Vol. 12, Issue 8

News, Information & Analysis for the Ag Equipment Marketer December 15, 2005 McCormick and Landini to Consolidate U.S. Operations in Georgia

Argo SpA of San Martino in Rio, Italy, dle parts support and wholegoods fall.“The Georgia location is far closer parent company of makers logistics for McCormick equipment. to ports, too. That will bring a cost- Landini USA, Inc. and McCormick Vermeer had been instrumental in set- savings to dealers, particular those International, announced on Dec. 7 its ting up the McCormick organization. located east of Iowa.” plans to consolidate operations and Many of the McCormick employees Muehlhausen said other matters move them to a new facility in the came out of Vermeer as well. surrounding the move (including per- Atlanta, Ga. area effective Jan. 1, 2006. According to Argo,“This reorgani- sonnel) won’t be known until after McCormick International is cur- zation will allow both brands to more the first of the year, but he did tell Ag rently located in Pella, Iowa, and efficiently and effectively continue Industry Watch that staff in Pella will Landini USA, Inc. in Lawrenceville, Ga. their rapid U.S. growth by taking be joining the new organization.“We Both currently operate as independ- advantage of common dealer and cus- will make the transition as seamless ent branch offices responsible for the tomer support functions at a new, as possible,”he says.“Our main asset is distribution and support of their shared office with training and parts our customer service and we will be respective tractor brands, farm machin- warehouse facility near Atlanta.” protecting that.” ery, and parts through separate, inde- “With both McCormick and Argo acquired McCormick in pendent dealer networks in the U.S. Landini owned by the same parent, it 1999 during the Case IH-New Holland This move by Argo effectively only makes sense for us to use the merger. To gain anti-trust approval. ends McCormick’s alliance with same facilities and eliminate duplica- CNH sold the McCormick name along Vermeer. The two firms currently tion in facilities and administration,” with the manufacturing plant in the share the same facility in Iowa. That says E.W.“Swede” Muehlhausen, who U.K. that has been producing partnership called for Vermeer to han- joined McCormick as president this McCormick for decades. Continued on page 2

AGCO Continues to Push Multi-Brand Strategy in Europe

With ,AGCO’s fourth tractor make competitors who use this approach as approach: low-volume specialist trac- on the European market, now firmly their central philosophy,” he said. tors at opposite extremes of power under the U.S. corporation’s wings, “AGCO’s approach is a multi-brand output are shared by the Landini and questions have arisen over the extent strategy that uses common compo- McCormick lines (as well as Valpadana to which AGCO will adopt a more nents and even common technology at the lower end of the power scale), comprehensive “common platform” where it’s appropriate but not in a way but high-volume mid-range models policy to gain economies of scale. that damages the ‘feel’ and perform- remain unique to each brand. Addressing the question at the ance characteristics that our customers So far, AGCO has resisted taking first U.K. product show featuring expect from their chosen brand.” this approach, at least as far as Europe , Challenger, The chief protagonists of brand- is concerned, where product conver- and Valtra products under one roof, ing with modest differentiation are gence is mainly limited to sharing Gary Collar, senior vice-president and CNH Global, with its Case IH and New CVT transmissions. In North America, general manager of AGCO’s Europe, Holland lines, and the SAME Deutz- the Massey Ferguson, AGCO and Africa & Middle East region, empha- Fahr group, which now produces trac- Challenger wheeled products have sized the differences between AGCO’s tors of similar appearance and specifi- more than passing similarities but approach and that of its competitors. cation with four different names on have subtly different styling and use “The term ‘common platform’ has their flanks — SAME, Lamborghini, different makes of engine. become much maligned recently,espe- Deutz-Fahr and Hurlimann. With Valtra having joined the fold, cially given the challenges faced by our The Argo group has a mixed AGCO managers are known to be Continued on page 3

The contents of this report represent our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Individual companies reported on and analyzed by Lessiter Publications Inc., may be clients of this and other Lessiter Publications Inc. services. This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securities. McCormick and Landini to Consolidate...Continued from page 1 According to a long-time execu- ment, but has not yet made strong who will handle both. But both brands tive of a major U.S. shortline manufac- inroads into the U.S. market, which will have their own dealers as well. turer,many of the Case IH dealers who has intense competition in the small “Each brand will maintain its own got left out of the picture or chose not tractor market. unique identity, but both will be sup- to continue their relationship with “McCormick doesn’t have a small ported by one common organization.” Case following the merger with New tractor. So, it would seem that with Argo SpA is a holding company Holland, maintained their relationship McCormick’s heritage and reputation owned by the Morra family, which has with McCormick. “The McCormick in the States, this would be a logical been operating in the ag equipment sec- tractor name and reputation were well move,”says the shortline executive. tor for three generations. The Argo established, and a lot of those dealers John Sargeant, president, Landini Industrial Group has global sales in still had parts in inventory for the trac- USA, insists that both the McCormick excess of $950 million and over 3,200 tors,” he says.“The guys selling them and Landini brands will continue to be employees. In addition to the U.S., the have done pretty well.” marketed separately through their Landini and McCormick brands are dis- This same executive says that he respective independent dealer networks. tributed by common Argo-owned com- wouldn’t be surprised if at some point “We will not become Landini- panies in Canada,France,Germany,Italy, the Landini line of compact and utility McCormick or McCormick-Landini,” South Africa, Spain and the United tractors was folded into the says Sargeant.“There will continue to Kingdom. The Argo family of farm McCormick brand. be the blue Landini brand and the red machinery brands includes Fella, Landini is well known in Europe McCormick brand with their own Gallignani,Landini,,McCormick, for its orchard and vineyard equip- dealers. We may have some dealers Pegoraro,Sep and Valpadana.

Krone Expands German Facilities to Streamline Forage Equipment Production

Forage harvesting machinery special- self-propelled grass mower. Krone 60-cubic meter capacity container on ist Bernard Krone has completed plans to produce at least 200 and 150 its six-wheel drive, axle- and pivot- work on an $11.5 million building units respectively of the self-propelled steering chassis, enabling it to keep project at its headquarters in Spelle, products next year, which marks a sig- working during trailer change-overs Germany, that will streamline baler nificant increase in the company’s or to keep trailers off harvest fields and self-propelled harvester produc- goal for increasing sales of this spe- by offloading at the headland. tion and meet the growing demand cialty machines. Another 14,000-square meter for spare parts. The BiG X range of 605-hp and extension and new-build project at The 6000 square meter “Big Line” 780-hp harvesters is being joined by a Spelle provides a 40% increase in production plant has new assembly 490-hp model for Europe and a twin- spare parts storage capacity. It will lines for Krone’s BiG Pack square hay engined 980-hp version aimed prima- enable the firm to stock 40,000 line balers as well as the BiG X self-pro- rily at North American custom opera- items and dispatch an anticipated pelled forage harvester and BiG M tors. A new “bunker” model carries a 2,400 parts every day.

Valtra Lands Orders for 190 Tractors in China

Valtra, AGCO’s -based tractor ed largely to tractors from 70-80hp and 180190/210-hp T190. manufacturer, has secured orders for and mainly below 30 hp. The latter features Valtra’s Sigma almost 190 tractors from state farms The bulk of the order is for 135- Power system, which releases addi- in northeast and northwest China that hp 8150 models from the 6-cylinder tional power for pto work. will bolster its claimed market leader- Mega-50 series, which in western mar- Mahindra, the Indian tractor ship in tractors above 120 hp. kets has been superceded by the sim- maker that recently started tractor pro- Although China has an indige- ilar T series tractors. The rest of the duction in China, estimates the nous tractor industry and growing shipment comprises top-end models Chinese market at around 70,000 units interest in joint ventures with west- from this newer range, including the a year,with units up to 35 hp account- ern manufacturers, its output is limit- 175-hp T170 Classic, 180/190-hp T180 ing for just over half that total.

AG INDUSTRY WATCH is published monthly for the farm equip- U.S., Canada and Mexico print subscriptions are $349 per ment industry by Lessiter Publications Inc., P.O. Box 624, year. Save $50 by receiving Ag Industry Watch each month via Brookfield, WI 53008-0624. © 2005 by Lessiter Publications Inc. E-mail Internet access at only $299 per year. International print All rights reserved. Reproduction in any form of this newsletter subscriptions are $449 per year. Send subscriptions to: Ag content is strictly forbidden without the prior written consent of the Industry Watch, P.O. Box 624, Brookfield, WI 53008-0624. Fax: publisher. Please send any address changes as soon as possible 262/782-1252. Phone: 262/782-4480 or 800/645-8455 (U.S. only). to the address shown above. E-mail: [email protected].

2 Ag Industry Watch/December/2005 AGCO Continues to Push...Continued from page 1 assessing to what extent future trac- ing power to buy ‘generic’ compo- Distribution can help differenti- tors from the Finnish plant could share nents and use them across all brands ate product in other ways, he adds. components with their counterparts without affecting their individuality “In Europe, our aspiration is that a without damaging their brand DNA. and we can also share our own tech- dealer should offer no more than one “A key feature of our success is the nology to some extent,”he says.“This AGCO brand, which comes as a sur- care we take to understand what our is even desirable in some cases, such prise to AGCO dealers who believe customers expect from each of our as CAN-Bus electronics technology. they should have all their brands on brands,”says Collar.“Customers expect The skill comes in adding something their retail lot,”says Collar.“But in cir- special that makes a brand what it is cumstances where we do allocate a and we have many tools in our tool- second brand, we encourage dealers box to do that.” to maintain a single-brand relationship “In North America, As examples, Collar cites trans- with the customer through a special- Massey Feguson missions, engines, power-to-weight ist salesman and, where feasible, spe- and Challenger are ratios, cab environment, control and cialized service personnel.” essentially the same, monitoring software and, of course, The U.K. and Ireland markets are appearance. held up as positive examples of this yet compete in different Distribution is another avenue. In strategy: through 2005, AGCO’s mar- sectors of a big market...” North America, the Massey Ferguson, ket share has grown by more than 5% AGCO and Challenger wheeled trac- tors are essentially the same, albeit different things and a different experi- with different specification levels, yet ence. Our reaction to that is the driving compete in different sectors of a big “In Europe, the two are kept force of our multi-brand strategy.” market. In Europe, where Massey apart: Massey Ferguson is That is why Massey Ferguson and Ferguson and Challenger brand values the sole brand for French- Fendt stepless drive tractors share would be perceived as being on the built tractors in Western transaxles and the Vario transmission same level as each other, the two are but nothing else: cabs, appearance and kept apart: Massey Ferguson remains Europe, Challenger in even the control systems used to oper- the sole brand for the French-built Eastern Europe...” ate the transmission are very different. tractors in Western Europe, Challenger “In focusing on the question of in Eastern Europe. what components will be shared “This can even work within mar- to over 26%, with Massey Ferguson across brands and whether that will kets: the simple Valtra ‘A’ Series tractor gaining 2% and both Valtra and Fendt damage the operator experience provided an opportunity to fill a gap making positive progress from mod- unique to that brand, people overlook in our European MF product range,” est positions around the 5% and 2-3% the opportunities of a multi-brand explains Collar.“The Valtra guys resis- level, respectively. approach that generates a wealth of ted but with careful product posi- AGCO managers do not admit to design, manufacturing, technological tioning and market selection to avoid having official market share targets and distribution assets that can be direct competition where both but privately admit to personal objec- used to improve and innovate each brands are strong, co-branding pro- tives of achieving an AGCO share of at brand more so than if they were duced an additional 750 unit sales, least 20% in all national markets in stand-alone products,”adds Collar. which the Valtra factory was very Europe with a 30% share being the “We can use our global purchas- pleased to have.” ultimate goal.

FARM MACHINERY TICKER (AS OF 1/11/2005) 1/11/05 12/13/04 1-Year 1-Year P/E Avg. Market Mfr. Symbol Price Price High Low Ratio Volume Cap.

AGCO AG $20.24 $21.63 $23.13 $16.11 12.19 1.01 M 1.83 B Alamo ALG $26.51 $22.45 $28.60 $14.40 20.39 27,500 258.15 M Art’s Way ARTW $7.45 $5.75 $8.79 $3.98 8.10 15,700 14.44 M Caterpillar CAT $92.30 $92.35 $98.72 $68.50 17.85 2.22 M 31.50 B CNH CNH $18.55 $18.10 $21.90 $15.83 n/a 78,000 2.46 B Deere DE $69.69 $70.75 $74.93 $56.72 12.53 2.05 M 17.27 B Gehl GEHL $23.33 $24.49 $27.90 $13.51 11.78 25,200 152.11 M Kubota KUB $25.60 $22.75 $27.90 $19.05 60.95 5,400 6.86 B

Ag Industry Watch/December /2005 3 Observations from European Trade Shows Ag Industry Watch sent a correspon- one mowing equipment manufactur- but afraid of the U.S. market due to dent to the two-large-scale agricultural er.“Small dealers in Europe will sell a the widespread “consumer rights.” shows in Hanover, Germany great deal more foreign-made equip- Ironically, it seems that one of the (Agritechnica), and Bologna, Italy ment than a small U.S. dealer.” issues of great angst for U.S. manufac- (EIMA) in mid-November. These are ✘ EIMA, which attracts a lot of Italian turers is also a very effective barrier to two of the largest ag shows any- orchard and vineyard type equipment entry against foreign manufacturers. where, encompassing more than that is also relevant to the California Eastern Europe 3,000 exhibitors between them. and certain other U.S. areas, sees great ✘ The big news at Agritechnica and Export Potential for American opportunity for mulching and land- clearing equipment in the coming EIMA was Eastern Europe. While Manufacturers years, particularly as no-burning laws Western Europe has been stagnant, ✘ One livestock equipment manu- are enacted. One manufacturer cited the opportunities for Eastern Europe facturer says that European farmers that burning by growers could be out- (cited were Poland, Czech Republic, look after their equipment better.“In right prohibited in the states by 2007, Slovakia, Slovenia, Hungary,Latvia and the U.S., they feel the machine has to bringing new demand for the Italian- Russia) are enormous.“We are push- run around the clock; they don’t stop style mulching equipment. ing very hard in Russia,” says an to look after maintenance as they ✘ Outlooks for manufacturers’ export manager at a large hay tool should.” exports prospects are all over the manufacturer.“It’s a fast-moving mar- ✘ While the currency exchange with board, but several manufacturers indi- ket. Russia is the market of greatest the Euro is not making things easier, it cated high stocks of inventory,partic- growth for us in the future.” ✘ appears to be becoming less of a ularly in the haying area.Another says Agritechnica estimated Eastern problem for exporters than a year that sales in 2006 will be flat at best. European attendees to be in the tens, ago. Several say they’ve accepted the “After two high peak years, all the if not, twenties, of thousands. “The exchange rate as a cost of doing busi- replacement that was to happen has distribution structure is just begin- ness and are surviving nevertheless. already occurred,”says one executive. ning, probably a 2 on a scale of 1-10,” ✘ “U.S. dealers are more afraid to buy ✘ Conversations with several manu- said one executive. “Financing is a and sell imported machinery than in facturers who are not currently problem and the barter system is still Europe, while dealers in Eastern exporting to the States unearthed a predominant. There are manufactur- European countries like Poland will motif of worry over product liability. ers who are taking crops for payment eagerly import U.S. machines,” says Some are doing business in Canada, on tractors and other equipment.” ✘ In an interview with Ag Industry Watch, Gerd Wiesendorfer,VDMA (Ag U.S. FARM PRODUCTION EXPENDITURES Machinery Association), said that the By Leading Cash Receipts States — 2004 first manufacturers to have a presence in Eastern Europe enjoyed a great California 22,460 demand.The sale of used equipment has also been a boon for dealers in Texas 14,630 Germany and other nations. “We are Iowa 13,040 benefiting from the recovery there,” says Wiesendorfer. Minnesota 10,090 “There is a need for them to Nebraska 9,880 import our ag products, particularly beef and pork.There is lots of poten- Illinois 9,430 tial, as yields are only one-third of Kansas 9,290 what they are in Germany.” Wiesendorfer believes the biggest North Carolina 7,020 development will be in the Ukraine, Wisconsin 6,230 Russia and Belarus. Indiana 5,520 A rumor heard at Agritechnica was Missouri 5,450 that Kuhn (an industry consolidator as of late) is actively pursuing an Washington 5,220 acquisition of a tillage manufacturer, though few have met its qualifying Florida 4,910 objectives to date. From the U.S. Arkansas 4,740 KuhnKnight dealer convention that Ag Industry Watch attended last summer, Georgia 4,130 Thierry Krier, U.S. president, outlined the firm’s four criteria for any acquisi- 0 5,000 10,000 15,000 20,000 25,000 tion: that it bring complementary prod- (millions dollars) ucts, reinforce Kuhn, be profitable and USDA – NASS July 2005 be manageable.

4 Ag Industry Watch/December/2005 Titan Europe Increases Its Stake in Australian Wheel Market; Inks Turkish Joint Venture

The Titan wheel and tire manufactur- maintain competitiveness and for ag equipment in Eastern Europe. ing group has strengthened its grip on improve supply flexibility to meet “JANTSA is a renowned wheel the agricultural and construction demands from OEM customers for manufacturer with excellent and long- machinery rim market in Australia with shorter order-to-delivery lead times. established relationships in the Turkish its third acquisition in as many years. The joint venture between Titan and surrounding markets,” he says. Titan Europe, in which Titan Europe’s Italian operations and “The joint venture will give us the abil- International has a near-30% stake, has Turkey’s JANTSA, the country’s largest ity to manufacture cost-effectively and acquired the entire issued share capital off-road wheel manufacturer, will pro- retain our competitiveness in the and patent rights of Wheel & Rims duce agricultural rims for the Turkish European OEM market while increas- Engineering Pty.,Ltd. for the equivalent market while also providing lower ing the flexibility of our product mix.” of $3.1 million at current exchange cost manufacturing for some of Titan Titan Europe is investing around rates. It follows the 2003 acquisition of Italia’s products. $5.19 million in the venture, which is Titan Wheels Australia and the buy-out Akers sees further strategic value scheduled to start production in the last year of Titan Andys Australia Pty., in the tie-up, noting it is well posi- second half of 2006 with a capacity of Ltd., based in Victoria. tioned to support the growing markets up to 300,000 wheels a year. Mike Akers, chief executive of Titan Europe, says the new business “blends perfectly with our other THE EVOLUTION OF TITAN EUROPE investments in the off-road wheel market in Australia.”WRE’s sales Titan Europe was established 10 years ago as a wholly-owned subsidiary of Titan International, Inc. to develop the U.S. corporation’s interests outside North America. turnover through June 2005 was the Last year, Titan raised $62 million by floating a large proportion of Titan Europe equivalent of $3.36 million. stock on London’s Alternative Investments Market (AIM). “Wheel & Rims Engineering, The funds contributed to the group’s financial recovery program, which helped turn based in Brisbane, is the largest 3 years of losses into a net profit of $11.1 million in 2004, with income from operations domestic manufacturer and distribu- increasing by nearly $50 million from a loss of $16.2 million in 2003 to $33.3 million on tor of large wheels, up to 63 inch group sales of $510.6 million ($461.1 million excluding Titan Europe). diameter, for agricultural, earthmoving Titan Europe typically accounts for about 25% of group sales, although this fell to around 10% last year thanks to a surge in North American sales revenues. The and construction machinery,” he group has manufacturing facilities in the U.K. (mainly for construction equipment points out.“It has an enviable reputa- rims) and in France and Italy where most of its ag tire rims are produced. tion for quality,design and service.” First-half 2005 sales were up 34.5% at almost $122 million but since much of this The move to strengthen Titan’s comparative growth resulted from higher prices to offset increased cost of steel, Titan presence in Australia follows a joint- Europe does not expect to see the same level of growth over the full year. venture agreement in Europe to help

SAME and Escorts Forge North America Agreements Valued at $25 Million Annually

One of India’s leading tractor manu- up to 75-hp produced in India. tractor manufacturers.” He says the facturers, the Escorts group, is pursu- The 5-year contract anticipates Farmtrac deals underline his group’s ing growth plans for North America regular supplies valued at more than growing interest in international agree- through product procurement and $15 million a year.A further $10 mil- ments to secure future growth. marketing agreements with the SAME lion a year is likely to be generated by Last year, SDF produced 32,000 Deutz-Fahr (SDF) group of Italy. sales of SAME tractors in the U.S. and tractors, 20,000 engines and 26,000 Both agreements are between Canada through a new distribution transmissions, generating record sales SDF Italia, the manufacturing opera- agreement with Farmtrac. worth the equivalent of $1.1 billion.Its tions headquartered in Treviglio near This venture will focus mainly on new North American partner is part of Milan, Italy, and the Escorts majority- SAME’s specialty orchard, vineyard and a $500 million industrial conglomerate owned tractor assembly and distribu- tracklayer tractors, which previously that claims an annual manufacturing tion business, Farmtrac North were handled by Norcross, Ga.-based capacity of 75,000 tractors based origi- America, LLC of Tarboro, N.C. SAME Deutz-Fahr North America, Inc. nally on Ford-licensed designs. Under an OEM contract, SDF This operation was set up by SDF a Escorts bought into its North Italia will supply 75-hp to 115-hp, 2- few years ago upon termination of a American distributor (then called WD and 4-WD tractors, complete and distribution agreement with AGCO. Long Agribusiness), 6 years ago and partially assembled semi-knockdown SAME Deutz-Fahr chairman, now owns 75% of the equity.Products form for final assembly.These will join Vittorio Carozza, describes Escorts, Ltd. are sold in 32 states through some the current range of Farmtrac models as “one of India’s most highly qualified 300 U.S. dealers.

Ag Industry Watch/December /2005 5 It Was a Busy Month for Deere & Co.

It was a busy month for Deere & Co., same time, the company issued fore- Robert Lane, chairman and CEO, as the firm revealed its second-best casts calling for slowing sales for ’06. said,“These actions support our goals ever fourth quarter results, cut back Deere reported earnings fell to for creating superior long-term value production on some tractors, $232.8 million for the quarter from for investors.They reflect our confi- announced a stock-repurchase plan $356.7 million during the same peri- dence in Deere’s future direction and valued at $1 billion, raised its quarter- od the year earlier. For the year, Deere its ability to produce strong levels of ly dividend by nearly 26%, disclosed farm machinery sales rose 9%, while cash flow over time. In addition, the that it will directly supply 300 construction equipment sales were company remains committed to TruGreen dealers with compact and up 24%. Consumer equipment sales funding the research and capital pro- utility-type tractors, and sold its health fell 4% as a drought that gripped grams necessary to meet our future care unit. They’ve done all of this much of the Midwest held back sales growth objectives.” since the middle of last month. of riding lawn equipment. Sells Managed Care Unit Production Cut Backs But profits were well above the estimate of 79 cents sending Deere On December 6, Deere Deere suspended production of shares up $4.40, or 7%, to close at announced that it had signed a defini- its small row-crop tractors for 3 addi- more than $67 a share. tive agreement to sell its wholly- tional days late in November to try to Deere said a 10% dip in fourth- owned managed care subsidiary,John control unwanted inventories of the quarter farm equipment sales will like- Deere Health Care, Inc., to vehicles on dealer lots. ly carry into 2006, predicting a 2-4% UnitedHealthcare, for $500 million. The move was aimed at reducing sales decline because of higher fuel The company expects the transaction the number of low horsepower, 2-WD and fertilizer costs, along with the loss to close by April 1, and to record a farm tractors from its manufacturing of tax incentives that helped fuel U.S. gain of $225 million after-tax at the schedules during the fourth quarter sales in early 2005. But the company close of the transaction. of this year by 350 units. Deere cur- said sales will get a boost from new According to David Bleustein, UBS rently manufactures 87 units of 7200- farm products planned for 2006, analyst,“We expect investors to view 7500 Series farm tractors and 30 units including a line of more powerful and the transaction favorably. We believe of 7600-7800 Series farm vehicles fuel-efficient tractors. most investors viewed Deere’s health- each day. Overall, Deere expects sales to care operations as both non-core and Deere had suspended production rise 1-3% in 2006, with a 10-12% jump adding to the volatility of earnings. of the same vehicles for 2 days in in consumer equipment sales and a 5- “Deere's healthcare operations October. In total, it removed 1,170 7% sales increase for construction and had revenues of roughly $1 billion units of the small tractors from assem- forestry machines.The company fore- and profitability of roughly $20 mil- bly schedules during the final quarter casts 2006 earnings of about $1.5 bil- lion, although Deere indicated that no of the year. lion, including $175 million to $200 profit was recorded on internally gen- Price Increases for CE million in the first quarter. erated revenues, which represent the bulk of the operations,”says Bleustein. While predicting that the indus- “I have a hard time seeing what the excitement is,” Ingalls & Snyder Mowers to TruGreen try-wide expansion for construction On December 9, Deere disclosed equipment and forestry-type vehicles analyst Alexander Blanton said of the price climb.“Just because the quarter that it will supply a full line of its com- would continue in 2006, Deere mercial mowing equipment and com- announced that prices for the equip- was higher than people forecast, there seems to be an assumption that you pact utility-type vehicles and tractors ment will continue to increase. In all for an undisclosed value to over 300 likelihood, It’s a strong indication that can imply something about the future by that, but you can’t.” U.S. dealerships of TruGreen prices for ag equipment will also be Companies, LLC.TruGreen is a major on the rise. Scott Burns, an equity analyst with Morningstar, disagreed. Along lawn and landscape company. The company said that increas- A spokesman for John Deere es established by the firm for such with topping Wall Street’s expecta- tions, Burns said Deere also trimmed Worldwide Commercial & Consumer vehicles earlier in 2005 “offset the Equipment Division said,“Our broad impact of higher raw material costs” production, invested in research and raised prices during its fourth-quarter line of equipment will provide for the year. Deere expects to TruGreen with the product quality increase prices of this equipment to “weak patch” — moves he said will pay off for the company in 2006. required in today’s highly competi- help recover sharply higher costs for tive commercial mowing marketplace the acquisition of steel and other Repurchase Stock, Raises as well as provide exceptional cut materials needed to produce parts Quarterly Dividend quality delivered by our 7-Iron II and assemble vehicles. On November 30, Deere mower decks. Fourth Quarter Results announced that its board authorized “Our best-in-class dealer network Despite announcing that its the repurchase of up to 26 million will supply TruGreen operations with fourth quarter profits fell by 35%, additional shares of common stock the parts delivery,service and support Deere saw it shares rise sharply.At the and increased the quarterly dividend needed to keep them out in the field by more than 25% to $0.39 per share. doing what they do best.”

6 Ag Industry Watch/December/2005 NOVEMBER U.S. UNIT RETAIL SALES Farm Equipment October November November Percent YTD YTD Percent Equipment 2005 Field Sales Rebound 2005 2004 Change 2005 2004 Change Inventory in November Farm Wheel Tractors-2WD Compared with the first 11 months of ’04, total U.S. sales of row-crop trac- Under 40 HP 7,161 7,010 2.2 119,419 126,443 – 5.6 56,366 tors through the same period of 2005 4,483 4,374 2.5 69,573 64,492 7.9 30,578 are almost identical, slipping less than 40-100 HP 1%.Add Canada into the mix and the 100 HP Plus 988 983 0.5 17,840 18,037 –1.1 6,995 total North American tractor sales are up for the period. Total-2WD 12,632 12,367 2.1 206,832 208,972 – 1.0 93,939 North American retail sales of row crop tractors — 2-WD, 100 hp Total-4WD 183 189 – 3.2 3,394 3,234 4.9 906 and larger — increased 11% on a year- Total Tractors 12,815 12,556 2.1 210,226212,206 – 0.9 94,845 to-year basis in November, represent- ing a rebound from the 13% year-to- SP Combines 286 288 – 0.7 5,904 6,052 – 2.4 1,315 year drop in October. This is a bit unusual as November is typically the second-weakest month of the year for row-crop tractor sales, while October NOVEMBER CANADIAN UNIT RETAIL SALES is typically the second strongest. October November November Percent YTD YTD Percent Baird analyst Robert McCarthy Equipment 2005 Field 2005 2004 Change 2005 2004 Change contends that results are “Consistent Inventory with recent projections from major Farm Wheel farm equipment manufacturers CNH Tractors-2WD Global and AGCO, and boosted by a 10% year-to-year sales increase in Under 40 HP 538 396 35.9 7,474 6,607 13.1 3,714 November. Industry sales of large farm tractors in the U.S. and Canada 40-100 HP 631 572 10.3 6,189 5,926 4.4 2,810 appear likely to finish 2005 slightly 100 HP Plus 337 206 63.6 3,476 3,157 10.1 1,510 ahead of 2004. “More indicative of overall Total-2WD 1,506 1,174 28.3 17,139 15,690 9.2 8,034 trends,” he says,“is that in the last 3 months, row-crop tractor sales Total-4WD 50 34 47.1 570 631 – 9.7 232 declined 3%. Through 11 months, sales have increased 1% year-to-year. Total Tractors 1,556 1,208 28.8 17,709 16,321 8.5 8,266 “Comparisons don’t get any easier SP Combines 74 57 29.8 1,419 1,402 1.2 345 before March and Deere is transitioning to new platforms, so monthly compar- isons will likely remain constrained for 2005 the next 2-3 months,”says McCarthy. U.S. UNIT RETAIL SALES OF 5 year October U.S. farm equipment 2-4 WHEEL DRIVE TRACTORS & COMBINES average dealer inventories remain consistently 30,000 below historical levels (on days-sales 28,000 basis).“For example,” he says,“4-WD tractor inventories are 24% below 26,000 average levels since 1997.” 24,000 Other results coming from the 22,000 Assn. of Equipment Manufacturer’s monthly survey include: 20,000 ✘ November N.A. combine retail 18,000 sales rose 4% compared with the 16,000 same period a year ago, after a dra- 14,000 matic 44% falloff in October. Overall, sales were down 12% during the last 12,000 3 month period, but down only 2% 10,000 year-to-date. 8,000 ✘ Mid-range (40-100 hp) tractor sales rose 3% in November and are up 8% 6,000 year-to-date. JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC —Assn.of Equipment Manufacturers Ag Industry Watch/December /2005 7 Buhler Sees Revenues Slip 2% as U.S. Dollar Weakened in ‘05

Buhler Industries, Inc.Winnipeg, MB, tractors.These products, designed for “The second is some market share reported on Dec. 9 that its 2005 rev- large farming operations, are available slippage south of the border.We don’t enues declined by 2% to $202.3 mil- up to 535 hp. know what will happen to the former lion compared to $206.1 million in “While steel prices moderated variable in 2006, but for modeling pur- the previous year.The company attrib- during the year,they continue to show poses, our assumption continues to be uted the drop to the ongoing weak- signs of instability,” says Buhler.“The for a Canadian-to-U.S. exchange rate of ness of the U.S. dollar. U.S. dollar continues to show signs of $0.85,”says Cherniavsky. “As 75% of the company’s rev- further decline. As such, we are fore- “As for the latter headwind, enue is in U.S. currency, meeting rev- casting flat revenue and a slight Buhler is making some executive relo- enue goals became increasingly cations and other changes to difficult.”The dollar dropped 10 reinvigorate tractor exports to cents throughout the year, accord- the U.S. We believe that the ing to Buhler. “The strength of the company’s strength of the company’s prod- At the same time, Buhler saw product and management will turn uct and management team will its gross margin improve and sur- around sales south of the border. affect a turnaround in sales south pass expectations.“Our goal of a Buhler’s incipient pursuit of inter- of the border. However, this 16% to 18% annual gross margin national markets to gather momen- improvement will take time; it was exceeded and we are also must be achieved against pleased to report a gross margin tum into 2006, while sales of short- North American end- market trac- of 18.3%.” line products in North America tor demand conditions that Sales of the company’s short- should remain reasonably robust.” appear to be decelerating after line products, including grain many months of growth.” augers, compact implements and Looking ahead, the analyst front-end loaders, grew almost 9% sees Buhler’s prospects for ’06 to in Canada and the U.S. Sales outside improvement in gross margin result- be on the upswing.“In the meantime, North America also increased and ing in slightly improved EPS for 2006.” we expect Buhler’s incipient pursuit now accounts for over 15% of the Raymond James analyst Ben of international markets to gather company’s total revenue. Cherniavsky says that Buhler faces at more momentum into 2006, while The company also reported that least two major challenges during the sales of shortline products in North revenue from tractor sales inside coming year. “Two headwinds con- America should remain reasonably North America decreased largely due tinue to confront Buhler’s perform- robust,”he says. to the declining U.S. dollar, but also ance. The first is the appreciating “Adding it all up, we estimate attributed the dropoff in demand as Canadian dollar, which cost the com- 2006 revenues to grow modestly to customers anticipated the release of pany roughly $13 million (or 6%) of $210 million and gross margins to rise its new, higher horsepower series of revenue for fiscal 2005. further to 19.5%.”

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