QUOTE AND NEWS
SeekingAlpha  13 min ago  Comment 
By Economics Fanatic: AGCO Corporation (NYSE:AGCO), which manufactures and distributes agricultural equipment and related parts worldwide, has a great future and the stock can outperform the index over the long-term. This article discusses the key...
Mondo Visione  3 hrs ago  Comment 
STOXX Limited, a leading provider of innovative, tradable and global index concepts, today announced the launch of the STOXX Global 3D Printing Tradable Daily Short Index. The new index has been licensed to HypoVereinsbank onemarkets (UniCredit...
Agrimoney.com  7 hrs ago  Comment 
Ag commodity futures make a broadly soft start, depressed by a dollar near a four-year high. Soybeans buck the downward trend
Southeast Farm Press  Sep 17  Comment 
From rural living to on-farm equipment demonstrations to family entertainment to the top farmers in the Southeast, the 37th annual Sunbelt Ag Expo will have something for all ages. Gates open 8:30 a.m. Oct. 14, 15 and 16. read more
SeekingAlpha  Sep 15  Comment 
By BluePac Partners: In 2013, Deere earned $9 per share. The Ag & Turf division did $29bn of revenue at a record high 16.1% margin, to generate $4.7bn of operating profit. Industry-wide large tractor sales were a record 44,000 units. Farm income...
Agrimoney.com  Sep 15  Comment 
Russian curbs on Western ag exports hold little threat for the European Union beef industry. But that is not the case for the pork sector...
SeekingAlpha  Sep 13  Comment 
By Stephen Simpson, CFA: The bloom is definitely off of the ag bull market, as lower crop prices have soured investors on seed, ag equipment, and fertilizer companies. None of that is positive for Allana Potash (OTCPK:OTCPK:ALLRF, (AAA.TO)), nor...
Insurance Journal  Sep 11  Comment 
North Dakota officials are touting a new export program designed to help farmers increase sales and minimize their risk. The program authorizes the Bank of North Dakota to provide insurance coverage of not less than 90 percent on bulk commodity...
Benzinga  Sep 11  Comment 
E2open (NASDAQ: EOPN) shares reached a new 52-week low of $10.605 after the company issued a weak full-year revenue forecast and announced the resignation of its chief sales officer David Packer. The company also announced that its three customers...
Agrimoney.com  Sep 10  Comment 
Corn and soy hold firm, for once, as sellers turn their focus to wheat and, in particular, coffee, which slumps 6%, and sugar, which hits a 4-year low




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AGCO (NYSE: AGCO) is the 3rd largest manufacturer of agricultural equipment world-wide. The company makes products such as tractors and combines, and distributes its products through a network of dealers and distributors to the farmers.[1] The company earned $6.6 billion in revenue and $136 million in net income in 2009.[2]

Since AG generates nearly all of its revenue from sales of agricultural equipment, much of its success hinges upon the health of the agriculture industry and crop prices. One current trend that may play to AG's advantage is the increased interest in corn-based ethanol. Ethanol-based energy research and development over the next several years could lead to continued growth in demand for corn and, of course, the tools needed to plant and harvest more of it. Increasing demand for food in developing countries could also positively impact AG's sales. As both populations and personal incomes grow in emerging markets, demand for both grains and grain intensive products such as meat should increase as well. With three-quarters of its revenue generated outside of the U.S., AG has greater exposure to developing countries than any of its competitors.

Company Overview

AGCO primarily makes tractors, combines, and other agricultural equipment:[3][4]

  • Tractors (66% of sales): the company sells its tractors under a variety of brand names including AGCO, Challenger and Massey Ferguson. Its sizes range from compact tractors (used on small farms), utility tractors (used on small and medium-sized farms), and high horsepower (used on larger farms and on cattle ranches).
  • Combines (5% of sales): are used to harvest various grain crops. AG's combines come with a variety of crop-harvesting heads for different kind of crops.
  • Application Equipment (4% of net sales): self-propelled 3 or 4 wheeled vehicles and equipment such as chemical sprayers which are used in the application of fertilizers and crop protection chemicals.
  • Other Products (10% of net sales): the company makes a wide range of other products such as mowers and tools used to cut hay.
  • Replacement Parts (14% of net sales): in addition to new equipment, AG sells replacement parts for their products. These parts keep farm equipment in use, including products no longer in production.

Business Growth

FY 2009 (ended December 31, 2009)[2]

  • Net sales decreased 21% to $6.6 billion. The company attributes the decline to net sales decreases in most of its geographical regions as well as unfavorable foreign currency translation impacts
  • Net income decreased 61% to $136 million.

Trends and Forces

Alternative Energy & Biofuels drive up Corn Prices

The USDA anticipates ethanol production to top 12 billion gallons annually by 2016, derived from over 4 billion bushels of corn. This would represent an increase of 168% from the estimated 1.6 billion bushels of corn used in ethanol production in 2005. This be accompanied by significantly higher corn prices, which would combine with the increased production to result in more revenue for farmers. Due to the increased demand for corn and higher prices, many farmers might use their increased income to make large investments such as purchasing new farm equipment like tractors and harvesters.

Emerging Markets Buy More Grain

AGCO is much more focused on emerging markets than peers such as Deere & Company (DE). The company generates over 75% of its revenue outside of the US, while Deere & Company (DE) generates only 30%. These countries are experiencing rapid economic development, which has fueled increased demand for food and energy. The interest in biofuels has extended beyond North America to emerging economies such as Brazil.

For example, AG's exposure to the Brazilian market (South America - mostly Brazil - accounts for around 15% of its revenues) could be a growth driver. Brazil makes ethanol from sugar cane, instead of corn. There are 47 new sugar cane mills being built in Brazil, and each one will require about 100 new tractors. AGCO has 60% market share in the Brazilian tractor market, and a dominant position in the sugarcane industry.

Competition

AG faces tough competition from a variety of competitors across the globe, but its two primary competitors are Deere & Company (DE) and CNH Global N.V. (CNH).

* Deere & Company (DE): is the world's leading manufacturer of agricultural and forestry equipment. The company currently generates 70% of its sales from the US and Canada.

* CNH Global N.V. (CNH): CNH is a leading player in the agricultural equipment market and the construction equipment industries, from the Netherlands.

References

  1. AGCO 2009 10-K "General" pg. 1
  2. 2.0 2.1 AGCO 2009 10-K "Selected Financial Data" pg. 18
  3. AGCO 2009 10-K "Products" pg. 1-2
  4. AGCO 2009 10-K "Notes to Consolidated Financial Statements" pg. 100
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