WESTERN PRODUCER — It seems the good times are likely to continue for a while yet in the farm machinery industry.
Agco reported its third quarter earnings in October, and the news was all blue skies. Delivering his state-of-the-company report during a corporate earnings webcast, Agco president and chief executive officer Eric Hansotia revealed how the company’s bank account and sales volumes were faring these days.
“This morning we reported another record quarter in term of sales, operating margins and earnings,” he said.
“The continued executions of our ‘Farmer First’ strategy yielded second quarter sales growth of almost 30 percent, with adjusted operating margins expanding by 420 basis points to 13 percent. This makes four consecutive quarters with operating margins (profits) above 10.5 percent.”
Since the company moved Fendt into the flagship position in its product stable, these green machines and the high-end technology built into them have been getting noticed by farmers in key markets around the world.
“Compared to June (2022), year-to-date, Agco’s precision ag sales were up 23 percent and Ideal combine sales increased 76 percent,” he said.
“We’re seeing excellent demand for our technology-rich Fendt tractors, our precision ag solutions and replacement parts. North and South American Fendt sales are ahead of our growth targets.
“In North America, our orders for tracked tractors, combines and applications equipment extend well into 2024 as the demand in the big-farm market continues to be strong. We currently have around nine months of order coverage for both large and small ag.”
A lot of the good news is partly the result of strong farm commodity prices, which have been keeping the agricultural economy running well into the black.
Although grain prices have slipped recently, Hansotia said the company expects them to remain relatively good for the foreseeable future. Typically, strong grain prices have almost always translated into higher sales volumes for equipment manufacturers.
“We expect solid market conditions to continue,” he said.
“Our improved financial outlook for 2023 reflects this optimism. We expect farm incomes to be down modestly from historic levels in 2022. However, we believe it will remain at very good levels through 2023 and be supportive of industry demand, assuming cropping conditions continue.”
Hansotia’s optimism is also based on the easing of supply chain problems. That has helped return assembly lines to normal speed and allowed Agco to accept more orders, which is part of the reason for the boost in sales numbers.
“We grew our production in quarter two by approximately 18 percent versus 2022,” he said.
“We’re projecting a four to five percent (overall) increase in production numbers for the year.”
Hansotia believes a pent-up demand for new equipment will help continue that trend.
“Equipment in the field has aged and is due for replacement,” he said.
“By our calculations, the current average age for high-horsepower tractors in the U.S. is approximately 7.5 years old, which is a year older than the historical average.”
For those who aren’t interested in coughing up the amount of cash required to buy a brand-new machine, Agco will offer them an opportunity to upgrade existing equipment with a range of retrofit, add-on technologies, including a precision spraying system.
“(It) will be available for any brand starting in 2024,” he said.
“We’ll follow that up with an OEM solution by 2026.”
That’s just one of the high-tech systems Agco will offer farmers.
“We’ll have autonomous retrofit solutions by 2025 supporting tillage and grain cart applications,” he added.
“We’ll follow that with fully autonomous solutions across the crop cycle by 2030.
“We highlighted the steps we’re taking by investing in electric tractors and launching the (Fendt) e100 model in 2024 with more electrified platforms to follow. We also highlighted some of the other paths we’re exploring, like bio-methane and hydrogen.”
