Raises Full-Year Guidance
DULUTH, Ga.--(BUSINESS WIRE)-- AGCO, Your Agriculture Company (NYSE: AGCO), a worldwide manufacturer and distributor of agricultural equipment and solutions, reported its results for the third quarter ended September 30, 2020. Net sales for the third quarter were approximately $2.5 billion, an increase of approximately 18.4% compared to the third quarter of 2019. Reported and adjusted net income was $2.09 per share for the third quarter of 2020. These results compare to reported net income of $0.10 per share, and adjusted net income, excluding a non-cash deferred income tax adjustment and restructuring expenses, of $0.82 per share for the third quarter of 2019. Excluding unfavorable currency translation impacts of approximately 1.6%, net sales in the third quarter of 2020 increased approximately 20.0% compared to the third quarter of 2019.
Net sales for the first nine months of 2020 were approximately $6.4 billion, a decrease of approximately 1.5% compared to the same period in 2019. Excluding unfavorable currency translation impacts of approximately 3.1%, net sales for the first nine months of 2020 increased approximately 1.6% compared to the same period in 2019. For the first nine months of 2020, reported net income was $3.86 per share, and adjusted net income, excluding a non-cash impairment charge and restructuring expenses was $4.06 per share. These results compare to reported net income of $2.77 per share, and adjusted net income, excluding a non-cash deferred income tax adjustment and restructuring expenses, of $3.50 per share for the first nine months of 2019.
Third Quarter Highlights
(1) Increase (decrease) as compared to third quarter 2019.
(2) Excludes currency translation impact. See reconciliation in appendix.
“AGCO’s third quarter results were highlighted by sales growth and margin expansion across all regions,” stated Martin Richenhagen, AGCO’s Chairman, President and Chief Executive Officer. Our focused operational performance allowed us to ramp up production and recover from supply chain interruptions experienced in the second quarter. During the third quarter, we made significant progress towards fulfilling our strong order board while reducing dealer and company inventory levels. We have strong order boards heading into the fourth quarter, however, we still face a demanding environment to manage our manufacturing, supply chain and aftermarket operations. I would like to thank all our employees again for their extraordinary efforts to support our dealers and customers under these challenging conditions. AGCO is also maintaining its planned funding levels supporting premium technology, smart farming solutions and enhanced digital capabilities in 2020. These investments are delivering new features and functionality across our product portfolio which positions us to improve our global market position and profitably grow our business.”
Market Update
Industry Unit Retail Sales
|
| Tractors |
| Combines |
Nine Months Ended September 30, 2020 |
| Change from Prior Year Period |
| Change from Prior Year Period |
North America(1) |
| 7% |
| 1% |
South America |
| 9% |
| 17% |
Western Europe(2) |
| (5)% |
| (4)% |
(1) Excludes compact tractors. |
(2) Based on Company estimates. |
“Harvests are progressing ahead of schedule in the northern hemisphere and global crop production is on track for a record year despite the ongoing COVID-19 pandemic,” continued Mr. Richenhagen. “Global grain consumption is recovering, consistent with improving economic activities and increased grain exports to China. Following reduced forecasts for ending grain inventories, soft commodity prices have risen in the third quarter, which is positive for farm economics.”
“Global industry demand for farm equipment is now expected to be relatively flat in 2020 versus 2019 with improved demand in North and South America offsetting lower demand in Europe,” continued Mr. Richenhagen. “Industry retail tractor sales in North America increased in the first nine months of 2020 compared to the same period in 2019. Growth in the sales of low horsepower tractors was partially offset by weaker industry demand for high horsepower tractors. The fleet age for large equipment remains extended as replacement demand continues to be deferred in the North American market. Industry retail sales in Western Europe decreased in the first nine months of 2020 due primarily to COVID-19 related production constraints. Market demand was weakest in the United Kingdom, France and Spain, and was partially offset by growth in Germany which has benefited from tax incentives during 2020. The negative impact of lower wheat harvests across most of Western Europe was mostly offset by stronger grain export demand and supportive wheat prices. European dairy and livestock fundamentals have stabilized after weakening earlier in the year. South America industry retail tractor sales increased during the first nine months of 2020, with growth in Brazil and Argentina partially offset by weaker demand in the smaller South America markets. Strong crop production in Brazil and Argentina, as well as favorable exchange rates are supporting positive economics. Farmers are replacing their aged fleet following years of soft demand due to economic weakness and challenging political environments.”
Regional Results
AGCO Regional Net Sales (in millions)
Three Months Ended September 30, |
| 2020 |
| 2019 |
| % change from 2019 |
| % change from 2019 due to currency translation(1) |
| % change excluding currency translation | ||||
North America |
| $ | 582.2 |
|
| $ | 536.2 |
|
| 8.6% |
| (0.5)% |
| 9.1% |
South America |
| 273.9 |
|
| 239.4 |
|
| 14.4% |
| (34.0)% |
| 48.5% | ||
Europe/Middle East |
| 1,405.9 |
|
| 1,145.7 |
|
| 22.7% |
| 3.8% |
| 18.9% | ||
Asia/Pacific/Africa |
| 235.5 |
|
| 188.1 |
|
| 25.2% |
| 3.9% |
| 21.3% | ||
Total |
| $ | 2,497.5 |
|
| $ | 2,109.4 |
|
| 18.4% |
| (1.6)% |
| 20.0% |
|
|
|
|
|
|
|
|
|
|
| ||||
Nine Months Ended September 30, |
| 2020 |
| 2019 |
| % change from 2019 |
| % change from 2019 due to currency translation(1) |
| % change excluding currency translation | ||||
North America |
| $ | 1,689.9 |
|
| $ | 1,651.3 |
|
| 2.3% |
| (0.7)% |
| 3.1% |
South America |
| 606.3 |
|
| 581.3 |
|
| 4.3% |
| (26.1)% |
| 30.4% | ||
Europe/Middle East |
| 3,644.2 |
|
| 3,813.5 |
|
| (4.4)% |
| (0.8)% |
| (3.6)% | ||
Asia/Pacific/Africa |
| 492.2 |
|
| 481.7 |
|
| 2.2% |
| (1.1)% |
| 3.2% | ||
Total |
| $ | 6,432.6 |
|
| $ | 6,527.8 |
|
| (1.5)% |
| (3.1)% |
| 1.6% |
(1) See appendix for additional disclosures. |
North America
AGCO’s North American net sales increased 3.1% in the first nine months of 2020 compared to the same period of 2019, excluding the negative impact of currency translation. Increased sales of high horsepower tractors, hay equipment and Precision Planting products were partially offset by lower grain and protein product as well as sprayer sales. Income from operations for the first nine months of 2020 improved approximately $69.4 million compared to the same period in 2019. Higher sales, the benefit of a richer mix of products, as well as cost control initiatives contributed most of the increase.
South America
Net sales in the South American region increased 30.4% in the first nine months of 2020 compared to the first nine months of 2019, excluding the impact of unfavorable currency translation. Increased sales in Brazil and Argentina were partially offset by lower sales in other South American markets. Income from operations in the first nine months of 2020 was improved compared to the same period in 2019 by approximately $34.6 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 decreased 3.6% in the first nine months of 2020 compared to the same period in 2019, excluding unfavorable currency translation impacts. Sales declines were driven primarily by lower production caused by the impacts from the COVID-19 crisis. All of AGCO’s major European production facilities were suspended due to supply availability from late March throughout most of April. Production and sales volumes increased substantially in the third quarter which offset a portion of the low second quarter output. Despite improved results in the third quarter, income from operations declined approximately $77.7 million in the first nine months of 2020, compared to the same period in 2019, due to lower net sales and production volumes, partially offset by expense reductions.
Asia/Pacific/Africa
Asia/Pacific/Africa net sales increased 3.2%, excluding the negative impact of currency translation, in the first nine months of 2020 compared to the same period in 2019. Higher sales in Australia and China were partially offset by declines in Africa and Southeast Asia. Income from operations improved by approximately $14.6 million in the first nine months of 2020, compared to the same period in 2019, due to higher sales and a richer product mix in addition to reduced expenses.
Funding Update
AGCO’s available funding as of September 30, 2020, including the $542.4 million term loan facility added during the second quarter, was approximately $1.6 billion consisting of cash of approximately $503.3 million and available borrowing capacity of approximately $1.1 million. The Company’s funding position improved during the third quarter with net debt approximately $323.3 million below September 2019.
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.
Net sales in 2020 are expected to be approximately $8.9 billion reflecting relatively flat end-market demand, the unfavorable impact of currency translation, offset by the benefit of positive pricing. Adjusted operating margins are expected to be improved from 2019 levels due to positive pricing and expense reductions. Based on these assumptions, 2020 adjusted net income per share, excluding the impact of restructuring expenses and the non-cash goodwill impairment charge, is targeted at approximately $5.00.
* * * * *
AGCO will host a conference call with respect to this earnings announcement at 10:00 a.m. Eastern Time on Tuesday, November 3, 2020. 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.
* * * * *
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.
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. AGCO disclaims any obligation to update any forward-looking statements except as required by law.
* * * * *
About AGCO
AGCO (NYSE: AGCO) is a global leader in the design, manufacture and distribution of agricultural solutions and delivers high-tech solutions for farmers feeding the world through its full line of equipment and related services. AGCO products are sold through five core brands, Challenger®, Fendt®, GSI®, Massey Ferguson® and Valtra®, supported by Fuse® smart farming solutions. Founded in 1990 and headquartered in Duluth, Georgia, USA, AGCO had net sales of $9.0 billion in 2019. For more information, visit http://www.agcocorp.com. For company news, information and events, please follow us on Twitter: @AGCOCorp. For financial news on Twitter, please follow the hashtag #AGCOIR.
# # # # #
Please visit our website at www.agcocorp.com
AGCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited and in millions) | |||||||
| September 30, 2020 |
| December 31, 2019 | ||||
ASSETS |
|
|
| ||||
Current Assets: |
|
|
| ||||
Cash and cash equivalents | $ | 511.0 |
|
| $ | 432.8 |
|
Accounts and notes receivable, net | 990.1 |
|
| 800.5 |
| ||
Inventories, net | 2,057.1 |
|
| 2,078.7 |
| ||
Other current assets | 386.5 |
|
| 417.1 |
| ||
Total current assets | 3,944.7 |
|
| 3,729.1 |
| ||
Property, plant and equipment, net | 1,413.7 |
|
| 1,416.3 |
| ||
Right-of-use lease assets | 178.9 |
|
| 187.3 |
| ||
Investment in affiliates | 411.3 |
|
| 380.2 |
| ||
Deferred tax assets | 69.7 |
|
| 93.8 |
| ||
Other assets | 186.5 |
|
| 153.0 |
| ||
Intangible assets, net | 462.2 |
|
| 501.7 |
| ||
Goodwill | 1,273.3 |
|
| 1,298.3 |
| ||
Total assets | $ | 7,940.3 |
|
| $ | 7,759.7 |
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
| ||||
Current Liabilities: |
|
|
| ||||
Current portion of long-term debt | $ | 86.2 |
|
| $ | 2.9 |
|
Short-term borrowings | 47.7 |
|
| 150.5 |
| ||
Accounts payable | 819.9 |
|
| 914.8 |
| ||
Accrued expenses | 1,691.9 |
|
| 1,654.2 |
| ||
Other current liabilities | 211.8 |
|
| 162.1 |
| ||
Total current liabilities | 2,857.5 |
|
| 2,884.5 |
| ||
Long-term debt, less current portion and debt issuance costs | 1,429.3 |
|
| 1,191.8 |
| ||
Operating lease liabilities | 139.1 |
|
| 148.6 |
| ||
Pension and postretirement health care benefits | 224.6 |
|
| 232.1 |
| ||
Deferred tax liabilities | 106.6 |
|
| 107.0 |
| ||
Other noncurrent liabilities | 333.3 |
|
| 288.7 |
| ||
Total liabilities | 5,090.4 |
|
| 4,852.7 |
| ||
|
|
|
| ||||
Stockholders’ Equity: |
|
|
| ||||
AGCO Corporation stockholders’ equity: |
|
|
| ||||
Common stock | 0.8 |
|
| 0.8 |
| ||
Additional paid-in capital | 24.2 |
|
| 4.7 |
| ||
Retained earnings | 4,635.7 |
|
| 4,443.5 |
| ||
Accumulated other comprehensive loss | (1,851.0) |
|
| (1,595.2) |
| ||
Total AGCO Corporation stockholders’ equity | 2,809.7 |
|
| 2,853.8 |
| ||
Noncontrolling interests | 40.2 |
|
| 53.2 |
| ||
Total stockholders’ equity | 2,849.9 |
|
| 2,907.0 |
| ||
Total liabilities and stockholders’ equity | $ | 7,940.3 |
|
| $ | 7,759.7 |
|
See accompanying notes to condensed consolidated financial statements. |
AGCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in millions, except per share data) | |||||||
| Three Months Ended September 30, | ||||||
| 2020 |
| 2019 | ||||
Net sales | $ | 2,497.5 |
|
| $ | 2,109.4 |
|
Cost of goods sold | 1,918.8 |
|
| 1,659.2 |
| ||
Gross profit | 578.7 |
|
| 450.2 |
| ||
Selling, general and administrative expenses | 251.3 |
|
| 245.0 |
| ||
Engineering expenses | 82.0 |
|
| 82.3 |
| ||
Amortization of intangibles | 14.8 |
|
| 14.9 |
| ||
Bad debt expense | 5.8 |
|
| 0.8 |
| ||
Restructuring expenses | 0.8 |
|
| 1.3 |
| ||
Income from operations | 224.0 |
|
| 105.9 |
| ||
Interest expense, net | 3.6 |
|
| 6.4 |
| ||
Other expense, net | 15.3 |
|
| 20.8 |
| ||
Income before income taxes and equity in net earnings of affiliates | 205.1 |
|
| 78.7 |
| ||
Income tax provision | 57.2 |
|
| 83.2 |
| ||
Income (loss) before equity in net earnings of affiliates | 147.9 |
|
| (4.5) |
| ||
Equity in net earnings of affiliates | 10.2 |
|
| 10.8 |
| ||
Net income | 158.1 |
|
| 6.3 |
| ||
Net (income) loss attributable to noncontrolling interests | (0.8) |
|
| 1.3 |
| ||
Net income attributable to AGCO Corporation and subsidiaries | $ | 157.3 |
|
| $ | 7.6 |
|
Net income per common share attributable to AGCO Corporation and subsidiaries: |
|
|
| ||||
Basic | $ | 2.10 |
|
| $ | 0.10 |
|
Diluted | $ | 2.09 |
|
| $ | 0.10 |
|
Cash dividends declared and paid per common share | $ | 0.16 |
|
| $ | 0.16 |
|
Weighted average number of common and common equivalent shares outstanding: |
|
|
| ||||
Basic | 74.9 |
|
| 76.1 |
| ||
Diluted | 75.4 |
|
| 76.7 |
| ||
See accompanying notes to condensed consolidated financial statements. |
AGCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in millions, except per share data) | |||||||
| Nine Months Ended September 30, | ||||||
| 2020 |
| 2019 | ||||
Net sales | $ | 6,432.6 |
|
| $ | 6,527.8 |
|
Cost of goods sold | 4,970.7 |
|
| 5,057.0 |
| ||
Gross profit | 1,461.9 |
|
| 1,470.8 |
| ||
Selling, general and administrative expenses | 718.4 |
|
| 767.9 |
| ||
Engineering expenses | 242.7 |
|
| 254.3 |
| ||
Amortization of intangibles | 44.7 |
|
| 45.6 |
| ||
Goodwill impairment charge | 20.0 |
|
| — |
| ||
Bad debt expense | 9.0 |
|
| 2.1 |
| ||
Restructuring expenses | 5.4 |
|
| 3.0 |
| ||
Income from operations | 421.7 |
|
| 397.9 |
| ||
Interest expense, net | 13.1 |
|
| 15.9 |
| ||
Other expense, net | 37.8 |
|
| 47.0 |
| ||
Income before income taxes and equity in net earnings of affiliates | 370.8 |
|
| 335.0 |
| ||
Income tax provision | 117.9 |
|
| 155.8 |
| ||
Income before equity in net earnings of affiliates | 252.9 |
|
| 179.2 |
| ||
Equity in net earnings of affiliates | 31.5 |
|
| 33.2 |
| ||
Net income | 284.4 |
|
| 212.4 |
| ||
Net loss attributable to noncontrolling interests | 7.3 |
|
| 1.1 |
| ||
Net income attributable to AGCO Corporation and subsidiaries | $ | 291.7 |
|
| $ | 213.5 |
|
Net income per common share attributable to AGCO Corporation and subsidiaries: |
|
|
| ||||
Basic | $ | 3.89 |
|
| $ | 2.79 |
|
Diluted | $ | 3.86 |
|
| $ | 2.77 |
|
Cash dividends declared and paid per common share | $ | 0.48 |
|
| $ | 0.47 |
|
Weighted average number of common and common equivalent shares outstanding: |
|
|
| ||||
Basic | 75.0 |
|
| 76.4 |
| ||
Diluted | 75.5 |
|
| 77.1 |
| ||
See accompanying notes to condensed consolidated financial statements. |
AGCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in millions) | |||||||
| Nine Months Ended September 30, | ||||||
| 2020 |
| 2019 | ||||
Cash flows from operating activities: |
|
|
| ||||
Net income | $ | 284.4 |
|
| $ | 212.4 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
| ||||
Depreciation | 154.9 |
|
| 159.2 |
| ||
Amortization of intangibles | 44.7 |
|
| 45.6 |
| ||
Stock compensation expense | 26.8 |
|
| 32.9 |
| ||
Goodwill impairment charge | 20.0 |
|
| — |
| ||
Equity in net earnings of affiliates, net of cash received | (30.9) |
|
| (26.3) |
| ||
Deferred income tax provision | 2.4 |
|
| 43.1 |
| ||
Other | 19.2 |
|
| 1.9 |
| ||
Changes in operating assets and liabilities: |
|
|
| ||||
Accounts and notes receivable, net | (264.7) |
|
| (85.1) |
| ||
Inventories, net | (53.4) |
|
| (503.4) |
| ||
Other current and noncurrent assets | (39.5) |
|
| (47.0) |
| ||
Accounts payable | (55.6) |
|
| (4.1) |
| ||
Accrued expenses | 22.9 |
|
| 23.7 |
| ||
Other current and noncurrent liabilities | 92.9 |
|
| 66.9 |
| ||
Total adjustments | (60.3) |
|
| (292.6) |
| ||
Net cash provided by (used in) operating activities | 224.1 |
|
| (80.2) |
| ||
Cash flows from investing activities: |
|
|
| ||||
Purchases of property, plant and equipment | (183.1) |
|
| (188.1) |
| ||
Proceeds from sale of property, plant and equipment | 0.9 |
|
| 0.9 |
| ||
Investment in unconsolidated affiliates | (4.7) |
|
| — |
| ||
Purchase of businesses, net of cash acquired | (2.8) |
|
| — |
| ||
Net cash used in investing activities | (189.7) |
|
| (187.2) |
| ||
Cash flows from financing activities: |
|
|
| ||||
Proceeds from indebtedness, net | 167.9 |
|
| 397.8 |
| ||
Purchases and retirement of common stock | (55.0) |
|
| (100.0) |
| ||
Payment of dividends to stockholders | (36.0) |
|
| (35.9) |
| ||
Payment of minimum tax withholdings on stock compensation | (16.2) |
|
| (27.5) |
| ||
Payment of debt issuance costs | (1.4) |
|
| (0.5) |
| ||
Investment by noncontrolling interests | 0.2 |
|
| 1.2 |
| ||
Net cash provided by financing activities | 59.5 |
|
| 235.1 |
| ||
Effects of exchange rate changes on cash, cash equivalents and restricted cash | (15.7) |
|
| (11.8) |
| ||
Increase (decrease) in cash, cash equivalents and restricted cash | 78.2 |
|
| (44.1) |
| ||
Cash, cash equivalents and restricted cash, beginning of period | 432.8 |
|
| 326.1 |
| ||
Cash, cash equivalents and restricted cash, end of period | $ | 511.0 |
|
| $ | 282.0 |
|
See accompanying notes to condensed consolidated financial statements. |
AGCO CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited, in millions, except share amounts, per share data and employees)
1. STOCK COMPENSATION EXPENSE
The Company recorded stock compensation expense as follows (in millions):
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||
Cost of goods sold | $ | 0.5 |
|
| $ | 0.3 |
|
| $ | 0.9 |
|
| $ | 1.3 |
|
Selling, general and administrative expenses | 13.7 |
|
| 7.8 |
|
| 26.3 |
|
| 32.0 |
| ||||
Total stock compensation expense | $ | 14.2 |
|
| $ | 8.1 |
|
| $ | 27.2 |
|
| $ | 33.3 |
|
2. GOODWILL IMPAIRMENT CHARGE
Goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The Company conducts its annual impairment analyses as of October 1 each fiscal year. The COVID-19 pandemic has adversely impacted the global economy as a whole. Based on current macroeconomic conditions, the Company assessed its goodwill and other intangible assets for indications of impairment as of March 31, 2020, June 30, 2020 and September 30, 2020. As of June 30, 2020, the Company concluded there were indicators of impairment during the three months ended June 30, 2020 related to one of its smaller reporting units, which is a 50%-owned tillage and seeding joint venture. The Company consolidates the reporting unit as it was determined to be the primary beneficiary of the joint venture. Deteriorating market conditions for the products the joint venture sells were negatively impacted by the COVID-19 pandemic in the second quarter, greater than initially expected. As a result, updated strategic reviews with revised forecasts indicated an impairment of the entire goodwill balance of this reporting unit was necessary as of June 30, 2020. During the three months ended June 30, 2020, an impairment charge of approximately $20.0 million was recorded as “Goodwill impairment charge” within the Company’s Condensed Consolidated Statements of Operations, with an offsetting benefit of approximately $10.0 million included within “Net loss attributable to noncontrolling interests.”
3. RESTRUCTURING EXPENSES
From 2014 through 2020, the Company announced and initiated several actions to rationalize employee headcount at various manufacturing facilities and administrative offices located in Europe, South America, Africa, China and the United States to reduce costs in response to softening global market demand and lower production volumes. The aggregate headcount reduction was approximately 4,160 employees between 2014 and 2019. The Company had approximately $4.8 million of severance and related costs accrued as of December 31, 2019. During the three and nine months ended September 30, 2020, the Company recorded an additional $0.8 million and $5.4 million, respectively, of severance and related costs associated with further rationalizations in connection with the termination of approximately 320 employees, and paid approximately $3.8 million of severance and associated costs. The $5.4 million of costs incurred during the nine months ended September 30, 2020 included a $1.6 million write-down of property, plant and equipment. The remaining $4.6 million of accrued severance and other related costs as of September 30, 2020, inclusive of approximately $0.2 million of negative foreign currency translation impacts, are expected to be paid primarily during 2020.
4. INDEBTEDNESS
Long-term debt at September 30, 2020 and December 31, 2019 consisted of the following (in millions):
| September 30, 2020 |
| December 31, 2019 | ||||
Senior term loan due 2022 | $ | 175.4 |
|
| $ | 168.1 |
|
Credit facility, expires 2023 | 271.2 |
|
| — |
| ||
1.002% Senior term loan due 2025 | 292.4 |
|
| 280.2 |
| ||
Senior term loans due between 2021 and 2028 | 768.4 |
|
| 736.2 |
| ||
Other long-term debt | 10.9 |
|
| 12.5 |
| ||
Debt issuance costs | (2.8) |
|
| (2.3) |
| ||
| 1,515.5 |
|
| 1,194.7 |
| ||
Less: |
|
|
| ||||
Senior term loans due 2021 | (84.2) |
|
| — |
| ||
Current portion of other long-term debt | (2.0) |
|
| (2.9) |
| ||
Total long-term indebtedness, less current portion | $ | 1,429.3 |
|
| $ | 1,191.8 |
|
As of September 30, 2020 and December 31, 2019, the Company had short-term borrowings due within one year of approximately $47.7 million and $150.5 million, respectively.
On April 9, 2020, the Company entered into an amendment to its $800.0 million multi-currency revolving credit facility to include incremental term loans (“2020 term loans”) that allow the Company to borrow an aggregate principal amount of €235.0 million and $267.5 million, respectively (or an aggregate of approximately $542.4 million as of September 30, 2020). Amounts can be drawn incrementally at any time prior to maturity, but must be drawn down proportionately. Amounts drawn must be in a minimum principal amount of $100.0 million and integral multiples of $50.0 million in excess thereof. Once amounts have been repaid, those amounts are not permitted to be re-drawn. The maturity date of the 2020 term loans is April 8, 2022. On April 15, 2020, the Company borrowed €117.5 million and $133.8 million, respectively, (or an aggregate of approximately $271.2 million as of September 30, 2020) of 2020 term loans. The Company simultaneously repaid €100.0 million (or approximately $108.7 million) of its revolving credit facility from the borrowings received. There were no other borrowings on the 2020 term loans subsequent to the initial borrowings in April 2020.
5. INVENTORIES
Inventories at September 30, 2020 and December 31, 2019 were as follows (in millions):
| September 30, 2020 |
| December 31, 2019 | ||||
Finished goods | $ | 734.4 |
|
| $ | 780.1 |
|
Repair and replacement parts | 623.7 |
|
| 611.5 |
| ||
Work in process | 222.4 |
|
| 213.4 |
| ||
Raw materials | 476.6 |
|
| 473.7 |
| ||
Inventories, net | $ | 2,057.1 |
|
| $ | 2,078.7 |
|
6. ACCOUNTS RECEIVABLE SALES AGREEMENTS
The Company has accounts receivable sales agreements that permit the sale, on an ongoing basis, of a majority of its wholesale receivables in North America, Europe and Brazil to its U.S., Canadian, European and Brazilian finance joint ventures. As of September 30, 2020 and December 31, 2019, the cash received from receivables sold under the U.S., Canadian, European and Brazilian accounts receivable sales agreements was approximately $1.5 billion and $1.6 billion, respectively.
Losses on sales of receivables associated with the accounts receivable financing facilities discussed above, reflected within “Other expense, net” in the Company’s Condensed Consolidated Statements of Operations, were approximately $6.1 million and $18.5 million, respectively, during the three and nine months ended September 30, 2020. Losses on sales of receivables associated with the accounts receivable financing facilities discussed above, reflected within “Other expense, net” in the Company’s Condensed Consolidated Statements of Operations, were approximately $10.6 million and $30.3 million, respectively, during the three and nine months ended September 30, 2019.
The Company’s finance joint ventures in Europe, Brazil and Australia also provide wholesale financing directly to the Company’s dealers. As of September 30, 2020 and December 31, 2019, these finance joint ventures had approximately $67.5 million and $104.3 million, respectively, of outstanding accounts receivable associated with these arrangements. In addition, the Company sells certain trade receivables under factoring arrangements to other financial institutions around the world.
7. NET INCOME PER SHARE
A reconciliation of net income attributable to AGCO Corporation and subsidiaries and weighted average common shares outstanding for purposes of calculating basic and diluted net income per share for the three and nine months ended September 30, 2020 and 2019 is as follows (in millions, except per share data):
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||
Basic net income per share: |
|
|
|
|
|
|
| ||||||||
Net income attributable to AGCO Corporation and subsidiaries | $ | 157.3 |
|
| $ | 7.6 |
|
| $ | 291.7 |
|
| $ | 213.5 |
|
Weighted average number of common shares outstanding | 74.9 |
|
| 76.1 |
|
| 75.0 |
|
| 76.4 |
| ||||
Basic net income per share attributable to AGCO Corporation and subsidiaries | $ | 2.10 |
|
| $ | 0.10 |
|
| $ | 3.89 |
|
| $ | 2.79 |
|
Diluted net income per share: |
|
|
|
|
|
|
| ||||||||
Net income attributable to AGCO Corporation and subsidiaries | $ | 157.3 |
|
| $ | 7.6 |
|
| $ | 291.7 |
|
| $ | 213.5 |
|
Weighted average number of common shares outstanding | 74.9 |
|
| 76.1 |
|
| 75.0 |
|
| 76.4 |
| ||||
Dilutive stock-settled appreciation rights, performance share awards and restricted stock units | 0.5 |
|
| 0.6 |
|
| 0.5 |
|
| 0.7 |
| ||||
Weighted average number of common shares and common share equivalents outstanding for purposes of computing diluted net income per share | 75.4 |
|
| 76.7 |
|
| 75.5 |
|
| 77.1 |
| ||||
Diluted net income per share attributable to AGCO Corporation and subsidiaries | $ | 2.09 |
|
| $ | 0.10 |
|
| $ | 3.86 |
|
| $ | 2.77 |
|
8. SEGMENT REPORTING
The Company’s four reportable segments distribute a full range of agricultural equipment and related replacement parts. The Company evaluates segment performance primarily based on income from operations. Sales for each segment are based on the location of the third-party customer. The Company’s selling, general and administrative expenses and engineering expenses are generally charged to each segment based on the region and division where the expenses are incurred. As a result, the components of income from operations for one segment may not be comparable to another segment. Segment results for the three and nine months ended September 30, 2020 and 2019 are as follows (in millions):
Three Months Ended September 30, |
| North America |
| South America |
| Europe/ Middle East |
| Asia/ Pacific/Africa |
| Consolidated | ||||||||||
2020 |
|
|
|
|
|
|
|
|
|
| ||||||||||
Net sales |
| $ | 582.2 |
|
| $ | 273.9 |
|
| $ | 1,405.9 |
|
| $ | 235.5 |
|
| $ | 2,497.5 |
|
Income from operations |
| 58.3 |
|
| 16.7 |
|
| 187.5 |
|
| 23.8 |
|
| 286.3 |
| |||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2019 |
|
|
|
|
|
|
|
|
|
| ||||||||||
Net sales |
| $ | 536.2 |
|
| $ | 239.4 |
|
| $ | 1,145.7 |
|
| $ | 188.1 |
|
| $ | 2,109.4 |
|
Income (loss) from operations |
| 32.5 |
|
| (5.6) |
|
| 122.0 |
|
| 11.5 |
|
| 160.4 |
|
Nine Months Ended September 30, |
| North America |
| South America |
| Europe/Middle East |
| Asia/Pacific/Africa |
| Consolidated | ||||||||||
2020 |
|
|
|
|
|
|
|
|
|
| ||||||||||
Net sales |
| $ | 1,689.9 |
|
| $ | 606.3 |
|
| $ | 3,644.2 |
|
| $ | 492.2 |
|
| $ | 6,432.6 |
|
Income from operations |
| 183.9 |
|
| 13.4 |
|
| 380.8 |
|
| 36.5 |
|
| 614.6 |
| |||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2019 |
|
|
|
|
|
|
|
|
|
| ||||||||||
Net sales |
| $ | 1,651.3 |
|
| $ | 581.3 |
|
| $ | 3,813.5 |
|
| $ | 481.7 |
|
| $ | 6,527.8 |
|
Income (loss) from operations |
| 114.5 |
|
| (21.2) |
|
| 458.5 |
|
| 21.9 |
|
| 573.7 |
|
A reconciliation from the segment information to the consolidated balances for income from operations is set forth below (in millions):
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||
Segment income from operations | $ | 286.3 |
|
| $ | 160.4 |
|
| $ | 614.6 |
|
| $ | 573.7 |
|
Corporate expenses | (33.0) |
|
| (30.5) |
|
| (96.5) |
|
| (95.2) |
| ||||
Amortization of intangibles | (14.8) |
|
| (14.9) |
|
| (44.7) |
|
| (45.6) |
| ||||
Stock compensation expense | (13.7) |
|
| (7.8) |
|
| (26.3) |
|
| (32.0) |
| ||||
Impairment charge | — |
|
| — |
|
| (20.0) |
|
| — |
| ||||
Restructuring expenses | (0.8) |
|
| (1.3) |
|
| (5.4) |
|
| (3.0) |
| ||||
Consolidated income from operations | $ | 224.0 |
|
| $ | 105.9 |
|
| $ | 421.7 |
|
| $ | 397.9 |
|
RECONCILIATION OF NON-GAAP MEASURES
This earnings release discloses adjusted income from operations, adjusted net income, adjusted net income per share, adjusted targeted net income per share, free cash flow, available funding, net debt and net sales on a constant currency basis, each of which exclude amounts that are typically included in the most directly comparable measure calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). A reconciliation of each of those measures to the most directly comparable GAAP measure is included below.
The following is a reconciliation of reported income from operations, net income and net income per share to adjusted income from operations, adjusted net income and adjusted net income per share for the three and nine months ended September 30, 2020 and 2019 (in millions, except per share data):
| Three Months Ended September 30, | ||||||||||||||||||||||
| 2020 |
| 2019 | ||||||||||||||||||||
| Income From Operations |
| Net Income(2) |
| Net Income Per Share(1)(2) |
| Income From Operations |
| Net Income(2) |
| Net Income Per Share(2) | ||||||||||||
As reported | $ | 224.0 |
|
| $ | 157.3 |
|
| $ | 2.09 |
|
| $ | 105.9 |
|
| $ | 7.6 |
|
| $ | 0.10 |
|
Restructuring expenses(3) | 0.8 |
|
| 0.7 |
|
| 0.01 |
|
| 1.3 |
|
| 1.3 |
|
| 0.02 |
| ||||||
Deferred income tax adjustment(4) | — |
|
| — |
|
| — |
|
| — |
|
| 53.7 |
|
| 0.70 |
| ||||||
As adjusted | $ | 224.8 |
|
| $ | 158.0 |
|
| $ | 2.09 |
|
| $ | 107.2 |
|
| $ | 62.6 |
|
| $ | 0.82 |
|
(1) | Rounding may impact summation of amounts. | |
(2) | Net income and net income per share amounts are after tax. | |
(3) | The restructuring expenses recorded during the three months ended September 30, 2020 and 2019 related primarily to severance and other related costs associated with the Company’s rationalization of certain U.S., European and South American manufacturing operations and various administrative offices. | |
(4) | During the three months ended September 30, 2019, the Company recorded a non-cash adjustment to establish a valuation allowance against its Brazilian net deferred income tax assets. |
| Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 |
| 2019 | ||||||||||||||||||||
| Income From Operations(1) |
| Net Income(1)(2) |
| Net Income Per Share(2) |
| Income From Operations |
| Net Income(2) |
| Net Income Per Share(2) | ||||||||||||
As reported | $ | 421.7 |
|
| $ | 291.7 |
|
| $ | 3.86 |
|
| $ | 397.9 |
|
| $ | 213.5 |
|
| $ | 2.77 |
|
Goodwill impairment charge(3) | 20.0 |
|
| 10.0 |
|
| 0.13 |
|
| — |
|
| — |
|
| — |
| ||||||
Restructuring expenses(4) | 5.4 |
|
| 5.1 |
|
| 0.07 |
|
| 3.0 |
|
| 2.5 |
|
| 0.03 |
| ||||||
Deferred income tax adjustment(5) | — |
|
| — |
|
| — |
|
| — |
|
| 53.7 |
|
| 0.70 |
| ||||||
As adjusted | $ | 447.2 |
|
| $ | 306.9 |
|
| $ | 4.06 |
|
| $ | 400.9 |
|
| $ | 269.7 |
|
| $ | 3.50 |
|
(1) | Rounding may impact summation of amounts. | |
(2) | Net income and net income per share amounts are after tax. | |
(3) | During the nine months ended September 30, 2020, the Company recorded a goodwill impairment charge of approximately $20.0 million related to a joint venture in which it owns a 50% interest. See Note 2 for further information. | |
(4) | The restructuring expenses recorded during the nine months ended September 30, 2020 and 2019 related primarily to severance and other related costs associated with the Company’s rationalization of certain U.S., European and South American manufacturing operations and various administrative offices. | |
(5) | During the three months ended September 30, 2019, the Company recorded a non-cash adjustment to establish a valuation allowance against its Brazilian net deferred income tax assets. |
The following is a reconciliation of targeted net income per share to adjusted targeted net income per share for the year ended December 31, 2020:
|
| Net Income Per Share(1) | ||
As targeted |
| $ | 4.80 |
|
Goodwill impairment charge |
| 0.13 | ||
Restructuring expenses |
| 0.07 | ||
As adjusted targeted(2) |
| $ | 5.00 |
|
(1) | Net income per share amount is after tax. |
(2) | The above reconciliation reflects adjustments to full year 2020 targeted net income per share based upon restructuring expenses and the other adjustments incurred during the nine months ended September 30, 2020. Full year restructuring expenses could differ based on future restructuring activity. |
The following is a reconciliation of net cash provided by (used in) operating activities to free cash flow for the nine months ended September 30, 2020 and 2019 (in millions):
| September 30, 2020 |
| September 30, 2019 | ||||
Net cash provided by (used in) operating activities | $ | 224.1 |
|
| $ | (80.2) |
|
Less: capital expenditures | (183.1) |
|
| (188.1) |
| ||
Free cash flow | $ | 41.0 |
|
| $ | (268.3) |
|
The following is a reconciliation of available funding as of September 30, 2020 (in millions):
| September 30, 2020 | ||
Credit facility, total borrowing capacity | $ | 1,342.4 |
|
Less: Credit facility and term loan borrowings | (271.2) |
| |
Credit facility, available borrowing capacity | $ | 1,071.2 |
|
|
| ||
Cash and cash equivalents | $ | 511.0 |
|
Less: Restricted cash | (7.7) |
| |
Available cash and cash equivalents | $ | 503.3 |
|
Available funding | $ | 1,574.5 |
|
The following is a reconciliation of net debt as of September 30, 2020 and 2019 (in millions):
| September 30, 2020 |
| September 30, 2019 | ||||
Long-term indebtedness | $ | 1,515.5 |
|
| $ | 1,550.8 |
|
Short-term borrowings | 47.7 |
|
| 229.7 |
| ||
Less: Amounts related to the sale of receivables | (2.5) |
|
| (117.8) |
| ||
Short-term indebtedness | $ | 45.2 |
|
| $ | 111.9 |
|
Total indebtedness | $ | 1,560.7 |
|
| $ | 1,662.7 |
|
|
|
|
| ||||
Cash and cash equivalents | $ | 511.0 |
|
| $ | 282.0 |
|
Less: Restricted cash | (7.7) |
|
| — |
| ||
Available cash and cash equivalents | $ | 503.3 |
|
| $ | 282.0 |
|
Net debt | $ | 1,057.4 |
|
| $ | 1,380.7 |
|
The following table sets forth, for the three and nine months ended September 30, 2020 and 2019, the impact to net sales of currency translation by geographical segment (in millions, except percentages):
| Three Months Ended September 30, |
| Change due to currency translation | ||||||||||||||
| 2020 |
| 2019 |
| % change from 2019 |
| $ |
| % | ||||||||
North America | $ | 582.2 |
|
| $ | 536.2 |
|
| 8.6 | % |
| $ | (2.6) |
|
| (0.5) | % |
South America | 273.9 |
|
| 239.4 |
|
| 14.4 | % |
| (81.5) |
|
| (34.0) | % | |||
Europe/Middle East | 1,405.9 |
|
| 1,145.7 |
|
| 22.7 | % |
| 43.5 |
|
| 3.8 | % | |||
Asia/Pacific/Africa | 235.5 |
|
| 188.1 |
|
| 25.2 | % |
| 7.4 |
|
| 3.9 | % | |||
| $ | 2,497.5 |
|
| $ | 2,109.4 |
|
| 18.4 | % |
| $ | (33.2) |
|
| (1.6) | % |
| Nine Months Ended September 30, |
| Change due to currency translation | ||||||||||||||
| 2020 |
| 2019 |
| % change from 2019 |
| $ |
| % | ||||||||
North America | $ | 1,689.9 |
|
| $ | 1,651.3 |
|
| 2.3 | % |
| $ | (11.9) |
|
| (0.7) | % |
South America | 606.3 |
|
| 581.3 |
|
| 4.3 | % |
| (152.0) |
|
| (26.1) | % | |||
Europe/Middle East | 3,644.2 |
|
| 3,813.5 |
|
| (4.4) | % |
| (31.5) |
|
| (0.8) | % | |||
Asia/Pacific/Africa | 492.2 |
|
| 481.7 |
|
| 2.2 | % |
| (5.1) |
|
| (1.1) | % | |||
| $ | 6,432.6 |
|
| $ | 6,527.8 |
|
| (1.5) | % |
| $ | (200.5) |
|
| (3.1) | % |
View source version on businesswire.com: https://www.businesswire.com/news/home/20201103005078/en/
Greg Peterson Vice President, Investor Relations 770-232-8229 greg.peterson@agcocorp.com
Source: AGCO