DULUTH, Ga. — AGCO reported net sales of $3.2 billion for the second quarter ended June 30, 2024, a decrease of 15.1% compared to the second quarter of 2023. Reported net loss was $(4.92) per share for the second quarter of 2024, which includes the estimated loss on the Grain & Protein business held for sale, and adjusted net income was $2.53 per share. Excluding unfavorable foreign currency translation of 0.9%, net sales in the second quarter of 2024 decreased 14.2% compared to the second quarter of 2023.

Ahead of AGCO's earnings call, JP Morgan analysts said in a note to investors, "Production hours are guided down 20-25% in 2024 (vs. prior down 12-15%), while engineering spend is expected to be about flat YoY (vs. prior up 3% YoY). The 2Q print and FY24 guide imply 2H24 net sales down ~13% YoY to ~$6.3B (vs. consensus $6.8B)."

Net sales for the first six months of 2024 were approximately $6.2 billion, which is a decrease of 13.7% compared to 2023. For the first six months of 2024, reported net loss was $(2.67) per share, which includes the estimated loss on the Grain & Protein business held for sale, and adjusted net income was $4.85 per share. Currency translation impacts were flat for the first six months of 2024 compared to the same period in 2023.

"While we continue to successfully execute our Farmer-first strategy, second quarter results were influenced by weakening market conditions and significant production cuts aimed at reducing our Company and dealer inventories," said Eric Hansotia, AGCO's chairman, president and chief executive officer. "Declines in commodity prices and lower projected farm income in 2024 have negatively affected farmer sentiment, further dampening global industry demand. Given the current environment, we are taking aggressive actions, including our recently announced restructuring program, to control expenses, reduce production levels and lower investments in working capital. We are balancing these near-term cost reductions with continued investment in our longer-term high-margin growth initiatives that will help deliver more sustainable results through the economic cycles."

"On July 25, we announced an agreement to divest the Grain & Protein business," continued Hansotia. "The divestiture of this business supports our strategic transformation, recently accelerated by the PTx Trimble joint venture. Divesting allows us to streamline and sharpen our focus on AGCO's portfolio of award-winning agricultural machinery and precision ag technology products. Going forward, we will be better positioned for long-term growth in our higher margin and higher free cash flow generating businesses. Simultaneously, it will raise our profitability through the cycle as Grain & Protein has historically been a below average margin business."

Market Update

"Crop production forecasts are predicting healthy harvests across most major agricultural production regions," said Hansotia. "Commodity prices have trended down as we've moved through the planting season and into summer, further pressuring farm income. We continue to expect increased adoption of precision technology, but more challenging farm economics are resulting in weaker global industry demand across most equipment categories. In the first half of 2024, retail tractor industry demand fell by an average of 8% across the three major regions."

North American industry retail tractor sales decreased 8% during the first six months of 2024 compared to the first six months of 2023. Sales declines in smaller equipment were more significant than most of the larger equipment categories. Combine unit sales were down 11% in the first half of 2024 compared to the same period in 2023. Lower projected farm income and a refreshed fleet are expected to continue to pressure industry demand for the remainder of 2024, resulting in weaker North American industry sales compared to 2023.

South American industry retail tractor sales decreased 14% during the first six months of 2024 compared to the first six months of 2023. Strong declines were consistent across Brazil, Argentina and the smaller South American markets. Demand in Brazil was negatively magnified by the floods in Rio Grande do Sul while also continuing to be affected by funding shortfalls of the government-subsidized loan program and a challenging first harvest in the Cerrado region. Following three strong years, retail demand in South America is expected to further soften in 2024 as a result of lower commodity prices and farm income.

In Western Europe, industry retail tractor sales decreased 5% during the first six months of 2024 compared to the first six months of 2023 with the weakest conditions in Italy, the United Kingdom and Scandinavia. Industry demand is expected to soften for the remainder of 2024 as lower income levels pressure demand from arable farmers, while healthy demand from dairy and livestock producers is expected to mitigate some of the decline.

Regional Results

North America

North American net sales decreased 19.8% in the first six months of 2024 compared to the same period in 2023, excluding the impact of favorable currency translation and favorable impact of an acquisition. Softer industry sales, lower end-market demand and de-stocking efforts all contributed to lower sales. The most significant sales declines occurred in the hay equipment, mid-range and high-horsepower tractor categories. Income from operations for the first six months of 2024 decreased $119.9 million compared to the same period in 2023 and operating margins were 7.6%. The decrease resulted from lower sales and production, as well as higher warranty expenses and selling, general, and administrative expenses ("SG&A expenses").

South America

Net sales in AGCO's South American region decreased 40.8% in the first six months of 2024 compared to the same period in 2023, excluding the impact of unfavorable currency translation and favorable impact of an acquisition. Softer industry sales and under-production of retail demand drove most of the decrease. Lower sales of tractors and combines accounted for most of the decline. Income from operations in the first six months of 2024 decreased by $192.1 million compared to the same period in 2023. This decrease was primarily a result of lower sales and production volumes as well as negative pricing.

Europe/Middle East

Europe/Middle East region net sales decreased 2.8% in the first six months of 2024 compared to the same period in 2023, excluding the impact of favorable currency translation and favorable impact of an acquisition. Growth in Germany, Turkey and France was offset by lower sales across nearly all the other European markets. Declines across nearly all equipment categories were mostly offset by increased sales of high-horsepower tractors. Income from operations increased $36.8 million and operating margins improved 120 basis points in the first six months of 2024, compared to the same period in 2023. The improvement was driven by a favorable sales mix related to high-horsepower tractors.

Asia/Pacific/Africa

Net sales in Asia/Pacific/Africa decreased 25.9%, excluding unfavorable currency translation impacts and favorable impact of an acquisition, in the first six months of 2024 compared to the same period in 2023 due to weaker end market demand and lower production volumes. Lower sales in China, Australia and Africa drove most of the decline. Income from operations decreased by $18.6 million in the first six months of 2024 compared to the same period in 2023 due to lower sales volumes.

Outlook

On April 1, 2024, AGCO acquired an 85% stake in PTx Trimble, and Trimble holds a 15% stake. AGCO began consolidating the PTx Trimble joint venture into its consolidated financial statements on April 1, 2024. In addition, on July 25, 2024, AGCO announced the entry into a definitive agreement to sell its Grain & Protein business, which is expected to be completed prior to year-end.

AGCO's net sales for 2024, including the positive impact of PTx Trimble, are expected to be approximately $12.5 billion, reflecting lower sales volumes and adverse foreign currency translation. Adjusted operating margins are projected to be approximately 9%, reflecting the consolidation of PTx Trimble as well as the impacts of lower sales, lower production volumes, increased cost controls and modestly lower investments in engineering. Based on these assumptions, 2024 adjusted earnings per share are targeted at approximately $8.00.