AGCO Corp. (AGCO) recently updated its outlook for 2009. The company now expects net sales to decline by 23% to 25% on a year-over-year basis. During its second quarter conference call, AGCO had provided a guidance of $6.5–$6.8 billion, which represented a drop of 20% to 23% from prior-year revenue of $8.4 billion.

The company reduced its sales guidance due to lower-than-expected demand during the third quarter in its European operations, primarily in Germany, France and the United Kingdom. AGCO is now aggressively cutting production in order to reduce its own and dealer’s inventories.

The company now sees full-year earnings of $1.30 to $1.50 per share. AGCO expects lower sales and operating income in its Europe/Africa/Middle East region due to softening market conditions, reduced order in-take, continuing efforts to reduce dealer inventories and lower-than-anticipated margins.

The company anticipates weak industry demand in Europe due to lower income across the entire farming sector. Demand is expected to be severe in Eastern and Central Europe and Russia due to tighter credit markets.

For the third quarter, AGCO sees sales dropping by 30% to 35% year over year. The company expects quarterly earnings at or slightly below breakeven levels.

We concur with the company that the demand for farm equipment is not expected to recover in the next couple of quarters.

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