Shares of AGCO Corporation (AGCO) slid 10.6% and closed at $42.13 yesterday after the company lowered its earnings outlook for the full year and third-quarter 2014 due to weaker sales levels across all regions, lower production and unfavorable foreign currency translation.
The manufacturer and distributor of agricultural equipment is now anticipating earnings in the range of $4.10–$4.30 per share for the full year, excluding restructuring and other infrequent expenses, down from its previous forecast of $5.00 per share. AGCO also trimmed its third-quarter earnings guidance to the range of 60–65 cents per share from the prior band of 75—80 cents, which includes a benefit of around 15 cents per share for the reversal of earlier recorded long-term stock compensation expense.
On Jul 29, AGCO reported a 17.7% year-over-year decline in its second-quarter 2014 earnings to $1.77 per share. Revenues also decreased 9.8% to $2.8 billion from $3 billion in the year-ago quarter due to falling commodity prices and reduced demand for agricultural equipment.
In its second-quarter earnings call, AGCO stated that the global industry demand will soften in 2014 in comparison with 2013. Further, the company lowered its full year industry forecast across its three major regional markets.
In North America, forecasts for lower farm income are expected to result in softer demand from the professional farming sector. AGCO also slashed 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.
Moreover, AGCO expects production volumes for the full year to remain flat as compared with 2013, with decline in higher horsepower equipment balanced by increase in lower horsepower machines. In addition, product demand is expected to fall in the near term due to decrease in farm income and crop prices as well as a less favorable renewable fuel standard (RFS). Notably, the RFS is likely to drag the demand for corn, thereby lowering the need for agricultural equipment.
2014 has been a challenging year for AGCO due to weak demand across most of its markets. Negative impact of lower volumes and weaker product mix will also remain matters of concern.
Duluth, GA-based AGCO is a global leader in the design, manufacture and distribution of agricultural machinery. It supports productive farming through a wide range of tractors, combines, hay tools, sprayers, forage equipment, tillage, implements, grain storage and protein production systems as well as other related replacement parts.
AGCO, which has a Zacks Rank #3 (Hold), will report its third-quarter results on Oct 28.
Some better-ranked stocks in the same sector include ABB Ltd. (ABB), ACCO Brands Corporation (ACCO) and Advanced Emissions Solutions, Inc. (ADES). All these stocks carry a Zacks Rank #2 (Buy).
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