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It has been about a month since the last earnings report for Agco (AGCO). Shares have added about 10.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Agco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
AGCO Corp's Q4 Earnings & Sales Top Estimates, Up Y/Y
AGCO delivered fourth-quarter 2020 adjusted earnings per share of $1.54, up 39% year over year. The reported figure beat the Zacks Consensus Estimate of $1.08 per share. The company’s quarterly results reflect sales growth and margin expansion across all segments.
Revenues increased 7.5% year over year to $2,717 million during the December-end quarter. The top-line figure also beat the Zacks Consensus Estimate of $2,493 million. Excluding the favorable currency-translation impact of 1.4%, net sales were up 6.7% year over year.
Cost of sales grew 6.1% year over year to $2,122 million in the fourth quarter. Gross profit was up 13.7% year over year to $596 million during the reported quarter. Gross margin came in at 22% compared with the prior-year period’s 20%.
Selling, general and administrative expenses flared up to $283 million from the year-ago quarter’s $272 million. Adjusted income from operations surged 44.3% year over year to $192 million. Consequently, operating margin came in at 7% compared with the year-earlier quarter’s 5%.
Sales in the North America segment were down 10.2% year over year to $485 million during the October-December period. The segment reported an operating income of $9.8 million compared with the prior-year quarter’s $7.1 million.
Sales in the South America segment climbed 21.1% year over year to $268 million. The segment reported an operating profit of $16 million, as against the prior-year quarter’s operating loss of $18.2 million.
The EME (Europe/Middle East) segment’s sales came in at $1,723 million compared with the $1,515 million recorded in the year-ago period. The EME’s operating income was up 12.3% year over year to $205 million.
Sales in the Asia/Pacific segment were up 2.1% year on year to $242 million. The segment reported an operating profit of $26 million compared with the year-ago quarter’s $22 million.
AGCO reported cash and cash equivalents of $1,119 million as of Dec 31, 2020, up from the $433 million recorded as of Dec 31, 2019. The company generated $897 million of cash from operating activities in 2020 compared with the $696 million recorded in 2019.
AGCO reported adjusted earnings per share of $5.61 in 2020, up 26.3% from the prior-year reported figure of $4.44. Earnings also beat the Zacks Consensus Estimate of $5.14.
Sales were up 1.2% year over year to $9.15 billion from the prior-year figure of $9.04 billion. The top line also surpassed the Zacks Consensus Estimate of $8.93 billion.
The company expects net sales for the ongoing year to lie between $10.2 billion and $10.4 billion, suggesting improved sales volumes, pricing and positive impacts of foreign-currency translation. Gross and operating margins are projected to be higher than 2020 levels, reflecting higher sales and production volumes as well as margin-improvement plans. These improvements will support AGCO’s investments in precision agriculture and digital initiatives. Considering these, AGCO expects adjusted earnings per share for the current year in the range of $7.00 to $7.25.
Higher commodity prices and improved farmer sentiment are anticipated to drive North American industry sales in the current year. Healthy crop production and favorable exchange rates in Brazil and Argentina are supporting positive economics in South America, while strong replacement demand will result in higher industry sales compared with 2020. Increasing demand for commodities, driven by the growing world population, rising emerging market protein consumption and biofuel use, will likely strengthen prospects of the agricultural industry.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -5.11% due to these changes.
Currently, Agco has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Agco has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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