Agco Corp. (AGCO:US), the world’s third-largest farm equipment maker, plans to boost manufacturing of crop- storage and livestock equipment in Brazil, China and Russia as the developing nations build infrastructure to meet growing food demand.
“Infrastructure is topic number one,” Martin Richenhagen, chairman and chief executive officer of the Duluth, Georgia- based company, said in a phone interview today. “We now need to develop our activities over there. That will help to support our growth ambitions.”
Increasing overseas sales of silos, grain-drying and hog and poultry-raising equipment that Agco added through its $940 million purchase of GSI Holdings Corp. in 2011 will help boost the unit’s sales to $1 billion in five years from an estimated $700 million this year, Richenhagen said. About a quarter of Agco’s sales came from North America in the quarter through September and more than half of GSI’s revenue are from there, according to the company.
Agco next year may increase production of grain-storage and livestock equipment in either its Canoas or Mogi das Cruzes plants in Brazil, Richenhagen said. Assumption, Illinois-based GSI currently has an assembly plant in Sao Paolo.
Agco also may expand capacity in one of its existing plants in China and is looking for a site in Russia, he said. The company also wants to expand sales in Africa.
The expansion would come after GSI’s sales slowed in North America as the worst drought in five decades lowers crop volumes and raises feed-grain prices, cutting demand for silos and equipment used to raise hogs and poultry.
Brazil is set to displace the U.S. as the largest soybean grower this year and increase plantings to meet increased demand from China, the biggest buyer, according to Rabobank International. The next harvest in Brazil “looks very promising,” Andrew Beck, Agco’s chief financial officer, said on a call with analysts yesterday.
As plantings and consumption expand in developing countries the need for infrastructure from storage to roads to ports is increasing to avoid crop losses, Richenhagen said. China may boost soybean imports by a third in the next three years, commodity trader Olam International Ltd. (OLAM) estimates.
Agco cut its forecast yesterday partly because of lower sales of storage and livestock products. Earnings excluding one- time items will be about $5.20 a share in 2012, compared with a July projection of $5.50 to $5.75, Agco said. Sales will be $9.8 billion to $10 billion, down from $10.1 billion to $10.3 billion.
The company yesterday also reported third-quarter net income that rose to $94.5 million, or 96 cents a share, from $84.4 million, or 87 cents, a year earlier. That trailed the $1.02 per-share average of 11 estimates. Sales climbed to $2.3 billion from $2.1 billion.
Agco rose 3.2 percent to $46.98 at the close in New York. the most since Aug. 3. The shares have climbed 9.3 percent this year.
To contact the reporter on this story: Shruti Singh in Chicago at firstname.lastname@example.org
To contact the editor responsible for this story: Simon Casey at email@example.com