I find the values in ag equipment to be compelling but expectations are probably too high for what is reasonable. I still think these are great long term plays, but need to settle over the near term. Again, investors seem to think of every sector as a monolith. It is very easy to say 'agriculture' is overvalued or 'too hot' or 'too speculative'. Crops are different from fertilizers are different from genetic seeds are different from oilseed processing. But Wall Street doesn't care about minor things like that many times.
Agco earnings and guidance
- Agricultural equipment maker Agco Corp (AG) on Thursday posted a profit in the latest quarter versus a year-earlier loss, as higher commodity prices prompted farmers worldwide to buy more of its tractors and combines.
- But the company forecast 2008 earnings that would fall short of Wall Street's hopes, sending its shares down more than 7 percent in early trading.
- Agco said it made a net profit of $81.1 million, or 82 cents a share, during the fourth quarter, compared with a net loss of $128.5 million, or $1.41 a share, a year before.
- Net sales rose 32.9 percent to $2.2 billion.
- Analysts had expected the Duluth, Georgia-based company to earn 63 cents a share on sales of $1.9 billion, according to Reuters Estimates.
- But looking forward, Agco said it expects to report a full-year 2008 profit of $2.75 a share -- though it said it had a "goal" of hitting $3 a share.
- That was below the $3.23 a share analysts were hoping for, on average, according to Reuters Estimates.
Again, I fully expect these lowered estimates to be beaten a year from now, but that doesn't mean it helps today. And why I stepped aside from this group.
Bunge (BG) also reported - this has never been a favorite of mine nor something I've ever owned but a certain guy on TV just loves this name.... and again people will lump everything together into an "agriculture stinks" thesis. Again, tremendous growth but future guidance not good enough. Counter this with the pure play fertilizer plays which I still think have a lot of pricing power to go (and hence increased future estimates). We've see it with Mosaic (MOS) and Potash (POT) already in the past few weeks, and tonight we'll see how CF Industries (CF) does.
- Bunge Ltd (BG), the world's largest oilseeds processor, forecast on Thursday 2008 earnings well below analysts estimates and its shares fell sharply.
- The company said higher input costs could pressure margins in fertilizer and edible oils during the year while the strong real will increase costs in its Brazilian business.
- For 2008, Bunge forecast earnings per share of $6.01 to $6.30 a share. Analysts on average forecast $6.60 a share, according to Reuters Estimates.
- "Although the company expects strong market conditions in 2008, as in 2007, it continued to caution about higher input costs for fertilizers (sulphur) and about the potential effect on farmers from the strong Brazilian real," Pablo Zuanic, analyst at J.P. Morgan Securities said in a research note.
- The forecast came even as Bunge posted a higher-than-expected quarterly profit, helped by higher international fertilizer prices and increased margins in its oilseeds processing business.
Remember, higher sulphur costs were what initially hit Mosaic (MOS) the day after it's earnings [Mosaic - Another Excellent Quarter], before it rebounded strongly (and analysts started upgrading up the wazoo in the weeks since). We can make a bear case for everything - I say the price increases in fertilizer are so strong it will more than make up for the higher input prices. But when we fight shadows behind every corner you have be wary. I've cut back some fertilizer exposure expecting the market to pull back so I am hoping to see lower prices in these pure play fertilizer names to load up (again). But this is certainly one of the most frustrating things about the stock market - the simplistic, monolithic view on any sector. We see the same in oil - lower prices means everything drops - an exploration company, a deep sea oil driller, an oil service company - all of it. Very simplistic but that's how it goes. I'm sure we'll see the same issues in agriculture from time to time even though a potash producer is very different from a combine manufacturer or seed maker. But these short term inefficiencies in pricing stocks create great long term opportunities to profit.
Long Mosaic, Potash, CF Industries in fund and in personal account
