Ag Equipment Earnings Rise, Difficult 2011 Comps (AGC, DE, TSCO)

AGCO Corporation (NYSE: AGC), a maker of tractors and combines and farming equipment, reported that its fourth quarter earnings more than doubled to $85.2 million.  This came to $0.88 EPS adjusted versus $0.35 EPS a year ago.  Revenue rose to $2.17 billion from $1.83 billion a year earlier.  Thomson Reuters had estimates of $0.76 EPS and $2.03 billion in revenues.

AGCO’s North American region saw sales grow in the fourth quarter by about 47.3% compared to the fourth quarter of 2009.  Europe was a source of weakness in 2010 due to the economy and structural issues of those nations.  AGCO expects that Western European farm equipment demand will grow in 2011 due to improved farmer profitability for grain and dairy producers. In North America, higher levels of farm income are projected to maintain demand for large tractors and combines.

Worldwide industry demand is expected to be flat or to increase modestly in 2011 compared to 2010 levels.  That was not really expected to be flat.  North America and Europe will be offset by less attractive government loan programs in Brazil. For guidance, AGCO sees 2011 adjusted earnings in a range of $2.50 to $2.75 EPS a share.  Where the problem comes up is that Thomson Reuters has estimates of $2.94 EPS.  Net sales are expected to range from $7.6 billion to $7.9 billion versus estimates of $7.45 billion.

AGCO is down 2% at $52.35 before the open.  Shares have run massively as the 52-week range is $25.48 to $56.18.  So far this is not having much impact on the much larger Deere & Company (NYSE: DE) nor is it having an impact on Tractor Supply Company (NASDAQ: TSCO).

Ag-equipment investors will want to take note here of these trends.  2010 and the start of 2011 is looking good because of food inflation and international demand.  Unfortunately, the comparable period gains will be difficult comparisons and there may be only so much growth to be had.

JON C. OGG