AGCO Corporation (AGCO) has reported fiscal 2011 third quarter results, delivering an EPS of 87 cents versus 66 cents in the year-earlier quarter, surpassing the Zacks Consensus Estimate of 75 cents.
Total revenue in the reported quarter increased 27% year over year to $2.09 billion driven by strong global demand for agricultural equipment. Revenue was above the Zacks Consensus Estimate of $2.03 billion. Included in the sales was a currency translation impact of 7.3%, excluding which sales increased 19.4% in the quarter.
The EAME region reported the highest improvement in sales of about 48.7% on a year-over-year basis to $1.05 billion. The North American region reported a 11.9% improvement in sales to $417.7 million, while sales in South America increased 5.7% to 4515.7 million. Sales in rest of the world increased 27.4% to $111.6 million.
Costs and Margins
Cost of goods sold increased 25% to $1691.3 million in the reported quarter from $1353.6 million in the year-ago quarter. Gross profit soared to $407.8 million from $303.8 million in the prior-year quarter reflecting increased production levels in Europe and North America, pricing and a richer product mix, partially offset by higher material costs. Consequently, gross margins improved 110 basis points year over year to 19.4%.
Selling, general and administrative expenses also increased to $221.2 million, from $170.3 million in the year-ago quarter. Operating income upped 48% to $114.3 million from $77.1 million in the year-earlier quarter due to higher sales and improved gross margins. Operating margins expanded by 80 basis points year over year to 5.4%.
Financial Position
As of September 30, 2011, cash and cash equivalents declined to $455.2 million from $573.1 as of June 30, 2011. Cash from operations for the first nine months of 2011 improved drastically to $270.5 million at the end from $4.1 million in the comparable period last year.
As of September 30, 2011, the debt-to-capitalization ratio was 13.3% compared with 13.3% as of June 30, 2011 and 14.3% as of December 31, 2010.
Outlook
The company expects higher grain prices combined with increasing demand from emerging markets and a limited supply of arable land to produce global growth in farm equipment sales in 2011. Based on this, net sales are expected in the range of $8.7 billion to $8.8 billion and adjusted EPS of $4.30 for fiscal 2011. For both the fourth quarter and full year 2011 operating margins are expected to be above 2010 levels.
Our Take
With a full product line of farm equipment and a wide network of dealers and distributors, we believe AGCO is well positioned, over the long term, to capitalize on the need for increased food production, driven by worldwide population growth.
Moreover, the company is also looking forward to expanding its operations in high-growth emerging markets, which bodes well for future operating performance. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.
AGCO Corporation is a leading manufacturer and distributor of agricultural equipment and related replacement parts. Its product line is categorized under five groups: tractors, replacement parts, combines, application equipment/sprayers and other machinery.
The company operates in four geographical segments: Europe/Africa/Middle East (EAME), South America, North America and Asia-Pacific. AGCO competes with CNH Global NV (CNH), Deere & Company (DE) and Kubota Corporation (KUB).
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