AGCO, CNH See Increased Tractor Demand

April 30, 2013 09:17 AM

Demand for agricultural equipment in the first quarter of 2013 proved stronger than some expected, prompting an optimistic tone from executives at CNH and AGCO during earnings calls this morning.

"It has been quite the good start," says Richard Tobin, president and CEO, CNH. The manufacturer reported 9% growth in total industry units for tractors in North America over the same period last year. Total combine units rose 51% over last year. Total unit growth for both equipment categories is projected to be between 0% and 5% for fiscal year 2013.

Overall, AGCO is "very optimistic and very positive" about the agricultural equipment market in the years ahead, says Martin Richenhagen, CEO. While global changes related to climate and finance programs will occur, he says, the market is big enough that multiple agricultural manufacturers will have opportunities for long-term stability and growth potential. The company reported March year-to-date tractor retail units were up 13% for the industry in North America and were up 52% for combines.

(See related: AEM Releases March 2013 Flash Report)

Orders at AGCO are up from where the company was at the end of the year, with order books filling up to between three and four months, depending on the region, says Andy Beck, senior vice president and chief financial officer.

Both companies are gearing up to implement Tier 4 Final standards to meet emissions requirements that take effect in 2014. The increase in pricing on Tier 4 Final tractors at CNH is expected to resemble the increase that occurred when moving from Tier 3 to Tier 4 Interim equipment, Tobin says. However, the final emissions requirements likely will have a larger impact on the pricing of lower-horsepower tractors than on high-horsepower tractors, he says.

AGCO anticipates a 15% increase in engineering expenses this year to meet Tier 4 Final emissions requirements and develop new products. The manufacturer projects inventory levels in the $125 million range for the year to meet those requirements, Beck says.

Tier 4 Final costs and other factors are prompting CNH to move forward with cautious optimism for the full year ahead, even as its agricultural business outperformed its construction operation.

"It’s a good start, but I don’t think we’re in a position … to say that the full year is going to keep at these levels," Tobin says.

Unknowns include the wet spring preventing much corn planting in the U.S. and resulting volatility in commodity prices. The risk of a missed hay and forage season—once in 2012 because of drought and again this year because of wet weather—also is on people’s minds, Tobin says. CNH expects some liquidation of related equipment over the coming quarters because of weakened hay and forage production.

Click here for more details about AGCO’s Q1 2013 earnings. 

Click here for more details about CNH’s Q1 2013 earnings. 

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