AGCO Corp (AGCO) 2011 Q1 法說會逐字稿

(Operator Instructions) Good morning, my name is Michae, and I will be your conference operator. At this time I would like to welcome everyone to the AGCO Corporation 2011 first quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remark, there will be a question and answer period. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, April the 26. Thank you.

I would now like to introduce Greg Peterson. Mr. Peterson, you may begin your conference.

Thanks, Michae, and good morning.

Welcome to those of you joining us on the call and over the internet for AGCO's first quarter 2011 earnings conference call. We will refer to a slide presentation that can be found on our website, which is located at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the last section of the presentation. We will make forward-looking statements this morning, including those related to projections of earnings per share, sales, market conditions, margin improvements, profitability, effective acquisitions, product development and market expansion, factory productivity, production, investments in expanding markets, free cash flow, depreciation, emission requirements, product line expansion, and general economic conditions.

We wish to caution you that these statements are predictions and that actual events or results may differ materially. We refer to you the periodic reports that we file from time to time with the Securities and Exchange Commission, including the company's form 10K for the year ended December 31, 2010. These documents discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. A replay of the call will be available on our corporate website.

On the call with me this morning are Martin Richenhagen, our Chairman, President and Chief Executive Officer; and Andy Beck, our Senior Vice President and Chief Financial Officer.

With that, Martin, please go ahead.

Thank you, Greg, and good morning.

AGCO's momentum continued in the first quarter after our solid finish to 2010; we started 2011 with the strongest first quarter in our history. Recall that last year, in the first quarter, we managed through weaker markets in the US and Western Europe, and we were focused on inventory reduction. This year, we operated our factories at normal, seasonal rates during the first quarter.

Market demand strengthened in Western Europe, and we took advantage of the best market conditions in Europe and North America, and posted first quarter sales growth of nearly 32% on a constant currency basis compared to the first quarter of 2010. First quarter operating margins in the Europe, Africa, Middle East region rebounded to 8.9%. In North America, the economics for row crop farmers continue to be outstanding, and the market demand for large equipment remains robust.

We capitalized on industry conditions and good sales in North America; 25% compared to the first quarter of 2010, excluding the impact of currency translation. North American operating margins expand over 600 basis points in the first quarter of 2011, compared to the same period in 2010.

Slide 3 summarizes our results for the first quarter of 2011. Adjusted earnings per share for the first quarter of $0.81 exceeded our guidance due to stronger than anticipated market conditions and better performance on operating margins. In the next few quarters, we will be increasing our investments in new product development and market expansions, limiting our margin improvement.

AGCO's tractor and combine production volumes for 2010, and projected volumes for 2011, are illustrated on slide 4. AGCO's first quarter 2011 tractor and combine production was up 17% compared to the first quarter of 2010. Improving order flow, along with increased production levels in our European and North American factories, were offset by lower production volume in South America.

AGCO's order board for the e-market at the end of March, 2011, has more than doubled compared to March 2010. Equipment order bought in North America were also up significantly from March 2010 levels. South American order boards remain strong, but we're down from very high levels at the end of the first quarter of 2010. In 2011, we expect production volume to be up in the first half of the year compared to 2010, and flat in the second half of the year, with higher production in Europe and lower in South America. For the full year of 2011, we expect production to be up 5% to 10% from 2010 levels.

Slide 5 details in that the unit volumes by region for the first quarter of 2011. In that, the tractor sales in North America were up modestly compared to 2010 levels. In North America, industry sales of compact and utility sectors both increased due to improvement in the general economy and the dairy and livestock sectors. High horsepower tractors declined nearly 8% compared to the strong levels in the first quarter of 2010. The combine market benefited from favorable row-crop economy, and increased 37% during the first quarter of 2011 compared to the same period last year.

In that, the unit retailer sales (inaudible) in Europe were up approximately 18% in the first quarter of 2011 compared to the weak level from the first quarter of 2010. Higher commodity prices, and improvement in the dairy and livestock sector, contributed to the growth. Industry growth was strongest in Germany, France, Scandinavia, and Finland. South American industry retail sector volumes increased modestly during the first quarter of 2011, compared to strong levels in the first quarter of 2010. Improved farm fundamentals produced growth in Argentina and other South American countries, offsetting weaker sales in Brazil.

I will now turn the call over to Andy Beck who will provide you more information on our first quarter results.

Thank you, Martin, and good morning to everyone.

AGCO's regional net sales performance for the first quarter of 2011 is outlined on slide 6. Currency translation had a positive impact of approximately 3.3% on AGCO's consolidated net sales in the first quarter of 2011. The Europe, Africa, and Middle East segment reported a net sales increase of approximately 51%, excluding the impact of currency translation during the first quarter of 2011, compared to the first quarter of 2010.

Sales increased in nearly every major market across Europe in the first quarter, compared to the first quarter of 2010; most significant improvements occurred in Germany, France and Scandinavia. North American net sales increased approximately 25%, excluding currency translation impacts, during the first quarter of 2011, compared to same period in 2010. Sales of combine and hay products showed the most improvement in the first quarter compared to last year. AGCO's first quarter 2011 net sales in South America increased approximately 1% from comparable 2010 levels, excluding currency translation. AGCO's first quarter sales in Argentina increased compared to the first quarter of 2010. Improved crop production, and increased credit availability, contributed to the market strength in Argentina. Softer market conditions in Brazil in the first quarter of 2011 offset most of the growth in Argentina.

Net sales in our Rest Of the World segment increased approximately 70% in the first quarter of 2011 compared to 2010 excluding the impact of currency. Sales growth in Eastern Europe and Russia produced most of the increase. Part sales were $272 million for the first quarter of 2011, an increase of approximately 29% for the first quarter, compared to same period in 2010, excluding currency.

Slide 7 details AGCO sales and margin performance. Operating margins were up over 500 basis points in the first quarter of 2011, compared to the first quarter of 2010. The benefit of increased production volumes, and leverage over the operating expenses, resulted in the improvement. As Martin mentioned earlier, first quarter 2011 operating margins in AGCO's Europe, Africa, and Middle East region were 8.9%, up significantly on a year-over-year basis. Margins were improved in the first quarter of 2011, compared to the same period in 2010, due to higher sales and production volumes, and a richer mix of products.

In the South America region, operating margins declined in the first quarter of 2011, compared to 2010; a weaker geographic mix, and lower levels of production, and higher expenses contributed to the decline. In the first quarter of 2011 operating margins improved significantly in North America also due to higher sales and production.

Slide 8 looks at North American profitability in more detail. Margins in this region have been one of the main focus areas for the last few years. You can see from the graph on this slide that we have made progress. In the first quarter of 2011, margins improved 700 basis points, compared to the first quarter of 2010, on relatively flat sales. We introduced profitable new products, reorganized our sales organization, lowered our logistics costs and improved the efficiency of the factories.

First quarter 2011 operating margins also benefited from higher levels of production, and improved leverage over operating costs, compared to the first quarter of 2010. We realized that we have more work to do and target additional market improvement in 2011.

Slide 9 addresses AGCO's free cash flow, which represents cash provided by operating activities, less capital expenditures. AGCO's use of cash in the first quarter of 2011 were $204 million, compared to $226 million in the first quarter of 2010. Despite a larger build of inventory to support our projected sales growth, our use of cash is slightly better than this point a year ago. We plan to continue to invest for future growth in the form of engineering expense and additional investments in plant and new products. Even after covering increased spending on these strategic investments, we are targeting free cash flow of over $100 million during 2011.

At the end of March, 2011, our North America dealer month supply on a trailing 12-month basis, was higher than the same time a year ago, in preparation for forecasted growth in 2011. Our dealer month supply in North America was as follows; tractors were 5.9 months, 4 months for combines, and 8 months for hay equipment. Other working capital details are as follows; losses on sales of receivables, which is included in both interest expense net and other expense net, were approximately $3.6 million during the first quarter of 2011, compared to $3.4 million in the same period of 2010.

Moving on to slide 10, we look at our depreciation and capital expenditure trend. In 2011 we expect to increase our capital expenditures, as we work to meet Tier IV emissions requirement, refresh and expand our product line, improve our factory productivity in Germany, and make investments in China and Russia.

Our revised outlook for 2011 for our regional markets is captured on slide 11. We anticipate modest growth in North America as the strong financial position of row-crop farmers, and the expectation of farm income above historical averages, is expected to support strong demand. We expect the South American market to remain strong, but be down 5% to 10%. Higher crop prices for grain and dairy farmers in Western Europe, and improving farmer sentiment are expected to generate market growth of about 15%, compared to the weak levels experienced in 2010 .

Slide 12 lists our view of selected 2011 financial goals. We are projecting 2011 sales to range between $8.3 billion to $8.5 billion, forecasted pricing benefits, market share improvements, the positive impact of currency translation, and acquisition impacts are all expected to contribute to the growth, including significant investments in product development and market development, we expect 2011 earnings to be improved from 2010 levels. Our target for 2011 earnings per share ranges from $3.50 to $3.75 per share. We expect increased capital expenditures to be in the $250 million to $300 million range, and free cash flow to remain positive and exceed $100 million after funding the expected increase in capital expenditure.

Operator, that concludes our remarks. We are now ready to take

(Operator Instructions) Seth Weber, RBC Capital.

With respect to North America, can you give us year-over-year product mix. You mentioned increases in combines and some other equipment. Can you give us some idea where we are today versus a year ago and how much of that is responsible for the margin improvement?

Yes, Seth. Certainly the mix was important in North America in terms of margin improvement. The sprayer business is one of our more higher margin business; that's a first quarter business and we did have increased sales in the sprayer area, and also in combines, which is also a higher margin. So, we did have a favorable mix. I would say that our growth margins were up about a couple hundred basis points and the rest was leveraging our operating costs. As you can see, the sales were up over 20%, so that really helped us get more leverage over the cost and drove that margin improvement.

So, I think last quarter you talked about North American margin target of having a 4 handle on it. Has that now been bumped up to a 5 handle target?

I would like to see the 5 handle; it can be very close. We're looking right at high four's right now.

We could also say yes, Seth.

That's our target.

Then just on pricing, I didn't really see anything in the presentation on where pricing came out in the quarter, what your targets are for the year, and kind of where you feel like you are coming out on price versus cost at this point?

Yes. Seth, we've done, actually, a pretty good job. As you recall we last year put in some pricing in the second half of the year for the Tier IV equipment. We've put some additional pricing in this year. That was on top of our traditional 2% to 3% list price increases. So, so far the markets have been fairly receptive to that, and we're still targeting, for the full year, somewhere around 3% for our pricing.

And, Greg, should that cover your anticipated input, commodity costs, inflation and all that for the year, then?

Yes. Right now that is our expectation. We are putting in some additional pricing in the second quarter, and it ranges probably from 1% to 4% depending on the region and product that you're looking at. So, right now the plan is, we'll cover it. Stay tuned and we will keep you updated.

(Operator Instructions)

If there are no further questions we will turn the call back to Mr. Peterson for any concluding remarks.

Thanks, Michae.

I'm sure those of you that wanted to ask questions maybe are tied up on other calls this is morning, but I encourage to you follow-up with me later on today. I'll be around to take your questions, and once again, we appreciate your interest in AGCO and have a great day.

Thank you. Goodbye.

This concludes today's conference call. You may now disconnect.