AgJunction sales suffer amid slowing Midwest agri markets

AgJunction, a developer of hardware and software for automated steering and machine control technology, blamed a “prolonged softening in the agriculture market” for weaker-than-expected Q3 performance.

The firm’s Q3 sales decreased 12 percent to $6.7 million compared with $7.6 million in Q3 2015.

“Overall weakness in the agriculture market continued into the third quarter, impacting our sales more than expected,” said Dave Vaughn, president and chief executive of AgJunction, in a statement.

“However, we continued our focus on best servicing our customers in today’s environment and the advancement of our Novariant integration,” he added, referring to the company’s merger in Q4 2015 with Novariant, which specialises in OEM precision guidance and machine control.

Gross profit took a significant hit in Q3 as well compared with the same period last year, at $2.2 million compared with $3.3 million, and gross margin was 32.9 percent compared with 43.6 percent.

“The decrease was primarily due to higher warranty and material costs, which drove gross margin down by 200 basis points and 500 basis points, respectively,” according to the statement. “In addition, gross margin was reduced by 300 basis points due to the absorption of fixed costs over lower sales volumes.”

Expenses also increased substantially due to the merger, rising to $5.3 million compared with $4.1 million in Q3 2015. As a percentage of sales, operating expenses were 79.1 percent compared with 54.1 percent.

The results coincide with a broader economic slowdown across the Midwest and Plains states, where the recent Mid-America Business Conditions Index report showed that the overall economic index in the nine states – including Kansas, where AgJunction is based – dropped to 43.8 in October from September’s 45.5, marking the fourth straight month the index came in below growth neutral 50.0.

Creighton University economist Ernie Goss, who led the report, stated that “weakness among manufacturers linked to agriculture and energy continue to weigh on regional economic conditions”.

The Q3 AgJunction results reflected the combined entity with Novariant, though the Q3 ended 2015 numbers did not.

Hiawatha, Kansas-based AgJunction provides hardware and software applications for precision agriculture worldwide, holding more than 140 patents and marketing its products and services under brand names including Novariant, Outback Guidance and Satloc.