jul 27, 2010 (BUSINESS WIRE) --

AGCO, Your Agriculture Company (NYSE:AGCO), a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $1.7 billion for the second quarter of 2010, down 1.4% compared to the second quarter of 2009. Reported and adjusted net income per share, which excludes restructuring and other infrequent expenses, were $0.66 for the second quarter of 2010. These results compare to reported net income per share of $0.61 and adjusted net income per share, which excludes restructuring and other infrequent expenses, of $0.64 for the second quarter of 2009. Excluding favorable currency translation impacts of approximately 0.3%, net sales in the second quarter of 2010 decreased 1.7% compared to the same period in 2009.

Net sales for the first six months of 2010 were $3.1 billion, a decrease of approximately 6.9% compared to the same period in 2009. Excluding the favorable impact of currency translation of approximately 4.2%, net sales for the first six months of 2010 decreased approximately 11.1% compared to the same period in 2009. For the first six months of 2010, reported net income was $0.76 per share and adjusted net income, excluding restructuring and other infrequent expenses, was $0.78 per share. These results compare to reported net income of $0.98 per share and adjusted net income, excluding restructuring and other infrequent expenses, of $1.00 per share for the first six months of 2009.

"AGCO's robust performance in South America was the key to our results in the second quarter of 2010," stated Martin Richenhagen, Chairman, President and Chief Executive Officer. "AGCO's market leadership position in Brazil allowed us to take advantage of strong market conditions by doubling our sales and expanding our margins in that region, compared to the second quarter of 2009. This success offset lower results in the Europe/Africa/ Middle East segment due to the weak conditions that we are facing across the Western European markets. With our factories worldwide moving to more normal production schedules in the second quarter of 2010, we delivered gross margin improvement for the second quarter and first six months by closely managing material costs and improving productivity despite a decline in sales compared to a year ago."

"In the first half of 2010, we managed production volumes very closely and constrained the seasonal build in our inventories in response to diverse market conditions which resulted in a solid working capital position at the end of June. In the second half, our focus will remain on cost control, margin improvement and working capital management. Through these efforts and higher scheduled production, we expect to continue to improve our margins compared to the prior year. In addition, we will also be making investments in factory productivity initiatives aimed at expanding our margins and increasing asset returns in the coming years."

Market demand remained very strong in Brazil and Argentina during the second quarter of 2010 resulting in AGCO's South American region reporting a sales increase of approximately 74.2% compared to the second quarter of 2009, excluding favorable currency translation impacts. In contrast, weak industry conditions in Western Europe resulted in a net sales decrease in AGCO's Europe/Africa/Middle East (EAME) region of approximately 9.6% during the second quarter of 2010 compared to the same period of 2009, excluding unfavorable currency translation impacts. In the North American region, sales in the second quarter of 2010 declined approximately 19.3% compared to the second quarter of 2009, excluding favorable currency translation impacts. Lower sales of utility tractors and hay products produced the decline in the North American region.

Income from operations for the second quarter of 2010 grew to $96.5 million, an increase of approximately 23.6% compared to the second quarter of 2009. Gross margins were 18.4% in the second quarter of 2010 compared to 16.5% in the second quarter of 2009. The margin improvement was driven by material cost control and higher production. Income from operations for the first six months of 2010 decreased approximately $29.3 million compared to the same period in 2009 due primarily to a decrease in net sales.

Market Update

North America

Industry unit retail sales of tractors in the first six months of 2010 increased approximately 2% in North America compared to the same period in 2009. Growth in high horsepower tractors and compact tractors was partially offset by a decline in utility tractors. Strong row crop farm fundamentals contributed to the strength in retail sales of high horsepower tractors and combines. Continued weakness in the dairy and livestock sectors contributed to lower industry unit retail sales of mid-range tractors and hay equipment, which both declined compared to the first six months of 2009.

South America

In the first six months of 2010, industry unit retail sales of tractors were up sharply compared to the same period in 2009. Supportive government financing programs, record harvests early in 2010 and improved economics for sugar cane growers produced robust growth in Brazil compared to weak market conditions experienced in the first half of 2009. Improved weather and increased crop production in Argentina contributed to a 53% increase in industry unit retail sales in the first half of 2010 compared to the same period last year.

Western Europe

Industry demand stabilized in Western Europe, but remained weak during the first six months of 2010 compared to the prior year period. Industry unit retail tractor volumes were down approximately 19% compared to the same period in 2009. The slow pace of macro-economic recovery, weak farmer sentiment and soft demand in the dairy and livestock sectors contributed to the decline in 2010. Industry unit retail tractor sales declined in France, the United Kingdom and Germany in the first six months of 2010 compared to same period in 2009.

"Market demand in Brazil is currently running at record levels," stated Mr. Richenhagen. "The Brazilian government has extended low interest rate equipment financing programs through the end of 2010 which along with strong harvests and improved farm income are supporting industry sales. In North America, the expectation of strong yields and improved farm economics is maintaining demand for large tractors and combines by the professional producer segment. Demand in the Russian and Eastern European markets remains at very low levels due to ongoing credit constraints. Industry demand in Western Europe continues to lag below normal levels. Dealers' inventories of used equipment remain high and with marginal farm economics, industry sales of farm equipment remain weak. Despite uncertainty in some of the markets today, the long-term trend of growth in global food consumption remains intact and is expected to support crop prices at levels well above historical levels, leading to increased farmer profitability and reinvestment in agricultural production."

Regional Results

North America

Weak demand from dairy and protein producers led to significant declines in mid-range tractors and hay and forage equipment sales in AGCO's North American region during the first half of 2010 compared to the same period in 2009. Lower sales and increased expenditures on engineering efforts primarily aimed at meeting new emission standards resulted in a decline in income from operations of approximately $27.1 million for the first six months of 2010 compared to the same period in 2009.

South America

Strong industry demand across South America resulted in a 71.3% increase in South American sales in the first six months of 2010 compared to the same period in 2009, excluding the impact of favorable currency translation. Income from operations increased approximately $78.2 million in the first six months of 2010 compared to the same period in 2009. Sales growth, improved factory productivity and a richer product mix in Brazil led to the increase in operating income.

EAME

Lower market demand in Western Europe resulted in significant sales declines in the EAME region. AGCO experienced the largest declines in France and Germany partially offset by sales growth in Poland, Scandinavia and Finland. Income from operations declined by approximately $94.7 million in the first six months of 2010 compared to the same period in 2009. Reduced sales and increased engineering expenses contributed to the decline.

Rest of World

Net sales in AGCO's Rest of World segment declined by approximately 16.2% during the first half of 2010 compared to the prior year period, excluding the impact of currency translation. Lower sales in Australia, New Zealand and Eastern Europe drove most of the decline. Income from operations in the Rest of World region was down slightly in the first half of 2010 compared to the same period in 2009.

Outlook

Global industry sales are expected to be mixed in 2010 compared to 2009. In South America strong industry conditions are expected to continue in the second half of 2010, but relatively flat compared to a strong second half of 2009. North American industry demand is expected to remain stable for the remainder of the year. Market conditions are expected to remain weak but stable in Western Europe during the second half of 2010. Comparisons to 2009 will be more favorable in the second half of the year due to weak conditions in Western Europe in the second half of 2009.

AGCO is targeting adjusted earnings per share in a range from $1.85 to $2.00 for the full year of 2010. Net sales are expected to range from $6.7 billion to $6.8 billion. Gross margin improvements are expected to be partially offset by higher engineering expenses for new product development and Tier 4 emission requirements, as well as higher pension costs. Earnings per share projections exclude restructuring expenses that are expected to be incurred in the Company's European operations and are estimated to be approximately $0.06 per share for the full year of 2010.

AGCO will be hosting a conference call with respect to this earnings announcement at 10:00 a.m. Eastern Time on Tuesday, July 27, 2010. 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/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, margin improvements, profitability, working capital, facility enhancements, industry demand, general economic conditions, global food demand, crop prices, farm incomes and reinvestments, pension costs and engineering and restructuring expenses, 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, 2009. AGCO disclaims any obligation to update any forward-looking statements except as required by law.

• 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, lower farm income 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 take 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 retail sales of the products that we manufacture are financed, either by our retail finance joint ventures with Rabobank or by a bank or other private lender. During the first quarter of 2010, our joint ventures with Rabobank, which are controlled by Robobank and 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 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. As a result of the ongoing economic downturn, financing for capital equipment purchases generally has become more difficult and expensive to obtain. To the extent that financing is not available or available only at unattractive prices, our sales would be negatively impacted.
• Both AGCO and our retail finance joint ventures 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 results of operations and cash flows.
• Our success depends on the introduction of new products, particularly engines that comply with emission requirements, which requires 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 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: AGCO), 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(R), Fendt(R), Massey Ferguson(R) and Valtra(R), and are distributed globally through more than 2,700 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 2009, AGCO had net sales of $6.6 billion.

Please visit our website at www.agcocorp.com.

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 June 30, 2010 and December 31, 2009, the closing sales price of the Company's common stock had exceeded 120% of the conversion price of the 1¾% convertible senior subordinated notes for at least 20 trading days in the 30 consecutive trading days ending June 30, 2010 and December 31, 2009, respectively, and, therefore, the Company classified the notes as a current liability. In accordance with ASU No. 2009-04, "Accounting for Redeemable Equity Instruments," the Company also classified the equity component of the 1¾% convertible senior subordinated notes as "temporary equity." The amount classified as "temporary equity" was measured as the excess of (a) the amount of cash that would be required to be paid upon conversion over (b) the current carrying amount of the liability-classified component. Future classification of both series of notes between current and long-term debt and classification of the equity component of both notes as "temporary equity" is dependent on the closing sales price of the Company's common stock during future quarters. The Company believes it is unlikely the holders of the notes would convert the notes under the provisions of the indenture agreement, thereby requiring the Company to repay the principal portion in cash. In the event the notes were converted, the Company believes it could repay the notes with available cash on hand, funds from the Company's $300.0 million multi-currency revolving credit facility, or a combination of these sources.

6.ACCOUNTS RECEIVABLE SALES AGREEMENTS AND SECURITIZATIONFACILITIES

On January 1, 2010, the Company adopted the provisions of ASU 2009-16, "Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets" and ASU 2009-17. As a result of this adoption, the Company's European securitization facilities were required to be recognized within the Company's Condensed Consolidated Balance Sheets. At June 30, 2010, the Company's accounts receivable securitization facilities in Europe had outstanding funding of approximately EUR 99.9 million (or approximately $122.4 million). Therefore, the Company recognized approximately $122.4 million of accounts receivable sold through its European securitization facilities as of June 30, 2010 with a corresponding liability equivalent to the funded balance of the facilities.

At June 30, 2010, the Company had accounts receivable sales agreements that permit the sale, on an ongoing basis, of substantially all of its wholesale interest-bearing and non-interest bearing receivables in North America to AGCO Finance LLC and AGCO Finance Canada, Ltd., its 49% owned U.S. and Canadian retail finance joint ventures. As of June 30, 2010, net cash received from receivables sold under the U.S. and Canadian accounts receivable sales agreements was approximately $404.5 million.

Losses on sales of receivables primarily under the Company's accounts receivable sales agreements in North America with AGCO Finance, reflected within "Other expense, net" in the Company's Condensed Consolidated Statements of Operations, were approximately $3.7 million and $6.3 million during the three and six months ended June 30, 2010, respectively. Losses on sales of receivables primarily under the Company's European securitization facility and former U.S. and Canadian securitization facilities were approximately $5.2 million and $10.2 million during the three and six months ended June 30, 2009, respectively.

The Company's AGCO Finance retail finance joint ventures in Europe, Brazil and Australia also provide wholesale financing to the Company's dealers. The receivables associated with these arrangements are without recourse to the Company. As of June 30, 2010 and December 31, 2009, these retail finance joint ventures had approximately $162.7 million and $176.9 million, respectively, of outstanding accounts receivable associated with these arrangements. In addition, the Company sells certain trade receivables under factoring arrangements to other financial institutions around the world.

8.SEGMENT REPORTING

Effective January 1, 2010, the Company modified its system of reporting, resulting from changes to its internal management and organizational structure over the past year, which changed its reportable segments from North America; South America; Europe/Africa/Middle East; and Asia/Pacific to North America; South America; Europe/Africa/Middle East; and Rest of World. The Rest of World reportable segment includes the regions of Eastern Europe, Asia, Australia and New Zealand, and the Europe/Africa/ Middle East segment no longer includes certain markets in Eastern Europe. Effective January 1, 2010, these reportable segments are reflective of how the Company's chief operating decision maker reviews operating results for the purposes of allocating resources and assessing performance. Disclosures for the three and six months ended June 30, 2009 have been adjusted to reflect the change in reportable segments.

The Company's four reportable segments distribute a full range of agricultural equipment and related replacement parts. The Company evaluates segment performance primarily based on income from operations. Sales for each 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 and six months ended June 30, 2010 and 2009 are as follows:

RECONCILIATION OF NON-GAAP MEASURES

This earnings release discloses adjusted income from operations, net income and earnings per share, all of which exclude amounts that differ from the most directly comparable measure calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). A reconciliation of each of these financial measures to the most directly comparable GAAP measure is included below.

The following is a reconciliation of adjusted income from operations, net income and earnings per share to reported income from operations, net income and earnings per share for the three months ended June 30, 2010 and 2009 (in millions, except per share data):

SOURCE: AGCO

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