DULUTH, Ga.— AGCO, a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $2 billion for the second quarter of 2016, a decrease of approximately 3.6% compared to net sales of approximately $2.1 billion for the second quarter of 2015.

Reported net income was $0.61 per share for the second quarter of 2016 and adjusted net income, excluding restructuring expenses and a non-cash deferred income tax adjustment, was $1.02 per share. These results compare to reported net income of $1.22 per share and adjusted net income, excluding restructuring expenses, of $1.25 per share for the second quarter of 2015. Excluding unfavorable currency translation impacts of approximately 2.5%, net sales in the second quarter of 2016 decreased approximately 1.1% compared to the second quarter of 2015. During the second quarter of 2016, AGCO recorded a non-cash adjustment to increase the valuation allowance on its U.S. deferred income tax assets of approximately $31.6 million, or $0.39 per share. The adjustment does not affect the company’s ability to utilize the deferred income tax assets with future taxable income in the United States.

Net sales for the first six months of 2016 were approximately $3.6 billion, a decrease of approximately 5.8% compared to the same period in 2015. Excluding unfavorable currency translation impacts of approximately 3.7%, net sales for the first six months of 2016 decreased approximately 2.0% compared to the same period in 2015. For the first six months of 2016, reported net income was $0.70 per share and adjusted net income, excluding restructuring expenses and a non-cash deferred income tax adjustment, was $1.12 per share. These results compare to reported net income of $1.55 per share and adjusted net income, excluding restructuring expenses, of $1.67 per share for the first six months of 2015.

Second Quarter Highlights

• Regional sales results: North America (10.2)%, Europe/Africa/Middle East (“EAME”) +4.6%, South America (14.3)%, Asia/Pacific (“APAC”) +25.9%
• Regional operating margin performance: EAME 12.1%, North America 4.7%, South America 0.0%, APAC 2.0%
• Full-year adjusted earnings per share guidance remains at $2.30
• Share repurchase program reduced outstanding shares by 1.4 million during the second quarter and 2.8 million during the first six months of 2016

 “Challenging market conditions shaped AGCO’s second quarter as our industry continued to operate at a low point in the agricultural equipment cycle,” stated Martin Richenhagen, AGCO’s chairman, president and CEO. “In the midst of a weaker industry environment, we continued to deliver quality products and service to our customers, while aggressively managing our expenses and working capital. Our second quarter results were highlighted by solid margin performance, especially in our EAME and APAC regions, where operating margins improved during the second quarter compared to the same period in 2015. We are also managing for the long-term during this weak demand period by increasing the level of investment in product development in order to provide industry leading products and service levels for our customers. We have a full slate of new product introductions planned for the second half of 2016, ranging from the most powerful, technology-rich tractor on a conventional frame to highly efficient low and medium horsepower tractors. These new products are aimed at improving our competitive position in the global marketplace and increasing our margins in the years ahead."

Market Update

“After a brief weather-related run up in the second quarter, commodity prices have fallen below last year’s levels,” continued Richenhagen. “Crops in the United States have emerged early and are in excellent condition through July. The USDA is estimating grain inventories will grow during 2016, further pressuring commodity prices. Against this challenging backdrop, industry demand remains weak across all the major markets. Industry retail sales in North America declined in the first half of 2016, with a significant drop in the large producer segment. Sales of high-horsepower tractors, combines, sprayers and grain storage and handling equipment all declined significantly. Higher industry sales of small tractors, due to more normal conditions in the livestock sector and general economy, have provided a partial offset to the decline in large agricultural equipment.

In Western Europe, first half industry sales declined more modestly. Margins for dairy producers remained weak and lower commodity prices kept market demand soft in the row crop segment. Industry sales declines were most pronounced in the United Kingdom and Germany. The declines were partially offset by growth in France stimulated by tax incentives for equipment purchases, which have been extended through the end of 2016. Reduced industry sales in South America were the result of lower demand in Brazil due to political and economic uncertainty that continues to impact farmer confidence. More supportive government policies in Argentina have contributed to higher sales in that market. Looking past the current operating environment, our long-term view remains optimistic, with expanding demand for grain supporting farm economics and healthy growth in our industry.”

Regional Results

Outlook

Weak global demand for agricultural equipment is expected to negatively impact AGCO’s sales and earnings in 2016. AGCO’s net sales for 2016 are expected to reach $7.2 billion. Gross and operating margins are expected to be below 2015 levels due to the negative impact of lower sales and production volumes along with a weaker sales mix. Benefits from the company’s cost reduction initiatives are expected to partially offset the volume-related impacts. Based on these assumptions, 2016 reported earnings per share are targeted at approximately $1.85 and adjusted earnings per share, excluding restructuring expenses and the non-cash deferred income tax adjustment, are targeted at approximately $2.30.