AGCO Corporation (AGCO) Q2 2011 Earnings Report, Transcript and Summary

Good morning. My name is Tamika, and I'll be your conference operator. At this time I would like to welcome everyone to the AGCO Corporation 2011 Second Quarter Earnings Release Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, July 28, 2011. Thank you. I would like to introduce Greg Peterson. Please go ahead, sir.

Thanks, Tamika, and good morning. Welcome to those of you joining us on the call and over the Internet for AGCO's second quarter 2011 earnings conference call. We will refer to a slide presentation this morning, which is on our website. The non-GAAP measures used in the slide presentation are reconciled to the GAAP measures in the last section of the presentation. We will make forward-looking statements this morning including those related to projections of earnings per share, sales, market conditions, margin improvements, commodity prices, the impacts of currency translation and acquisitions, new product development and market expansion, factory productivity, plant investments, production volumes, free cash flow, depreciation, emission requirements, product line expansion, general economic conditions, pricing benefits, engineering expenses and capital expenditures. We wish to caution you that these statements are predictions and that the actual events or results may differ materially. We refer you to the periodic reports that we file from time-to-time with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31, 2010. These documents discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. We'd also like to remind you that a replay of this call will be available on our corporate website. So this morning I have on the call with us, Martin Richenhagen, our Chairman, President and Chief Executive Officer; and Andy Beck, our Senior Vice President and Chief Financial Officer. With that, Martin, please go ahead.

Thank you, Greg, and good morning, everybody. AGCO delivered another record performance in the second quarter. Farm economics remained strong, and we took advantage of robust market conditions in Europe and North America and posted second quarter sales growth of over 20% on a constant-currency basis compared to the second quarter of 2010. Our focus on margin improvement this year has been quite clear. AGCO's operating margin reached 8.5% during the seasonally strong second quarter. However, Europe, Africa, Middle East regions delivered second quarter operating margins of 12.5%. In North America, we capitalized on healthy industry conditions, woo sales and expanded North American operating margins by over 200 basis points compared to the second quarter of 2010. As we look to the end of 2011, commodity prices remain at very high levels, a positive sign for farm income and farmer sentiment this year. Slide 3, summarizes our results for the second quarter and first 6 months of 2011. AGCO reported adjusted earnings per share of the second quarter of $1.35, nearly twice what we reported a year ago. In addition, our strong operating performance translated into nearly $200 million of free cash flow for the second quarter of 2011. AGCO's tractor and combine production volumes for 2010 and 2011 are illustrated on Slide 4. AGCO's second quarter and first half 2011 tractor and combine production was up 8% and 14% compared to the same periods in 2010. Increased production levels in our European and North American factories were partially offset by lower production volumes in South America. AGCO's auto bought for the EAME markets doubled at the end of June 2011 compared to the end of June 2010. Equipment auto bought in North America were also up significantly from June 2010 levels. South American auto bought remained strong but they're down from very high levels at the end of second quarter of 2010. We expect production volumes to be up modestly in the second half of 2011 versus the comparable period in 2010. For the full year of 2011, we expect production to be up approximately 9% from 2010 levels. Slide 5 details industry unit volumes by region for the first half of 2011. Industry tractor sales in North America were up modestly compared to 2010 levels. In North America, industry sales of compact and utility trucks, as those increased due to improvement in the general economy. Sales of high horsepower tractors remained at an elevated level but declined about 3% compared to the strong levels in first half of 2010. The combine market benefited from favorable whole crop economics and presales whole grain to increase about 8% during the first half of 2011 compared to the same period last year. Industry tractor unit retail sales in Western Europe were up approximately 14% in the first 6 months of 2011 compared to the weak level experienced in the same period last year. Higher commodity prices and improvement in the Dairy and Livestock sectors contributed to the growth. Industry growth was strongest in Germany, Scandinavia, France and Finland. South American industry retail tractor volumes decreased modestly during the first 6 months of 2011 compared to strong levels in the first 6 months of 2010. Despite healthy farm economics, declines in Argentina and Brazil were mostly offset by growth in smaller South American markets. I will now turn the call over to Andy Beck who will provide you more information on our second quarter results.

Thank you, Martin, and good morning to everyone. AGCO's regional net sales performance for the second quarter and first half of 2011 is outlined on Slide 6. Currency translation had a positive impact of nearly 13% on AGCO's consolidated net sales in the second quarter 2011. Acquisitions added approximately 5% of sales in the second quarter of 2011 compared to the second quarter of 2010. Europe/Africa/Middle East segment reported a net sales increase of approximately 40% excluding the impact of currency translation during the second quarter 2011 compared to the second quarter of 2010. Sales increased in nearly every major market across Europe in the second quarter compared to the second quarter of 2010. The most significant improvements occurred in Germany, France and central Europe. Recall that in the first half of 2010, we managed through weaker market conditions in the U.S. and Western Europe, and were focused on inventory reduction. This year, we operated our factories at normal seasonal levels during both the first and second quarters. Last year, market demand recovered in the back half of the year. So we will face tougher comparables as we move forward into the final 2 quarters of 2011. North American net sales increased approximately 5% excluding currency translation impacts during the second quarter 2011 compared to the same period of 2010, with our dealer inventory de-stocking efforts complete, sales of sprayers, high horsepower tractors and combines all showed improvement in the second quarter of 2011 compared to the second quarter of 2010. AGCO's second quarter 2011 net sales in South America were flat from comparable 2010 levels excluding currency translation. Trade disruptions in Argentina and lighter demand in Brazil for small tractors, resulted in sales declines in those markets for AGCO during the second quarter of 2011 compared to the same period in 2010. Strong growth in the smaller South American markets offset the decline in Brazil and Argentina. Net sales in our Rest of the World segment increased approximately 52% in the second quarter compared to 2010, excluding the impact of currency. Sales growth in Australia, New Zealand, Eastern Europe and Russia produced the increase. Part sales were $363 million and $635 million for the second quarter and first half of 2011, an increase of approximately 23% for the quarter and 26% for the first half compared to the same periods in 2010 excluding currency. Slide 7 details AGCO's sales and margin performance. Adjusted operating margins were up nearly 300 basis points in the second quarter 2011 compared to the second quarter of 2010. The benefit of increased production volumes, material cost control, pricing and leverage over operating expenses, resulted in the improvement. As Martin mentioned earlier, second quarter 2011 operating margins in AGCO's Europe, Africa, Middle East region were 12.5%, up significantly on a year-over-year basis. Margins were improved in the second quarter of 2011 compared to the same period of 2010 due to higher sales and production volumes, better pricing and a richer mix of products. In South America region, operating margins declined in the second quarter of 2011 compared to 2010. A weaker geographic mix, lower levels of production, increased material costs and higher operating expenses contributed to the decline. In the second quarter of 2011, operating margins improved significantly in North America due to higher sales and production along with cost control initiatives as you can see on the next slide. Slide 8 looks at North America profitability in more detail. Margins in this region have been one of our main focus areas for the last few years. You can see from the graph on the slide that we have made significant progress. In the second quarter of 2011, our margins improved over 500 basis points compared to the second quarter of 2008 on lower sales. We Introduced profitable new products, reorganized our sales organization, lowered our logistics cost and improved the efficiency of our factories. Second quarter of 2011 operating margins also benefited from higher levels of production, pricing and improved leverage over operating costs compared to the second quarter of 2010. Slide 9 addresses AGCO's free cash flow, which represents cash provided by operating activities less capital expenditures. Our balance sheet and liquidity position at the end of the second quarter remains very strong. AGCO's second quarter cash flow of $193 million, which generated from elevated sales levels and improved margins and covered a $76 million-increase in capital expenditures. We plan to continue investing for future growth in the form of engineering expense and additional investments in our plants and new products. Even after covering the increased spending on these strategic investments, we are targeting positive free cash flow for 2011. At the end of June 2011, our North America dealer month supply on a trailing 12-month basis was as follows: Tractors were at 4.9 months, 4 months for combine and 8 months for hay equipment. Other working capital details are as follows: Losses on sales or receivables, which is included in both interest expense net and other expense net were approximately $5.2 million and $8.8 million for the second quarter and the first 6 months of 2011 compared to $4.3 million and $7.5 million for the same period of 2010. During the second quarter, we redeemed our EUR 200 million 6 and 7/8 notes due April 15, 2004. This early redemption was funded with a new of EUR 200 million senior unsecured term loan. The new term loan is due May 2, 2016, and bears interest at a fixed rate of 4.5%. We recorded expenses of approximately $4.3 million. With an interest expense in the second quarter in connection with the redemption. Interest savings from the lower rate on the new loan is expected to completely offset this loss by the end of 2011. Slide 10 looks at our depreciation and capital expenditure trends. In 2011, we expect to increase our capital expenditures as we work to meet Tier 4 emissions requirements, refresh and expand our product line, improve our factory productivity in Germany and make investments in China and Russia. Through the first 6 months of 2011, our capital investments totaled $112 million and will accelerate through the rest of the year. Our outlook for 2011 for our regional market is captured on Slide 11. We anticipate modest growth in North America as the strong financial position of row crop farmers and the projection of farm income above historical averages is expected to support strong demand. We expect the South American market to remain strong but be down 5% to 10%. Higher prices for grain and dairy farmers in Western Europe and improved farmer sentiment are expected to generate market growth of about 15% compared to weak levels in 2010. Slide 12 lists our view of selected 2011 financial goal. We are projecting 2011 sales to range from $8.5 billion to $8.7 billion. Forecasted pricing benefits, market share improvements, the positive impact of currency and acquisition impacts are all expected to contribute to the growth. Including significant investments in product development and market development, we expect 2011 earnings to be improved from 2010 levels. We are raising our target for 2011 earnings per share to $4 per share. We expect to increase capital expenditures to be in the $250 million to $350 million range and our free cash flow to remain positive and exceed $150 million after funding the expected increase in capital expenditures. In the third quarter of 2011, earnings per share are expected to be flat with the $0.66 reported in the third quarter of 2010. Compared to the third quarter of last year, we expect higher sales and gross margin improvement to be offset by increases in engineering and market development expenses as well as a more normal tax rate. In the fourth quarter of 2011, we expect strong sales and earnings growth compared to the fourth quarter of 2010. Operator, that concludes our prepared remarks we are now ready to open up the conference for questions.

[Operator Instructions] And your first question is from the line of Ann Duignan with JPMorgan. Ann Duignan - JP Morgan Chase & Co: Can you, just first of all, walk us through the impact of currency on profits by region please?

Ann, for -- we gave you the sales impacts on each region and you can use the margins by each region to get those profit impacts. Overall, currency had an impact for the first half of the year of about positive -- about $0.08 to $0.10 a share. Ann Duignan - JP Morgan Chase & Co: And can you remind me what it was in Q1?

Q1, it was probably about $0.02 or $0.03. So it was more in the second quarter. Ann Duignan - JP Morgan Chase & Co: Okay. And my second question then is -- I appreciate that when you add up Fendt, Massey Ferguson and Valtra's share in Germany, you still are #1. However, if I compare the Fendt brand, which is really the classic German brand with the Deere, it does look like, Deere is making some inroads in the German market versus the Fendt brand. Can you talk a little bit about that, Martin, is it supply constraints or capacity constraints from Fendt, is it really something that you're watching carefully or is it just explainable as something that's temporary in nature?

Well, one is that, Fendt is the clear market leader in the high horsepower segment. No change, even slight gains, we are up this year again. So that means we do not see any other brand improving a lot. So we are in a very strong position in Germany, and we will stay in a very strong position in Germany. The reason is advanced technology, higher profitability, lower cost, lifetime cost of our product and much lower fuel consumption, so I'm not worried at all about Fendt's position in Germany. Second, Fendt's capacity this year, we will produce around 15,000 farm tractors. We have, or we are in the middle of a major investment in that factory and the capacity will be up to about 25,000 maybe even more towards 30,000 tractors from end of 2012 on. And therefore, I don't think that we will face major capacity restrictions. Ann Duignan - JP Morgan Chase & Co: Okay. Said -- when you did say by the end of 2012, not the end of 2011?

Sorry. No, the end of 2012. So that means the big -- we have already the capacity increase in part of the factories, so the transmission plant is already finished and working. The assembly factory transitioned, or let's say the new factory will start to work after the summer shutdown 2012.

Your next question is from the line of Henry Kirn with UBS.

Wonder if you could chat on the new investment level and thoughts on the investment necessary for 2012 and maybe how that impacts the incremental margin potential over the next couple of years beyond just the back half of the year?

We're certainly, as you can tell in our notes, that we are increasing the level of investment in a number of areas of our business. Martin just discussed a significant investment in our German plant and we're also making investments in some of the emerging market areas. We're looking at a -- putting in an assembly operation in Russia and also have plans for investments in China as well. And across our factories, we're making significant upgrades to the quality and the other machinery that we have in the plant. When we look at 2012, we're still in the planning stage but certainly have a lot of plans to continue to make significant investments. So, I would say that it is very safe to say that our investment levels in 2012 will be at least what we have spending this year and likely could be higher.

And as we look at Europe going forward, where do you think Europe is today versus a normalized demand and ...

Europe has a pretty good year, but they are not yet on the level we saw in 2008. So there's some growth potential in Europe, plus I think the biggest future growth might come from Eastern Europe and Russia where we see things slowly improving but not yet where they can be.

And don't tell me with that, did you see any impact as we went through July from the droughts in Europe? And then I'll hop back in the queue.

We don't see drought issues because -- let's say we have -- farming is something which is done outside, so we always have weather conditions and they might be good or bad. So what is bad for some of the wheat farmers is very good for the corn farmers in Europe. So therefore we don't see a major impact. Your next question comes from the line of Steve Volkman with Jefferies. Stephen Volkmann - Jefferies & Company, Inc.: I was wondering if we could switch to North America for a second and you've made good progress on your margins there but still ways to go versus some of your peers. Where do you think that goes kind of medium-term based on the various programs that you have in place?

Well, Steve, we -- as you can tell, we've made progress and actually we talked about trying to get to mid-single digits in a couple of years, and it looks like were going to be there this year. So we're ahead of schedule. As we go through our plans for the next few years, we still have -- we see opportunity to improve the margins through a lot of work in our factories in terms of how we're -- in terms of material cost savings and also new products. So we think there is opportunity beyond this. The low hanging fruit's probably been cleared out, but with some growth in the business and we're starting to see some improvements in our result in the higher horsepower segment of the market that will also help us from a mix standpoint. So we're still very positive about our progress in North America and believe we can continue to improve from where we are today. Stephen Volkmann - Jefferies & Company, Inc.: And then -- and just the end market kind of commentary, can you tell us anything about what you're seeing in the used equipment part of the market in North America?

From -- our used equipment and our dealers, the levels are at normal levels as the percentage of new equipment, so all that looks okay. And from what I understand, the pricing is holding up and staying fairly steady. So no issues from our end. Stephen Volkmann - Jefferies & Company, Inc.: Martin, do you have any sort of longer-term comments about North America? There's a bit of debate out here about whether things are kind of peaky here in North America or whether they were just sort of in a long-term uptrend, what do you think over the next few years?

Well, you know that I'm pretty bullish, and I've been bullish already early. So I was one of the first guys talking, or the first guy talking about a paradigm shift in our industry in 2004 already. So I think the logics didn't change, the world population is growing. We faced serious problems in some parts of the world. So that happens in the meantime, more to -- as we know from Africa. We see changing diets going on. We see renewable fuels. We also see renewables from farms, produce used in other industries. So overall I think it's -- the demand for farm products, for commodities will be higher than supply for many, many years to come, my guidance more [ph] for the next one 100 years. And the -- let's say, when we were hit 2009 or in the middle of 2009, first we were hit late and then second, this has really nothing to do with our industry and our industry suffered much less than other industries, which is also a sign that seemed to be strong fundamentals when you compare from commodities also 2009 and 2010, that is better than those of the other commodities and also our industry wasn't hit as much. So I think, I like to be in that business. And I think, we will see some very good years.

Our next question comes from the line of Seth Weber with RBC Capital Markets.

Just -- I guess, maybe on pricing, can you give us maybe what your assumption is for the year and any color by region in the first half for the second quarter?

Sure. Seth, as you know, we're -- we've benefited so far this year from a number of items on the pricing front. As we talked about last time, we're getting the benefit of some Tier 4 pricing that we put in at both of the end of last year and early this year. We did our normal model year pricing on top of that. And then as we talked about earlier, we added some pricing in the second quarter to help us catch up with the material cost increases that we're seeing. And then the last piece of the puzzle has been our discount programs. It actually impacted us somewhat favorably this year. So we were looking -- as we talked about last quarter, looking for about 3% of pricing this year now with some of the maybe slightly positive tailwinds we're getting on the discounting side and maybe a little bit north of 3%, but still right around that 3% range. And then as you talk about how that's covering our material, for the first half of the year, we've done a very good job in terms of how those price increases are keeping us whole we're actually favorable, probably in terms of a margin impact, probably 1.5% to 2% on our price increases versus material inflation. But as we move into the back half of the year, we're going to see our material prices increase. And especially in the third quarter we talked about how we're going to see material inflation, maybe actually catch up with some of the pricing we've already done. So we expect maybe to be more break-even-ish in terms of our pricing versus material inflation in the third quarter. And then as we get the benefit in the fourth quarter of the pricing we put in for that material, as we worked through our order boards, we'll get back on the right side of it in the fourth quarter. So for the full year, we're still looking probably to have a net benefit of probably 1.5% to 2% in our own pricing at or slightly above that 3%.

And I guess as a follow-up, maybe I'm just wrestling with the second-half profit guidance here. I mean, you're coming off of in your -- well, it looks like a record margin in Europe and North America, to your previous comments, it sounds like it still has some room to go. I mean, where do you -- what do you think comes down here hard in the second half relative to these second quarter margin numbers?

There's a few factors here that -- one is that factor Greg just talked about, where we aren't looking at a little higher material costs inflation that's, we've been -- I think, did a great job here in the second quarter, somewhat holding off, but we still see that coming. We also see a little lower production in the second half, if you compare that to where we were in the second quarter, in the first half. And also the mix is a little worse in terms of brand and horsepower ranges than what we had in the first half. So there's a few elements there in terms of margins. The other element that we want everyone to understand is that we are ramping up engineering expense, as well as some of this what we're calling market expansion and additional marketing expenses in the second half. And that should be about $25 million if you look at first half versus second half of engineering increases as well as probably about $10 million to $15 million in terms of these additional costs for the market work that we're doing, that is in Russia, China also some additional marketing activities in North and South America as well. And those are second half for the year loaded and it will impact us a little but they're very important for us to do, particularly in the engineering side, to meet the Tier 4 requirements and to keep our product development plan going. And also the market development side, we got a lot of new products coming out and also we're very -- as Martin said, we're very optimistic about these markets in China and Russia and we want to do what we need to do and get started with continuing to market our products there.

So this $25 million headwind, is that predominantly going to show up in the Europe region then?

It's everywhere, but I would say mainly Europe. Yes.

Your next question is from the line of Jerry Revich with Goldman Sachs.

Andy, you've had a strong rollout of interim to your 4 high-horsepower tractors, can you talk about the extent of cost increase you expect on under 175 horsepower tractors that you'll be transitioning next year? And talk about whether you expect pricing to more than offset the cost though -- like you delivered on the larger products this year?

Yes, the price increases are probably a little as a percentage, probably -- usually on the -- still the high-horsepower 5 to 10%, I would say that, that's probably still the right range but probably on the higher end of that, just because the -- you're talking about smaller dollar sales products and so the percentages look a little higher. And of course, the plan is that we will price and cover those costs accordingly. So, so far so good. This year, every -- in terms of the market, in terms of our market and demand being able to accept those price increases than we don't expect any changes as we continue to roll out Tier 4 on the lower horsepower items.

And Andy, you mentioned the Russia production facility. I guess on previous calls, Martin had spoke about some potential opportunity to buy some existing capacity out there. Can you just give us an update on how you're thinking about greenfield versus acquisition and over what time period can we expect capacity to come on line?

We will actually inform about our strategy in Russia toward -- in the fourth quarter of this year. So we are working intensively in this area. My -- let's say, I would rather expect a greenfield approach maybe with some Russian participation to be on the safe side, or a small Russian partner and it's on a big acquisition, but it's too premature to talk about it. We are negotiating right now and we will launch our strategy somewhere in the fourth quarter of this year.

And Martin, same question on China, can you give us an update of the timing of the facility ramp up there?

Yes, we are just working on the, of -- on getting everything together for the October board meeting for Beauvais. There we -- as you know, we are in the middle -- we acquire -- want to acquire a combine manufacturer with quite a nice volume, which will help us to be in the market a little earlier. So they could do something like 8,000, 8,500 combines a year and the rest of the investment is most probably -- most of it is greenfield.

Your next question is from the line of Andrew Obin with BAS Merrill Lynch.

Could you contact -- could just give a more color on your ongoing combine strategy, particularly given revitalized efforts by 2 of your other global competitors in the combine sector?

I -- well, actually I'm not aware on any special activities of competitors or you think that's just something...

Well, I mean, Deere hosted a huge event for analysts in Europe, highlighting the significant push in Europe, CNH hosted a big analyst day in Europe at their Belgian facility, highlighting their increased focus on combines. And I know you guys, with Laverda acquisitions, are trying to grow your market shares so could you please talk a little bit more about that.

I'm just talking about -- I'm not talking about investor meetings. I'm talking about products we have in the market and all major product launches. So far -- may be something might come up at the end of the year at AGCO Technika. What we are doing is, first of all, I think here in the U.S., we are basically really renovating, so to say, or getting into a facelift for all our products, the conventional combines and also the rotary combines. We do the same in Brazil. We have adjust -- a new hybrid combine in Europe where we basically need to think about the next bigger models, which is something we work on. Overall, in Europe, the focus is on distribution on our internal organization. We are in a position to hire some very good guys from one of -- from some of the other players in the industry. So overall, I think we have the right strategy, and we will -- you will see growth in the harvesting area over the next years.

And I apologize I was late dialing on the call. Could you give us some more color on how the South American fall -- whatever, their spring selling season is shaping up, and I apologize I said I missed the beginning of the call.

It's pretty much everything, is pretty much like scheduled, so no surprises.

Your next question is from the line of Joel Tiss with Buckingham Research.

I just -- we've been hearing a little bit about the move of Brazilian farmers to larger farms. And I just wondered if you can give us a sense of what's happening in the marketplace there. You have your new products; how are they going to stack up against some of the other guys who have been pretty aggressively rolling out larger, higher horsepower products?

Well, actually that's nothing new. In Brazil, the farms are already pretty big. So we don't see a major move in the one or the other direction. And Valtra is the market leader for those big professional farms in sugarcane, and Massey Ferguson in other areas, so we are very well off. We showed some of bigger tractors at farm shows in order to find out what does the market has to. The size of the tractor, that's not only driven by the size of the farm, but also by cost of labor. So that means even on the big farm, traditionally in Brazil, we still use maybe smaller tractors compared to the U.S. because labor is cheap and you put 2 or 3 drivers on 3 tractors instead of using one very big one. We have all products which is needed and we are in very good connection with our dealers and farmers, so they will be -- to us it would be good if it would go into a higher horsepower in the future.

And just a clarifications, did I hear you right saying that third quarter of 2011 is going to be flat with the third quarter with the $0.66 from a year ago? And also that the tax rates for the year can you clarify?

Yes. We said that the third quarter would be flat. Tax rate for the year is around 34%.

Joel, the tax rate in the first -- I'm sorry, the third quarter of 2010 was artificially low because we had an adjustment in Brazil and that I think was about $6 million. So that impacted taxes by about 10% or 12%. So that's why it'll -- this year it'll be more normal, last year was artificially low.

Your next question comes from the line of Lawrence De Maria with William Blair. Lawrence De Maria - William Blair & Company L.L.C.: Quick question. Obviously, South American market share and tractors has been declining a little bit, although obviously, picked up share in combines. Is that a result of mix with the low end tailing off or is there any changes to Valtra, for example, in the sugarcane factory, now that your competitors are being more aggressive?

Well, I think on our side is to defend our market share position in South America and seasonally, numbers go up and down. Some of the numbers are not reported. For example, we gained substantial market share in the planta business because we were not in that business 2 years ago, now we have a very strong position there. So overall, the AGCO strategy is to be strong in South America, to be strong in Brazil. The -- we had some negative impact from strange -- yes, political situation in Argentina with a cap or they want to cap your imports to Argentina to the level of last year, and another cap would be that you only can import as much as you export. So this is what they discussed and everybody know that's the homework and I think you will see that basically our players will find a solution. Lawrence De Maria - William Blair & Company L.L.C.: You probably have to open a factory in Argentina, is that the idea?

We have a factory in Argentina we don't own. So maybe the idea is to own it. Lawrence De Maria - William Blair & Company L.L.C.: Okay, and then so finally, you guys have talked about how the sugarcane harvester, which was probably pretty critical products are down there, especially with new competition coming on. Do you -- is there any timeline on when that's going to be out the door? It seems like it's been delayed.

Yes, there is. It's next year.

Your next question comes from the line of Mark Koznarek with Cleveland Research.

Question on the revenue outlook. I'm sorry if I missed this earlier but is that simply currency adjustment or you're expecting that your organic revenues will be higher?

It's a little organic but currency is probably the bigger piece of the change.

So 2/3, 1/3 or something like that?

Something like that would be right. Lawrence De Maria - William Blair & Company L.L.C.: Okay, then given that there is some improvement in your organic growth outlook, you didn't increase your estimates of the market to the 3 key geographies. So where do you expect to gain the extra core revenues, is it across the board or centered more in a certain region?

It is more or less across the board, I would say.

Okay, and then a final one, just to ask a question about capacity. Martin, you made a comment a little bit earlier about Fendt capacity going up to 25,000 or 30,000 tractors. I guess I'm a little puzzled because as recently as last month some of the press releases were still saying 20,000 tractors, but 28,000 transmission units. So are we talking apples to apples, you've actually increased the tractor capacity outlook or is it -- is there really that difference between the tractors and the transmissions?

The tractor capacity will be 25,000, that's the number and I think it could be more. It depends on how you look at it. So if you would go into a 2-set operations and you can increase it, their number might be based on 1/5 conservative approach. So we have plenty capacity advantage, if needed.

How much overall capacity is going into place just across all of your facilities for 2012 versus 2011?

We actually -- our part is we do a sales plan, more or less in fall, so in a couple of months. And then as soon as we know the demand, we then plan capacities. I don't see any restrictions.

[Operator Instructions] Your next question does come from the line of Jamie Cook with Crédit Suisse. Jamie Cook - Crédit Suisse AG: Two quick questions. One, I get -- we like to put out estimates and beat the street, that's what we all like to do. But I'm just trying to get a sense, I mean, when we started off the year, I think guiding the $2.50 to $2.75 versus $4. So Martin, can you just give a sense of more, these -- what's driving this, is there some structural cost that the street is missing that you guys have done a better job on. And then just -- I guess, my other question, Andy, is I just think sort of longer-term, I mean it sounds to me you guys seem pretty positive on 2012 in terms of an outlook with North America, EMEA and I'm assuming Brazil too, but how we should sort of think about incremental margins? I'm assuming, given just the comps that we have, they've probably peaking with the level of R&D investment you've been talking about making, if you could comment on that longer term.

Jamie, answering the first question, I think there are 2 drivers. One is that Europe, Western Europe, recovered much more than our assumption has been so they came back much faster and bigger than we thought. And at that time, we were pretty much in line with everybody else. So that means maybe we were a little bit conservative. But the reason is demand in Western Europe. And then the second reason why we improved is our margin improvement project, where we showed quite some substantial improvements. And this all together helped us to perform better than expected.

And Jamie, to your question about long term and next year, we're not in a position to start talking about that yet. But in general, our incremental margins should continue to be steady or improve as we work through our cost reduction activities and projects that we have in place. The factor of what our engineering investments are, investments in new markets and things like that, are the variables that we work -- we'll need to work through on our planning process for next year and the years to come.

At this time, there are no further questions in queue. I'll now hand the call back over to presenters for any remarks.

Thanks, Tamika, and thanks to all who have participated today. I welcome -- we welcome your and appreciate your interest, and please follow up with me later today if you have additional questions. Thank you.

Thank you for joining today's conference call. This does conclude today's call. You may now disconnect.