AGCO Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited results are compared with the three months ended March 31, 2020 unless otherwise noted. AGCO manufactures and distributes agricultural equipment and replacement parts through four reportable regions.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $2,378.7 million | $1,928.3 million | Up 23.4% |
| Gross profit / margin | $570.5 million / 24.0% | $450.5 million / 23.4% | Margin up 0.6 percentage points |
| Income from operations / margin | $195.2 million / 8.2% | $100.4 million / 5.2% | Margin up 3.0 percentage points |
| Net income attributable to AGCO | $150.8 million | $64.7 million | More than doubled |
| Diluted EPS | $1.99 | $0.85 | Up $1.14 |
| Cash used in operating activities | $315.3 million | $435.3 million | $120.0 million less cash used |
| Capital expenditures | $63.5 million | $60.6 million | Up $2.9 million |
Net sales increased in all regions: Europe/Middle East to $1,327.2 million (up 19.2%), North America to $611.1 million (up 10.7%), South America to $240.5 million (up 56.3%), and Asia/Pacific/Africa to $199.9 million (up 83.1%). Currency translation contributed $68.4 million, or 3.5%, to consolidated sales growth. Management estimated worldwide average price increases of 3.9%; tractor and combine unit sales rose 17.8%.
Operating improvement reflected higher sales and production, cost control, and pricing that helped offset material-cost inflation. Gross margin also benefited from higher production volumes. Other expense was $11.5 million versus $12.5 million; net interest expense was $3.4 million in both periods. The income tax provision was $43.6 million versus $29.4 million. Equity in earnings of affiliates increased to $14.7 million from $11.2 million.
Cash, debt and liquidity
At March 31, 2021, cash and cash equivalents were $453.7 million, down from $1,119.1 million at year-end 2020. Working capital was $883.7 million, compared with $1,005.6 million at December 31, 2020. First-quarter operating cash use reflected seasonal working-capital investment, including increases in receivables and inventories; net cash used in investing activities was $66.8 million and net cash used in financing activities was $260.0 million.
Total reported debt, including short-term borrowings and current and long-term debt, was approximately $1.30 billion, versus approximately $1.62 billion at year-end. The debt-to-capitalization ratio declined to 29.4% from 34.8%. The company had no borrowings outstanding on its $800 million revolving credit facility and reported approximately $800 million of availability, plus approximately $271.6 million of remaining capacity under its 2020 term-loan commitments. Management stated that it was in compliance with financial covenants and believed available facilities, cash and internally generated funds would meet foreseeable needs.
Material changes, outlook and risks
- Demand and operations: Management reported stronger agricultural equipment demand amid higher commodity prices and improved farm economics. Industry retail sales increased across major markets. However, COVID-related supply-chain disruptions, component constraints and workforce issues caused temporary production suspensions at some facilities during the first four months of 2021; further challenges were expected.
- 2021 outlook: AGCO expected higher global industry demand and company net sales than in 2020, supported by demand, pricing and favorable currency effects. Gross and operating margins were expected to improve, with pricing and higher volumes partly offset by material-cost inflation. Engineering expenses and technology investment were expected to rise. Full-year capital expenditures were estimated at approximately $300 million. The filing does not provide a specific full-year sales, earnings or EPS target.
- Capital returns: In April 2021, after quarter-end, AGCO announced a new capital-return framework, including reinstated share repurchases in 2021, a 25% increase in the quarterly dividend and a $4.00-per-share special dividend planned for Q2 2021. No shares were repurchased during Q1.
- Contingencies and unusual items: A Brazilian tax dispute concerns disallowed goodwill-amortization deductions; the amount disallowed before interest and penalties was approximately 131.5 million Brazilian reais ($22.9 million). AGCO contested the assessment and said it did not believe payment was likely, but the appeal could take several years. The company also reported $18.8 million of guarantees of third-party indebtedness and $104.2 million of maximum potential residual-value guarantee payments, against which $24.8 million was accrued. An executive pension-plan amendment produced a curtailment gain and pension remeasurement effects.
- Other risks: Results remain exposed to agricultural cycles, farm income and commodity prices, raw-material inflation, production capacity and supply availability, foreign-exchange movements, financing availability, weather, and COVID-19 effects. AGCO also noted that a time-limited U.S. license relating to joint ventures in the Netherlands and Russia could affect their continued commercial operations if not extended or otherwise authorized.
Investor verification priorities
- Track whether supply-chain and component constraints limit production or prevent AGCO from meeting demand, and whether price increases continue to offset input-cost inflation.
- Compare subsequent sales, margins and earnings with management’s qualitative 2021 outlook; the filing gives no specific full-year earnings target.
- Monitor seasonal working-capital needs, cash generation, debt maturities—including term loans due in August and October 2021—and liquidity after the announced special dividend and share repurchases.
- Review the outcome and potential exposure of the Brazilian tax dispute, residual-value guarantees, and the status of the Netherlands and Russia joint-venture license.
- Verify the terms, timing and execution of the announced 25% quarterly dividend increase, $4.00 special dividend and resumed repurchases.