AGCO Corp. (AGCO) provided a preliminary outlook for 2010. The company expects to post a loss in the first quarter of next year. It does not see an improvement in demand compared to 2009.

AGCO expects agricultural industry sales to drop 5-10% in North America, and approximately 10% in Western Europe in 2010 compared to 2009. The company expects sales to be flat to +5% in South America next year. The company sees limited visibility due to reduced orders. AGCO expects a 2.5% to 3% improvement in pricing for 2010.

However, the company is bullish on long-term growth potential, driven by worldwide population growth. AGCO is focused on improving margins and has a target of achieving operating margin of 10%. The company is working on moving sourcing away from a regional approach to a global purchasing approach, trying to leverage low-cost manufacturing environments. Also, the company is implementing Six Sigma and Lean manufacturing processes, in order to improve productivity in its factories.

Moreover, AGCO is planning to improve its distribution network by working with some of its stronger dealers to expand their territories. The company plans to concentrate on the dealers that are focused on selling AGCO’s business.

AGCO is expanding its presence, especially in emerging markets such as Central and Eastern Europe, the Far East and China. Management stated that the company will invest significantly in future to support a growing list of new product programs, to develop new markets and to improve its distribution.

Despite an uncertain outlook for the next few quarters, we are bullish on AGCO’s long-term fundamentals. With a full product line of farm equipment and its wide network of dealers and distributors, we believe AGCO is well-positioned to capitalize on the need for increased food production over the long-term.

Zacks Investment Research

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