Agco Corp on Tuesday posted third quarter results that surpassed analyst expectations and pushed up share prices, fueled by strong demand for tractor and precision agriculture equipment.
Net sales grew more than 10% to $3.5 billion driven by favorable activity in South America, where demand for high horsepower, higher margin tractors and pricing tailwinds were strong. Net income totaled $280.6 million, an 18% increase from the same period last year, beating Zacks' consensus expectations for the fourth consecutive time.
Company shares rose 2% on news of the strong quarter. Agco’s strategy of focusing on margin-rich businesses, including precision technologies, is setting the company up for another record year, CEO Eric Hansotia said in an earnings call. Agco’s $2 billion deal to acquire an 85% interest in Trimble’s agricultural assets and technologies and create a joint venture is pending regulatory approval.
The quarter underscores Agco’s “Farmer-First” strategy, focused on growing the company’s precision agriculture business, increasing the flow of Fendt branded goods around the world, and expanding its parts and service business.
Building upon this strategy, Agco announced plans in late September to acquire a majority interest in Trimble’s portfolio of assets and technologies and create a joint venture with the precision agriculture firm. The $2 billion investment is expected to close in the first half of 2024 pending regulatory approval.
The deal will expand upon the company’s existing precision planting business and help position Agco as a hub for mixed-fleet, retrofit solutions, Hansotia said in the call.
Precision agriculture sales through September have increased 16% over last year, putting the company on track to hit its growth target of $1 billion in sales by 2025. Hansotia said he hopes to hit $2 billion in annual revenue by 2028 with the addition of Trimble.
Looking ahead, Hansotia said he was optimistic about the market fundamentals supporting long-term demand for Agco, citing higher stock-to-use levels than previous years, growing interest in clean energy products and lower input costs, such as fertilizer and fuel.
As harvest draws to a close in the Northern hemisphere, increased inventories are weighing on grain prices and farmers are becoming more selective about their equipment and technology investments, Hansotia said.
Despite higher interest rates, input cost inflation and overall economic conditions in parts of the world slowing demand, he said “farm income is still relatively strong.”
Over the first nine months of the year, industry production and tractor sales were down modestly around the world, driven by declining sales of smaller equipment compared to last year as farmers in Europe remain cautious about the war in Ukraine and Brazil demand was affected by farm subsidy issues.
Agco, by comparison, generated sales of $10.6 billion over the same period, a 21% increase bolstered by high margin, higher horsepower tractors and favorable pricing in North America, South America, Europe and the Middle East.
The three months that ended Sept. 30 marked the company’s fifth consecutive quarter with operating margins above 10.5%. Company shares rose 2%, or $2.46, to close Tuesday at $114.66 on the New York Stock Exchange.