Adjusted fourth-quarter EPS at AGCO Corporation (AGCO) more than doubled to 88 cents from 42 cents in the year-ago quarter, beating the Zacks Consensus Estimate of 76 cents.
AGCO Corporation recorded restructuring and other infrequent expenses of a penny and 7 cents in the reported and the base quarter, respectively. Including the one-time expense, EPS in the reported quarter stood at 87 cents compared with 35 cents in the year-ago quarter.
Total revenue improved 19% to $2.17 billion, outperforming the Zacks Consensus Estimate of $2.02 billion, driven by sales growth in Americas and Europe/Africa/Middle East (EAME), partially offset by a decline in the Rest of the World. Excluding an unfavorable currency translation impact of approximately 4.5%, revenues increased 23.2% year over year.
Excluding currency translation, revenues in North America increased a robust 47% to $462.9 million while sales in South America inched up 1% to $440.1 million. Europe/Africa/Middle East (EAME) reported an increase of 29% (excluding currency translation) to $1.18 billion in the quarter whereas the Rest of the World dropped 16% (excluding currency translation) to $79.5 million.
Cost & Margin Performance
Cost of sales upped 13% to $1.76 billion in the quarter, but based on revenue, contracted 430 basis points to 81.1%. Gross profit went up 54% to $409.2 million and gross margin expanded 400 basis points to 19%.
Selling, general, administrative and engineering expenses increased 26% to $200 million in the quarter, and based on sales, went up 50 basis points to 9.2%. The company’s adjusted operating profit in the quarter was $143.5 million, a substantial increase of 151% from the prior-year period with operating margin doubling to 6.6%.
Fiscal 2010 Performance
AGCO’s adjusted fiscal 2010 EPS was $2.32, up 50% from $1.55 in the prior year. The adjusted EPS outperformed the Zacks Consensus Estimate of $2.20 as well as AGCO’s EPS guidance range of $1.85 to $2.00 for the fiscal 2010.
Adjusted EPS in fiscal 2010 and fiscal 2009 excluded restructuring and other infrequent expenses of 3 cents and 11 cents, respectively. Taking this into effect, EPS in fiscal 2010 was $2.29 compared with $1.44 in the prior year.
Revenues went up 6% to reach $6.9 billion, ahead of the Zacks Consensus Estimate of $6.7 billion and the company’s guided range of $6.7 billion to $6.8 billion.
Financial Position
As of December 31, 2010, AGCO had cash and cash equivalents of $719.9 million, up from $651.4 million as of December 31, 2009. During fiscal 2010, the company generated operating cash flows of $438.7 million compared with $347.9 million in the prior year. Free cash flow for the year amounted to $271.6 million compared with $141.3 million in fiscal 2009.
For fiscal 2011, AGCO expects capital expenditure to be within the range of $250 million to $300 million and free cash flow to be around $100 million.
As of December 31, 2010, the debt-to-capitalization ratio went down marginally to 14.3% from 15.0% as of September 30, 2010 and 15.9% as of December 31, 2009.
Fiscal 2011 Outlook
For fiscal 2011, AGCO is targeting adjusted EPS in the range of $2.50 to $2.75 (excluding restructuring and other infrequent expenses). Revenue is estimated to come in a band of $7.6 billion to $7.9 billion. AGCO anticipates flat worldwide industry demand for its products in 2011.
The revenue growth rate for the year is envisioned at 10% to 15%, driven by a favorable exchange rate, accretive acquisitions and market share gains. Gross margin improvements are expected to be partially offset by higher expenses for new product and divergent market development. AGCO apprehends a 10-15% increase in engineering expense for new product development and tier 4 emission requirements.
AGCO expects worldwide industry demand to remain flat or at best increase modestly in 2011 over 2010. In the Western European market, higher crop prices for grain and dairy farmers and improving farmer sentiment are expected to drive modest growth. In North America, industry sales are expected to be flat in 2011 compared to the high level experienced in 2010.
The strong financial position of row crop farmers and the expectation of farm income above historical averages are expected to support demand from the professional farming sector. Strong farm fundamentals are expected to continue in Brazil in 2011. However, less attractive government financing programs are expected to result in a softening of demand as compared to the record levels of 2010.
Our Take
With a full product line of farm equipment and a wide network of dealers and distributors, we believe AGCO is well positioned to capitalize on the need for increased food production driven by worldwide population growth over the long term.
Moreover, the company is also looking to expand operations in high-growth emerging markets, which bode 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).
AGCO CORP (AGCO): Free Stock Analysis Report
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