OCT 98] AGCO PRESS RELEASE
AGCO Takes Action To Prepare For Steeper Farm Industry Decline:
1998 Earnings reduction expected as a
result of slower demand; production and cost adjustments accelerated to position the
company for 1999
AGCO Corporation (NYSE:
AG), a major worldwide designer, manufacturer and distributor of agricultural equipment,
today announced that it has initiated aggressive production adjustments and cost cutting
measures to balance inventories and operating expenses in response to revised lower second
half 1998 and 1999 industry demand forecasts.
In the third and fourth quarter of 1998 total
tractor and combine unit production will be reduced by an additional 8% from those
reductions previously announced. These cutbacks will adjust dealer and Company inventory
to recent changes in demand and position the Company for lower industry levels in 1999.
Operating expense is being reduced by over $15 million in
the fourth quarter through personnel reductions and the curtailment of various operations.
An additional $50 million in further expense reductions is planned for 1999, to support
operating income targets.
"Agricultural equipment sales continue to be impacted
negatively by weak commodity prices and excess global surpluses of commodities. These have
resulted in lower farm income in several regions throughout the world," stated Robert
J Ratliff, AGCO's Chairman and Chief Executive Officer.
"In particular, there has been a sharper decline in
the North American market, compared to the first half of 1998, than we anticipated in
July. Company retail sales in the third quarter in North America have declined
approximately 10% from prior year sales. Currently we are forecasting 1999 industry sales
to be 15-20% below 1998 levels in North America. In addition, the economic turmoil in
several Latin American countries has created an uncertain demand for agricultural
equipment products in the near future, and we are conservative in our forecast of 1999
industry demand in these countries."
As a result of the current forecast of reduced retail
demand for equipment in North and South America in the second half of 1998, and reduced
production schedules to maintain balanced dealer and Company inventory, the Company
anticipates that sales in these areas will be below prior estimates. This is expected to
have a negative effect on prior earnings estimates for the year. The Company now estimates
that 1998 earnings could be 40-45% below comparable 1997 results excluding non-recurring
"The significant adjustments to production and
operating expenses that are being made at AGCO will position the Company for strength in
1999," Mr Ratliff stated.
"Our current actions demonstrate AGCO's fundamental
capability to flex with changes in industry demand and maintain reasonable profitability.
We continue to believe that the long-term industry fundamentals are solid and reflect a
continuing need for agricultural productivity through technologically advanced equipment
AGCO Corporation, headquartered in Duluth, Georgia, is a
global designer, manufacturer and distributor of agricultural equipment and related
replacement parts. AGCO products are distributed in 140 countries. AGCO offers a full
product line including tractors, combines, hay tools, sprayers, forage equipment and
implements through more than 8,500 independent dealers and distributors around the world.
AGCOs products are distributed under the brand names AGCO®Allis, Massey Ferguson®,
Hesston®, White, GLEANER®, New Idea®, AGCOSTAR®, Black Machine, Landini, Tye®,
Farmhand®, Glencoe®, Deutz (South America), IDEAL, Fendt, Spra-Coupe® and Willmar®.
AGCO provides retail financing worldwide through its Agricredit joint venture. In 1997
AGCO had sales of $3.2 billion.
Safe Harbor Statement
Statements which are not historical facts are subject to
risks which could cause actual results to differ materially. The Company bases its outlook
on key operating, economic and agricultural data which are subject to change including:
farm cash income, worldwide demand for agricultural products, commodity prices, grain
stock levels, weather, crop production, farmer debt levels, existing government programs
and farm-related legislation. Additionally, the Company's financial results are sensitive
to movement in interest rates and foreign currencies, as well as general economic
conditions, pricing and product actions taken by competitors, production disruptions and
changes in environmental, international trade and other laws which impact the way in which
it conducts its business.
Judith Czelusniak, Vice President Corporate Relations (770) 813-6044
Michele Howard, Director Corporate Finance (770) 813-6082