AGCO, Your Agriculture Company (NYSE: AGCO), a worldwide manufacturer and distributor of agricultural equipment and solutions, reported its results for the second quarter ended June 30, 2020. Net sales for the second quarter were approximately $2.0 billion, a decrease of approximately 17.2% compared to the second quarter of 2019. Reported net income was $0.93 per share for the second quarter of 2020 and adjusted net income, excluding a non-cash impairment charge and restructuring expenses, was $1.11 per share. These results compare to reported and adjusted net income of $1.82 per share for the second quarter of 2019. Excluding unfavorable currency translation impacts of approximately 3.9%, net sales in the second quarter of 2020 decreased approximately 13.2% compared to the second quarter of 2019.

Net sales for the first six months of 2020 were approximately $3.9 billion, a decrease of approximately 10.9% compared to the same period in 2019. Excluding unfavorable currency translation impacts of approximately 3.8%, net sales for the first six months of 2020 decreased approximately 7.2% compared to the same period in 2019. For the first six months of 2020, reported net income was $1.78 per share, and adjusted net income, excluding a non-cash impairment charge and restructuring expenses was $1.97 per share. These results compare to reported net income of $2.66 per share, and adjusted net income, excluding restructuring expenses, of $2.68 per share for the first six months of 2019.

Second Quarter Highlights

• Reported regional sales results⁽¹⁾: Europe/Middle East (“EME”) (22.8)%, North America (10.2)%, South America (3.9)%, Asia/Pacific/Africa (“APA”) (8.2)%
• Constant currency regional sales results⁽¹⁾⁽²⁾: EME (20.4)%, North America (9.1)%, South America 21.2%, APA (4.1)%
• Regional operating margin performance: EME 8.1%, North America 11.6%, South America 3.1%, APA 9.5%
• Second quarter production in Europe and South America impacted by COVID-19 related supply chain disruptions. All factories returned to normal production during the second quarter.
• Funding position stable with net debt below June 2019 levels

• Full-year outlook reestablished for net sales and net income per share

“AGCO’s priorities throughout the COVID-19 crisis continues to be the safety of our employees while serving our dealers and the world’s farmers as they maintain the global food supply,” stated Martin Richenhagen, AGCO’s Chairman, President and Chief Executive Officer. “We’ve had good success with these efforts to this point, and I would like to thank our employees around the world for finding innovative solutions to keep our business running effectively and to support our customers. Our second quarter results demonstrated strong execution as we overcame COVID-19 related production disruptions in Europe and South America in order to deliver a solidly profitable quarter. Margin improvement in our North American, South American and Asia/Pacific/Africa regions highlighted our results. While all our factories are now open with strong order boards heading into second half of 2020, we still face a demanding environment to manage our manufacturing, supply chain and aftermarket operations. In addition, end-market demand has been negatively impacted by the pandemic, but is proving to be resilient as farmers look to replace their aged fleet. Despite these challenging conditions, we are focused on delivering strong profitability and healthy cash flow in 2020. We also remain well-positioned to continue investing in premium technology, smart farming solutions and enhanced digital capabilities for our customers in order to improve our global market position.”

North America

Net sales in the North American region were flat in the first six months of 2020 compared to the same period of 2019, excluding the negative impact of currency translation. Increased sales of hay equipment, Precision Planting equipment and high horsepower tractors were mostly offset by lower sprayer and grain and protein sales. Income from operations for the first six months of 2020 improved approximately $43.6 million compared to the same period in 2019. The benefit of a richer mix of products, as well as cost control initiatives contributed most of the increase.

South America

AGCO’s South American net sales increased 17.8% in the first six months of 2020 compared to the first six months of 2019, excluding the impact of unfavorable currency translation. Increased sales in Brazil and Argentina were partially offset by lower sales in the other South American markets. The loss from operations in the first six months of 2020 was improved compared to the same period in 2019 by approximately $12.3 million. The improved South America results reflect the benefit of higher sales, a richer sales mix, as well as cost reduction initiatives, partially offset by negative currency impacts.

Europe/Middle East

AGCO’s Europe/Middle East net sales decreased 13.3% in the first six months of 2020 compared to the same period in 2019, excluding unfavorable currency translation impacts. Sales declines were driven primarily by lost production caused by the impacts from COVID-19 crisis. All of AGCO’s major European production facilities were suspended due to supply availability from late March throughout most of April, with production volumes recovering during the remainder of the quarter. Income from operations dropped approximately $143.2 million for the first six months of 2020, compared to the same period in 2019, due to lower net sales and production volumes, partially offset by expense reductions.

Asia/Pacific/Africa

Asia/Pacific/Africa net sales decreased 8.3%, excluding the negative impact of currency translation, in the first six months of 2020 compared to the same period in 2019. Sales declines were most significant in Africa and Asia and were partially offset by growth in Australia and China. Income from operations improved by approximately $2.3 million in the first six months of 2020, compared to the same period in 2019, due to a richer product sales mix and reduced expenses.

Funding Update

AGCO’s available funding as of June 30, 2020, including the $530.9 million term loan facility added during the second quarter, was approximately $1.3 billion consisting of cash of approximately $399.7 million and available borrowing capacity of approximately $869.3 million. The Company’s funding position stabilized during the second quarter with net debt approximately $125.1 million below June 2019.

Other

In the second quarter the Company recognized a non-cash goodwill impairment charge related to its 50% owned tillage and seeding joint venture in North America. A gross impairment charge of approximately $20 million, with an offsetting $10 million benefit attributable to non-controlling interests, was recorded.

Outlook

Net sales in 2020 are expected to be approximately $8.3 to $8.4 billion reflecting lower end-market demand and the unfavorable impact of currency translation. Adjusted operating margins are expected to be below 2019 levels with the impact of lower sales and production volumes partially offset by the benefits of pricing and expense reductions. Based on these assumptions, 2020 adjusted net income per share, excluding the impact of restructuring expenses and the goodwill impairment charge, is targeted in the range of $3.50 to $3.75. This outlook does not contemplate any further sales or production disruptions caused by the COVID-19 pandemic.

AGCO will host a conference call with respect to this earnings announcement at 10:00 a.m. Eastern Time on Thursday, July 30, 2020. 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.