Zacks_Analysts' Blog : AGCO Guides Strong in 2Q - Analyst Blog

AGCO Corporation (AGCO) has reported fiscal 2011 second quarter results, delivering an EPS of $1.36 versus 66 cents in the year-earlier quarter. The quarter noted some special items, excluding which adjusted EPS amounted to $1.35 versus 66 cents in the year-ago quarter.

Total revenue in the reported quarter increased 35.3% year over year to $2.4 billion. Included in the sales was a currency translation impact of 12.9%, excluding which sales increased 22.4% in the quarter.

The EAME region reported the highest improvement in sales of about 39.5% on a year-over-year basis. The North American region reported a 5% improvement in sales, while sales in South America were more or less flat.

Costs and Margins

Cost of goods sold increased to $1870.3 million in the reported quarter from $1421.9 million in the year-ago quarter. Gross profit soared to $488.3 million from $321.1 million in the prior-year quarter. Consequently, gross margins improved 230 basis points year over year to 20.7%.

Selling, general and administrative expenses also increased to $216.5 million, from $164.8 million in the year-ago quarter. Operating income soared to $201.6 million from $96.5 million in the year-earlier quarter, thereby expanding operating margins by 300 basis points year over year to 8.5%.

Financial Position

As of June 30, 2011, cash and cash equivalents declined slightly to $573.1 million from $719.9 as of December 31, 2011.

As of June 30, 2011, the debt-to-capitalization ratio was 13.3% compared with 9.4% as of March 31, 2011 and 14.3% as of December 31, 2010.

Cash from operations improved to $101.5 million at the end of the second quarter versus $13.5 million at the end of the year-ago period.

Outlook

The company expects farm equipment to continue driving results in fiscal 2011. In Europe, market recovery is likely to drive the results in a positive direction; while North American and South American markets are expected to generate favorable results.

Based on this, AGCO is expecting adjusted EPS of $4.00 for fiscal 2011; while net sales are expected in the range of $8.5 billion to $8.7 billion.

Our Take

With a full product line of farm equipment and a wide network of dealers and distributors, we believe AGCO is well positioned, over the long term, to capitalize on the need for increased food production, driven by worldwide population growth. Moreover, the company is also looking forward to expanding its operations in high-growth emerging markets, which bodes well for future operating performance. We currently have a Zacks #1 Rank (short-term Strong 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).