KANSAS CITY (B)--Farm equipment maker Agco Corp., citing continuing difficult conditions in the farm implement sector, announced May 3 plans to close a Kansas City area plant, consolidating the facility's combine production into its operations at Hesston, KS.
The move comes one day after the Duluth, GA, company announced an agreement to acquire full ownership of the Hesston facility that had been jointly held by Agco and competitor CNH Global.
Analysts said the shutdown of the facility some three hours east of Hesston in the Kansas City suburb of Independence, MO, was not surprising amid recent production consolidations by the company.
"That was completely expected," said Lisa Shalett, a farm equipment analyst with Bernstein. "This does not come as a surprise at all."
Last December, Agco announced plans to cease production at facilities in Ohio and Texas, also consolidating some of the production from both of those facilities into the Hesston site.
Agco said the Independence facility, which has about 500 workers, will not resume production after a scheduled vacation shutdown in June. The 524,000-square-foot factory is expected to be vacant by the end of the year, the company said.
The closure is expected to reduce production costs by about $10 million annually, Agco said. The company expects to record a non-recurring charge of about $20 million this year related to the shutdown.
The company said it believes it has sufficient inventory to meet demand during the transition period. Production of affected products will resume at the Hesston plant by early 2001, the company said.
According to Agco's Web site, the closure leaves the company with three North American manufacturing facilities. In addition to the Kansas facility, Agco has plants in Minnesota and Mexico. The company is the smallest of the so-called "big three" of farm equipment makers, trailing industry giants Deere & Co. and CNH Global.
In announcing the closure, Agco noted increasing production costs, continued consolidation of competitive businesses and the continuing sluggishness in combine demand.
Industry-wide retail unit sales of combines for the first quarter of the year are down more than 35% from 1999 levels, according to the most recent data from the Equipment Manufacturer's Institute.
"The continued global decline in industry demand for agricultural equipment and the excessive costs incurred by under-utilized facilities has forced the company to seek advantageous solutions," Agco Executive Chairman Robert Ratliff said in a press release. "The decision to facilitate the relocation of production will enable the company to operate with more efficiency, while remaining profitable during negative industry conditions. The resulting benefits will provide a long-term reward for the company and its dealers with a more competitive group of products and the reassurance of a future commitment to its brands."
The Independence facility was acquired by Agco a decade ago as part of the management buyout of the company to produce Gleaner rotary combines. Amid the industry-wide slump late last year, the facility underwent an extended shutdown period.