AGCO to Redeem Senior Notes - Analyst Blog

The agricultural equipment maker AGCO Corporation AGCO announced that it would redeem all outstanding Convertible Senior Subordinated Notes due 2036, which were issued on December 4, 2006, at a coupon rate of 1.25%. The aggregate principal amount of the notes is $201.2 million.

A notice of redemption is being sent by the Trustee, Union Bank N.A., to all registered holders of the notes. The company declared that the option will be effective June 20, 2014.

The redemption price of the Notes would be equal to 100% of the aggregate principal amount of the Notes along with accrued but unpaid interest prior to the Redemption Date. During 2013, holders of this convertible senior subordinated notes converted less than $0.1 million of the principal amount.

Based in Duluth, GA, AGCO is a global leader on the design, manufacture and distribution of agricultural machinery. It supports productive farming through a wide range of tractors, combines, hay tools, sprayers, forage equipment, tillage, implements, grain storage and protein production systems as well as other related replacement parts.

Last month, AGCO reported earnings of $1.03 per share, declining 13% year over year. However, the figure surpassed the Zacks Consensus Estimate of 79 cents per share. Revenues also decreased 2.9% year over year to $2.33 billion and fell short of the Zacks Consensus Estimate of $2.55 billion.

At quarter-end, the company had cash and cash equivalents of $193.9 million. The company had $1.13 billion long-term debt on its balance sheet as of Mar 31, 2014. Currently, the company's debt-to-total capitalization ratio is only 22.6%.The redemption of debt will lower the leverage and interest burden of the company going forward.

The company remains committed to its plans of expanding to the Commonwealth of Independent States CIS, China and Africa. AGCO also entered into a 50-50 joint venture (JV) with Russian Machines to manufacture and distribute agricultural equipment and replacement parts in Russia.

Additionally, the company's effort to enhance shareholder value was evident when a 10% hike in the quarterly payout was announced in Jan 2014. AGCO also increased its share repurchase program to $500 million, which is likely to be complete over the next 18 months.

However, AGCO reiterated its full-year 2014 earnings per share guidance of $6.00, which reflects a 0.2% year-over-year dip. AGCO is projecting net sales in the range of $10.8 billion to $11.0 billion for 2014, relatively flat as compared with 2013. The guidance includes the impact of softer market conditions.

The company also cautioned against a fall in commodity prices in 2014 as compared with 2013, which might lead to reduced farm income and softer industry demand across the developed agricultural equipment markets. Furthermore, the absence of an extension of current depreciation tax benefits beyond 2013 (in the U.S.) and potential FINAME borrowing cost increases (in Brazil) could pressure AGCO's earnings.

Currently, AGCO has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include AO Smith Corp. AOS, Columbus McKinnon Corp. CMCO and EnerSys ENS. All these carry a Zacks Rank #2 (Buy).