AGCO, Your Agriculture Company (NYSE: AGCO), a worldwide manufacturer and distributor of agricultural equipment and solutions, reported its results for the third quarter ended September 30, 2020.
Net sales for the third quarter were approximately $2.5 billion, an increase of approximately 18.4% compared to the third quarter of 2019. Reported and adjusted net income was $2.09 per share for the third quarter of 2020. These results compare to reported net income of $0.10 per share, and adjusted net income, excluding a non-cash deferred income tax adjustment and restructuring expenses, of $0.82 per share for the third quarter of 2019. Excluding unfavorable currency translation impacts of approximately 1.6%, net sales in the third quarter of 2020 increased approximately 20.0% compared to the third quarter of 2019.
Net sales for the first nine months of 2020 were approximately $6.4 billion, a decrease of approximately 1.5% compared to the same period in 2019. Excluding unfavorable currency translation impacts of approximately 3.1%, net sales for the first nine months of 2020 increased approximately 1.6% compared to the same period in 2019. For the first nine months of 2020, reported net income was $3.86 per share, and adjusted net income, excluding a non-cash impairment charge and restructuring expenses was $4.06 per share. These results compare to reported net income of $2.77 per share, and adjusted net income, excluding a non-cash deferred income tax adjustment and restructuring expenses, of $3.50 per share for the first nine months of 2019.
Third Quarter Highlights
Reported regional sales results (1): Europe/Middle East ('EME') 22.7%, North America 8.6%, South America 14.4%, Asia/Pacific/Africa ('APA') 25.2% Constant currency regional sales results (1) (2): EME 18.9%, North America 9.1%, South America 48.5%, APA 21.3% Regional operating margin performance: EME 13.3%, North America 10.0%, South America 6.1%, APA 10.1% Year-to-date free cash flow increased over $309 million from the first nine months of 2019
Funding position improved with net debt below September 2019 levels
Raised full-year outlook for net sales and net income per share
Increase (decrease) as compared to third quarter 2019.
Excludes currency translation impact. See reconciliation in appendix.
'AGCO's third quarter results were highlighted by sales growth and margin expansion across all regions,' stated Martin Richenhagen, AGCO's Chairman, President and Chief Executive Officer. 'Our focused operational performance allowed us to ramp up production and recover from supply chain interruptions experienced in the second quarter. During the third quarter, we made significant progress towards fulfilling our strong order board while reducing dealer and company inventory levels. We have strong order boards heading into the fourth quarter, however, we still face a demanding environment to manage our manufacturing, supply chain and aftermarket operations. I would like to thank all our employees again for their extraordinary efforts to support our dealers and customers under these challenging conditions. AGCO is also maintaining its planned funding levels supporting premium technology, smart farming solutions and enhanced digital capabilities in 2020. These investments are delivering new features and functionality across our product portfolio which positions us to improve our global market position and profitably grow our business.'
North America
AGCO's North American net sales increased 3.1% in the first nine months of 2020 compared to the same period of 2019, excluding the negative impact of currency translation. Increased sales of high horsepower tractors, hay equipment and Precision Planting products were partially offset by lower grain and protein product as well as sprayer sales. Income from operations for the first nine months of 2020 improved approximately $69.4 million compared to the same period in 2019. Higher sales, the benefit of a richer mix of products, as well as cost control initiatives contributed most of the increase.
South America
Net sales in the South American region increased 30.4% in the first nine months of 2020 compared to the first nine months of 2019, excluding the impact of unfavorable currency translation. Increased sales in Brazil and Argentina were partially offset by lower sales in other South American markets. Income from operations in the first nine months of 2020 was improved compared to the same period in 2019 by approximately $34.6 million. The improved South America results reflect the benefit of higher sales and production, a richer sales mix, as well as cost reduction initiatives, partially offset by negative currency impacts.
Europe/Middle East
AGCO's Europe/Middle East net sales decreased 3.6% in the first nine months of 2020 compared to the same period in 2019, excluding unfavorable currency translation impacts. Sales declines were driven primarily by lower production caused by the impacts from the COVID-19 crisis. All of AGCO's major European production facilities were suspended due to supply availability from late March throughout most of April. Production and sales volumes increased substantially in the third quarter which offset a portion of the low second quarter output. Despite improved results in the third quarter, income from operations declined approximately $77.7 million in the first nine months of 2020, compared to the same period in 2019, due to lower net sales and production volumes, partially offset by expense reductions.
Asia/Pacific/Africa
Asia/Pacific/Africa net sales increased 3.2%, excluding the negative impact of currency translation, in the first nine months of 2020 compared to the same period in 2019. Higher sales in Australia and China were partially offset by declines in Africa and Southeast Asia. Income from operations improved by approximately $14.6 million in the first nine months of 2020, compared to the same period in 2019, due to higher sales and a richer product mix in addition to reduced expenses.
Funding Update
AGCO's available funding as of September 30, 2020, including the $542.4 million term loan facility added during the second quarter, was approximately $1.6 billion consisting of cash of approximately $503.3 million and available borrowing capacity of approximately $1.1 million. The Company's funding position improved during the third quarter with net debt approximately $323.3 million below September 2019.
Outlook
The health, safety and well-being of all AGCO employees, dealers and farmer customers continues to be AGCO's top priority during the COVID-19 pandemic. The following outlook does not contemplate any further sales or production disruptions caused by the pandemic.
Net sales in 2020 are expected to be approximately $8.9 billion reflecting relatively flat end-market demand, the unfavorable impact of currency translation, offset by the benefit of positive pricing. Adjusted operating margins are expected to be improved from 2019 levels due to positive pricing and expense reductions. Based on these assumptions, 2020 adjusted net income per share, excluding the impact of restructuring expenses and the non-cash goodwill impairment charge, is targeted at approximately $5.00.
Safe Harbor Statement
Statements that are not historical facts, including the projections of earnings per share, sales, industry demand, market conditions, commodity prices, currency translation, farm income levels, margin levels, investments in product and technology development, new product introductions, restructuring and other cost reduction initiatives, production volumes, tax rates and general economic conditions, are forward-looking and subject to risks that could cause actual results to differ materially from those suggested by the statements. 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.
The Company is uncertain of the impact of the coronavirus ('COVID-19') pandemic due to increased volatility in global economic and political environments, market demand for its products, supply chain disruptions, workforce availability, exchange rate and commodity price volatility and availability of financing, and their impact to the Company's net sales, production volumes, costs and overall financial condition and liquidity. The Company may be required to record significant impairment charges in the future with respect to certain noncurrent assets such as goodwill and other intangible assets and equity method investments, whose fair values may be negatively affected by the COVID-19 pandemic. The Company also may be required to write-down obsolete inventory due to decreased customer demand and sales orders. Additionally, the Company is closely monitoring the collection of accounts receivable, as well as the operating results of it finance joint ventures around the world. If economic conditions around the world continue to deteriorate, the Company may not be able to sufficiently collect accounts receivable, and the operating results of its finance joint ventures may be negatively impacted, thus negatively impacting the Company's results of operations and financial condition. The Company is also closely assessing its compliance with debt covenants, the recognition of any future applicable insurance recoveries, cash flow hedging forecasts as compared to actual transactions, the fair value of pension assets, accounting for incentive and stock compensation accruals, revenue recognition and discount reserve setting and the realization of deferred tax assets in light of the COVID-19 pandemic.
Our financial results depend entirely upon the agricultural industry, and factors that adversely affect the agricultural industry generally, including declines in the general economy, adverse weather, tariffs, 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.
A majority of our sales and manufacturing take place outside the United States, and, many of our sales involve products that are manufactured in one country and sold in a different country, and as a result, we are exposed to risks related to foreign laws, taxes and tariffs, trade restrictions, 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. Among these risks are the uncertain consequences of Brexit, Russian sanctions and tariffs imposed on exports to and imports from China.
Most retail sales of the products that we manufacture are financed, either by our joint ventures with Rabobank or by a bank or other private lender. Our joint ventures with Rabobank, which are controlled by Rabobank and are dependent upon Rabobank for financing as well, finance over 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 recent economic downturn, financing for capital equipment purchases generally has become more difficult in certain regions and in some cases, can be 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 finance joint ventures have substantial accounts receivable 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 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.
Our success depends on the introduction of new products, particularly engines that comply with emission requirements, which requires substantial expenditures.
Our production levels and capacity constraints at our facilities, including those resulting from plant expansions and systems upgrades at our manufacturing facilities, could adversely affect our results.
Our expansion plans in emerging markets, including establishing a greater manufacturing and marketing presence and growing our use of component suppliers, could entail significant risks.
Our business increasingly is subject to regulations relating to privacy and data protection, and if we violate any of those regulations or otherwise are the victim of a cyber attack, we could incur significant losses and liability.
We depend on suppliers for components, parts and raw materials 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. The recent outbreak of the coronavirus has impacted the availability of components and parts, particularly in Europe, which, in turn, has forced us to suspend some manufacturing operations from time-to-time. Further disruptions in our supply chain will impact our manufacturing capacity and, ultimately, sales.
We 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 a result, we are subject to certain restrictive covenants and payment obligations that may adversely affect our ability to operate and expand our business.
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, 2019. AGCO disclaims any obligation to update any forward-looking statements except as required by law.
About AGCO
AGCO (NYSE: AGCO) is a global leader in the design, manufacture and distribution of agricultural solutions and delivers high-tech solutions for farmers feeding the world through its full line of equipment and related services. AGCO products are sold through five core brands, Challenger, Fendt, GSI, Massey Ferguson and Valtra, supported by Fuse smart farming solutions. Founded in 1990 and headquartered in Duluth, Georgia, USA, AGCO had net sales of $9.0 billion in 2019.
Contact:
Tel: 770-232-8018
AGCO CORPORATION 
