Agco Aims To Continue Farm Equipment Sales Momentum In US
12 March 2009 - 6:25AM
Dow Jones News
Agco Corp. (AG) is turning to its home country amid tough times
for makers of tractors and combines after a three-year
commodity-fuelled boom.
The Duluth, Ga., company ranks third in the U.S. farm equipment
market - behind Deere & Co. (DE) and CNH Global N.V. (CNH). And
despite generating a fifth of its sales from North America, it only
managed to scrape a profit in the region last year, the first since
2005.
Lower commodity prices and falling farm incomes in Europe and
South America - where it is the market leader - are putting
pressure on Agco executives to retain momentum in North
America.
"We're going to do better than 2008 this year," Robert Crain,
Agco's general manager for the region, said in an interview. "We
think we have North America moving in the right direction."
The company had hit a sweet spot before the reversal in
commodity prices, selling lower horse-powered tractors to so-called
"recreational farmers" who don't rely on the land as their primary
source of income. But the small tractor market is now
suffering.
Agco executives credit its positive outlook to improved sales of
larger Challenger brand equipment through an unusual alliance with
dealers more used to selling machinery produced by Caterpillar Inc.
(CAT).
Agco bought Challenger from Caterpillar in 2002 and still relies
on the U.S. construction equipment company's dealers to market the
tractors and combines.
As demand for construction equipment has waned, Caterpillar
dealers with rural sales territories have ratcheted up their
efforts to sell farm equipment. About three-quarters of
Caterpillar's North American dealers offer Challenger.
"It's a very complementary fit," said Blake Quinn, president of
Quinn Co. Caterpillar, which serves central California's
farming-rich San Joaquin Valley.
"Even when the farming is bad, farmers are still running their
tractors. When construction is bad, our construction customers park
their equipment," he said.
U.S. farm equipment sales are holding up better than other
regions this year despite an expected switch from corn to soybeans,
which require less use of machinery to grow.
While credit availability has hit industry sales in emerging
markets such as Brazil and Russia, Agco has a joint venture with
Rabobank of the Netherlands to provide U.S. customer financing.
Agco reported $8.6 million in operating income from North
America last year - just 1.2% of total income from operations - as
sales climbed 21% to $1.79 billion.
Agco also sells Agco and Massey Ferguson branded equipment
through its own network of dealers in North America but is still
heavily reliant on importing stock from overseas plants.
"It's encouraging that they finally made money for a full year,"
says Charles Rentschler, an analyst for Wall Street Access. "But
they need to increase the American content of what they're trying
to sell here."
Agco shares are down 75% from their 12-month high last April.
The stock trades at about six times projected 2009 earnings, 40%
below the average multiple for other machinery manufacturers,
according to FactSet Research. The shares were up 0.8% at $16.72 in
late trading Wednesday.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com