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Agricultural and farm machinery company AGCO (NYSE:AGCO) fell short of analysts' expectations in Q2 CY2024, with revenue down 15.1% year on year to $3.25 billion. The company's full-year revenue guidance of $12.5 billion at the midpoint also came in 5% below analysts' estimates. It made a non-GAAP profit of $2.53 per share, down from its profit of $4.28 per share in the same quarter last year.
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AGCO Corporation (AGCO) Q2 CY2024 Highlights:
- Revenue: $3.25 billion vs analyst estimates of $3.48 billion (6.8% miss)
- EPS (non-GAAP): $2.53 vs analyst expectations of $2.96 (14.6% miss)
- The company dropped its revenue guidance for the full year from $13.5 billion to $12.5 billion at the midpoint, a 7.4% decrease
- Gross Margin (GAAP): 25.8%, down from 26.3% in the same quarter last year
- Free Cash Flow of $137.5 million is up from -$465 million in the previous quarter
- Market Capitalization: $7.61 billion
With a history that features both organic growth and acquisitions, AGCO (NYSE:AGCO) designs, manufactures, and sells agricultural machinery and related technology.
Agricultural MachineryAgricultural machinery companies are investing to develop and produce more precise machinery, automated systems, and connected equipment that collects analyzable data to help farmers and other customers improve yields and increase efficiency. On the other hand, agriculture is seasonal and natural disasters or bad weather can impact the entire industry. Additionally, macroeconomic factors such as commodity prices or changes in interest rates–which dictate the willingness of these companies or their customers to invest–can impact demand for agricultural machinery.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, AGCO Corporation grew its sales at a decent 7.8% compounded annual growth rate. This shows it was successful in expanding, a useful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. AGCO Corporation's annualized revenue growth of 8% over the last two years aligns with its five-year trend, suggesting its demand was stable.
This quarter, AGCO Corporation missed Wall Street's estimates and reported a rather uninspiring 15.1% year-on-year revenue decline, generating $3.25 billion of revenue. Looking ahead, Wall Street expects revenue to decline 3.6% over the next 12 months.
Operating MarginOperating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.
AGCO Corporation has done a decent job managing its expenses over the last five years. The company has produced an average operating margin of 8%, higher than the broader industrials sector.
Analyzing the trend in its profitability, AGCO Corporation's annual operating margin rose by 3.4 percentage points over the last five years, showing its efficiency has improved.
This quarter, AGCO Corporation generated an operating profit margin of negative 7.4%, down 20.4 percentage points year on year. Since AGCO Corporation's operating margin decreased more than its gross margin, we can assume the company was recently less efficient because expenses such as sales, marketing, R&D, and administrative overhead increased.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
AGCO Corporation's EPS grew at an astounding 20.8% compounded annual growth rate over the last five years, higher than its 7.8% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into AGCO Corporation's earnings to better understand the drivers of its performance. As we mentioned earlier, AGCO Corporation's operating margin declined this quarter but expanded by 3.4 percentage points over the last five years. Its share count also shrank by 3.2%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For AGCO Corporation, its two-year annual EPS growth of 10.8% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.
In Q2, AGCO Corporation reported EPS at $2.53, down from $4.28 in the same quarter last year. This print missed analysts' estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects AGCO Corporation to perform poorly. Analysts are projecting its EPS of $12.60 in the last year to shrink by 14% to $10.84.
Key Takeaways from AGCO Corporation's Q2 Results We struggled to find many strong positives in these results as its revenue and EPS missed analysts' expectations. The company also dropped its full-year revenue and EPS guidance, citing weaker farmer income and commodity prices. Overall, this was a bad quarter for AGCO Corporation. The stock traded down 5.5% to $96.50 immediately after reporting.
