AGCO Corp Rides On Strategic Investments Amid Inflation
Zacks Investment Research | Nov 21, 2018 08:59PM ET
On Nov 21, we issued an updated research report on AGCO Corporation (NYSE:AGCO) . The company’s performance will be driven by focus on strategic investments, acquisitions and capital-allocation plan. However, its results may be affected by low commodity prices, rising steel prices and elevated expenses.
Let’s illustrate these factors in detail.
Strategic Investments Support AGCO
AGCO continues to make strategic investments to refresh and expand its product lines, upgrade system capabilities and improve factory productivity. The company expects capital expenditures to be around $250 million in 2018 which will be used primarily to support the development and enhancement of new and existing products, upgrade system capabilities and improve factory productivity. Its spending plan for the current year will support long-term business growth.
Acquisitions to Spur Growth
AGCO completed two acquisitions in the past year. In September 2017, it acquired Precision Planting — a leader in innovative planting technology. AGCO’s purchase of Lely Group’s forage division has significantly enhancedits hay and forage product line in Europe. Acquisitions accounted for approximately 3% of the net sales increase in third-quarter 2018 and will likely boost sales by about 2.5% in 2018.
AGCO Grows on Capital-Allocation Plan
AGCO is focused on its long-term capital allocation plan by returning cash to shareholders. In the past four years, the company has executed share repurchases of $1 billion, which had the effect of reducing share count by 20%. It has an existing $300-million program authorized. Through Sep 30, 2018, AGCO has spent about $84 million on share repurchases. The company expects to continue share repurchases in fourth-quarter 2018. It also targets to generate solid free cash flow for 2018.
Low Commodity Prices Remain a Concern
Farm income remains under pressure due to lower commodity prices. In the United States, the USDA estimates that farm income will be down 13% to $65.7 billion in 2018. This remains a concern for AGCO.
Elevated Expenses to Hurt Earnings
AGCO’s results will be affected by rising steel prices due to tariffs imposed by the U.S. government. In addition, engineering expenses are expected to increase by around $45 million in 2018 compared with 2017.These factors will dent earnings.
Share Price Performance
Over the past year, AGCO has underperformed the Zacks Investment Research
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.