The Company also announced that it is leading the industry in aggressively confronting current negative market conditions. AGCO will adjust its production schedule to slash inventories, further boost cash flow and position the Company for strength in 1999.

Quarterly Results On A Comparable Basis

AGCO’s second quarter 1997 earnings included nonrecurring expenses of $5.2 million, $.05 per share. For comparative purposes, excluding the nonrecurring charge recorded in 1997, net earnings were $52.1 million, $.83 per share, for the second quarter of 1997.

Sales in the second quarter of 1998 were $55.9 million below the prior year. Sales in the second quarter of 1997 included approximately $23 million in sales from the Fendt Caravan and the Deutz Argentina engine businesses. Fendt Caravan was sold in December 1997. Also in December 1997, AGCO sold 50% of its Deutz-Argentina engine business to Deutz AG in the formation of a joint venture.

Compared to the second quarter of 1997, 1998 sales were negatively impacted by approximately $26 million as a result of the translation effect of the strengthening dollar against most European currencies. Excluding the currency impact, as well as the impact of disposed businesses, AGCO’s sales decreased 1% compared to the second quarter of 1997.

Excluding currency translation effect and disposed businesses, AGCO's sales increased by 17% over the previous year in North America, where sales of AGCO's high horsepower tractors outpaced the industry. Sales increased by 23% in South America. Sales were down by 7% in Western Europe and by 30% in the rest of the world, including Central and Eastern Europe, Asia/Pacific, Africa and the Middle East.

“The strong British pound continues to put pressure on margins of our UK sourced products,” stated Robert J. Ratliff, AGCO’s Chairman & Chief Executive Officer.

“In addition, we have seen aggressive pricing actions by competitors in the second quarter. This has adversely affected our market share for the short term.”

Included in the second quarter operating expenses was $3.3 million, $.03 per share, of amortization expense relating to the Company’s Long-Term Incentive Plan compared to $5.1 million, $.05 per share, in the prior year. Also included in the second quarter were $1.4 million of costs associated with Year 2000 compliance.

Year-To-Date Results

Net sales and net earnings for the six months ended   30 June, 1998 were $1.52 billion and $65.1 million, $1.04 per share, respectively, compared to net sales and net earnings for the same period in 1997 of $1.58 billion and $74.5 million, $1.22 per share, respectively. For comparative purposes, excluding the nonrecurring charge and the write-off of unamortized debt costs recorded in the first six months of 1997, net earnings were $81.6 million, $1.34 per share.

AGCO's Flexible Production Strategy Facilitates Cost Savings

"Negative market conditions in several regions adversely affected the industry this quarter,” stated Mr. Ratliff.

“Most notable are the indirect impact of continued declines in the Asia Pacific markets, a decrease in sales to the Central and Eastern European region due to a lack of available financing, and depressed market conditions in Africa."

“AGCO’s management recognizes that these factors have reduced agricultural commodity imports from North America and Western Europe. This has resulted in increased commodity surpluses, which negatively impact commodity prices and reduce farm income. Industry declines continue in most Western European markets including the UK and France, which are significant markets for AGCO. These regions are down 39% and 5%, respectively, for the first six months of 1998 when compared to the previous year."

"In response to these negative industry conditions, we are reducing our 1998 production levels at AGCO's facilities in the UK, France and North America by a total of 17% of standard aggregate working hours. We are committed to reduce pipeline inventories, as well as dealer and Company inventories. These actions will allow AGCO to achieve a strong level of free cash flow during 1998. We have also initiated cost reduction plans to offset the impact of production cuts."

“We feel strongly that this timely action is the correct course to ensure solid results for the remainder of 1998 and a strong position for 1999. Unlike our competitors, AGCO’s flexible structure enables us to make these reductions immediately, without cost penalties other than the negative impact of overhead absorption."

"AGCO is committed to pursue our strategy of product innovation and market expansion around the world. Our low fixed costs and avoidance of vertical integration position the Company for strength during industry downturns. AGCO's unique flexible manufacturing strategy is to outsource major components and capital-intensive R&D. This allows AGCO to adjust production to meet market conditions while obtaining maximum gross margins, maintaining product availability and continuing the development of competitive products," Mr Ratliff continued.

Acquisitions and Production Efficiencies Support AGCO's Global Growth Strategy

During the first half of 1998, AGCO strengthened its position for the future in the world's fastest growing markets and product categories. The Company has streamlined its processes and has continued to overhaul its product line with new technologies.

During this period, AGCO implemented common product platforms to further reduce production costs, improve margins, allow purchasing leverage and boost efficiency. The introduction of common product platforms has allowed AGCO to focus its manufacturing into efficient cost centers around the world.

AGCO successfully introduced new products in North America for 1998. These include the Massey Ferguson 4200 utility tractor series and new high-horsepower tractors for AGCO-Allis and White. During the next quarter AGCO will introduce a new high-horsepower Massey Ferguson tractor. Compared to an industry increase of 8% for North American high-horsepower tractor sales in 1998, AGCO has already produced an 18% increase in sales of its high-horsepower equipment in this market.

AGCO's July acquisition of Spra-Coupe makes the Company the leader in the fast-growing, under-500-gallon self-propelled sprayer market. Spra-Coupe's leading-edge electrostatic spraying technology is designed to meet future environmental requirements and provide cost savings to users.

During the first half of 1998, AGCO integrated its acquisition of Dronningborg. This company, which AGCO acquired in December of 1997, is the technology leader in combines and precision farming utilizing the satellite Global Positioning System (GPS).

AGCO has taken the lead in the rapidly developing South America market through several acquisitions. Most recently AGCO acquired the distribution rights of Massey Ferguson Argentina. AGCO continues to grow margins in South America while maintaining the number one market share position. AGCO will continue to rationalize its operations in South America, while increasing production to meet demand.

AGCO has also continued to strengthen the distribution of its Fendt brand in Europe, with additional dealers and distributors. Strong demand for Fendt products has resulted in increased production at AGCO's Marktoberdorf, Germany plant. AGCO will introduce a next-generation combine into the premium Fendt product line in 1998 to further expand this high technology brand during 1998. During this time AGCO has also expanded its multiple brand distribution strategy to the European market.

Regional Results and Outlook - North America

Overall retail dollar sales of AGCO equipment increased 7% during the first six months compared to the prior year. AGCO outpaced industry growth in utility and high- horsepower tractors and hay equipment.

“AGCO’s utility and high-horsepower tractor sales have outpaced the industry thanks to the strong acceptance of the new Massey Ferguson utility tractor range, the 4200 series, as well as the strong acceptance of the new high-horsepower range from AGCO-Allis and White,” stated Mr. Ratliff.

“While the North American market was strong in the first half of the year when compared to 1997, reduced exports, adverse weather conditions in the South and Southwestern United States, adverse weather conditions in Western Canada, and continued depression of commodity prices, could negatively impact equipment sales in the second half of the year,” stated Mr Ratliff.

“Also, the decline in Canadian exchange rates has resulted in declines of our expected margins in this region.” 

Regional Results and Outlook - Western Europe

Industry retail unit sales of tractors in Western Europe declined approximately 2% in the first six months of 1998 compared with the prior year.

The markets of the UK and France continue to be depressed in the first six months of the year. These markets were down by 39% and 5%, respectively. As major markets for AGCO, declines in these regions offset AGCO’s strong performances in the German market, which was up 9% over the prior year, as well as an increase in the Italian market of 10%. The equipment market in the UK is expected to remain depressed through 1999.

“AGCO experienced market share gains in our Massey Ferguson utility tractor range, as well as in the Fendt brand,” according to Mr Ratliff.

“These gains were offset by declines in market share related to our Massey Ferguson high horsepower tractors. AGCO is planning product launches for the first half of 1999 that will strengthen our position in this sector,” stated Mr Ratliff.

Regional Results and Outlook - South America

South American industry retail sales of tractors increased 12% for the first 6 months over the prior year. Brazilian industry retail unit sales of tractors were up 35% over the prior year while combines were up 68% over the prior year. AGCO participated in both of these increases with an increase over prior year retail sales of 17% for tractors and 106% for combines. Argentina and the remainder of the South American markets have declined compared to 1997.

“Brazil continues to be a solid contributor for AGCO as the market strengthens. AGCO remains focused on achieving improved margins while maintaining market share leadership. We are particularly proud of AGCO’s increase in combines with our market share growing to over 20% with improved margins,” stated Mr Ratliff.

“AGCO is up 51% in Argentina combine sales compared with the prior year. We have also achieved increased market share with improved margins in this market. We expect this region to remain strong, led by solid performance in the Brazilian market through the remainder of 1998.”

Rest of the World Markets

Outside North America, Western Europe and South America, AGCO’s net sales decreased approximately $59 million or 30% compared to the first six months of 1997.

“The economic crisis in certain Asian markets continues to depress the region’s sales, and we do not see this improving in the foreseeable future,” stated Mr Ratliff.

“The markets of Central and Eastern Europe are experiencing lower imports of Western equipment due to a lack of appropriate financing. More than $60 million of orders for AGCO equipment in this region are currently awaiting financing.”

Finance Company Results

AGCO’s global retail finance joint venture, Agricredit, contributed $3.1 million to net earnings for the second quarter of 1998, compared to $2.8 million in 1997.

Dividends Declared

The Company announced that its Board of Directors approved a quarterly dividend on the Company’s common stock of $.01 per share. The dividend is payable 1 September 1998 to holders of record 17 August 1998.

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. AGCO’s 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 and Spra-Coupe®. 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.

MORE INFORMATION:
Judith Czelusniak, Vice President Corporate Relations (770) 813-6044
Patrick Shannon, Vice President and CFO (770) 813-6164
  

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