AGCO's annual harvests may be smaller than those of major rivals John Deere and CNH Global, but it reaps some healthy profits worldwide. AGCO makes tractors, combines, hay and forage tools, sprayers, and replacement parts for agricultural end uses. It sells through a global network of some 3,100 dealers and distributors spanning 140 countries. It also builds diesel engines, gears, and generators through its AGCO Sisu Power unit. Its four core machinery brands include Massey Ferguson, Challenger, Valtra (Finland-based), and Fendt (Germany). The company offers financing services to retail customers and dealers via a venture with Dutch company Rabobank.
AGCO has operations in Argentina, Austria, Brazil, Canada, Denmark, France, Germany, Ireland, Italy, the Netherlands, Sweden, the UK, and the US. It also has a presence in Australia and Asia. Europe accounted for around 50% of its total revenue in 2013, while the US and South America each accounted for roughly 20%.
AGCO divides its operations across six segments. Tractors accounted for 60% of its total sales in 2013, while replacement parts generated 13%. Its newest segment, grain storage and protein production systems, accounted for 7%, while combines, application equipment, and other machinery collectively accounted for the remaining 20%.
Sales and Marketing
AGCO distributes its products primarily through a network of 350 independent dealers and distributors, who are responsible for retail sales to the equipment's end user in addition to after-sales service and support of the equipment. Distributors also sell its products through a network of dealers supported by the distributor. Sales are not dependent on any specific dealer, distributor, or group of dealers.
AGCO's extensive global reach has enabled it to enjoy impressive growth over the last few years. From 2012 to 2013, its total sales surged by 8%, peaking at almost $10.8 billion, its highest revenue total in at least 10 years. Pricing, higher production volumes, and cost control initiatives helped to produce the higher gross margins for 2013.
The company's profits also reached historic levels in 2013, jumping 14% to peak at $597 million. This was mainly the result of the absence of impairment charges present in 2012. AGCO's operating cash flow has risen steadily over the last five years, with the exception of a small dip in 2012.
The company is targeting China and Russia as areas for growth and continues to focus on developing technologically advanced equipment to solve the myriad challenges facing farmers, such as population growth, changing diets, and scarcity of land. In 2013 it formed a new joint venture with Russian Machines in order to manufacture and distribute agricultural equipment and replacement parts in Russia. AGCO and Russian Machines plan to make a total investment of approximately $100 million in the joint venture over the next three years. Its manufacturing facility will be located in Golitsyno, near Moscow.
AGCO also expands its presence though the opening and expansion of offices. In 2013 it began expansion on its manufacturing center in Jackson, Minnesota and plans to invest $43 million into the facility over the next three years. Also in 2013 it opened a new parts distribution center in Johannesburg to better cater to customers in the Sub-Saharan Africa region.
Mergers and Acquisitions
Strategic acquisitions have supported AGCO's momentum and added to its net revenues over the years. In 2014 it obtained Intersystems, a Nebraska-based manufacturer of commercial material handling equipment sold to grain operations globally. In 2012 it acquired a 60% share in Santal Equipamentos for $31 million. Headquartered in Ribeirão Preto, Brazil, Santal Equipamentos manufactures and distributes sugar cane planting, harvesting, and handling equipment across Brazil.