AGCO Reports Fourth Quarter Results
February 08, 2022 at 07:30 AM EST
AGCO, Your Agriculture Company (NYSE: AGCO), a worldwide manufacturer and distributor of agricultural equipment and solutions, reported net sales of approximately $3.2 billion for the fourth quarter of 2021, an increase of approximately 16.1% compared to the fourth quarter of 2020. Reported net income was $3.75 per share for the fourth quarter of 2021, and adjusted net income(3), which excludes restructuring expenses and the reversal of a valuation allowance previously established against the Company’s deferred tax assets in Brazil, was $3.08 per share. These results compare to reported net income of $1.78 per share and adjusted net income(3), which excludes restructuring expenses and a gain on sale of an investment, of $1.54 per share for the fourth quarter of 2020. Excluding unfavorable currency translation impacts of approximately 3.2%, net sales in the fourth quarter of 2021 increased approximately 19.3% compared to the fourth quarter of 2020.
Net sales for the full year of 2021 were approximately $11.1 billion, which is an increase of approximately 21.7% compared to 2020. Excluding favorable currency translation impacts of approximately 2.2%, net sales for the full year of 2021 increased approximately 19.6% compared to 2020. For the full year of 2021, reported net income was $11.85 per share, and adjusted net income(3), excluding restructuring expenses and the reversal of a valuation allowance previously established against the Company’s deferred tax assets in the United States and Brazil, was $10.38 per share. These results compare to reported net income of $5.65 per share and adjusted net income(3), which excludes a non-cash impairment charge, restructuring expenses and a gain on sale of an investment, of $5.61 per share for 2020.
Fourth Quarter Highlights
“AGCO delivered record results in 2021 highlighted by significantly higher sales and margins compared to 2020,” stated Eric Hansotia, AGCO’s Chairman, President and Chief Executive Officer. “Our performance was fueled by improved global industry demand and focused execution by the AGCO team, who exceeded sales targets despite considerable supply chain challenges. Adjusted operating margins reached 9.1% of net sales due to the benefits of sales growth and pricing that helped to offset substantial inflationary cost pressures. Our smart technology product lines are in strong demand and are driving productivity improvements for our customers and growth opportunities for AGCO. Looking forward to 2022, we expect supply chain pressures to persist, presenting challenges throughout the year. Our teams are working tirelessly with our suppliers to mitigate the impact of these issues to serve our customers as well as to deliver another strong year of performance. We are forecasting sales growth and margin expansion in 2022 as industry demand trends positively and our farmer-first strategy gains traction.”
“Elevated soft commodity prices are supporting improved farm income in 2021 despite significantly higher farm input costs,” stated Mr. Hansotia. “These favorable farm fundamentals are resulting in robust demand for agricultural equipment as farmers look to upgrade their fleets.”
“Full year global industry retail sales of farm equipment in 2021 were higher across AGCO’s key markets, with fourth quarter industry retail sales higher than the prior year despite a strong finish to 2020,” continued Mr. Hansotia. “North American full-year industry retail tractor sales were up significantly across all horsepower categories compared to the previous year. Sales of high horsepower tractors and combines showed the most strength as an extended fleet age and favorable commodity prices stimulated demand. These conditions are expected to continue, resulting in higher forecasted North American industry sales in 2022. In Western Europe, industry retail tractor sales increased approximately 16% for the full year of 2021 compared to 2020. Healthy income levels for arable farmers as well as dairy and livestock producers supported increased equipment demand in 2021. Market demand improved across all the major Western European markets with the strongest growth in Italy, Finland and the United Kingdom. We expect 2022 industry demand in Western Europe to be flat to modestly higher compared to the improved levels in 2021. South American industry retail tractor sales increased 22% during 2021, with robust recovery in Brazil and Argentina as well as the smaller South America markets. Increased crop production and favorable margins are supporting farm profitability. We expect farm economics to remain supportive in South America resulting in increased 2022 industry sales compared to 2021. Longer term, we remain optimistic that elevated grain demand driven by population growth and increased protein consumption will support favorable industry conditions.”
AGCO Regional Net Sales (in millions)
Net sales in the North American region increased 20.8% for the full year of 2021 compared to 2020, excluding the positive impact of currency translation. Increased sales of high horsepower and mid-range tractors as well as Precision Planting products represented the largest increases. Income from operations for the full year of 2021 increased approximately $44.4 million compared to 2020. The improvement was the result of higher sales and production, a richer mix of products and favorable price realization, all which offset higher material costs.
AGCO’s South American net sales increased 54.3% for the full year of 2021 compared to 2020, excluding the impact of unfavorable currency translation. Sales increased significantly across all the South American markets with growth achieved in tractors, combines and planting equipment as well as replacement parts. Income from operations for the full year of 2021 increased by approximately $102.9 million compared to 2020 and operating margins exceeded 10%. The improved South America results reflect the benefit of higher sales and production, favorable pricing, and a better sales mix, partially offset by higher materials costs.
Net sales in AGCO’s Europe/Middle East region increased 13.0% for the full year of 2021 compared to 2020, excluding favorable currency translation impacts. Increased sales of tractors, combines and replacement parts contributed to growth across all of Europe. Income from operations increased approximately $170.1 million for the full year of 2021 compared to 2020, due to higher net sales and production volumes as well as price realization which offset higher material costs and engineering expenses.
Asia/Pacific/Africa net sales increased 22.3%, excluding the positive impact of currency translation, during the full year of 2021 compared to 2020. Higher sales in Africa, Australia and China produced the majority of the increase. Income from operations improved by approximately $51.8 million for the full year of 2021 compared to 2020 due to higher sales and an improved product mix.
The health, safety and well-being of all AGCO employees, dealers and farmer customers continue to be AGCO’s top priority. The ability of the Company’s supply chain to deliver parts and components on schedule is currently difficult to predict. The following outlook is based on AGCO’s current estimates of component deliveries. AGCO’s results will be impacted if the actual supply chain delivery performance differs from these estimates.
AGCO’s net sales for 2022 are expected to be approximately $12.3 billion, reflecting improved sales volumes and pricing partially offset by negative foreign currency translation. Gross and operating margins are projected to improve from 2021 levels, reflecting the impact of higher sales and production volumes as well as pricing to offset cost inflation. These improvements are planned to fund increases in engineering and other technology investments to support AGCO’s precision agriculture and digital initiatives. Based on these assumptions, 2022 earnings per share are targeted at approximately $11.50.
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AGCO will host a conference call with respect to this earnings announcement at 10:00 a.m. Eastern Time on Tuesday, February 8th. The Company will refer to slides on its conference call. Interested persons can access the conference call and slide presentation via AGCO’s website at www.agcocorp.com in the “Events” section on the “Company/Investors” page of our website. A replay of the conference call will be available approximately two hours after the conclusion of the conference call for twelve months following the call. A copy of this press release will be available on AGCO’s website for at least twelve months following the call.
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Safe Harbor Statement
Statements that are not historical facts, including the projections of earnings per share, sales, industry demand, market conditions, commodity prices, currency translation, farm income levels, margin levels, investments in product and technology development, new product introductions, restructuring and other cost reduction initiatives, production volumes, tax rates and general economic conditions, are forward-looking and subject to risks that could cause actual results to differ materially from those suggested by the statements. The following are among the factors that could cause actual results to differ materially from the results discussed in or implied by the forward-looking statements.
Further information concerning these and other factors is included in AGCO’s filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2020 and subsequent Form 10-Qs. AGCO disclaims any obligation to update any forward-looking statements except as required by law.
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AGCO (NYSE: AGCO) is a global leader in the design, manufacture and distribution of agricultural solutions and delivers high-tech solutions for farmers feeding the world through its full line of equipment and related services. AGCO products are sold through five core brands, Challenger®, Fendt®, GSI®, Massey Ferguson® and Valtra®, supported by Fuse® smart farming solutions. Founded in 1990 and headquartered in Duluth, Georgia, USA, AGCO had net sales of $11.1 billion in 2021. For more information, visit http://www.AGCOcorp.com. For company news, information and events, please follow us on Twitter: @AGCOCorp. For financial news on Twitter, please follow the hashtag #AGCOIR.
Please visit our website at www.agcocorp.com
AGCO CORPORATION AND SUBSIDIARIES
AGCO CORPORATION AND SUBSIDIARIES
AGCO CORPORATION AND SUBSIDIARIES
AGCO CORPORATION AND SUBSIDIARIES
AGCO CORPORATION AND SUBSIDIARIES
1. STOCK COMPENSATION EXPENSE
The Company recorded stock compensation expense as follows (in millions):
2. RESTRUCTURING EXPENSES
From 2014 through 2021, the Company announced and initiated several actions to rationalize employee headcount at various manufacturing facilities and administrative offices located in the U.S., Europe, South America, Africa and China in order to reduce costs in response to fluctuating global market demand. The Company also previously rationalized its grain and protein business during 2019 and 2020. The Company had approximately $16.8 million of severance and related costs accrued as of December 31, 2020. During the year ended December 31, 2021, the Company recorded an additional $15.3 million of severance and related costs associated with these rationalizations. The $15.3 million of expenses recorded during the year end December 31, 2021 included a $0.2 million write-down of property, plant and equipment. The restructuring expenses recorded during 2021 related to the termination of approximately 150 employees. During 2021, the Company paid approximately $16.6 million of severance and other related costs. The remaining $14.7 million of accrued severance, facility closure and other related costs as of December 31, 2021, inclusive of approximately $0.6 million of negative foreign currency translation impacts, are expected to be primarily paid during 2022.
3. GOODWILL AND OTHER INTANGIBLES IMPAIRMENT CHARGES
Goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The Company conducts its annual impairment analyses as of October 1 each fiscal year. The results of our goodwill and long-lived assets impairment analyses conducted as of October 1, 2021 indicated that no indicators of impairment existed and no reduction in the carrying amount of goodwill and long-lived assets was required.
The COVID-19 pandemic has adversely impacted the global economy as a whole. Based on macroeconomic conditions during 2020, the Company assessed its goodwill and other intangible assets for indications of impairment as of March 31, 2020, June 30, 2020 and September 30, 2020. As of June 30, 2020, the Company concluded there were indicators of impairment during the three months ended June 30, 2020 related to one of its smaller reporting units, which is a 50%-owned tillage and seeding joint venture. As a result, an impairment of the entire goodwill balance of this reporting unit was deemed necessary as of June 30, 2020. During the three months ended June 30, 2020, a non-cash impairment charge of approximately $20.0 million was recorded as “Impairment charge” within the Company’s Condensed Consolidated Statements of Operations, with an offsetting benefit of approximately $10.0 million included within “Net (income) loss attributable to noncontrolling interests.” The quantitative goodwill impairment analysis was performed in accordance with the provisions of Accounting Standards Codification (“ASC”) 350, “Intangibles - Goodwill and Other” and Accounting Standards Update (“ASU”) 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). No other indications of impairments existed during 2020 related to any of the Company’s other reporting units, including as a result of the Company’s annual impairment analysis as of October 1, 2020.
Long-term debt at December 31, 2021 and 2020 consisted of the following (in millions):
As of December 31, 2021 and 2020, the Company had short-term borrowings due within one year of approximately $90.8 million and $33.8 million, respectively.
On October 6, 2021, the Company issued €600.0 million (or approximately $680.8 million) of senior notes at an issue price of 99.993%. The notes mature on October 6, 2028, and interest is payable annually, in arrears, at 0.800%. The senior notes contain covenants restricting, among other things, the incurrence of certain secured indebtedness. The senior notes are subject to both optional and mandatory redemption in certain events.
During October 2021, the Company used the proceeds received from the senior notes to repay its €150.0 million (or approximately $173.4 million as of October 8, 2021) senior term loan due 2022, $370.0 million related to its multi-currency revolving credit facility, and two of its 2016 senior term loans due October 2021 with an aggregate amount outstanding of €192.0 million (or approximately $223.8 million as of October 19, 2021). In August 2021, prior to the issuance of the senior notes, the Company repaid two of its 2018 senior term loans due August 2021 with an aggregate amount of €72.0 million (or approximately $85.5 million as of August 1, 2021). On February 1, 2022, the Company repaid €72.5 million (or approximately $81.7 million) of one of its 2018 senior term loans due August 2023 with existing cash on hand.
Inventories at December 31, 2021 and 2020 were as follows (in millions):
6. ACCOUNTS RECEIVABLE SALES AGREEMENTS
The Company has accounts receivable sales agreements that permit the sale, on an ongoing basis, of a majority of its wholesale receivables in North America, Europe and Brazil to its U.S., Canadian, European and Brazilian finance joint ventures. As of December 31, 2021 and 2020, the cash received from receivables sold under the U.S., Canadian, European and Brazilian accounts receivable sales agreements was approximately $1.3 billion and $1.5 billion, respectively.
In addition, the Company sells certain trade receivables under factoring arrangements to other financial institutions around the world. As of December 31, 2021 and 2020, the cash received from these arrangements was approximately $215.4 million and $199.9 million, respectively.
Losses on sales of receivables associated with the accounts receivable financing facilities discussed above, reflected within “Other expense, net” in the Company’s Condensed Consolidated Statements of Operations, were approximately $7.4 million and $24.5 million, respectively, during the three months and year ended December 31, 2021. Losses on sales of receivables associated with the accounts receivable financing facilities discussed above, reflected within “Other expense, net” in the Company’s Condensed Consolidated Statements of Operations, were approximately $5.6 million and $24.1 million, respectively, during the three months and year ended December 31, 2020.
The Company’s finance joint ventures in Europe, Brazil and Australia also provide wholesale financing directly to the Company’s dealers. As of December 31, 2021 and 2020, these finance joint ventures had approximately $82.1 million and $85.2 million, respectively, of outstanding accounts receivable associated with these arrangements.
7. NET INCOME PER SHARE
A reconciliation of net income attributable to AGCO Corporation and subsidiaries and weighted average common shares outstanding for purposes of calculating basic and diluted net income per share for the three months and years ended December 31, 2021 and 2020 is as follows (in millions, except per share data):
8. SEGMENT REPORTING
The Company’s four reportable segments distribute a full range of agricultural equipment and related replacement parts. The Company evaluates segment performance primarily based on income from operations. Sales for each segment are based on the location of the third-party customer. The Company’s selling, general and administrative expenses and engineering expenses are charged to each segment based on the region and division where the expenses are incurred. As a result, the components of income from operations for one segment may not be comparable to another segment. Segment results for the three months and years ended December 31, 2021 and 2020 are as follows (in millions):
A reconciliation from the segment information to the consolidated balances for income from operations is set forth below (in millions):
RECONCILIATION OF NON-GAAP MEASURES
This earnings release discloses adjusted income from operations, adjusted net income, adjusted net income per share, free cash flow and net sales on a constant currency basis, each of which exclude amounts that are typically included in the most directly comparable measure calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). A reconciliation of each of those measures to the most directly comparable GAAP measure is included below.
The following is a reconciliation of reported income from operations, net income and net income per share to adjusted income from operations, net income and net income per share for the three months and years ended December 31, 2021 and 2020 (in millions, except per share data):
The following is a reconciliation of net cash provided by operating activities to free cash flow for the years ended December 31, 2021 and 2020 (in millions):
The following tables set forth, for the three months and year ended December 31, 2021 and 2020, the impact to net sales of currency translation by geographical segment (in millions, except percentages):