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Press Release Source: AGCO Corporation


AGCO Reports Fourth Quarter Results
Tuesday February 22, 8:29 am ET
Adjusted Earnings Per Share Increases 40% to $0.56 For the Quarter and 51% to $1.87 For the Full Year Before New Accounting Rule


DULUTH, Ga.--(BUSINESS WIRE)--Feb. 22, 2005--AGCO Corporation (NYSE:AG - News), a worldwide designer, manufacturer and distributor of agricultural equipment, reported net income per share of $0.52 per share for the fourth quarter of 2004. Adjusted net income per share, which excludes restructuring and other infrequent (income) expenses, was also $0.52 per share for the fourth quarter of 2004. These results compare to reported net income per share of $0.39 per share and adjusted net income per share of $0.40 per share for the fourth quarter of 2003. Net sales for the fourth quarter of 2004 were approximately $1.5 billion, an increase of 48% over 2003.
For the full year, reported net income per share was $1.71 per share in 2004 compared to $0.98 per share in 2003. Adjusted net income per share was $1.75 per share for the full year of 2004 versus $1.24 per share for the full year of 2003. Net sales for the full year of 2004 increased 51% over 2003 to approximately $5.3 billion.

Net income per share for the quarter and full year of 2004 were impacted by the fourth quarter implementation of EITF Issue No. 04-08 related to the treatment of contingently convertible debt in the calculation of diluted net income per share. The implementation of this accounting pronouncement required AGCO to include approximately 9.0 million additional shares of common stock that may be issued upon conversion of AGCO's 1.75% convertible senior subordinated notes. Adjusted net income per share calculated under the previous method, which would have excluded the shares associated with the convertible notes, would have been $0.56 per share for the fourth quarter and $1.87 per share for the full year of 2004. Net income per share for 2003 was not impacted by the adoption of the accounting rule.

"We are pleased with the improvements achieved in 2004," stated Martin Richenhagen, AGCO's President and Chief Executive Officer. "In particular, sales growth and cost reduction were keys to our higher profitability. Stronger markets in North and South America contributed to achieving 14% sales growth, excluding currency and acquisitions in 2004. Higher production volumes and improved supply chain performance led to productivity gains. In addition, we demonstrated strong free cash flow of $187.5 million in 2004 which contributed to an improved balance sheet and a net debt to capital ratio of 37% at the end of 2004."

"In 2005, we expect to take further actions to better position AGCO for the future," said Mr. Richenhagen. "We plan to leverage our improved level of profitability by increasing our investments in product development and cost reduction projects which are expected to improve our competitive position and productivity in future years. In addition, we are focusing on improving our distribution and customer support network in all of our markets. We believe that these initiatives will enable AGCO to further leverage its brand and technology strengths."

Fourth Quarter and Full Year Results

For the fourth quarter of 2004, AGCO reported net sales of $1,534.1 million and net income of $50.7 million, or $0.52 per share. Adjusted net income, excluding restructuring and other infrequent expenses, was $50.6 million, or $0.52 per share. For the fourth quarter of 2003, AGCO reported net sales of $1,035.1 million and net income of $29.8 million, or $0.39 per share. Adjusted net income, excluding restructuring and other infrequent (income) expenses, in the fourth quarter of 2003 was $30.4 million, or $0.40 per share. The following is a reconciliation of adjusted operating income, net income and earnings per share to reported operating income, net income and earnings per share for the quarters ended December 31, 2004 and 2003:

2004
------------------------------------------
(in millions, except per share data)

Operating Net Earnings
Income Income(1) Per Share(1)(2)
-------------- ------------- -------------

As adjusted $ 88.3 $ 50.6 $ 0.52 (4)
Restructuring and other
infrequent (income)
expenses (3) (1.0) (0.1) --
-------------- ------------- -------------

As reported $ 89.3 $ 50.7 $ 0.52
============== ============= =============


2003
------------------------------------------
(in millions, except per share data)

Operating Net Earnings
Income Income(1) Per Share(1)(2)
-------------- ------------- -------------

As adjusted $ 63.7 $ 30.4 $ 0.40
Restructuring and other
infrequent (income)
expenses (3) (0.2) 0.6 0.01
-------------- ------------- -------------

As reported $ 63.9 $ 29.8 $ 0.39
============== ============= =============

(1) Net income and earnings per share amounts are after tax.
(2) Earnings per share amounts include the impact of the
contingently convertible senior subordinated notes.
(3) The restructuring and other infrequent (income) expenses recorded
in the fourth quarter of 2004 relate primarily to the reversal of
$4.1 million ($2.9 million after-tax) of a previously established
provision related to the Company's pension scheme in the U.K.,
offset by $3.2 million of charges ($2.8 million after-tax)
associated with the rationalization of the Company's Randers,
Denmark combine manufacturing operations and its Finnish tractor
manufacturing operations. The Company did not record a tax benefit
associated with the charges relating to the Randers
rationalization. See Note 3 to the condensed consolidated
financial statements for further explanation.
(4) Excluding the impact of the contingently convertible notes to the
calculation of diluted net income per share, weighted average
shares outstanding would decrease by approximately 9.0 million
shares from 99.7 million shares to 90.7 million shares, resulting
in adjusted earnings per share of $0.56 per share.

For the full year of 2004, AGCO reported net sales of $5,273.3 million and net income of $158.8 million, or $1.71 per share. Adjusted net income, excluding restructuring and other infrequent expenses, was $162.4 million, or $1.75 per share. For the full year of 2003, AGCO reported net sales of $3,495.3 million and net income of $74.4 million, or $0.98 per share. Adjusted net income, excluding restructuring and other infrequent expenses, for the full year of 2003, was $94.2 million, or $1.24 per share. The following is a reconciliation of adjusted operating income, net income and earnings per share to reported operating income, net income and earnings per share for the full years ended December 31, 2004 and 2003:

2004
------------------------------------------
(in millions, except per share data)

Operating Net Earnings
Income Income(1) Per Share(1)(2)
-------------- ------------- -------------

As adjusted $ 323.6 $ 162.4 $ 1.75 (4)
Restructuring and other
infrequent expenses(3) 0.1 3.6 0.04
-------------- ------------- -------------

As reported $ 323.5 $ 158.8 $ 1.71
============== ============= =============


2003
---------------------------------------------
(in millions, except per share data)

Operating Net Earnings
Income Income(1) Per Share(1)(2)
-------------- ------------- -------------

As adjusted $ 211.9 $ 94.2 $ 1.24
Restructuring and other
infrequent expenses(3) 27.6 19.8 0.26
-------------- ------------- -------------
As reported $ 184.3 $ 74.4 $ 0.98
============== ============= =============


(1) Net income and earnings per share amounts are after tax.
(2) Earnings per share amounts include the impact of the contingently
convertible senior subordinated notes.
(3) The restructuring and other infrequent expenses recorded during
2004 relate primarily to $11.5 million pre-tax ($11.5 million
after-tax) of charges associated with the rationalization of the
Randers, Denmark combine manufacturing operations announced in
July 2004 and $1.9 million of charges ($1.4 million after-tax)
associated with various rationalization initiatives in Europe and
the U.S., offset by gains on the sale of property, plant and
equipment and restructuring reserve reversals totaling $9.2
million on a pre-tax basis ($6.4 million after-tax) related to the
Coventry, England facility closure and a reversal of $4.1 million
($2.9 million after-tax) of a previously established provision
related to the Company's pension scheme in the U.K. The Company
did not record a tax benefit associated with the charges relating
to the Randers rationalization. See Note 3 to the condensed
consolidated financial statements for further explanation.
(4) Excluding the impact of the contingently convertible debt to the
calculation of diluted net income per share, weighted average
shares outstanding would decrease by approximately 9.0 million
shares from 95.6 million shares to 86.6 million shares, resulting
in adjusted earnings per share of $1.87 per share.

Other non-GAAP measures referred to in this release are discussed in Note 11 to the condensed consolidated financial statements.

AGCO's net sales increased 48% for the fourth quarter and 51% for the full year of 2004 primarily due to the acquisition of Valtra in January 2004, sales growth in each of the Company's geographical segments and positive currency translation impacts. Valtra represented approximately 27% of the growth for the quarter and approximately 29% of the growth for the full year with net sales of approximately $282.1 million in the fourth quarter and $1,007.5 million for the full year of 2004. In addition, the consolidation of the GIMA transmission joint venture and the impact of currency translation contributed approximately 6% of the growth for the quarter and approximately 8% for the full year. The balance of the sales growth was attributable to stronger end markets, particularly in North America and South America, favorable response to new products and distribution, and improved product availability.

Adjusted operating income increased $24.6 million for the fourth quarter and $111.7 million for the full year of 2004 compared to 2003. Increased operating income was achieved through the contribution of Valtra, higher sales volumes and improved operating margins. Offsetting these positive factors was the impact of the weak U.S. dollar, higher steel costs and additional non-cash amortization of purchased intangible assets related to the Valtra acquisition. Reported operating income in 2004 also increased compared to 2003 due to lower restructuring and other infrequent expenses in 2004.

In AGCO's Europe Africa Middle East operations, operating income improved $37.1 million for the fourth quarter and $73.2 million for the full year. The increase in 2004 reflects the contribution of Valtra, higher sales volume, productivity gains and currency translation benefits. Improved productivity and supply chain performance in the Beauvais, France plant contributed to better product availability and higher margins. Operating income in AGCO's South America operations increased by $1.7 million for the quarter and $65.4 million for the full year. For the fourth quarter, the operating income contribution from Valtra was offset by lower margins due to higher input and operating costs and lower production volume. For the full year, operating income in South America was significantly higher in 2004 resulting from stronger end markets, production efficiencies and price realization. In North America, operating income decreased $4.4 million for the fourth quarter and $7.0 million for the full year. Although higher sales volumes were achieved from improved market conditions in North America, these benefits were offset by reduced margins due to the impact of the weak dollar on products imported from Europe and Brazil as well as higher steel costs. Operating income in the Asia Pacific region increased $0.1 million for the fourth quarter and $9.7 million for the full year primarily resulting from the operating income contribution from Valtra, improved product availability, improved market conditions and currency translation benefits.

Regional Market Results

North America - Industry unit retail sales of tractors for the full year of 2004 increased approximately 12% over the comparable prior year period resulting from increases in all tractor segments, with the largest growth in high-horsepower equipment. Industry unit retail sales of combines were approximately 41% higher than the prior year. AGCO's unit retail sales of tractors and combines were also higher for the full year of 2004 over 2003.

Western Europe - Industry unit retail sales of tractors for the full year of 2004 increased approximately 2% over the comparable prior year period. Retail demand improved in France and Italy but declined in Finland and the higher horsepower sector in Germany. Including the impact of Valtra sales in both periods, AGCO's unit retail sales for the full year of 2004 also increased when compared to the prior year period.

South America - Industry unit retail sales of tractors for the full year of 2004 increased approximately 8% over the prior year period. Tractor demand declined slightly in Brazil but was offset by significant increases in Argentina and other South American markets. Industry retail unit sales of combines for the full year of 2004 were approximately 8% higher than the prior year, with increases in both Brazil and Argentina. Including the impact of Valtra sales in both periods, AGCO's South American unit retail sales of tractors and combines also increased in the full year of 2004 compared to 2003.

Rest of World Markets - Outside of North America, Western Europe and South America, AGCO's net sales for the full year of 2004, excluding Valtra, were approximately 14% higher than 2003 due to higher sales in Australia, Asia, Eastern Europe and the Middle East.

"AGCO performed well in all major markets in 2004," stated Mr. Richenhagen. "In North America, equipment demand improved significantly over prior years as farmers enjoyed record harvests, strong commodity prices and tax incentives. In South America, the market in 2004 remained strong, driven by high farm income. However, we saw some softening in demand in the fourth quarter resulting from the effects of lower commodity prices and the weak dollar. In Western Europe, the end markets demonstrated mixed results but were relatively flat, as a whole, despite improved harvest and yields in 2004."

"In 2005, we anticipate industry retail sales conditions to be mixed," continued Mr. Richenhagen. "In North America, despite a decline in commodity prices, we expect the end markets to remain at or above current levels as farmers benefit from high farm income generated in 2004. In Western Europe, industry demand is expected to be relatively flat as the benefit of a stronger harvest in 2004 is likely to be offset by lower commodity prices and the impact of the strong Euro. In South America, we expect demand to soften, particularly in the combine market and in Brazil. Lower commodity prices, increasing input costs and the weak dollar are expected to impact the soybean sector and delay further farm expansion. As a result, we expect industry demand in 2005 in South America to have meaningful declines from their strong levels of 2004."

Outlook

In 2005, AGCO's net sales are expected to grow approximately 5% resulting from currency translation, price realization and increased retail sales in most regions. In addition, the Company expects to benefit from improved productivity and other cost reduction initiatives. These benefits are expected to be partially used to fund a 20% increase in engineering expense in 2005 in order to accelerate new product introductions, common product platform designs and the expansion of the Company's engine production. In addition, anticipated market declines in AGCO's profitable South America operations are expected to negatively impact 2005 results. As a result, adjusted net income per share for 2005, which excludes restructuring and other infrequent expenses, is expected to remain flat to 5% higher than 2004. Reported net income per share for 2005 including all items is also expected to remain flat to 5% above 2004. First quarter adjusted net income per share in 2005 is expected to range from $0.20 to $0.25 per share. Reported net income per share in the first quarter of 2005 is expected to be $0.18 to $0.23 per share. The weighted average shares outstanding used to calculate earnings per share will be approximately 20% and 5% higher than 2004 for the first quarter and full year of 2005, respectively, to reflect additional common shares issued in March 2004.

"We believe that 2005 will be another successful year for AGCO," stated Mr. Richenhagen. "We are focused on offsetting the impact of the decline in the South America in addition to taking important actions which will allow AGCO to continue to improve its operations in future years."
 
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