Agco ( AG - Get Report) plunged 12% Friday after the agricultural gear maker warned of a sharp earnings shortfall.

The Duluth, Ga., combine company forecast a break-even-to-slightly negative third-quarter bottom line, as sales will drop 6% from a year ago. Analysts were looking for a 30-cent profit on flat sales at around $1.23 billion.

Agco said it expects to make around $1 a share for 2006 on a so-called adjusted basis, excluding certain items. Sales should drop 2%-3% from a year ago. Analysts surveyed by Thomson Financial were looking for a profit of $1.45 a share.

The company cited continued efforts to reduce dealer inventories, softening market conditions and lower than anticipated margins. Weaker than expected market conditions in the East Asia Pacific region also contributed to the reduced sales and earnings outlook.

Free cash flow for the year is now expected to be $120 million.

Shares dropped $3.15 to $23.10.