Q2 2024 Ag Equipment Manufacturer Earnings Results Themes, Highlights and Analysis
Q2 2024 Ag Equipment Manufacturer Earnings Results Themes, Highlights and Analysis
A dive into some of the most important takeaways from Q2 that agribusiness professionals need to know.
Over the last week I consumed earnings call transcripts and quarterly equipment manufacturer results, synthesizing the themes, trends and key takeaways across the equipment manufacturers segment of the agriculture industry.
In this article, I share:
eight financial comparison trend charts of major equipment manufacturers including:
Upstream Ag Professional Q2 2024 Financial Snapshot
Stock Performance
Revenue
Operating Margin %
SG&A to Revenue Ratio
R&D Expenditure
four macro takeaways from Q2 2024 results.
eight notable insights, quotes and images from manufacturer executive teams.
highlights and key takeaways from seven equipment manufacturers earnings results.
John Deere
CNH Industrial
AGCO
Kubota
Lindsay Corp.
Valmont
Titan Machinery
1. Financial Charts
Upstream Ag Professional Q2 2024 Equipment Manufacturer Financial Snapshot
Note: Purple colored data titled “6326” is Kubota in all charts.
Source: Finchat.io Note: Includes all segments for Deere & CNH
Source: Finchat.io Note: Includes all segments for Deere & CNH
Source: Finchat.io Note: Includes all segments for Deere & CNH
Source: Finchat.io Note: Includes all segments for Deere & CNH
Note: I decided not to create charts comparing irrigation manufacturers Lindsay Corp. and Valmont due to the variation in their quarters.
2. Themes
a. Macro Environment Challenging
From AGCO CEO Eric Hansotia:
As in prior cycle downturns, there's always a big correction year where the industry slows rapidly as farmers reduce their spend on new equipment. We've known 2024 was going to be that big transitional year. After the transitional year, industry demand tends to float around trough levels for a period of time before ramping back up. The duration and the severity of the decline are influenced by many things like commodity prices, weather and stock-to-use ratios, which will make every downturn a little different. For AGCO, we understand the industry dynamics and are working aggressively to address the challenges and position ourselves for success. We are rapidly cutting production this year faster than in the past to rightsize dealer inventory levels this year in hopes that production and retail demand are more balanced in 2025.
John Deere on macro environment:
It's definitely a different and tougher environment today than it was a year ago. If you take North America as an example, on the one hand, farmers are experiencing 1 of their best crops in years, thanks to excellent weather conditions.
But then on the other hand, the high levels of production resulting from these strong expected yields are causing crop prices to decline, as you mentioned. Although input costs are projected to be down this year, it's not enough to offset the lower commodity prices. The need to projected year-over-year declines in farm net incomes, which ultimately puts pressure on equipment demand.
Net farm incomes are projected to drop faster than ever before:
Source: The Daily Scoop
John Deere CEO John May shared an anecdote on the length of the downturn:
I recently spoke with one of our largest dealers in the U.S. who said, he does not expect this downturn to be as prolonged as the last cycle. He noted that the proactive steps we are taking to manage inventory are reinforcing that sentiment.
b. Revenue Declines
John Deere Production and Precision Ag revenues declined 25%:
Net sales of $5.099 billion were down 25% compared to the third quarter last year, primarily due to lower shipment volumes, which were partially offset by price realization.
Operating profit was $1.162 billion with a 22.8% operating margin for the segment. The year-over-year decrease was primarily due to lower shipment volumes and employee separation program expenses.
CNH Industrial agriculture segment experienced net sales dropping by 20% to $3.91 billion due to lower volumes driven by decreased industry demand and reduced dealer inventory requirements.
While AGCO dropped ~15%:
AGCO's sales were down approximately 15%. Our results reflect the impacts from both softer industry wide demand and our resulting production cuts.
Consolidated operating margin was 10.3% on an adjusted basis. Lower sales, production cuts and operating leverage were the major factors in our reduced margins.
Titan Machinery, one of the largest equipment dealerships, is expecting margins to be the lowest they have seen in almost a decade as they announced a revision of the company's fiscal 2025 projections. The updated guidance reflects a challenging market environment, with equipment margins potentially declining to levels last seen in fiscal years 2016 and 2017.
The same is being experienced in the irrigation manufacturing world. From Lindsay Corp*, where agriculture revenues declined 19% (*Note: Lindsay does have a staggered quarter compared to other equipment manufacturers, with their most recent results reported in June):
Irrigation segment revenues for the quarter were $114.8 million, a decrease of 19% compared to $142.6 million in the prior year. North America irrigation revenues of $68.2 million decreased 9% compared to $75 million in the prior year.
With volume being the biggest driver of declines in North America and LatAm:
With North America irrigation, the 9% year-over-year decline, I would say, probably 7% to 8% of that is a combination of pivot volume and parts volume and the rest of it would be price and mix. When you look at the international side, 31% down year-over-year. Brazil was probably down slightly more than that year-over-year. And I would say most of that is volume.
Valmont revenues were up 0.6% YoY due to storm replacements, but it is not expected to be maintained through the remainder of 2024:
Despite the additional storm-related sales this quarter, we do not expect an improvement in our sales outlook this year due to current U.S. farm income projections and recent downward trends in grain prices.
c. Job Cuts
Among the big three ag equipment manufacturers, all have announced jobs cuts in the mid-single digit percentages over the last 9 months, with Deere and AGCO announcing the cuts in Q2.
AGCO reduced their salaried workforce by ~6% and expect annual cost savings of $100-$125 million.
CEO Eric Hansotia provided more context surrounding the cuts on the earnings call:
The 6% is a net number so we're actually cutting deeper in some of our high cost countries, hiring back in some low cost countries, but that's really about rightsizing and reflecting the demand we're facing. Then there's a chapter two about thinking differently about how we run the business…it's largely using artificial intelligence and automating much of the routine tasks that we have and higher leverage of lower cost locations.
John Deere:
This quarter, we made difficult decisions to structure the business to align with current market conditions. This involved a mid-single-digit reduction in our global salaried workforce, delivering roughly $230 million in annual run rate savings.
The up front costs to reduce the head count are expected to be $150 million and actually contribute to tighter cash flow for the year:
Given the velocity of the market pullback we've seen this year, this has also created volatility in our working capital. As a result, we've seen a downward revision to our operating cash flow guide.
CNH Industrial did not announce any new job cuts, however, late in 2023 they announced a restructuring plan trimmed 5% of its salaried workforce and reduced its total workforce expenses by 10% to 15%.