DULUTH, Ga. — AGCO, (NYSE:AGCO) a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $2.0 billion for the fourth quarter of 2015, a decrease of approximately 21.2% compared to net sales of approximately $2.5 billion for the fourth quarter of 2014. Reported net income was $0.73 per share and adjusted net income, excluding restructuring and other infrequent expenses, was $0.80 per share for the fourth quarter of 2015. These results compare to reported net income of $0.85 per share and adjusted net income, excluding restructuring and other infrequent expenses, of $1.18 per share for the fourth quarter of 2014. Excluding unfavorable currency translation impacts of approximately 11.5%, net sales in the fourth quarter of 2015 decreased approximately 9.6% compared to the fourth quarter of 2014.
Net sales for the full year of 2015 were approximately $7.5 billion, a decrease of approximately 23.2% compared to 2014. Excluding the unfavorable impact of currency translation of approximately 13.0%, net sales for the full year of 2015 decreased approximately 10.2% compared to 2014. For the full year of 2015, reported net income was $3.06 per share and adjusted net income, excluding restructuring and other infrequent expenses, was $3.24 per share. These results compare to reported net income of $4.36 per share and adjusted net income, excluding restructuring and other infrequent expenses, of $4.70 per share for the full year of 2014.
Fourth Quarter and Full Year Highlights
• Fourth quarter regional sales results (1): North America (18.9)%, Europe/Africa/Middle East (“EAME”) 0.9%, South America (33.9)%, Asia/Pacific (“APAC”) (4.5)%
• Fourth quarter regional operating margin performance: EAME 10.9%, North America 1.6%, South America (2.3)%, APAC (1.8)%
• Inventory reduction of $134 million compared to year-end 2014 on a constant currency basis
• Generated over $300 million in free cash flow in 2015
• Share repurchase program resulted in reduction of 5.5 million shares during 2015
• Quarterly dividend increased 8% to $0.13 per share effective first quarter 2016
• Full-year earnings per share forecast for 2016 remains at approximately $2.30
(1) As compared to fourth quarter 2014, excludes currency translation impact. See reconciliation of Non-GAAP measures in appendix.
“In the midst of challenging market conditions, we worked aggressively in 2015 to better align our costs and working capital with the weaker demand environment,” stated Martin Richenhagen, AGCO’s chairman, president and chief executive officer. “Focused inventory reduction efforts contributed to the generation of over $300 million in free cash flow. In addition, our cost reduction actions were implemented while maintaining key investments in new products. The benefits of our product development efforts can be seen through the extensive list of awards that AGCO received during 2015.
"Most recently, we earned three machine-of-the-year awards at Agritechnica, the world’s largest indoor farm show in Hannover, Germany, for the Fendt 1000, the Valtra N series and the Massey Ferguson 5713 tractors. Looking forward to 2016, market conditions are expected to remain challenging in key markets.
"In addition to diligent cost management, we will be concentrating on initiatives that will drive long-term benefits and raise the efficiency of our factories, improve our service levels and strengthen our product offering.
“Crop production reached near-record levels for a third consecutive year, contributing to higher grain inventories in 2015 and putting additional pressure on global farm economics,” continued Richenhagen.
“Lower farmer income weakened demand for farm equipment across the major markets. In North America, industry sales progressively declined throughout the year. Sales declines were most pronounced in the row-crop sector, with significantly lower industry retail sales of high-horsepower tractors, combines and sprayers. Industry retail demand declines from 2014 levels were less significant in Western Europe. While poor economics for dairy producers pressured demand, sales in the arable farming sector also remained soft due to lower commodity prices. Declines were most pronounced in the United Kingdom, Finland and Germany. Industry demand in South America deteriorated significantly throughout the year with fourth quarter industry unit retail tractor sales down 40% from the fourth quarter of 2014. In Brazil, demand was extremely low due to weakness in the general economy, funding interruptions in the government financing program and softness in the sugar sector.
“We expect difficult global industry conditions to persist through 2016, with farmers delaying purchases and industry inventory levels being managed down. Despite the current market difficulties, our long-term view remains positive as increasing global demand for commodities driven by the growing world population, rising emerging market protein consumption and biofuel use, are expected to support elevated farm income and healthy conditions in our industry.”
North America
Net sales in the North American region decreased 16.3% in the full year of 2015 compared to 2014, excluding the negative impact of currency translation. Weaker industry demand and dealer inventory reduction efforts contributed to lower sales. Sales declines in sprayers, implements and combines were partially offset by growth in sales of protein production products. Lower sales and production volumes and a weaker sales mix contributed to a reduction in income from operations of approximately $95.8 million for the full year of 2015 compared to 2014.
South America
Excluding unfavorable currency translation impacts, AGCO’s South American net sales decreased 21.8% in the full year of 2015 compared to 2014. Reduced sales in Brazil, due to weak industry conditions, were partially offset by sales growth in Argentina and other South American markets. Income from operations decreased approximately $99.6 million for the full year of 2015 compared to 2014 due to lower sales and production volumes, the negative impact of currency translation, and a weaker mix of sales.
Europe/Africa/Middle East
EAME net sales declined 4.0% in the full-year of 2015 compared to 2014, excluding unfavorable currency translation impacts, largely due to softer end-market demand. Declines in Germany, Africa and Scandinavia were partially offset by growth in France and Turkey. Income from operations decreased approximately $83.5 million for the full year of 2015 compared to 2014 due to lower sales and production volumes as well as unfavorable currency translation impacts. Full-year operating margins were improved, benefiting from operational efficiencies, cost reduction initiatives and new product sales.
Asia/Pacific
AGCO’s APAC net sales, excluding the negative impact of currency translation, declined 5.5% in the full year of 2015 compared to 2014. Losses from operations increased approximately $16.1 million in the full year of 2015 compared to 2014 due to lower sales and increased market development costs in China.
Outlook
Softer industry demand for farm equipment across all regions and the unfavorable effects of foreign currency translation are expected to negatively impact AGCO’s sales and earnings for 2016. AGCO’s 2016 net sales are expected to reach approximately $7.0 billion. Gross and operating margins are projected to be below 2015 levels due to the impact of lower sales and production volumes, a weaker sales mix and increased investment in product development expenses. Benefits from the Company’s cost reduction initiatives are expected to partially offset the volume-related impacts. Based on these assumptions, 2016 earnings per share are targeted at approximately $2.30.