Shares of AGCO Corporation (AGCO) have been losing momentum following its disappointing second-quarter 2014 results reported on Jul 29, 2014 and hit a 52-week low of $46.23 on Sep 18. Since its earnings release, AGCO's shares dropped 6.4% closing at $46.41 yesterday with a negative year-to-date return of 21.1%.
What Led to the Drop?
The agricultural equipment maker reported poor second-quarter results and lowered its full-year industry forecast across three major regional markets. Earnings and sales both declined significantly in the quarter due to falling commodity prices and reduced demand for agricultural equipment.
AGCO trimmed its full-year earnings per share guidance to approximately $5.00 from $6.00, expected earlier. Net sales guidance has also been slashed from the previous range of $10.8–$11.0 billion and now stands at $10.1–$10.3 billion.
Further, the company anticipates that third-quarter 2014 sales volumes will fall due to adjustments in dealer and company inventory levels. This, along with a weaker sales mix, will lead the company’s third-quarter 2014 earnings per share to lie in the range of 75 to 80 cents. Additionally, capital expenditures for 2014 will be $400 million and free cash flow is projected to be $250 million.
AGCO believes that the global industry demand will soften in 2014 in comparison with 2013. In North America, forecasts for lower farm income are expected to result in softer demand from the professional farming sector. AGCO also trimmed South American industry forecast which reflects FINAME funding interruptions, a weaker sugar sector and lower demand in Argentina.
In Western Europe, AGCO remains concerned about demand declines in the arable farming sector and forecasts more significant drops in demand for higher horsepower equipment. AGCO predicts 2014 sales to be down about 5% compared with 2013 due to soft market conditions.
In addition, the company anticipates increased market development expenses and higher engineering expenditures (for meeting Tier 4 final emission requirements) to continue to pressure margins. Moreover, negative impact of lower volumes and weaker product mix will also remain matters of concern.
Additionally, most of the estimates for this Zacks Rank #3 (Hold) company moved southward, following the weak guidance. In the past 60 days the Zacks Consensus Estimate for 2014 decreased 10.5% to $4.87 per share and for 2015 the same reduced 12.4% to $4.68 per share.
Other Stocks to Consider
Some better-ranked players in the same industry include ACCO Brands Corporation (ACCO), AO Smith Corp. (AOS) and ARC Document Solutions, Inc. (ARC). All these carry a Zacks Rank #2 (Buy).
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