Dive Brief:
- Tractor manufacturer Agco Corp. expects to weather minor financial impacts from the Trump administration’s recently announced tariffs on imports from China, Mexico and Canada, SVP and CFO Damon Audia said in a Q4 earnings call Thursday.
- The CFO noted, however, a greater possible impact from tariffs on imports from the European Union, which would now include imports hit by the president’s 25% tariff on all steel and aluminum.
- Trump’s latest order could raise the cost of metals used by Agco, Deere and other tractor makers. The Association of Equipment Manufacturers said in a statement Monday that the tariffs would drive up production costs as much as 7% and put jobs at risk.
Dive Insight:
“Given this dynamic environment, we will remain nimble to address the situation, and we’ll update our outlook as things evolve,” Audia said about the evolving trade landscape.
Agco did not immediately respond to a request for comment when asked about its exposure to Trump’s metals tariffs. However, the company relies on steel suppliers and has previously told investors that price hikes and other supplier headwinds will have an impact on its ability to manufacture and sell products.
The EU is the second-largest producer of steel in the world after China and accounts for 11% of global output, according to the European Commission. As other countries become subject to Trump’s tariffs, the Association of Equipment Manufacturers said retaliatory tariffs will soon follow and drive up the price of domestic metals.
“Equipment manufacturers are alarmed by the Trump administration’s decision to impose sweeping tariffs on steel and aluminum, which will further escalate trade tensions and add to global economic uncertainty,” the AEM said.
As trade tensions escalate, Agco and other tractor manufacturers are looking to reduce their dealer inventories by cutting production to meet lower demand.
Eric Hansotia, Agco’s president and CEO, said on the call that he expects Q1 production hours to be down 35% to 40% over last year as part of a “front-loaded and aggressive” effort to rightsize inventory levels. He said the largest production cuts will come from operations in North America, driven by weakening industry conditions.
While production levels get worked out, the company has focused on growing its precision agriculture business and global parts business, as well as expanding its Fendt tractor product line in key markets.
Agco generated Q4 net sales of $2.9 billion, down 24% from the previous year driven by slow demand for tractors. The Duluth, Georgia-based company reported a loss of $255.7 million in the period, which included impairment charges and restructuring expenses.
