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| Martin Richenhagen, AGCO’s chairman, president and chief executive officer. |
“AGCO’s 2016 results reflect the adverse impact of operating in the lower end of the agricultural equipment cycle, particularly in North and South America,” said Martin Richenhagen, AGCO’s chairman, president and chief executive officer, on Oct. 26 when the earnings were released. “In this environment, we are taking the necessary steps to ensure AGCO remains competitive by maintaining investment levels and serving our customers with superior products and services. Our long-term optimism within the agricultural industry and our business remains high. We are making significant investments in order to provide new products, new technology and improved distribution over the next few years aimed at further improving our competitive position.”
In September, AGCO completed the acquisition of Cimbria Holdings Ltd. for approximately $340 million from Silverfleet Capital. Cimbria, based in Thisted, Denmark, is a leading manufacturer of products and solutions for the processing, handling and storage of seed and grain.
“The acquisition of Cimbria significantly enhances our market position in the European grain handling and storage industry,” Richenhagen said. “Cimbria’s products are complementary to our GSI’s offerings and are recognized by its customers for their design, quality and innovation. This combination also provides significant marketing and cost saving synergies and will provide us with a global leadership position in the seed handling industry as well as further strengthen our capabilities to serve large global customers. With margins similar to GSI, the acquisition of Cimbria provides us an attractive opportunity to grow our business and expand our margins.”
North America net sales decreased 8.5% in the third quarter of 2016 compared to the same period of 2015, excluding the negative impact of currency translation.
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| Andy Beck, senior vice-president and chief financial officer. |
“I think what we’re seeing in the market right now is certainly a pullback in the grain storage equipment net,” said Andy Beck, senior vice-president and chief financial officer. “Usually everyone is focusing just on the silos, but a lot of business is also in the conditioning, drying equipment, also the conveyance equipment as well. What we’re seeing is significant pullback in conditioning equipment because the harvest has been quite easy and the grain has been relatively dry. So the hours on the equipment do not require any replacement.”
Lower sales and production volumes in North America, along with a weaker sales mix, contributed to a reduction in income from operations of approximately $72.4 million for the first nine months of 2016 compared to the same period in 2015.
Net sales in AGCO’s South American region increased 13.1% in the third of 2016 compared to the same period a year, excluding the impact of unfavorable currency translation. Significant sales declines in Brazil were partially offset by growth in Argentina.
“Industry retail sales in South America during the first nine months of 2016 were negatively influenced by political and economic uncertainty that weakened farmer confidence,” Richenhagen said. “The improving political landscape in Brazil contributed to third quarter industry growth from last year’s depressed levels. More supportive government policies in Argentina have contributed to higher sales in that market. Longer term, we expect elevated grain demand driven by population growth and increased protein consumption to result in favorable conditions for our industry.”
Income from operations for the South American region decreased approximately $32.5 million for the first nine months of 2016 compared to the same period in 2015 due to lower sales and production volumes, the negative impact of currency translation, as well as material cost inflation.
AGCO’s Europe, Africa and Middle East regions net sales increased 1.7% in the third quarter of 2016 compared to the same period in 2015, excluding unfavorable currency translation impacts.
“Industry retail sales in Western Europe remained more stable in the first nine months of 2016, but are being impacted by weak economics for dairy producers and lower commodity prices for the arable farming segment,” Richenhagen said. “Industry retail sales declines were most pronounced in the United Kingdom and Germany.”
Higher sales in France and Scandinavia were partially offset by sales declines in Germany and Africa. Income from operations increased approximately $7.9 million for the first nine months of 2016, compared to the same period in 2015, due to increased sales partially offset by the negative impact of currency translation.
Net sales in AGCO’s Asia/Pacific region, excluding the negative impact of currency translation, increased 18.6% in the third quarter of 2016 compared to the same period in 2015 due primarily to increased sales in China and Australia. Income from operations improved approximately $29.3 million in the first nine months of 2016, compared to the same period in 2015, due to higher sales and production levels in China.
“AGCO’s performance demonstrates our ability to deliver solid results despite difficult market conditions,” Richenhagen said. “During the third quarter, our focus remained on operational execution and customer service. We met our quarterly financial goals and continue to make progress on our strategic plans.”
