AGCO, a worldwide manufacturer and distributor of agricultural equipment and solutions, has reported its results for the first quarter ended March 31, 2020. “AGCO delivered solid results for the first quarter under challenging conditions,” stated Martin Richenhagen, AGCO’s chairman, president and chief executive Officer. “In addition to restarting factories and ramping up production, we remain focused on maintaining parts and service support for our dealers and our customers.”
Net sales for the first quarter were approximately $1.9 billion, a decrease of approximately 3.4% compared to the first quarter of 2019. Excluding unfavorable currency translation impacts of approximately 3.6%, net sales in the first quarter of 2020 increased approximately 0.2% compared to the first quarter of 2019.
Total production hours were down 9% year-over-year in the first quarter of 2020. By region, North America production hours were down 5%, South America was down 1%, Europe/Middle East was down 8% and Asia/Pacific/Africa was down 34%.
First Quarter Highlights
- Reported regional sales results(1): Europe/Middle East (“EME”) down 8%, North America up 11.2%, South America down 1.4%, Asia/Pacific/Africa (“APA”) down 17.8%
- Constant currency regional sales results(1)(2): EME down 4.7%, North America up 11.7%, South America up 13.8%, APA down 13.4%
- Regional operating margin performance: EME up 9.2%, North America up 11%, South America down 5.7%, APA down 1.2%
- New Term Loan: $520 million facility completed in April to provide incremental liquidity
- Full-year outlook withdrawn on March 23rd
“Our first quarter results demonstrated strong execution as we overcame COVID-19 related production disruptions in China and Europe to expand operating margins compared to the first quarter of last year,” stated Richenhagen. “Strong performance in our North America region highlighted our results driven by improved product availability and an increase in the retail demand of our products. The Precision Planting business also produced significantly improved results over the prior year in its seasonally important first quarter. Our Europe/Middle East region results remained solid but were impacted by production interruptions late in March despite a strong order board. In April, we also added over $500 million in liquidity with the completion of a new term loan facility.”
"North American industry retail sales decreased in the first three months of 2020 compared to the same period in 2019," said Richenhagen. "Sales of both low and high horsepower tractors softened during the quarter. Industry retail sales in Western Europe decreased modestly only in the first three months of 2020. Market demand was weakest in Spain and Italy, but was mitigated by both in Germany. Industry retail sales in South America decreased during the first three months of 2020 with a decline in all markets outside of Brazil."
In most areas, AGCO’s business has been deemed essential, thereby allowing the company to maintain operations. However, production has been severely impacted by component supply availability, particularly during late March and throughout April, which has directly impacted sales levels. The affected plants all resumed production in late April, and all but one of AGCO’s major production facilities are currently operational. The ability to maintain full-time production remains uncertain for the foreseeable future due to potential supply chain constraints, workforce limitations, safety equipment availability and government restrictions. To date, AGCO’s regional production was impacted as follows:
- China production was suspended early in the first quarter, now producing near normal levels.
- All major European factories suspended production in late March through most of April, with production currently resumed with one exception; Suolahti Finland facility suspended production as of April 30 due to a supplier fire with restart date expected in June. Summer maintenance and vacation shutdown period are planning to be pulled forward to increase production capacity for the balance of the year.
- Primary South American factories production suspended during the majority of April with restart dates in late April.
- North American factory production maintained with no interruption. Capacities are limited in some cases due to workforce constraints.
AGCO’s North American net sales increased 11.7% in the first three months of 2020 compared to the same period of 2019, excluding the negative impact of currency translation. Increased sales of high horsepower tractors, Precision Planting equipment and hay equipment accounted for most of the increase. Income from operations for the first three months of 2020 improved approximately $30.3 million compared to the same period in 2019. The benefit of higher sales and a richer mix of products, as well as cost control initiatives contributed most of the increase.
Net sales in the South American region increased 13.8% in the first three months of 2020 compared to the first three months of 2019, excluding the impact of unfavorable currency translation. Loss from operations in the first three months of 2020 was relatively flat compared to the same period in 2019. The South America results reflect low levels of industry demand and company production, as well as unfavorable cost impacts associated with newer product technology into our Brazilian factories.
AGCO’s Europe/Middle East net sales decreased 4.7% in the first three months of 2020 compared to the same period in 2019, excluding unfavorable currency translation impacts. Sales declines were driven primarily by lost production caused by the impacts from COVID-19 crisis. Lower sales in the UK, Scandinavia and France were partially offset by higher sales in Germany.Income from operations dropped approximately $25.4 million for the first three months of 2020, compared to the same period in 2019, due to lower sales and production as well as the costs associated with factory closures.
Asia/Pacific/Africa net sales decreased 13.4%, excluding the negative impact of currency translation, in the first three months of 2020 compared to the same period in 2019. Sales were weakest in Africa and Asia. Income from operations reduced by approximately $4.7 million in the first three months of 2020, compared to the same period in 2019, due to lower sales and production. Consolidated replacement parts sales were approximately $310 million for the first quarter 2020 and we’re up about 6% compared to the same period in 2019, excluding negative impact of currency.
Given the uncertainty caused by the COVID-19 pandemic, AGCO withdrew all guidance for its 2020 results on March 23, 2020. A considerable amount of uncertainty remains for the balance of 2020 relating to industry demand, production constraints and other impacts of the pandemic. AGCO’s focus is on employee safety, serving customers and operating as effectively as possible under these challenging conditions.