Dive Brief:
- Agriculture equipment manufacturer Agco is expected to cut production 10% this year in response to softening retail demand for tractors and combines.
- Dealer inventories "are at or above targeted levels," president and CEO Eric Hansotia said in an earnings call last week, "so some reductions will be required in 2024."
- Agco’s net sales declined 2.5% in the fourth quarter, and the company expects lower demand in 2024. The slowdown comes after the manufacturer reported record net sales for 2023.
Dive Insight:
With farm income under pressure, fewer producers are expected to invest heavily in new equipment. Instead, many will be looking to upgrade what they already have with new technology.
Like Deere and other competitors, Agco plans to focus less on traditional equipment manufacturing and more on developing precision technologies that help farmers boost yields with fewer inputs. Agco's research and development spend has increased 60% in the last three years, and a recent partnership with Trimble is expected to further its share of the precision ag market.
"Our investments will continue to drive innovative solutions that are focused on helping improve farmers' productivity," Hansotia said.
Agco is pinning much of its growth on expected demand for retrofitting. Much of the manufacturer's technology can be added to existing equipment even if the machine was made by a competitor.
"While farm income is expected to decline from elevated levels in 2023, we expect farmers to remain profitable in 2024," Hansotia said. "Agco's brand-agnostic retrofit approach to precision ag and strong parts business should help dampen the cycle, making our margins less volatile.”
