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Agco (AGCO) Up 22.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Agco (AGCO). Shares have added about 22.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Agco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

AGCO Corp's Earnings & Revenues Trump Estimates in Q1

AGCO reported first-quarter 2020 adjusted earnings per share of 86 cents, flat year over year. The figure, however, beat the Zacks Consensus Estimate of 30 cents, reflecting a positive earnings surprise of 186.6%.

Including one-time items, the company reported net income of 85 cents per share in the first quarter compared with the 84 cents recorded in the prior-year quarter.

Revenues declined 3.4% year over year to $1,928 million due to production disruptions caused by the coronavirus outbreak. However, the figure beat the Zacks Consensus Estimate of $1,768 million. Excluding unfavorable currency-translation impact of 3.6%, net sales inched up 0.2% year over year.

Operational Update
  
Cost of sales dropped 4% to $1,478 million in the first quarter from the year-earlier period. Gross profit edged down 1.3% to $451 million in the March-end quarter from the $457 million recorded in the year-ago period. Gross margin came in at 23.3% for the January-March quarter compared with the prior-year quarter’s 22.8%.

Selling, general and administrative expenses slid to $248 million from the prior-year quarter’s $262 million. Adjusted income from operations increased 7.4% year over year to $101 million. Consequently, operating margin came in at 5.2% compared with the year-earlier quarter’s 4.7%.

Segment Performance

Sales in the North America segment climbed 11.2% year over year to $552 million during the January-March period. The segment reported operating income of $61 million compared with the prior-year quarter’s $31 million.

Sales in the South America segment were down 1.4% year over year to $154 million. The segment reported an operating loss of $8.8 million compared with the prior-year quarter’s $8.5 million.

The EME (Europe/Middle East) segment’s sales came in at $1,113 million compared with the $1,211 million recorded in the year-ago period. The EME’s operating income slipped 20.3% year over year to $102 million.

Sales in the Asia/Pacific segment were down 17.8% year over year to $109 million. The segment reported operating loss of $1.3 million, as against the year-ago quarter’s operating profit of $3.4 million.

Financial Update

AGCO reported cash and cash equivalents of $387 million as of Mar 31, 2020, down from the $433 million recorded as of Dec 31, 2019. The company utilized $435.3 million of cash in operating activities during the three-month period ended Mar 31, 2020, compared with the $329.9 million reported in the prior-year period.

On Apr 9, AGCO completed a new term loan facility that provided additional liquidity of approximately $520 million.

Guidance

Given the uncertainty related to the industry demand and production constraints on account of the coronavirus outbreak, AGCO has withdrawn its financial guidance for the current year. However, the company continues to support retail sales activity in its global markets.

Replacement demand for aged fleet, lower commodity prices and a cautious farmer sentiment are influencing farm-equipment demand. Recently, the USDA announced a $16-BILLION COVID-19 Aid Package for U.S. farmers and livestock, which is likely to offset the negative impact of lower commodity prices to some extent.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -92.74% due to these changes.

VGM Scores

Currently, Agco has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, Agco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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