AGCO, Your Agriculture Company (NYSE: AGCO), a worldwide manufacturer and distributor of agricultural equipment and solutions, reported net sales of approximately $2.7 billion for the fourth quarter of 2020, an increase of approximately 8.1% compared to the fourth quarter of 2019. Reported net income was $1.78 per share for the fourth quarter of 2020, and adjusted net income⁽³⁾, which excludes restructuring expenses and a gain on sale of an investment, was $1.54 per share. These results compare to reported net loss of $1.17 per share and adjusted net income, which excludes non-cash impairment charges, restructuring expenses and a tax gain, of $0.94 per share for the fourth quarter of 2019. Excluding favorable currency translation impacts of approximately 1.4%, net sales in the fourth quarter of 2020 increased approximately 6.7% compared to the fourth quarter of 2019.

Net sales for the full year of 2020 were approximately $9.1 billion, which is an increase of approximately 1.2% compared to 2019. Excluding unfavorable currency translation impacts of approximately 1.8%, net sales for the full year of 2020 increased approximately 3.0% compared to 2019. For the full year of 2020, reported net income was $5.65 per share, and adjusted net income⁽³⁾, which excludes non-cash impairment charges, restructuring expenses and a gain on sale of an investment, was $5.61 per share. These results compare to reported net income of $1.63 per share and adjusted net income, which excludes non-cash impairment charges, restructuring expenses and certain tax charges and gains, of $4.44 per share for 2019.

Fourth Quarter Highlights

• Reported fourth quarter regional sales results⁽¹⁾: Europe/Middle East (“EME”) 13.7%, North America (10.2)%, South America 21.1%, Asia/Pacific/Africa (“APA”) 2.1%
• Constant currency fourth quarter regional sales results^(1)(2)(3): EME 7.7%, North America (10.3)%, South America 52.7%, APA (3.8)%
• Fourth quarter regional operating margin performance: EME 11.9%, North America 2.0%, South America 5.9%, APA 10.6%
• Full-year adjusted operating margins⁽³⁾ improved to 7.0% in 2020 compared to 5.9% in 2019
• Generated approximately $896.5 million in cash flow from operations and approximately $626.6 million in free cash flow⁽³⁾ in 2020
• Full-year earnings forecast for 2021 in a range from $7.00 to $7.25 per share

⁽¹⁾As compared to fourth quarter 2019.
⁽²⁾Excludes currency translation impact.
⁽³⁾See reconciliation of Non-GAAP measures in appendix.

“The AGCO team delivered strong operational results leveraging improving markets to produce sales and earnings growth in the fourth quarter,” stated Eric Hansotia, AGCO’s Chairman, President and Chief Executive Officer. “Our focused execution allowed us to overcome supply chain difficulties and maintain production levels, while reducing company and dealer inventories, which contributed to significant cash flow generation. I would like to thank all our employees for their extraordinary efforts to support our dealers and customers under challenging conditions. Our improved results allowed us to maintain our investments in premium technology, sustainable smart farming solutions and enhanced digital capabilities. AGCO’s exceptional product line continues to be well-received by our customers as evidenced by a strong year-end order board. Looking forward to 2021, we are forecasting sales and earnings growth as industry conditions trend positively and we position AGCO for future success.”

Market Update

“Increased grain consumption, driven by economic recovery and higher export demand, helped to offset a solid year of global crop production leaving year-end grain inventories lower than anticipated,” stated Mr. Hansotia. “Reduced grain stocks supported a rally in soft commodity prices, lifted farmer sentiment and supported higher demand for agricultural equipment during the fourth quarter.”

“Full year global industry retail sales of farm equipment in 2020 were mixed across AGCO’s key markets with fourth quarter industry retail sales significantly higher than the prior year across the major regions,” continued Mr. Hansotia. “Industry retail tractor sales in North America increased during the full year of 2020 compared to 2019. Strong growth in the sales of lower horsepower tractors drove most of the increase. The fleet age for large equipment in North America remains extended and stronger replacement demand was evident in the fourth quarter. Higher commodity prices and improved farmer sentiment are also expected to drive higher North American industry sales in 2021. In Western Europe, industry demand improved in the fourth quarter, but remained down for the full year of 2020 compared to 2019. Market demand was weakest in the United Kingdom and Scandinavia, and was partially offset by growth in Germany, which benefited from tax incentives during 2020. We expect 2021 industry demand in Western Europe to be flat to modestly higher from 2020 levels. South America industry retail tractor sales increased during 2020, with robust recovery in Brazil and Argentina partially offset by weaker demand in the smaller South America markets. Healthy crop production and favorable exchange rates in Brazil and Argentina are supporting farm profitability. We expect farm economics to remain supportive in 2021 in South America with replacement demand resulting in higher industry sales compared to 2020. 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 expected to support healthy conditions in our industry.”

Regional Results

AGCO Regional Net Sales (in millions)

North America

Net sales in the North American region were flat for the full year of 2020 compared to 2019, excluding the negative impact of currency translation. Increased sales of Precision Planting equipment, high horsepower tractors and parts were offset by lower sales of grain and protein production equipment as well as sprayers. Income from operations for the full year of 2020 improved approximately $72.1 million compared to 2019. The benefit of a richer sales mix and cost control initiatives contributed to operating margin improvement.

South America

AGCO’s South American net sales increased 36.6% for the full year of 2020 compared to 2019, excluding the impact of unfavorable currency translation. Increased sales in Brazil and Argentina were responsible for the growth. Income from operations for the full year of 2020 was improved compared to 2019 by approximately $68.7 million. The improved South America results reflect the benefit of higher sales and production, a richer sales mix, as well as cost reduction initiatives, partially offset by negative currency impacts.

Europe/Middle East

AGCO’s Europe/Middle East net sales were flat for the full year of 2020 compared to 2019, excluding favorable currency translation impacts. Sales improved significantly in the second half of the year compared to 2019, offsetting a weak second quarter which was impacted by COVID-19-related production interruptions. Declines in France, Scandinavia and Central Europe were mostly offset by growth in Germany and Eastern Europe. Income from operations decreased approximately $52.9 million for the full year of 2020 compared to 2019, due to lower net sales and production volumes as well as higher warranty costs.

Asia/Pacific/Africa

Asia/Pacific/Africa net sales increased 0.9%, excluding the positive impact of currency translation, during the full year of 2020 compared to 2019. Higher sales in China and Australia were mostly offset by lower sales in Africa and the smaller Asian markets. Income from operations improved approximately $18.7 million for the full year of 2020 compared to 2019, due to higher sales and a richer product mix.

Outlook

The health, safety and well-being of all AGCO employees, dealers and farmer customers continues to be AGCO’s top priority during the COVID-19 pandemic. The following outlook does not contemplate any further sales or production disruptions caused by the pandemic.

AGCO’s net sales for 2021 are expected to range from $10.2 billion to $10.4 billion, reflecting improved sales volumes, pricing and positive foreign currency translation. Gross and operating margins are projected to improve from 2020 levels, reflecting the impact of higher sales and production volumes as well as margin improvement initiatives. These improvements are planned to fund increases in engineering and other technology investments to support AGCO’s precision agriculture and digital initiatives. Based on these assumptions, 2021 earnings per share is targeted in a range from $7.00 to $7.25.

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AGCO will host a conference call with respect to this earnings announcement at 10:00 a.m. Eastern Time on Thursday, February 4^th. The Company will refer to slides on its conference call. Interested persons can access the conference call and slide presentation via AGCO’s website at www.agcocorp.com in the “Events” section on the “Company/Investors” page of our website. A replay of the conference call will be available approximately two hours after the conclusion of the conference call for twelve months following the call. A copy of this press release will be available on AGCO’s website for at least twelve months following the call.

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Safe Harbor Statement

Statements that are not historical facts, including the projections of earnings per share, sales, industry demand, market conditions, commodity prices, currency translation, farm income levels, margin levels, investments in product and technology development, new product introductions, restructuring and other cost reduction initiatives, production volumes, tax rates 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.

• The Company is uncertain of the impact of the coronavirus (“COVID-19”) pandemic due to increased volatility in global economic and political environments, market demand for its products, supply chain disruptions, workforce availability, exchange rate and commodity price volatility and availability of financing, and their impact to the Company’s net sales, production volumes, costs and overall financial condition and liquidity. The Company may be required to record significant impairment charges in the future with respect to certain noncurrent assets such as goodwill and other intangible assets and equity method investments, whose fair values may be negatively affected by the COVID-19 pandemic. The Company also may be required to write-down obsolete inventory due to decreased customer demand and sales orders. Additionally, the Company is closely monitoring the collection of accounts receivable, as well as the operating results of it finance joint ventures around the world. If economic conditions around the world continue to deteriorate, the Company may not be able to sufficiently collect accounts receivable, and the operating results of its finance joint ventures may be negatively impacted, thus negatively impacting the Company’s results of operations and financial condition. The Company is also closely assessing its compliance with debt covenants, the recognition of any future applicable insurance recoveries, cash flow hedging forecasts as compared to actual transactions, the fair value of pension assets, accounting for incentive and stock compensation accruals, revenue recognition and discount reserve setting and the realization of deferred tax assets in light of the COVID-19 pandemic.
• Our financial results depend entirely upon the agricultural industry, and factors that adversely affect the agricultural industry generally, including declines in the general economy, adverse weather, tariffs, 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 takes 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 over 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 accounts receivable 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 and sustainable smart farming technology, which requires substantial expenditures; there is no certainty that we can develop the necessary technology or that the technology that we develop will be attractive to farmers or available at competitive prices.
• 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. It remains unclear, how, if at all, the recent outbreak of the coronavirus will impact the agricultural industry, our suppliers, or our global operations.
• We 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, 2019 and subsequent Form 10-Qs. AGCO disclaims any obligation to update any forward-looking statements except as required by law.