AGCO Reports Third-Quarter Results

AGCO, Your Agriculture Company (NYSE: AGCO), a global leader in the design, manufacture and distribution of agricultural machinery and precision ag technology, reported its results for the third quarter ended September 30, 2023. Net sales for the third quarter were approximately $3.5 billion, an increase of 10.7% compared to the third quarter of 2022. Excluding favorable foreign currency translation of 3.5%, net sales in the quarter increased 7.2% compared to the third quarter of 2022. Reported net income was $3.74 per share for the third quarter of 2023, and adjusted net income ⁽¹⁾ , which excludes restructuring expenses, transaction-related costs and costs related to a completed divestiture, was $3.97 per share. These results compare to reported net income of $3.18 per share and adjusted net income ⁽¹⁾ , which excluded restructuring expenses, of $3.18 per share for the third quarter of 2022.

“Robust demand for our technology-rich products, driven by healthy crop production, favorable farm economics and an improving supply chain, generated record third quarter results,” stated Eric Hansotia, AGCO’s Chairman, President and Chief Executive Officer. “The continued success of our Farmer-First strategy, focused on growing our precision ag business, globalizing a full-line of our Fendt branded products and expanding our parts and service business, is generating strong growth in these margin-rich businesses and helping position AGCO for another record year.”

“Furthering our Farmer-First mindset, we recently announced the planned acquisition of Trimble’s ag assets and technologies through the formation of a joint venture with Trimble. We believe that this transaction, when combined with our existing solutions, will strengthen our precision ag leadership position and create a global leader in mixed-fleet precision ag. This transaction should significantly enhance AGCO’s technology stack with disruptive technologies that cover every aspect of the crop cycle, which ultimately helps us better serve farmers no matter what brand they use and accelerates AGCO’s strategic transformation,” Hansotia added.

Third Quarter Highlights

• Reported regional sales results ⁽²⁾ : Europe/Middle East (“EME”) +14.2%, North America +3.4%, South America +26.0%, Asia/Pacific/Africa (“APA”) (16.9)%
• Constant currency regional sales results ^(1)(2)(3) : EME +9.3%, North America +3.0%, South America +18.5%, APA (15.3)%
• Regional operating margin performance: EME 12.6%, North America 14.9%, South America 20.8%, APA 9.2%

Net sales for the first nine months of 2023 were approximately $10.6 billion, an increase of 21.2% compared to the same period in 2022. Excluding unfavorable currency translation impacts of 0.7%, net sales for the first nine months of 2023 increased 21.9% compared to the same period in 2022. For the first nine months of 2023, reported net income was $11.10 per share, and adjusted net income ⁽¹⁾ , which excludes restructuring expenses, transaction-related costs, costs related to a completed divestiture and an estimated cost of participation in a Brazilian income tax amnesty program, was $11.77 per share. These results compare to reported net income of $7.58 per share, and adjusted net income, excluding restructuring expenses, impairment charges and other related items, of $7.95 per share, for the first nine months of 2022.

Market Update

“Increased crop production in the Northern hemisphere and strong yields in Brazil are driving higher grain inventories and weighing on commodity prices,” stated Hansotia. “While still at supportive levels, the lower commodity prices and a fleet age that is now trending younger are causing farmers to become more selective about their equipment and technology investments.”

Global industry production and retail tractor sales were down modestly in the first nine months of 2023 compared to last year’s elevated levels with lower sales of smaller equipment more than offsetting increased sales of larger equipment. Industry retail sales for tractors in North America were down approximately 2% in the first nine months of 2023 compared to last year. The decline was driven by weaker sales in smaller tractors partially offset by improved sales of high-horsepower tractors, which increased approximately 10% in the first nine months of 2023 compared to the same period in 2022. North America industry retail tractor demand for 2023 is expected to be down modestly compared to 2022. Industry retail sales for combines in North America increased significantly in the first nine months of 2023 compared to 2022 due mainly to improving supply chains.

South American industry tractor retail sales decreased 8% during the first nine months of 2023 compared to 2022 levels. Retail demand in Brazil was negatively affected by the depletion of the government subsidized loan program prior to its June 30 ^th fiscal year end. Healthy farm income, supportive exchange rates and continued expansion in planted acreage in Brazil are driving increased investments in high-tech farm equipment. Weaker smaller equipment demand due to financing delays is being partially offset by strong demand for large equipment resulting in an outlook of modestly lower demand for the South American tractor industry in 2023 compared to strong levels last year.

In Western Europe, industry retail tractor sales decreased approximately 2% in the first nine months of 2023 compared to strong levels in the same period of 2022. Lower commodity prices and political uncertainty are making farmers more cautious. Significant declines in Italy and Spain were mostly offset by higher industry sales in Germany, the United Kingdom and France. Farmer sentiment in the region continues to be negatively affected by the conflict in Ukraine, and input cost inflation and full year retail tractor demand is expected to decline modestly compared to 2022. Industry retail sales for combines in Western Europe increased significantly in the first nine months of 2023 compared to 2022 due to supply chain constraints experienced in 2022.

Regional Results

AGCO Regional Net Sales (in millions)

North America

Net sales in the North American region increased 21.9% in the first nine months of 2023 compared to the same period of 2022, excluding the negative impact of currency translation. The growth resulted primarily from increased sales of high-horsepower tractors, application equipment, and combines along with the positive effects of pricing to mitigate inflationary cost pressures. Income from operations for the first nine months of 2023 was approximately $160.6 million higher with operating margins expanding nearly 400 basis points compared to the same period in 2022. Operating income benefited from higher sales and production, positive net pricing and a favorable sales mix.

South America

South American net sales grew 23.4% in the first nine months of 2023 compared to the same period of 2022, excluding the impact of favorable currency translation. Strong sales growth in Brazil drove most of the increase. Increased sales of high horsepower, higher margin tractors, as well as elevated sales of Momentum planters and favorable pricing drove most of the increase. Income from operations in the first nine months of 2023 grew by approximately $131.6 million compared to the same period in 2022, and operating margins were 20.3%. The improved South America results reflect the benefit of higher sales and production as well as a favorable sales mix.

Europe/Middle East

Europe/Middle East net sales increased 25.4% in the first nine months of 2023 compared to the same period in 2022, excluding unfavorable currency translation. The improvement was driven by increased sales of high-horsepower tractors, utility tractors and parts along with favorable pricing. Strong growth in Turkey, Germany and France accounted for most of the increase. Income from operations improved $268.3 million and operating margins expanded 300 basis points in the first nine months of 2023, compared to the same period in 2022 as a result of higher sales and production.

Asia/Pacific/Africa

Net sales in Asia/Pacific/Africa decreased (2.3)%, excluding the negative impact of currency translation, in the first nine months of 2023 compared to the same period in 2022. Lower sales in Japan were mostly offset by higher sales in Australia and China. Income from operations declined by approximately $39.5 million in the first nine months of 2023 compared to the same period in 2022 due primarily to lower sales, a weaker mix of sales and higher logistics costs.

Outlook

AGCO’s net sales for 2023 are expected to be approximately $14.7 billion, reflecting improved sales volumes and pricing. Gross and operating margins are projected to improve from 2022 levels, reflecting the impact of higher sales and production volumes as well as pricing and a favorable sales mix. These improvements are expected to fund increases in engineering and other technology investments to support AGCO’s precision agriculture and digital initiatives. Based on these assumptions, 2023 reported earnings per share are targeted at approximately $15.08 and adjusted earnings per share at approximately $15.75 ⁽¹⁾ .

AGCO will host a conference call with respect to this earnings announcement at 10 a.m. Eastern Time on Tuesday, October 31. 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 the website. A replay of the conference call will be available approximately two hours after the conclusion of the conference call for 12 months following the call. A copy of this press release will be available on AGCO’s website for at least 12 months following the call.

Safe Harbor Statement

Statements that are not historical facts, including the projections of earnings per share, production levels, sales, industry demand, market conditions, commodity prices, currency translation, farm income levels, margin levels, strategy, investments in product and technology development, new product introductions, restructuring and other cost reduction initiatives, production volumes, tax rates 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, adverse weather, tariffs, 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.

• We recently announced the proposed acquisition of the ag assets and technologies of Trimble through the formation of a joint venture of which we will own 85%. This is a substantial acquisition for us, and it will require us to incur substantial indebtedness. All acquisitions involve risk, and there is no certainty that this acquisition will close, that we will be able to obtain the desired financing, that our increased leverage will not adversely impact our remaining business, or that the acquired business will operate as expected following closing. Each of these items, as well as similar acquisition-related items, would adversely impact our performance.

• A majority of our sales and manufacturing takes place outside the United States, and many of our sales involve products that are manufactured in one country and sold in a different country. As a result, we are exposed to risks related to foreign laws, taxes and tariffs, trade restrictions, 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. Among these risks are the uncertain consequences of Brexit and tariffs imposed on exports to and imports from China.

• We cannot predict or control the impact of the conflict in Ukraine on our business. Already it has resulted in reduced sales in Ukraine as farmers have experienced economic distress, difficulties in harvesting and delivering their products, as well as general uncertainty. There is a potential for natural gas shortages, as well as shortages in other energy sources, throughout Europe, which could negatively impact our production in Europe both directly and through interrupting the supply of parts and components that we use. It is unclear how long these conditions will continue, or whether they will worsen, and what the ultimate impact on our performance will be. In addition, AGCO sells products in, and purchases parts and components from, other regions where there could be hostilities. Any hostilities likely would adversely impact our performance.

• 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. Our joint ventures with Rabobank, which are controlled by Rabobank and are dependent upon Rabobank for financing as well, finance 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, can be expensive to obtain. To the extent that financing is not available or available only at unattractive prices, our sales would be negatively impacted. In addition, Rabobank also is the lead lender in our revolving credit facility and term loans and for many years has been an important financing partner for us. Any interruption or other challenges in that relationship would require us to obtain alternative financing, which could be difficult.

• Both AGCO and our finance joint ventures have substantial accounts receivable from dealers and end customers, and we would be adversely impacted if the collectability of these receivables was less than optimal; 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, which can adversely affect our reported results of operations and the competitiveness of our products.

• Our success depends on the introduction of new products, particularly engines that comply with emission requirements and sustainable smart farming technology, which require substantial expenditures; there is no certainty that we can develop the necessary technology or that the technology that we develop will be attractive to farmers or available at competitive prices.

• 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.

• Our business increasingly is subject to regulations relating to privacy and data protection, and if we violate any of those regulations, or otherwise are the victim of a cyberattack, we could be subject to significant claims, penalties and damages.

• Attacks through ransomware and other means are rapidly increasing, and in May 2022 we learned that we had been subject to a cyberattack. We continue to review and improve our safeguards to minimize our exposure to future attacks. However, there always will be the potential of the risk that a cyberattack will be successful and will disrupt our business, either through shutting down our operations, destroying data, exfiltrating data or otherwise.

• 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. Recently suppliers of several key parts and components have not been able to meet our demand and we have had to decrease our production levels. In addition, the potential of natural gas shortages in Europe, as well as predicted overall shortages in other energy sources, could also negatively impact our production and that of our supply chain in the future. It is unclear when these supply chain disruptions will be restored or what the ultimate impact on production, and consequently sales, will be.

• Any increase in COVID-19, or other future pandemics, could negatively impact our business through reduced sales, facilities closures, higher absentee rates, and reduced production at both our plants and the plants that supply us with parts and components. In addition, logistical and transportation-related issues and similar problems may also arise.

• We recently have experienced significant inflation in a range of costs, including for parts and components, shipping, and energy. While we have been able to pass along most of those costs through increased prices, there can be no assurance that we will be able to continue to do so. If we are not, it will adversely impact our performance.

• 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 performance would decline.

• We have a substantial amount of indebtedness, and, as a 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, 2022 and subsequent Form 10-Qs. AGCO disclaims any obligation to update any forward-looking statements except as required by law.

About AGCO

AGCO (NYSE:AGCO) is a global leader in the design, manufacture and distribution of agricultural machinery and precision ag technology. AGCO delivers customer value through its differentiated brand portfolio including core brands like Fendt®, GSI®, Massey Ferguson®, Precision Planting® and Valtra®. Powered by Fuse® smart farming solutions, AGCO’s full line of equipment and services help farmers sustainably feed our world. Founded in 1990 and headquartered in Duluth, Georgia, USA, AGCO had net sales of approximately $12.7 billion in 2022. For more information, visit www.AGCOcorp.com . For company news, information, and events, please follow us on X, formerly known as Twitter: @AGCOCorp. For financial news on X, please follow the hashtag #AGCOIR.

Please visit our website at www.agcocorp.com