European ag machinery rebounds drive Agco, CNH to forecast-beating results

01.11.2017

Shares in CNH Industrial soared to a record high, after the farm machinery group raised its profits guidance, and joined rival Agco in unveiling forecast-beating results, fuelled by growth in the European market.

Shares in CNH Industrial, the maker of Case and New Holland machinery, soared to E11.02 at one point, before easing to E10.90 in late deals in Milan, a gain of 4.8% on the day.

The jump followed an upgrade by the group to $0.44-0.46 per share, from $0.41 per share, in its forecast for underlying earnings this year, opening up the potential for exceeding the $0.45 that investors have factored in.

“Market conditions across our major segments have been solid year to date,” CNH said, although acknowledging “continued inventory destocking efforts” in the North American market for high horsepower tractors.

Combine market upgrade

Indeed, the group reported that in the US market for high horsepower tractors, the ratio of sales of used vehicles to new has soared to 3.4 times, doubling over three years, and ahead of a 15-year average of 2.2 time, CNH data showed.

By contrast, in the US combine market, the sales ratio in combines of used vehicles to new ones has eased back a little, back below the 15-year average, a sign of improved appetite for new equipment.

The group hiked to 10-15%, from a previous forecast of a “flat” performance, its forecast for industry growth in the North American combine market this year.

It also raised its forecast for expansion in the North American market for small tractors, as used by livestock farmers and amenity users, seeing industry sales growth in 2017 of up to 5% compared with a previous expectation of a “flat” market.

European growth

The comments came as the group, which also makes Iveco trucks, reported a 46% surge to $57m in earnings for the July-to-September quarter, on sales up 15.3% at $6.63bn.

Underlying earnings hit $148m, well ahead of expectations of a figure just below $100m.

The improvement reflected largely improvement in the agriculture division, which reported a 53% surge to $208m in operating profits, on revenues up 1.24% at $2.65bn.

The group highlighted in particular sales growth in European, Middle Eastern and African countries, which soared 24% year on year, “primarily due to improved volumes for combines and lower horsepower tractors”.

‘Stabilisation in demand’

Agco, the maker of Massey Ferguson and Fendt machinery, too reported growth in European sales, of 15.2% to $1.02bn.

The western European market had “stabilised” over 2017, “with impacts of lower commodity prices on the arable farming segment offset by improved economics for dairy producers”, said Martin Richenhagen, the Agco chief executive.

“Growth in Italy, the UK and Spain offset most of the decline in the French market,” where sales have been undermined this year by the closure of a temporary tax incentive scheme.

Mr Richenhagen said that, for the global market as a whole, Agco was “seeing stabilisation… in demand at lower levels, following three years of strong declines”, while describing the North American market as “mixed”.

In comments echoing those of CNH, the group said that “small tractors are up compared to last year, while sales in the row crop segment remain weak”.

Profits jump, shares ease

Agco reported a 54% jump to $60.8m in earnings for the July-to-September quarter, on revenues up 12.7% at $1.99bn.

“We produced sales growth and operating margin improvement across all regions,” Mr Richenhagen said.

Underlying earnings per share came in at $0.76, a little ahead of the $0.73-per-share result investors had expected.

However, with Agco sticking by a forecast for full-year earnings of $3.00 per share, marginally below the $3.05 per share that Wall Street is expecting, Agco shares dipped 2.5% to $69.60 in lunchtime deals in New York.


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