AGCO reports fourth quarter results

Net sales for the full year of 2018 were approximately $9.4 billion, an increase of approximately 12.6% compared to 2017. Excluding the favorable impact of currency translation of approximately 0.1%, net sales for the full year of 2018 increased approximately 12.5% compared to 2017. For the full year of 2018, reported net income was $3.58 per share and adjusted net income, which excludes restructuring expenses, costs associated with the early retirement of debt and a tax gain related to U. S. tax reform, was $3.89 per share. These results compare to reported net income of $2.32 per share and adjusted net income, which excludes restructuring expenses, a non-cash expense related to waived stock compensation and a tax charge related to U.S. tax reform, of $3.02 per share for the full year of 2017.

Highlights

• Reported fourth quarter regional sales results(1): Europe/Middle East (“EME”) +5.4%, North America -0.1%, South America -12.6%, Asia/Pacific/Africa (“APA”) +11.4%

• Constant currency fourth quarter regional sales results(1)(2)(3): EME +9.5%, North America +0.8%, South America +0.9%, APA +16.4%

• Generated approximately $596 million in cash flow from operations and approximately $393 million in free cash flow(3) in 2018

• Share repurchase program reduced outstanding shares by approximately 3.1 million during 2018

• Full-year earnings forecast for 2019 remains at approximately $4.60 per share

(1) As compared to fourth quarter 2017

(2) Excludes currency translation impact.

(3) See reconciliation of Non-GAAP measures in appendix.

“AGCO delivered solid results in 2018 while making important investments to position us for future success,” stated Martin Richenhagen, AGCO’s Chairman, President and Chief Executive Officer. “Sales growth across all of our regions and solid operational execution allowed AGCO to meet its financial targets for 2018 and deliver improved results compared to 2017. We are growing our business by delivering the broadest product offering in the industry. We provide full-line smart farming solutions to our customers throughout the agricultural production cycle, starting with soil preparation and cutting-edge smart planting, through spraying and harvesting, and ending with grain storage and protein production equipment. AGCO will continue to invest in new products, new technology, improved distribution and enhanced digital capabilities in order to improve our margins and produce higher returns on our invested capital. Looking forward to 2019, we are forecasting further earnings improvement as industry conditions trend positively and we benefit from our cost reduction strategies targeted at purchasing actions and factory productivity, as well as new product development.”

“Another year of strong global crop production kept commodity prices at relatively low levels and pressured farm income,” continued Mr. Richenhagen. “Global industry sales of farm equipment in 2018 were mixed across AGCO’s key markets, with future demand dependent on factors such as commodity price development as well as government trade and farm support policy. The USDA is projecting 2019 farm income to be down modestly in the United States compared to 2018. While low horsepower equipment sales may begin to be under pressure from their historically high levels, high horsepower equipment sales are expected to continue their gradual recovery. Industry equipment demand decreased modestly across Western Europe in 2018. Farm income was negatively impacted by reduced crop production across parts of Western Europe and lower milk prices in the first half of the year. Lower demand across most of the European markets was partially offset by growth in the United Kingdom. Farm economics are expected to improve modestly across Western Europe in 2019, driven primarily by favorable wheat prices and more normal crop production. Based on these assumptions, we expect sentiment to remain positive and 2019 demand to be stable across the European markets. Industry equipment demand in Brazil improved in the second half of 2018 after more positive terms for the government financing program were announced. Market growth in Brazil was offset by weaker demand in Argentina in response to a weak first harvest and poor general economic conditions. Industry demand in 2019 in South America is expected to be improved compared to 2018. Higher retail sales in Brazil are expected to be partially offset by lower sales in Argentina. Our long-term global view remains positive. Increasing demand for commodities, driven by the growing world population, rising emerging market protein consumption and biofuel use, are all expected to support elevated farm income and healthy conditions in our industry.”

North America

Net sales in the North American region improved approximately 16.2% in the full year of 2018 compared to 2017, with no significant impact from currency translation. Acquisitions benefited sales by approximately 5.7% in 2018. Sales growth was strongest for sprayers, hay tools and grain storage equipment. Income from operations increased approximately $36.2 million for the full year of 2018 compared to 2017 due to the benefit of higher sales and margin improvement.

South America

South American net sales increased approximately 4.5%, excluding unfavorable currency translation impacts, in the full year of 2018 compared to 2017. The improvement was primarily driven by higher sales in Brazil partially offset by weaker demand in Argentina. Income from operations in the fourth quarter of 2018 increased $9.7 million compared to the same period in 2017, although the impacts of material cost inflation and costs associated with transitioning to new products with tier 3 emission technology contributed to a decrease in income from operations of approximately $25.5 million for the full year of 2018 compared to 2017.

Europe/Middle East

AGCO’s EME net sales increased approximately 13.3% in the full year of 2018 compared to 2017, excluding favorable currency translation. Acquisitions benefited sales by approximately 2.3% during 2018 compared to the full year of 2017. Sales growth was achieved in the key markets of the Germany, France and the United Kingdom. Income from operations increased approximately $107.8 million for the full year of 2018 compared to 2017 due to the benefit of higher sales and margin improvement.

Asia/Pacific/Africa

Net sales in AGCO’s Asia/Pacific/Africa region, excluding the negative impact of currency translation, increased approximately 10.2% in the full year of 2018 compared to the same period in 2017. Sales growth was driven primarily by Australia and China. Acquisitions benefited sales by approximately 1.7% during the full year of 2018 compared to 2017. Income from operations improved approximately $0.8 million in 2018 compared to the full year of 2017 due to the impact of higher sales.

Outlook

Global industry demand is projected to improve modestly in 2019. AGCO’s net sales for 2019 are expected to reach approximately $9.6 billion reflecting improved sales volumes and positive pricing, offset by unfavorable foreign currency translation impacts. Gross and operating margins are expected to improve from 2018 levels, reflecting the positive impact of pricing and cost reduction efforts. Based on these assumptions, 2019 earnings per share is targeted to be approximately $4.60.

Safe Harbor Statement

Statements that are not historical facts, including the projections of earnings per share, sales, industry demand, market conditions, world population, biofuel use and protein consumption, currency translation, farm income levels, margin levels, industry inventory levels, investments in product and technology development, cost reduction initiatives, production volumes, 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.

• Our financial results depend entirely upon the agricultural industry, and factors that adversely affect the agricultural industry generally, including declines in the general economy, increases in farm input costs, lower commodity prices, lower farm income and changes in the availability of credit for our retail customers, will adversely affect us.

• A majority of our sales and manufacturing take place outside the United States, and, many of our sales involve products that are manufactured in one country and sold in a different country, and as a result, we are exposed to risks related to foreign laws, taxes and tariffs, trade restrictions, economic conditions, labor supply and relations, political conditions and governmental policies. These risks may delay or reduce our realization of value from our international operations. Among these risks are the uncertain consequences of Brexit, Russian sanctions and tariffs imposed on exports to and imports from China.

• Most retail sales of the products that we manufacture are financed, either by our joint ventures with Rabobank or by a bank or other private lender. Our joint ventures with Rabobank, which are controlled by Rabobank and are dependent upon Rabobank for financing as well, finance approximately 40% to 50% of the retail sales of our tractors and combines in the markets where the joint ventures operate. Any difficulty by Rabobank to continue to provide that financing, or any business decision by Rabobank as the controlling member not to fund the business or particular aspects of it (for example, a particular country or region), would require the joint ventures to find other sources of financing (which may be difficult to obtain), or us to find another source of retail financing for our customers, or our customers would be required to utilize other retail financing providers. As a result of the recent economic downturn, financing for capital equipment purchases generally has become more difficult in certain regions and in some cases, can be expensive to obtain. To the extent that financing is not available or available only at unattractive prices, our sales would be negatively impacted.

• Both AGCO and our finance joint ventures have substantial account receivables from dealers and end customers, and we would be adversely impacted if the collectability of these receivables was not consistent with historical experience; this collectability is dependent upon the financial strength of the farm industry, which in turn is dependent upon the general economy and commodity prices, as well as several of the other factors listed in this section.

• We have experienced substantial and sustained volatility with respect to currency exchange rate and interest rate changes, which can adversely affect our reported results of operations and the competitiveness of our products.

• Our success depends on the introduction of new products, particularly engines that comply with emission requirements, which requires substantial expenditures.

• Our production levels and capacity constraints at our facilities, including those resulting from plant expansions and systems upgrades at our manufacturing facilities, could adversely affect our results.

• Our expansion plans in emerging markets, including establishing a greater manufacturing and marketing presence and growing our use of component suppliers, could entail significant risks.

• Our business increasingly is subject to regulations relating to privacy and data protection, and if we violate any of those regulations or otherwise are the victim of a cyber attack, we could incur significant losses and liability.

• We depend on suppliers for components, parts and raw materials for our products, and any failure by our suppliers to provide products as needed, or by us to promptly address supplier issues, will adversely impact our ability to timely and efficiently manufacture and sell products. We also are subject to raw material price fluctuations, which can adversely affect our manufacturing costs.

• We face significant competition, and if we are unable to compete successfully against other agricultural equipment manufacturers, we would lose customers and our net sales and profitability would decline.

• We have a substantial amount of indebtedness, and, as a result, we are subject to certain restrictive covenants and payment obligations that may adversely affect our ability to operate and expand our business.

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, 2017 and subsequent Form 10-Qs. AGCO disclaims any obligation to update any forward-looking statements except as required by law.

About AGCO

AGCO (NYSE: AGCO) is a global leader in the design, manufacture and distribution of agricultural solutions and supports more productive farming 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® precision technologies and farm optimization services. Founded in 1990, AGCO is headquartered in Duluth, GA, USA. In 2018, AGCO had net sales of $9.4 billion. 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.