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Why Is Agco (AGCO) Up 4.5% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Agco (AGCO). Shares have added about 4.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

AGCO Tops Earnings & Revenue Estimates in Q4

AGCO reported fourth-quarter adjusted earnings per share of $1.31, up 19% year over year. The reported figure surpassed the Zacks Consensus Estimate of $1.23.

Including restructuring and other infrequent expenses, the company reported earnings of $1.26 per share in the quarter, up 130% year over year.

Revenues of $2,592 million were up 2.6% from $2,527 million in the year-ago quarter. Additionally, revenues surpassed the Zacks Consensus Estimate of $2,574 million. Excluding unfavorable currency-translation impact of around 4.7%, net sales increased approximately 7.3% year over year.

Operational Update

Cost of sales went up 3% to $2,054 million from the year-earlier quarter. Gross profit came in at $539 million in the quarter, up around 1.5% from $531 million in the year-ago quarter. Gross margin was in line with the prior-year-quarter level.

Selling, general and administrative expenses fell 0.4% year over year to $273 million. Adjusted income from operations increased 10.3% year over year to $161 million. Consequently, operating margin improved 6.2% year over year from 5.8% in the year-ago-quarter.
 
Segment Performance

Sales in the North America segment declined around 0.1% year over year to $531.2 million in the fourth quarter. The segment reported operating income of $6.2 million, down around 50.4% year over year.

Sales in the South America segment declined around 12.6% year over year to $276 million. The segment reported operating income of around $11 million compared with $0.9 million in the year-earlier quarter.

The EME (Europe / Middle East) segment’s sales came in at $1,512 million, up 5.4% from the year-ago quarter. EME’s operating income jumped 13.4% to $185 million from $163 million in the prior-year quarter.

Sales in the Asia/Pacific segment increased around 11.4% year over year to $273 million from $245 million in the comparable period last year. The segment reported income of $23 million, down from $26 million a year ago.

Financial Update

AGCO reported cash and cash equivalents of $326 million at the end of the reported quarter, down from $368 million at the end of 2017. The company recorded $596 million of cash flow from operating activities during the 12-month period ended Dec 31, 2018, compared with $578 million in the comparable period last year.

2018 Results

AGCO reported adjusted earnings per share of $3.89 in 2018, up 29% from $3.02 in the prior year. Earnings beat the Zacks Consensus Estimate of $3.80.

Sales increased 12.6% year over year to $9.4 billion from $8.3 billion in 2017. The top line beat the Zacks Consensus Estimate of $9.3 billion.

Guidance

AGCO has reaffirmed its net sales 2019 outlook at $9.6 billion owing to improved sales volumes and positive pricing, offset by unfavorable impact of foreign currency translation. It also anticipates gross and operating margins improvement from the 2018 level, driven by positive impact of pricing and cost reduction. Considering these, the company expects 2019 earnings per share of around $4.60.

AGCO projects global industry demand to improve modestly in 2019. Farm income in 2019 is expected to drop modestly in the United States compared to 2018. However, farm economics are expected to improve across Western Europe in 2019, primarily driven by crop production and favorable wheat prices.

Additionally, industry demand in South America is expected improve from 2018. Higher retail sales in Brazil might be offset by a sales drop in Argentina.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.55% due to these changes.

VGM Scores

At this time, Agco has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, 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.

Outlook

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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