Key points:
Sales off to a slow start in Q1, with focus on H2: Revenue was down -9% y/y due to Commercial order timing and mixed Farm sales. However, underlying demand appears robust with the order book at $729M (+12% y/y) which is weighted toward Commercial and expected to materialize in H2. 2024 guidance of >$310M EBITDA on ~19% EBITDA margins (implying ~$1.6B revenue) was reiterated on the back of strong visibility via the order book (3-4 months for Farm; 6-9 months for Commercial), continued success in product transfers resulting in strong International growth, and margins remaining structurally higher. However, we trimmed our 2024 EBITDA estimate to $305M to account for potential drag from slower US Farm sales and risks from delays in Commercial deliveries in a tight window. To be clear, while these are potential H2 risks, we do not believe the fundamental long-term growth thesis has changed.
In Farm, we forecast sales to increase 2%/5% in 2024/2025. We could see risk to US Farm, which we model as flat on the year, but portable equipment sales in Canada and International segment growth could provide support. In Commercial, we forecast sales up 7%/5% in 2024/2025 given order book visibility and continued International market share wins.
Margins hold at structurally higher levels: Q1 EBITDA margins came in at ~16% up ~200bps y/y, providing evidence of the structurally higher margins in line with previous management commentary that they expect ~200bps of structural margin improvement going forward. We think AGI is well-positioned to maintain strong margins, with ongoing operational improvements offsetting a product mix shift headwind from normalization of sales contributions between Farm and Commercial.
FCF on track for inflection, with growth investment coming into focus:
We forecast FCF of $61M/$103M (6%/10% yield) in 2024/2025 driven by stronger earnings, partially offset by higher capex ($70-$90M in 2024) for growth. The capital allocation focus for AGI remains on achieving <2.5x net debt to EBITDA leverage (vs. ~2.6x currently) followed by organic growth projects such as expansion in India to grow rice milling capacity.
Reiterate Outperform, maintain $80 PT: We slightly lower our 2024E/2025E EBITDA to $305M/$319M, respectively, from $311M/$327M