AGCO (AGCO)

Agricultural and farm machinery company AGCO (NYSE:AGCO) fell short of the markets revenue expectations in Q3 CY2025, with sales falling 4.7% year on year to $2.48 billion. The company’s full-year revenue guidance of $9.8 billion at the midpoint came in 0.5% below analysts’ estimates. Its non-GAAP profit of $1.35 per share was 11.1% above analysts’ consensus estimates.

Company Overview

With a history that features both organic growth and acquisitions, AGCO (NYSE:AGCO) designs, manufactures, and sells agricultural machinery and related technology.

Agricultural machinery companies are investing to develop and produce more precise machinery, automated systems, and connected equipment that collects analyzable data to help farmers and other customers improve yields and increase efficiency. On the other hand, agriculture is seasonal and natural disasters or bad weather can impact the entire industry. Additionally, macroeconomic factors such as commodity prices or changes in interest rates–which dictate the willingness of these companies or their customers to invest–can impact demand for agricultural machinery.

AGCO’s peers and competitors include Deere (NYSE:DE) and CNH Industrial (NYSE:CNH).

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, AGCO’s sales grew at a sluggish 2.4% compounded annual growth rate over the last five years. This fell short of our benchmarks and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. AGCO’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 16.8% annually. AGCO isn’t alone in its struggles as the Agricultural Machinery industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, AGCO missed Wall Street’s estimates and reported a rather uninspiring 4.7% year-on-year revenue decline, generating $2.48 billion of revenue.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

AGCO has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 24.6% gross margin over the last five years. That means AGCO paid its suppliers a lot of money ($75.44 for every $100 in revenue) to run its business.

AGCO produced a 26.1% gross profit margin in Q3, marking a 2.9 percentage point increase from 23.2% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

AGCO was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.3% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, AGCO’s operating margin decreased by 7.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. AGCO’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q3, AGCO generated an operating margin profit margin of 6.1%, up 1.7 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

AGCO’s flat EPS over the last five years was below its 2.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

Diving into the nuances of AGCO’s earnings can give us a better understanding of its performance. As we mentioned earlier, AGCO’s operating margin expanded this quarter but declined by 7.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For AGCO, its two-year annual EPS declines of 44.1% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.

In Q3, AGCO reported adjusted EPS of $1.35, up from $0.68 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects AGCO’s full-year EPS of $5.08 to grow 18.1%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

AGCO has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4%, subpar for an industrials business.

Taking a step back, an encouraging sign is that AGCO’s margin expanded by 3.5 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

AGCO broke even from a free cash flow perspective in Q3. This result was good as its margin was 2.4 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although AGCO hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.7%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, AGCO’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

AGCO reported $884.1 million of cash and $2.84 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.10 billion of EBITDA over the last 12 months, we view AGCO’s 1.8× net-debt-to-EBITDA ratio as safe. We also see its $79.1 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by AGCO’s optimistic full-year EPS guidance, which blew past analysts’ expectations. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its revenue slightly missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The stock traded up 4.7% to $111.11 immediately following the results.

Updated: December 4, 2025 at 10:05 PM EST

Before making an investment decision, investors should account for AGCO’s business fundamentals and valuation in addition to what happened in the latest quarter.

We see the value of companies helping their customers, but in the case of AGCO, we’re out. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining operating margin shows the business has become less efficient.

AGCO’s P/E ratio based on the next 12 months is 18.2x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $119.57 on the company (compared to the current share price of $105.78).