AGCO reports Q4 net earnings of US$139.3M, up 35.9% from year-ago period as net sales rise 8.3% to US$10.79B

Nevin Barich

DULUTH, Georgia , February 4, 2014 (press release) – Sales and Margin Improvement Produce Record Full Year Earnings per Share of $6.01

AGCO, Your Agriculture Company (NYSE:AGCO), a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $2.9 billion during the fourth quarter of 2013, an increase of approximately 5.8% compared to net sales of $2.7 billion for the fourth quarter of 2012. Reported net income for the fourth quarter of 2013 was $1.40 per share. These results compare to reported and adjusted net income of $1.04 and $0.99 per share, respectively, for the fourth quarter of 2012. Adjusted net income for the fourth quarter of 2012 excluded a non-cash intangible asset impairment charge of approximately $22.4 million as well as a non-cash tax gain of approximately $26.9 million from the recognition of U.S. deferred tax assets. Excluding an unfavorable currency translation impact of approximately 0.3%, net sales in the fourth quarter of 2013 increased approximately 6.1% compared to the fourth quarter of 2012.

“Crop production improved to more normal levels and farm income remained strong across most of the developed farm markets during 2013”

Net sales for the full year of 2013 were approximately $10.8 billion, an increase of approximately 8.3% compared to the same period in 2012. For the full year of 2013, reported net income was $6.01 per share. This result compares to reported and adjusted net income of $5.30 and $5.25 per share, respectively, for the full year of 2012. Excluding an unfavorable impact of currency translation of approximately 1.2%, net sales for the full year of 2013 increased approximately 9.5% compared to 2012.

Fourth Quarter and Full Year Highlights

Fourth quarter regional sales results(1): Europe/Africa/ Middle East (“EAME”) +10%; Asia/Pacific (“APAC”) +6%; North America +2%; South America +1%;

Adjusted operating margins in 2013 improved over 160 basis points in the fourth quarter and nearly 120 basis points for the full year vs. comparable 2012 periods

Full year regional operating margin performance: North America 11.8%, South America 10.4%, EAME 10.2%, APAC 0.1%

Announced $500 million share repurchase program in December

2014 earnings per share guidance remains at approximately $6.00 per share

(1)Excludes currency translation impact. See reconciliation of non-GAAP measures in Appendix.

“AGCO closed the year with a solid fourth quarter, making 2013 a record year for both sales and earnings,” stated Martin Richenhagen, Chairman, President and Chief Executive Officer. “We continue to take advantage of healthy market conditions by leveraging our global footprint and our well-positioned brands. Strong sales performance and steady progress with our profitability improvement efforts produced margin expansion in 2013. We generated over $400 million of free cash flow in 2013 while making heavy investments in plant productivity, new products and tier 4 emission requirements. Our strong cash generation will allow us to continue making strategic investments in improved technology and production capabilities while returning cash to our shareholders. AGCO’s record earnings and consistent cash flow generation over the last three years has strengthened our balance sheet and positioned the Company for continued success.”

Market Update

Industry Unit Retail Sales

Tractors

“Crop production improved to more normal levels and farm income remained strong across most of the developed farm markets during 2013,” stated Mr. Richenhagen. “Improved yields in North America and high levels of farm income supported industry sales. In Western Europe, favorable farm economics in France and Germany supported industry demand, while market conditions remained soft in the weather-impacted regions of the United Kingdom and parts of Northern Europe. Attractive soft commodity prices, improved harvests and supportive government financing programs all contributed to market strength in Brazil. In 2014, industry demand is expected to weaken due to lower commodity prices and reduced farm income. Our long-term view remains positive as increasing global demand for commodities driven by biofuel use, the growing world population and increasing emerging market protein consumption are expected to support elevated farm income and healthy conditions in our industry.”

Regional Results

North America

North American net sales grew 7.0% during the full year of 2013 compared to 2012, excluding the negative impact of currency translation. Sales were strongest in the row crop segment, with the most significant increases in sprayers, high horsepower tractors, grain storage products and implements. Increased sales, a favorable product mix and margin improvement initiatives all contributed to growth in income from operations of $66.0 million for the full year of 2013 compared to the same period in 2012.

South America

AGCO’s South American net sales grew 21.8% in the full year of 2013 compared to the same period in 2012, excluding the negative impact of currency translation. Sales were higher in both Brazil and Argentina, with growth mainly in high horsepower tractors, sprayers and grain storage products. Operating margins improved approximately 170 basis points for the full year of 2013 compared to 2012 due to higher sales, a richer mix of products and the benefit of cost-reduction initiatives. Income from operations increased $51.1 million for the full year of 2013 compared to 2012.

EAME

Net sales in AGCO’s EAME region improved by 5.7% in the full year of 2013 compared to the full year of 2012 on a constant currency basis. Improved production capacity at the Fendt facility in Germany generated most of the increase. Higher sales in France and Germany were partially offset by declines in Central and Eastern Europe. EAME’s income from operations increased $83.3 million for the full year of 2013 compared to 2012. The benefit of higher sales and improved production efficiency contributed to the increase.

Asia/Pacific

Net sales in the Asia/Pacific region were 15.4% higher in the full year of 2013 compared to the same period in 2012, excluding the negative impact of currency translation. Growth in China, East Asia and Australia produced most of the increase. Income from operations in the Asia/Pacific region declined by $9.7 million in the full year of 2013 compared to the same period in 2012. The benefit of higher sales was offset by increased market development costs in China.

Outlook

Lower commodity prices relative to 2013 are expected to result in reduced farm income and softer industry demand across the developed agricultural equipment markets in 2014. AGCO is projecting net sales in a range from $10.8 billion to $11.0 billion, with forecasted pricing benefits and market share improvements offsetting the impact of the expected industry decline. Improved gross margins compared to 2013 levels are expected to be offset by higher engineering and market development costs. Based on these assumptions, AGCO is targeting earnings per share of approximately $6.00 during 2014.

“2014 will be a challenging year for our industry,” stated Mr. Richenhagen. “With modest declines in demand expected across most markets, we will focus on managing working capital while we continue to execute on our strategic initiatives. We expect to continue investing in new products and technology, as well as devoting significant resources to enhance our presence in the CIS region, China and Africa. Our plans in 2014 also include investing in our production facilities to improve efficiency as well as in higher technology products that will make farmers more productive and more profitable.”

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AGCO will be hosting a conference call with respect to this earnings announcement at 10:00 a.m. Eastern Time on Tuesday, February 4, 2014. The Company will refer to slides on its conference call. Interested persons can access the conference call and slide presentation via AGCO’s website at www.agcocorp.com in the “Events” section on the “Company/Investors” page of our website. A replay of the conference call will be available approximately two hours after the conclusion of the conference call for twelve months following the call. A copy of this press release will be available on AGCO’s website for at least twelve months following the call.

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Safe Harbor Statement

Statements that are not historical facts, including the projections of earnings per share, sales, market conditions, farm incomes and productivity, global grain consumption, commodity prices, population levels, margin improvements, investments in production facilities and product development, industry demand, market development and engineering expenses, inventory levels, cash flow levels 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.

Our financial results depend entirely upon the agricultural industry, and factors that adversely affect the agricultural industry generally, including declines in the general economy, 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, as a result, we are exposed to risks related to foreign laws, taxes, 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.

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. During 2013, our joint ventures with Rabobank, which are controlled by Rabobank and are dependent upon Rabobank for financing as well, financed approximately 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, was 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 retail finance joint ventures have substantial account receivables 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, including uncertainty associated with the Euro, which can adversely affect our reported results of operations and the competitiveness of our products.

All acquisitions involve risks relating to retention of key employees and customers and fulfilling projections prepared by or at the direction of prior ownership. In addition, we may encounter difficulties in integrating recent and future acquisitions into our business and may not fully achieve, or achieve within a reasonable time frame, expected strategic objectives and other expected benefits of the acquisition.

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.

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. We also 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 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, 2012 and subsequent Form 10-Qs. AGCO disclaims any obligation to update any forward-looking statements except as required by law.

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About AGCO

AGCO, Your Agriculture Company, (NYSE: AGCO), is a global leader focused on the design, manufacture and distribution of agricultural machinery. AGCO supports more productive farming through a full line of tractors, combines, hay tools, sprayers, forage equipment, tillage, implements, grain storage and protein production systems, as well as related replacement parts. AGCO products are sold through five core machinery brands, Challenger®, Fendt®, Massey Ferguson®, Valtra® and GSI®, and are distributed globally through 3,100 independent dealers and distributors in more than 140 countries worldwide. Retail financing is available through AGCO Finance for qualified purchasers. Founded in 1990, AGCO is headquartered in Duluth, Georgia, USA. In 2013, AGCO had net sales of $10.8 billion. For more information, see http://www.agcocorp.com

Industry Intelligence editor's note: In an omitted table, the company reported fourth-quarter 2013 net income of US$139.3 million and net sales of $10.79 billion compared to fourth-quarter 2012 net income of $102.5 million and net sales of $9.96 billion.

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