AGCO, CNH Ag Report Solid 3Qs; Flat Demand Ahead
November 15, 2013Vol. 19, Issue 11 Kubota Ups Outlook CVL Posts Strong 3Q Ag Depreciation?AGCO, CNH Ag Report Solid 3Qs; Flat Demand AheadThe world’s number two and threelargest farm equipment manufacturers, CNH Industrial and AGCO Corp.,put up pretty good numbers basedon farm equipment sales for the thirdquarter of the year and year-to-date. Atthe same time, it doesn’t appear thateither one are looking for big thingsin the months ahead.AGCO’s net sales rose to 2.48billion in the period compared to 2.3billion during the same period a yearago. Its net income rose to 126.2 million in the quarter vs. 94.5 million inthe third quarter of 2012.AGCO Outlook. Global industrydemand is expected to be relativelyflat in 2013 compared to 2012. Stronggrowth is projected in South America,modest growth is forecasted in NorthAmerica and modest declines areanticipated for Western Europe. Netsales are expected to range from 10.8 billion to 11 billion.CNH Falloff. CNH Industrial, onthe other hand, saw its overall revenues drop by 1.5% during the quarter vs. a year earlier to 8.5 billion.Trading profit for the quarter was 684 million, with trading margin at8.2% vs. 769 million with a 9% margin for the third quarter of 2012. Netprofit of 334 million was down 58million vs. the same period last year.Ag and CE had revenues of 5.3billion for the quarter, down 4.9%( 2.9% on a constant currency basis)over the third quarter of 2012, “aspositive performance for agriculturalequipment offset challenging conditions for construction equipment,” thecompany said.Ag equipment third quarter netrevenues decreased 2.3% ( 5% on aconstant currency basis), but tradingprofit increased 43 million over thethird quarter of 2012 to 553 million.Trading margin was 1.3 basis pointshigher at 13.1%, with positive netpricing partially offset by increasedcosts for Tier 4 Final compliance.Agricultural equipment production was 6% above retail sales in thequarter, in anticipation of strongseasonal retail demand in the fourthquarter. The group expects to underproduce retail in the agricultural segment for the balance of the year.CNH Outlook. The companyconfirmed its previous guidancefor the remainder of 2013. For farmtractors, CNH is expecting 5-10%in North America, a 0-5% dropoff inEMEA, 15-20% Latin America, 5-10%Asia Pacific. For combines, CNH iscalling for 5-10% in North America,0-5% decline in EMEA, 40-45% inLatin America and 10-15% in the AsiaContinued on page 2FPT Picks Up Claas & Deere as New CustomersThe attraction of efficient emissionscontrol technology and a globalindustrial complex is helping FPT(Fiat Powertrain) Industrial, thediesel engines division of the CNHIndustrial group, win more customersand orders.Latest to join the FPT fan clubis Deere, which is buying the Italianmanufacturer’s 3.4-liter F5C 4-cylinder “electronic” engine. These replaceDeere’s own 4.5-liter mechanical injection motors for the 2014 model yearJohn Deere 5G (80 and 90 horsepower) standard tractors and the 90 horsepower 5GH high clearance model.This engine already powersEuropean Case IH Farmall and NewHolland Series T5 tractors and a Perkinsversion (the 850 Series) that FPT buildsin its Modena plant through a JV agreement powers the 85-113 horsepowerLandini 5-H/McCormick X50 twinsfrom Argo Tractors.But Argo’s newcomers for 2014and beyond swing more decisively inFPT’s favor in power segments previously covered by Perkins.For example, the 100-130 horsepower McCormick X6 tractor sunveiled at Agritechnica in Germanythis week feature 4.5-liter NEFengines in place of Perkins 4.4-literdiesels. A 230-300 horsepower flag-ship proposed for 2015-16 will usethe 6.7-liter 6-cylinder NEF.This engine is already in servicewith Argo at lower power ratingsand is featured in the just launchedMcCormick X7 that will soon be partof McCormick USA’s product lineup.The X7 Series includes 4-cylinder versions that climb to 175 horsepower— the industry’s highest four-pot (cylinder) engine output.It’s a similar story at Claas, whichdeclared its choice of FPT powerfor the two biggest “standard” tractorranges it will supply in Europe andAustralasia in 2014. The new AxionContinued on page 2The contents of this report represent our interpretation and analysis of information generally available to the public or released by responsible individuals inthe subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients.Individual companies reported on and analyzed by Lessiter Publications Inc., may be clients of this and other Lessiter Publications Inc. services.This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securities.
AGCO, CNH Ag Report Solid 3Qs; Flat Demand Ahead.Continued from page 1Pacific region.Commentary. In the November12 edition of The Wall Street Journal,in a report entitled “The End ofthe Tractor Boom,” Bob Tita wrote:“Tractor and combine manufacturers Deere & Co., CNH Industrial N.V.and AGCO Corp. can live with an offyear. The real threat to the industryis a multi-year sales slump. That’s notlikely to happen unless commodityprices retreat to the depressed levelslast seen in the early 2000s.“On the other hand, even if prices plateau at moderate levels, farmerscould take an extended break frombuying after presumably upgrading alltheir equipment in recent years.” AGCO Corp. Selected EarningsData Through September 30, 2013(millions of dollars*)3 mos. 2013Net sales3 mos. 20129 mos.20129 mos. 2013 2,475.9 2,295.0 7,927.2 7,258.8Gross profit556.2491.01,799.61,595.4Net income126.294.5457.9419.6Regional Net SalesNorth AmericaSouth AmericaEurope/Africa/Middle EastAsia/PacificTotal3 mos.2013 686.6572.33 mos.2012 632.2479.9Changevs. 20128.6%19.3%9 mos.2013 2,099.71,578.09 mos.2012 1,932.11,343.8Changevs. 30.6 2,475.9122.4 2,295.06.7%7.9%370.9 7,927.2315.7 7,258.817.5%9.2%Financial Summary3Q 13Gross marginOperating incomeOperating margin22.5% 199.08.0%3Q 13 vs.3Q 12 107 bps 42.6% 196 bpsYTD22.7% 703.58.9%YTD 13 vs.YTD 12 72 bps 22.5% 96 bpsSource: Company reportsCNH Industrial Selected EarningsData Through September 30, 2013(millions of dollars at current exchange rate)3 mos. 20133 mos. 20129 mos. 2013Net revenues 8,386 8,515 25,418Trading profit6867692,090Profit3353931,008Trading margin8.2%9.0%8.2%Operating profit 672 757 1,997Ag & Construction Equipment — Revenues & Trading ProfitNet revenues5,2475,51516,332Trading profit6345992,003Trading margin12.1%10.9%12.3%9 mos. 2012 25,3202,1961,0048.7% 2,00816,1921,74010.7%Source: Company reportsAG EQUIPMENT INTELLIGENCE is published monthly forthe farm equipment industry by Lessiter Publications Inc., 225Regency Ct., Suite 100, Brookfield, WI 53008-0624. 2013 byLessiter Publications Inc. All rights reserved. Reproduction in anyform of this newsletter content is strictly forbidden without theprior written consent of the publisher. Please send any addresschanges as soon as possible to the address shown above.2FPT Picks Up Claas & Deere as NewCustomers.Continued from page 1900 CMatic spans 320-410 horsepower to take on the established bigguns in row-crop tractors, while theupgraded Axion 800 changes fromDeere PowerTech Plus to FPT NEFengines for Tier 4 Final compliance,with 215-264 horsepower outputs.All of which adds welcome volume and market presence to FPT’sinternal clients — the Case IH andNew Holland ag and constructionoperations, which last year accountedfor 27% of the 476,786 engines sold;and the Iveco trucks and buses division (31%).External clients producing farm,construction and commercial vehicles bought the rest, bringing 2012revenues from engines, transmissionsand axles to the equivalent of 3.9billion, with improved margins fromefficiency gains raising net income to 189 million.FPT Industrial has been very successful in tackling the emissions challenge, with its Tier 4 Final solutionHI-eSCR still using only selective catalytic reduction without EGR (exhaustgas recirculation) or particulate filtration. Other manufacturers are employing these technologies in combinationto meet the tough standards.FPT trumpets that this will giveits CNH compatriots — and a growing list of external customers — acompetitive advantage as Tier 4 Finalemissions take hold. AEI Copyright NoticeAg Equipment Intelligence is acopyrighted publication of LessiterPublications. Copying an entire issueto share with others, by any means,is illegal. Duplicating of individualitems for internal use is permittedonly with permission of the publisher. Licensing agreements thatallow distribution of Ag EquipmentIntelligence to a specified numberof readers are available by contacting Lessiter Publications at 262-7824480, ext. 408.U.S., Canada and Mexico print subscriptions are 349per year. Save 50 by receiving Ag Equipment Intelligenceeach month via E-mail Internet access at only 299 per year.International print subscriptions are 449 per year. Send subscription orders to: Ag Equipment Intelligence, P.O. Box 624,Brookfield, WI 53008-0624. Fax: 262/786-5564. Phone: 262/7824480 or 866/839-8455 (U.S. only). E-mail: info@lesspub.com.Ag Equipment Intelligence/November/2013
A Review of Specialty Equipment Makers Latest EarningsWhile Ag Equipment Intelligenceregularly reports on the earnings ofthe full-line farm equipment makersand publicly held dealership groups,we haven’t provided a lot of cov-erage of the specialty equipmentmanufacturers serving the ag andrural lifestyle equipment markets.Starting with this issue, AEI willpresent additional financial data onthese firms on a quarterly basis. Wewould like to hear from you aboutwhat additional coverage on thesecompanies would be helpful to youin your work. Selected Financial Data on Specialty Farm Equipment ManufacturersLast EarningsReportAg Growth Int’l.Nov. 13, 2013AgJunction Inc.Nov. 13, 2013Alamo Group Inc.Nov. 7, 2013Blount Int’l.Nov. 1, 2013Titan Int’l. Inc.Oct. 29, 2013Valmont IndustriesOct. 17, 2013Art’s Way Mfg.*Oct. 14, 2013Buhler Industries*Aug. 8, 2013Lindsay Corp.**Oct. 10, 2013Raven Industries***Aug. 19, 2013*Results for the Q3 of fiscal year 2013** Results for Q4 of fiscal year 2013*** Results for Q2 of fiscal year 2014(In thousands of dollars)Year- To-DatePeriod EndingRevenueSept. 30, 2013 270,332Sept. 30, 2013 44,353Sept. 30, 2013 511,231Sept. 30, 2013 683,649Sept. 30, 2013 1,669,188Sept. 28, 2013 2,476,321Aug. 31, 2013 27,016June 30, 2013 271,731Aug. 31, 2013 194,834July 31, 2013 10.6%-8.5%-1.1%23.8%-10.0%FARM MACHINERY TICKER (AS OF 11/12/13)11/12/13 10/10/131-Year1-YearP/EManufacturers SymbolPricePriceHighLowRatioAg Growth Int’l.AGCOAgJunction Inc.AlamoArt’s Way Mfg.Blount Int’lBuhler Ind.CaterpillarCNH GlobalDeere & Co.KubotaLindsayRaven IndustriesTitan Int’lTrimble NavigationValmont IndustriesNet Income 22,073 5,169 30,070 26, 366 50,785 223,621 1,360 18,107 70,570 VMI 37.13 58.20 1.19 50.42 6.21 13.41 7.10 83.85 11.22 82.12 79.78 77.93 34.18 15.39 32.15 143.51 39.67 61.63 1.03 46.00 6.92 11.97 6.65 84.73N/A 82.92 74.55 75.35 31.09 15.15 29.94 133.18 40.99 64.60 1.19 51.55 8.44 17.49 7.30 99.70 13.16 95.60 88.38 94.90 35.68 27.12 33.84 164.93 28.57 42.48 0.65 30.01 5.23 10.52 5.20 79.49 11.09 79.50 49.66 71.13 23.01 14.14 22.66 44B20.04B1.00B1.24B824.13M8.29B3.84BCVL 20.80 20.43 21.15 17.2512.388,884310.27MRME 12.21 11.42 14.88 10.438.3645,831235.19MTITNTSCO 18.20 72.34 16.25 65.83 32.00 74.91 15.75 sCervusEquipmentRocky MountainEquipmentTitan MachineryTractor SupplyAg Equipment Intelligence/November/20133
Kubota Revises Outlook Upward on Strong EarningsFollowing an exceptionally strongfirst half of its fiscal year, KubotaCorp. said it is increasing its revenueand profit forecast for the full yearending March 31, 2014.In a release issued prior to itsofficial earnings report, the company said it anticipated that forecastedrevenues and operating income forthe 6 months ended September 30,2013, would exceed its previous outlook due to the weakening of the yenexchange rate and “substantial salesexpansion in its anchor product offarm equipment both in domestic andoverseas markets.”For the 6 months ended onSeptember 30, 2013, Kubota reported that its revenues increased by29.4% compared to the same period the prior year (see table at rightfor amounts). Operating incomeincreased 80.1%.Revenue from Kubota’s Farm &Industrial Machinery segment, whichis comprised of farm equipment,engines and construction machinery,grew by 34.7% compared to the sameperiod a year ago.While domestic revenues rose by14.2%, the company’s overseas revenues increased by 44.7%. Accordingto Kubota, “In North America, sales ofengines continued to increase slightly.However, sales of tractors showedmajor expansion due to favorabledemand trends and the effect oflaunching a new line of products.Sales of construction machinery alsoincreased substantially owing to economic recovery.”Strong Outlook. On November1, prior to the official release of itsearnings, Kubota announced that itwas revising its outlook to the anticipated results for the 6 months endedSeptember 30. On November 8, thecompany then issued a revised forecastfor the full year ended March 31, 2014.According to Kubota, it is nowexpecting full-year revenues to comein at “ 1,480.0 ( 14.8554) billion, anincrease of 80.0 ( 0.803056) billionfrom the previous forecast, whichwas announced on May 10, 2013,since the yen exchange rate is undergoing a weaker transition than the4Kubota Corp. & Subsidiaries — Selected Financial Data3 monthsended9/30/13(millions of U.S. dollars*)6 months3 monthsChangeendedended%9/30/139/30/126 monthsended9/30/12 2,877.0028.1 7,315.00 .5676.00314.00115.7 4,373.001,431.002,940.0034.722.051.7 5,894.001,635.004,295.00 datedRevenues 3,685.00Operating534.00IncomeNet Income389.00Farm & IndustrialMach. Segment 5,893.00– Domestic1,634.00– Overseas4,255.00*at current exchange ratesSource: Company reportsKubota Corp.’s Revised Forecast for 2013-14 Fiscal Year(ended 3/31/14)RevenueOperatingIncomeIncome BeforeTaxesNet IncomePreviousForecast (May10, 2013) 14,046.91RevisedForecast*Change%Prior Year(ended 3/31/12) 14,050.115.7 .5018.21,276.021,003.281,179.1117.5783.255*at current exchange rates;Note: Kubota based its revised forecast on assumption of exchange rates of 97 US 1 and 130 1.Source: Company reportsKubota Corp. Sale Growth — 2008-2016eKubota Corp. has demonstrated sustained sales growth since 2011 with plans to further penetrate and expand into the agricultural equipment market.previous assumption and sales of keyfarm equipment products are expected to increase in both domestic andoverseas markets as compared to theprevious forecast.”Net income attributable toKubota Corp. was also revisedupward by 17.5 ( 0.175718) billionto 117.5 billion ( 1.17982 ), vs. theprevious forecast. Ag Equipment Intelligence/November/2013
Rocky Mountain’s Margins Slip as Dealer Works Down InventoriesRocky Mountain Dealerships didmuch of what it set out to do when itlast reported its quarterly earnings inAugust. The Calgary-based dealershipgroup said its major push would beto reduce equipment inventories. Itappears it did so, but its margins tooka beating in the process.In its third-quarter earningsreport on November 13, Rocky saidit increased revenues by 10.1% to 272.6 million and reduced equipment inventories by 78 million. The39-store group also generated 20.1million in cash, resulting in an all-timehigh cash balance of 42.6 million. Itsgross profit came in at 38.7 million,which was 14.2% of sales.In a note to investors, BenCherniavsky, analyst for RaymondJames, said, “Third quarter 2013struck a few similar chords to Rocky’slast quarter. Namely, new sales missedour forecasts falling 11% year-overyear while used sales exceededour expectations and were up 35%year-over-year. The shift in mix wasonce again due to two main factors: Rocky’s focus on reducing usedinventory levels and customers deferring purchase of new, more expensive,Tier 4 equipment.Rocky Mountain — Selected Financial Data3 monthsended9/30/13SalesNew UnitsUsed UnitsPartsServiceOtherTotal SalesGross profitNet profit 97,554130,82634,5348,4971,158272,56938,7235,915(in thousands C )3 months9 monthsended 9/30 Changeended20129/30/13 %35%10%0%–17%9.2%-2.5%-30% 79 monthsended9/30/12 5Change-3%26%9%–2%–27%7.2%5.1%9%Source: Company report“The impact on profitability wasagain unfavorable — and this quarterto an even greater extent — as grossmargin fell to 14.2% vs. 16% last yearand the lowest level since the fourthquarter of 2009,” Cherniavsky said.“Margins were also negatively impacted by competitive pressure in theconstruction market, which continuesto be oversupplied with equipment.”The analyst added that RockyMountain made a “significant dent”in its inventory, lowering it by nearly 80 million. This is on top of a 28million decrease in inventories duringthe previous quarter.“Despite the impact to margins,we view this much needed actionpositively as it addresses a concernwe have for the dealer group at large(i.e. inflated inventories).“In Rocky’s case, it has alsohelped generate free cash flow andkept leverage in check. Going forward, ag fundamentals remain positive but pre-order levels to dateindicate that the fourth quarter of2013 may see the trend of softernew equipment sales continue,” saidCherniavsky. Australian Ag Equipment Sales ReboundFarm machinery dealers are looking at another good year for overallsales, according to the Tractor andMachinery Assn.’s Richard Lewis in aNovember 3 report in The Land byNeil Lyon.“Over 1,000 harvesters weredelivered in 2011 and 2012 and wewere expecting a fall back to maybe750 this year. But the year-to-dateSeptember figure was only down 7%.We’ll certainly do better than 750now,” said Lewis.Alan Kirsten, managing director and analyst for Agriview, said 243balers had been retailed throughSeptember.“That’s a couple of units behindlast year, but we know there are alot of sales going on at present andwe’re expecting a big fourth quarter,”Ag Equipment Intelligence/November/2013he said.“We have to remember that thefirst quarter of this year was welldown across the board due to theprolonged dry summer. Septemberfigures that are close to last year actually represent a big upturn.”Kir sten also repor ted thatAustralian tractor sales had alsopicked up in recent months.Sales for the first quarter hadbeen 14% down on the previous year,but by the end of September wereonly 6% behind last year’s pace. Totalsales for 9 months were 7,769 unitsvs. 8,289 for the same period in 2012.The analyst pointed to emergingtrends in Australian farmers’ buyingpatterns recently.“Lower and higher horsepowertractors are down but the middle100-200 horsepower (75kW-150kW)range is up 2% at 1,362 against 1,338last year.“It’s the first time we’ve seenany joy in this sector for a long time.Previously, it was losing out to the200 horsepower (150kW) category asfarmers upgraded to bigger gear.“I think they’re still upgradingbut this time it’s from the sub-100horsepower (75kW) category.”Unit sales of tractors be
ers Deere & Co., CNH Industrial N.V. and AGCO Corp. can live with an off year. The real threat to the industry is a multi-year sales slump. That’s not likely to happen unless commodity prices retreat to the depressed levels last seen in the early 2000s. “On the other hand, even if pric-es plateau at moderate levels, farmers
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