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Agricultural Earnings Face a Drought

By Toby Shute – Updated Apr 6, 2017 at 12:24AM

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Reports out of two equipment suppliers show that the slump will be sustained.

That anxiety mounting in the agricultural sector back in February? Turns out it was pretty well-founded.

AGCO (NYSE:AGCO), the No. 3 agricultural equipment supplier behind Deere (NYSE:DE) and CNH Global (NYSE:CNH), reported a 25% decrease in revenue this quarter. That translated to a halving of net income compared to the prior-year period. AGCO "experienced weakening order trends throughout the second quarter," which sure doesn't sound like the bottoming process being reported by coal miners, rail operators, and oil rig outfitters.

In fact, the tractor titan expects global demand to soften for the remainder of 2009. AGCO has responded fairly aggressively to the slowdown, with a 17% year-to-date workforce reduction along with other expense cuts.

Trimble Navigation (NASDAQ:TRMB) told a similar tale in its own quarterly report. The maker of precision agriculture equipment (picture a Garmin (NASDAQ:GRMN) GPS device for tractors) experienced a slow market for what had previously been a real standout product in the firm's stable of positioning gadgets. The Field Solutions segment still generated more than 50% higher operating income than the engineering and construction segment, off of a much smaller revenue base, but sales look to be pretty sluggish for the rest of the year.

For the near term, Ag looks like kind of a drag, but if you asked industry-straddling CNH or Trimble, they'd probably bet the farm on a quicker return to robust revenue in this space than in the construction sector. While sentiment has slumped, agricultural fundamentals themselves have held up reasonably well. For that, among other reasons, I think Fools should certainly consider the agricultural complex in their quest for value today.

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Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Deere & Company Stock Quote
Deere & Company
DE
$334.22 (-3.44%) $-11.91
Garmin Ltd. Stock Quote
Garmin Ltd.
GRMN
$82.77 (-0.20%) $0.17
Trimble Inc. Stock Quote
Trimble Inc.
TRMB
$56.38 (-0.72%) $0.41

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