Dive Brief:
- Agco is further slashing production as the tractor manufacturer moves to “aggressively” tackle declining demand for farm equipment that has taken a toll on company earnings.
- Full-year production will be 25% lower versus 2023, the company said. Production hours decreased in the third quarter by approximately 35%, or 19% more than Agco anticipated in its guidance.
- Significant reductions were made in all regions, with the largest cuts happening in North America and South America, Eric Hansotia, Agco’s president and CEO, said in an investor call last week. Despite successfully lowering dealer inventories, he said the company expects issues to continue as market demand weakens further.
Dive Insight:
As farmers struggle with low crop prices, relatively high interest rates and increased input costs, fewer are making big-ticket purchases like tractors, combines and farm implements, resulting in a backlog of inventory across the globe.
Machinery manufacturer Agco has about four months of orders with its dealers in North America and is looking to bring that number down to three, Hansotia said. In general, manufacturers want to optimize their coverage to avoid extra costs and storage fees.
“We will continue to focus on under-producing retail demand, coupled with retail market share execution to bring dealer inventories in line with our targeted range,” Hansotia said during the call.
Competitors Deere & Co. and CNH have also slowed their production and reduced their workforce numbers throughout the year to account for the down market. While tractor and combine sales wane, manufacturers are expecting precision agriculture sales to grow as farmers look to boost yields and lower day-to-day costs.
In the third quarter, Agco’s sales declined 25% to $2.6 billion over last year. Net income totaled $30 million for the period compared to $280 million a year ago.
Declining farm demand has also hurt performance of Agco’s joint venture with Trimble, which the tractor company spent $2 billion on to become a leader in precision agriculture technologies. Sales and margins were below expectations “given the rapid decline in our industry,” Hansotia said.
Agco noted that a slight rise in farmer sentiment about the economy could indicate that the worst is soon over.
“We’re certainly close to sentiment being at the very bottom,” Hansotia said. “Now that’s not meaning the market’s at its very bottom, but that’s usually a good indicator of what the next few months look like. So we’re trying to sort out where is that inflection point.”