A month has gone by since the last earnings report for Agco (AGCO). Shares have added about 3.7% 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 Earnings Trump, Sales Trail Estimates in Q3
AGCO reported third-quarter adjusted earnings per share of 82 cents, down 9.9% year over year. The reported figure, however, surpassed the Zacks Consensus Estimate of 78 cents, delivering a positive earnings surprise of 5.1%.
Revenues declined 4.8% year over year to $2,109.4 million. The revenue figure also missed the Zacks Consensus Estimate of $2,175 million. Excluding unfavorable currency-translation impact of 3.1%, net sales edged down 1.7% year over year.
Farming conditions continue to be challenging in many key markets due to uncertainty regarding trade negotiations and lower yields. Nevertheless, price-realization initiatives and improved productivity helped offset lower sales and production volumes during the September-end quarter. The company’s focus on margin expansion also aided its quarterly results.
Cost of sales went down 4.7% to $1,659.2 million from the year-earlier quarter. Gross profit decreased 4.9% to $450.2 million in the quarter from the $473.3 million recorded in the year-ago quarter. Gross margin came in at 21.3% during the third quarter compared with the prior-year quarter’s 21.4%.
Selling, general and administrative expenses slipped 6% year over year to $245 million. Adjusted income from operations declined 4.9% year over year to $107.2 million. Consequently, operating margin came in at 5.1%, flat compared with the year-earlier quarter.
Sales in the North America segment dropped around 1.7% year over year to $536.2 million during the July-September quarter. The segment reported operating income of $32.5 million, flat year on year. Late harvest and early winter weather have been putting pressure on corn and soybean harvests in North America.
Sales in the South America segment dipped around 14.8% year over year to $239.4 million. The segment reported an operating loss of $5.6 million, as against the prior year’s operating profit of $12.6 million.
The EME (Europe / Middle East) segment’s sales came in at $1,145.7 million, down 1.6% from the year-ago quarter’s reported tally. EME’s operating income climbed 12.3% year over year to $122 million.
Sales in the Asia/Pacific segment were down 15.8% year over year to $188.1 million. The segment reported income of $11.5 million, down from the prior year’s $17.6 million.
AGCO reported cash and cash equivalents of $282 million at the end of the third quarter, down from the $292.7 million registered at the prior-year quarter end. The company used $80.2 million of cash in operating activities during the nine-month period ended Sep 30, 2019, compared with cash usage of $4 million reported in the comparable period last year.
AGCO now projects its net sales for 2019 at $9.3 billion, down from $9.35 billion in the prior-year, reflecting the negative foreign currency-translation impact and relatively flat sale volumes, offset by positive pricing. Based on these assumptions, the company anticipates gross and operating margin improvement from the previous year. The company has maintained its adjusted EPS guidance of $5.10.
AGCO projects year-over-year flat North American industry retail tractor sales for the current year. For 2019, while industry demand in Western Europe is expected to be flat, year on year, industry demand in South America is expected to decline.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
At this time, Agco has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.
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