AGCO Corporation (AGCO) Q2 2019 Earnings Report, Transcript and Summary

Good morning. My name is Natalia, and I will be your conference operator today. At this time, I would like to welcome everyone to the AGCO 2019 Second Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be question-and-answer session. [Operator Instructions] Thank you. I'll now turn the call over to Mr. Greg Peterson, Head of Investor Relations. You may begin your conference.

Thanks, Natalia, and good morning. Welcome to those of you joining us for AGCO's second quarter 2019 earnings conference call. We will refer to a slide presentation this morning that we posted on our Web site at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of that presentation. We will also make some forward-looking statements this morning, including demand, product development and capital expenditure plans and the timing of those plans; acquisition, expansion and modernization plans, and our expectations with respect to the costs and benefits of those plans and the timing of those benefits. We will also discuss production levels, share repurchases, dividend rates and our future revenue price levels, earnings, cash flow, tax rates and other financial metrics. We wish to caution you that these statements are predictions and that actual events 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 ending December 31, 2018. This document discusses important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. We disclaim any obligation to update any forward-looking statements, except as required by law. We will also have a replay of this call on our Web site. So, on the call with me this morning are Martin Richenhagen, our Chairman, President, and Chief Executive Officer; Andy Beck, our Senior Vice President and Chief Financial Officer; and Eric Hansotia, our Senior Vice President and Chief Operating Officer. And with that, Martin, please go ahead.

Thank you and good morning, special welcome to Eric, our almost new COO, not so new anymore. Our remarks begin on Slide 3, there you will find a summary of our second quarter and year-to-date results. We posted another quarter of strong margin performance and despite market headwinds in North and South America we expanded our consolidated adjusted operating margins by over 150 basis points and grew adjusted earnings per share nearly 38% in the second quarter. With technology rich product being well-received in the market, our pricing and cost control initiative are contributing to higher operating margins. In addition, we increased our earnings outlook for the full year on the basis of our first half performance and our margin projections for 2019. AGCO's long-term performance remains a key focus. We are investing in projects that will drive long-term benefits from raising our efficiency of our factories, improving our service levels and strengthening our product offerings. During the first half of 2019, we continued to return cash to shareholders by completing in-stock repurchases. Slide 4, detailed industry unit retail sales [Technical Difficulty] regions for the first half of 2019. Concerns of a delayed cost development and lower harvest forecast negatively impacted the North American industry retail sales in the first six months of 2019 compared to the same period in 2018. We expect North American industry retail sector sales to be relatively flat in 2019 compared to last year. Modestly, higher sales of small tractors and hay and forage equipment, are expected to offset lower retail sales in the row crop segment. Continued dry growing conditions across much of Europe has [stressed][ph] the development of the winter wheat crop, while milk prices remain supportive of the dairy sector. Industry retail tractor sales investment Europe increased in the first six months of 2019. For the full year, industry demand in Western Europe is expected to be flat. Industry retail sales in South America decreased during the first six months of 2019. The benefits of improved grain production in Brazil and Argentina were partially offset by interruptions in the government subsidized finance program in Brazil and weak macro economic conditions in Argentina. For the full year of 2019, industry demand in South America is expected to be flat. While negative in the short-term for farm income and farm equipment demand, forecast for lower global crop production and lower ending inventory of grain have moved commodity prices higher, which will be positive for global farm income in the future. AGCO's 2019 schedule for factory production hours are shown on Slide 5. Total company production was up approximately 2% for the second quarter. Production was higher in Europe, lower in North and South America and for the full year of 2019, we are targeting a production increase of approximately 1%. And finally, our June order book for tractors is up in North America, while being down in Europe and South America. I will now turn the call over to CFO, Andy Beck, who will provide you more information about our second quarter results.

Thank you, Martin, and good morning. I will start on Slide 6, which looks at AGCO's regional net sales results for the second quarter and first half of 2019. AGCO's sales were flat compared to the second quarter of 2018, excluding the negative impact of currency translation which lowered sales by approximately 5%. The Europe Middle East segment net sales were also flat excluding the negative impact of currency translation compared to the second quarter of 2018. Sales growth in France and Germany was offset by declines in Scandinavia and the U.K. AGCO's Second quarter 2019 net sales in South America decreased approximately 10% compared to the second quarter of 2018 excluding negative currency translation impacts. Funding interruptions in the government subsidized loan program as well as weaker demand in Argentina contributed to the decline. Sales in North America increased approximately 4% excluding the unfavorable impact of currency translation compared to the levels experienced in the second quarter of 2018. Increased sales of high horsepower tractors were partially offset by declines in the sales of protein production equipment. Net sales in our Asia Pacific, Africa segment decreased about 1% in the second quarter of 2019 compared to 2018 excluding the negative impact of currency translation. Lower sales in Australia were mostly offset by higher sales in Africa. Part sales were approximately $384 million for the second quarter of 2019, were up about 4% compared to the same period in 2018 excluding the negative impact of currency. Slide 7 examines AGCO's sales and margin performance. AGCO's adjusted operating margins expanded approximately 150 basis points in the second quarter of 2019 compared to the same period last year. Margins benefited from pricing, increased production, cost management and the timing of our engineering expenses compared to the prior year. Europe, Middle East margins improved over 80 basis points compared to the second quarter of 2018 resulting from the benefit of pricing higher production, the timing of varying expenses as well as ongoing cost control efforts. North America operating margins expanded 200 basis points in the second quarter compared to the second quarter of 2018. Increased sales, improved net pricing and a positive sales mix contributed to the higher margin. Third quarter margins in North America will be negatively impacted by the costs associated with launching new products, lower production due to our reduced market forecast as well as a weaker product mix. In South America, the second quarter operating results improved compared to the same period in 2018, as we continue to make progress in the transition of our product offerings to Tier 3 technology in that market. Our South America business is expected to be profitable in the second half of 2019. In our Asia Pacific, Africa segment operating margins expanded over 160 basis points on a relatively flat sales due to primarily expense control efforts. Slide 8 details AGCO's grain storage and protein production equipment sales by region and by product. Sales in this product group increased about 4% excluding negative currency impacts in the first half of 2019 compared to 2018. Globally, grain and seed equipment grew over 12% on a constant currency basis with the growth achieved in the Europe, Middle East, Asia Pacific, Africa and South American regions. Protein production sales decreased approximately 7% on a constant currency basis, the largest declines in the Asia Pacific, Africa and North America regions. The global trends toward growing population and increased protein consumption should make our GSI business an attractive source of profitable growth for AGCO in future years. Slide 9 looks at AGCO's investments in both capital expenditures and research and development. We continue to make strategic investments to refresh and expand our product lines, upgrade our system capabilities and improve productivity in our factories. We intend to increase the level of engineering expense in 2019 on a constant currency basis to execute our product development plans and meet new emissions requirements in both Brazil and Europe. Our spending plan is needed to maintain our competitiveness and to support the long-term growth of our business. Our 2019 capital expenditure plan reflects investments to support our product plans and is projected to be higher in 2019 and 2018. Slide 10 addresses AGCO's free cash flow, which represents cash used in operating activities less capital expenditures. Our seasonal requirements for working capital are greater in the first half of the year and thereby resulted in negative free cash flow in both the first half of 2018 and '19. For the full year of 2019, we are targeting another year of strong free cash flow. At the end of June 2019, our North America dealer months supply on a trailing 12-month basis was improved for tractors, equipment and combines. Losses on sales receivables associated with our receivable financing facilities, which were included in other expense net were approximately $11 million during the second quarter 2019 compared to $9.7 million in the same period of 2018. As we focus on return for shareholders, we expect cash distribution to continue as an important component of our long-term capital allocation plan. Over the past six years, we've [Technical Difficulty] share repurchases of nearly $1.3 billion which had the effect of reducing our share count by approximately 25%. During the first six months of 2019, we completed $70 million of share repurchases and expect cash generation to fund additional share repurchases through the balance of the year. Our updated 2019 outlook for three major regional markets is captured on Slide 12, and reflects lower forecast for both North and South America. In North America 2019 industry unit tractor sales are now expected to be flat compared to 2018 levels. Our prior forecast calls in the North American market to be up 0% to 5%. Late planting and slow crop development as well as ongoing trade concerns are weighing on sales of large equipment. Low horsepower equipment sales which tend to be tied to more general economics and then more resilient and are now expected to be up modestly in 2019. Warm, dry conditions across much of Western Europe are expected to pressure yields and contribute to softer demand in the back half of 2019. The dairying livestock fundamentals continue to be supportive and overall demand in Western Europe is expected to remain healthy. Based on these assumptions, we expect full year 2019 industry sales to be flat in Western Europe compared to 2018. Harvest in the first half of 2019 in both Brazil and Argentina are improved from 2018 levels. However, interruptions in the government supported finance program in Brazil and ongoing macro economic issues in Argentina limited sales in those markets during the first half of 2019. We now expect South American industry retail sales to be flat in 2019 versus 2018 versus our prior forecast of 0% to 5%. Slide 13 highlights the assumptions underlying our 2019 outlook. The priority for 2019 continues to be managing our costs and continuing invest in our products and in business improvement opportunities. Our market forecast assumes relatively stable industry demand across all regions. Our plan includes market share improvement with price increases of 2% to 2.5% on a consolidated basis. At current exchange rates, we expect currency translation to negatively impact sales by about 3.5%. In 2019, engineering expense is expected to be up approximately $10 million on a constant currency basis compared to 2018. Operating margins are expected to improve by approximately 100 basis points due to the benefit of our pricing, productivity and purchasing initiatives with margin expansion projected across all regions. Below the operating income line, we are targeting an effective tax rate of 31% to 32% in interest and other expense to be down about $10 million in 2019 after excluding the debt extinguishment costs incurred in 2018. Slide 14 lists our view of selected 2019 financial goals. We are projecting 2019 sales to be in the $9.4 billion range. We expect growth in operating margins to be improved from 2018. Based on these assumptions we're targeting 2019 earnings per share of approximately $5.10. We expect capital expenditures to be up approximately $25 million compared to 2018 levels and free cash flow to be in the $275 million to $300 million range. For the third quarter, our results will reflect the sales and margin impacts of lowering our market forecast for both North and South America as well as an effective tax rate that is expected to be approximately 40%. As a result, third quarter earnings per share projected to be in the $0.70 to $0.80 range. That concludes our prepared remarks. Operator, we're ready for the questions.

[Operator Instructions] And our first question is from the line of Jerry Revich with Goldman Sachs.

Jerry, are you there?

Jerry Revich, your line is open.

Yes. Can you hear me?

Yes, Jerry. We can hear you now.

Okay. Sorry about that. I'm wondering, if you could talk about the margin trajectory that we should be thinking about in South America exiting this year as you folks complete the product transition. Talk to us about where the supply chain ramp stands exiting the quarter please?

Sure, Jerry. In terms of margins in South America, you can see that we did improve over last year in the first half of the year. And in the third and fourth quarter, we're projecting margins to be relatively flat compared to what we experienced last year. As we said in our remarks, we made some adjustments to our production levels and as you recall and 2018, we had elevated production to build some inventory to carry us through some of the changes we're making because of [Technical Difficulty] changes. So our production levels are down and that's contributing to the flatter margin. Going forward, we -- by the end of the year, we will be pretty much done with a lot of these new product introductions that have been so challenging for us. And with the exception of the IDEAL combine, which comes online next year will be really more stable in terms of our product portfolio and our production. And so with that in mind, I think we'll continue to show steady progress in improving our cost structure in South America and seeing some margin improvement year-over-year.

And Andy just to put a finer point on that. Should we be thinking about the margin run rate in the 5% range that you folks have achieved historically, or are we talking about better margins than that as you complete the transaction?

We talk about better margins. It's basically a focus, Eric Hansotia works on -- Eric do you want to talk a little bit about it.

Sure. I mean overall Brazil is included in the overall effort. It really boils down to process, product, smart machines and globalization in South America is part of all four of those process standardization and automization and digitization, globally is a big area of focus and we still have opportunity this year and beyond. Product cost reduction is an area as we went through so much rapid change over the last few years with the emission changes and so on, we still have some areas where we can take our product cost down. Smart machine development is what our customers are most excited about. The new Fendt machines the IDEAL combine, the Momentum planter that we launched in South America, Fuse precision planting all of those are great examples of the whole portfolio of smart solutions that we continue to invest in and that's why our investment in R&D is up. And lastly, as Fendt globalization, we launched Fendt in South America at Agri show with the new tractor, the new combine and the new planter and it was a big hit at the show. So, it's -- South America's representation, but it's really a global effort in all those areas.

The project Eric works on is called Project 10. And this basically is because our internal strategic target is 10%.

And Martin based on that comment, even in South America, you can get 10%, where you have more of an assembly business than other regions, you can get the 10% on your framework?

You have everything from Andy about South America and Alex, so the 10% is for the consolidated AGCO [indiscernible]. So, but there's no reason why South America shouldn't be there sooner or later. And that by the way was your third question.

I appreciate the discussion. Thank you.

Thanks Jerry.

Your next question is from the line of Seth Weber with RBC Capital Markets.

Hey, good morning. I wanted to ask in Brazil, again, I guess with the FINAME program now back in line, have you noticed trends kind of returning in July. And then, I guess just on your revenue performance in South America was actually a little better than the market. Do you feel like your take recapturing some share in the region? Thanks.

The answer is yes and yes the details come from Andy.

Yes. I would say that on the two questions, the FINAME program kicked back in probably mid-July, their funding started again, so we're starting to see activity and as funds are now starting to flow, the markets returning to a normal activity level. So a little slow start beginning in July, but now things have ramped up here in the backend of the month. So, we'll see how the market goes for the full quarter. In terms of sales growth, the one thing that I would point out beyond what Martin said was, where we're seeing improvement in our sales is in non-tractor products. We focus a lot and we talk about North America -- about South America about our tractor sales because our market shares are so strong. But we're really growing and some of the products that Eric mentioned, we saw substantial growth in sprayers and planters during the second quarter and we expect that to continue for the balance of the year.

Okay. That's helpful. Thanks. And then, just my follow up on North America, the strength in margin, I mean how much of that would you attribute to precision planting and I guess is that -- you kind of noted that mix is going to drop back off here in the third quarter. Could you just give any color on what's going on with the precision planting business in North America?

Sure. You're absolutely right. Precision Planting is very seasonal, although the first quarter tends to be the heaviest. So, we had a much bigger contribution from Precision Planting in the first quarter. So, second quarter was -- we talked about sprayers. That's a very good market for us in North America. So that was a big contributor. And then, also bigger higher horsepower tractors was also up year-over-year, so that was a contributor. Those are the two biggest contributors. So, thanks for your questions and operator go on to the next question.

Your next question is from the line of Stephen Volkmann with Jefferies.

Hi, good morning. Both Andy and Martin -- you both mentioned pricing as a positive impact on your margins and I guess that must mean price cost is positive here, but can you just talk a little bit more about what you're seeing in price cost and how that progresses for the rest of the year?

Sure, Steve. In terms of pricing as we noted, our price target for the year is up to 2% to 2.5%. That's with strong pricing in North and South America and a little lower pricing in Europe kind of reflects the inflationary conditions in those markets. From a net pricing position where you offset with what's happening on a material cost, we're looking at about 100 basis point improvement and we've been seeing that in the first half of the year and expect that to continue in the back half.

Great. That's helpful. Thanks. And then, can you just refresh my memory on what's left for repurchase authorization and would you expect to follow that up with another one?

Yes. We have about $70 million left and we'll be working with our Board here in the second half of the year to get any authorization.

Yes. We plan to have another one -- at around 300 million.

Great. Thank you, Martin. Bye-bye.

Your next question is from the line of Ann Duignan with JPMorgan.

Ann Duignan.

Good morning, guys. It's actually Tom Simonitsch on for Ann. [We’ve learned your] [ph] North America market outlook and production hours for 2019, just curious with the details of the market facilitation program announced last week by the USDA are factored into your outlook? And do you expect those direct payments to translate into new equipment orders, if so when?

Yes. So, it is factored into our forecast. What we're seeing in the market for North America is still a fair bit of uncertainty in our customer base. As we all know they had a very challenging spring season causing lots of late planting, this summer hasn't been as warm and productive as last summer was to do some catch up like last summer did. And so a lot of farmers are expecting lower yields. There's also a higher degree of unplanted acres. So farmer uncertainty is fairly high right now. And as we talked to our customer base they're seeing that they're buying decision will be put off till later in the year this year than is typical. They're going to wait until they have their harvest in the bin and they know what kind of pricing they can expect.

Okay. That's helpful. Thank you. If I could ask a question on GSI, given the impact of ASF, I'm trying this whole cut, are you seeing any new opportunities for GSI as the word attempts to fill that protein deficit?

I can take that one. I think there are few areas. In the short-term it's actually been a negative to our results in that much of our poultry production is down. We had planned orders with our pipeline of relationships with customers in many of the regions for a normal business, but then when ASF came many of those producers because of needing to cull their herds had to put those orders on hold and those expansion plans on hold. So in the short-term it's been a pullback. In the mid-term, we see protein replacement opportunity where protein will shift to broiler production and other forms of protein which we are also providers of and leaders in. And so that's where our focus is in the short-term. In the mid-term, swine production will come back and it will be biased more toward more professional protein production facilities that have better bio-controls and those types of things. So, we think in the mid to -- let's call mid-term this will be a net positive for swine production facilities and the growth there. And in North America, in grain storage, we also see opportunities where late planting means a risk of harvesting crops with higher moisture levels. And so, now that we have precision planting, we have some of the best planting intelligence in the market, we're joining that up with our grain business to say where are those farmers most at risk for having high moisture conditions and how do we help them with dryer solutions. And then, finally, would be the bins that were damaged with flooding where can we go help farmers' replacement storage facilities.

What I would like to add is that -- in the western society and western countries as a requirement for animal welfare is going up. We have already very interesting solutions in that area and we invest more into developing animal friendly state-of-the-art solutions out in the future. I think it's a trend.

That's great. Thank you very much.

Your next question is from the line of Jamie Cook with Credit Suisse. Jamie Cook, your line is open.

Hi. Can you hear me?

Yes, now. You are late.

I know I'm sorry, I'm managing between two calls. So I guess Martin, I just wanted to but I didn't want to miss your call. But Martin just understanding it's probably too early to think about 2020, but there's a lot of different views on how 2020 could be shaping up with where commodity prices are now, and then, still we're waiting to hear on more so on China trade war. But, could you give any more initial thoughts where you stand relative to perhaps six months ago? And then, I guess just my other question is, I understand you cut production a little bit, but how are you thinking about sort of channel inventory heading into 2020? Thank you.

Thank you very much. So that we don't talk about it but you never miss a chance to ask. And so, I give you a kind of half view on 2020. I personally believe that for AGCO 2020 will be another good year and we want to show some more improvement certainly also in the area of margins. So, you should expect us doing a good job as we do this year. When it comes to the other factor to talk about, I do not see them being -- having really a big impact on our business. So I'm positive.

And Jamie on the channel question…

We manage the channel very well.

As you pointed out, we did reduce some production in North America region and that was all to work on our channel and make sure that we don't end up with higher dealer inventories than a year ago. And so these adjustments we've made will keep us on target for where we want to be at the end of the year.

And with the COO, we have more horsepower now. So, you should expect a major improvement.

Okay. Thank you. I'll get back in queue.

Thank you, Jamie. Have a wonderful day. Back to the other call.

[Operator Instructions] Your next question is from the line of Ross Gilardi with Bank of America Merrill Lynch.

Thanks. Good morning guys.

Good morning, Ross.

I just wondered if you could comment on the SIMA index and its relevance for your business as you see it. I mean you call -- you characterize the European market as healthy that particular index has been trending lower. So I'm just -- want to get your take on how good you think it is for following your business?

I follow this index for more than 20 years now. It's very complicated and it's basically made in a way that it's always right. So, it's positive. It's also showing some negative trend and the other way around. So overall, I think Europe is doing fine and I see the opportunity of a comeback in important markets next year.

Based on particular market?

Based on talking to my dealers, my people and farmers, which is much better than just index.

Okay. Fair enough. And then, I just wanted to get your take also just on the relevance of the German tractor registration data. I mean there seems to be a real disconnect between your top-line and that data. Obviously, you produce in a lot of different countries, but Germany is very, very important. So, what is it been most recently that caused that disconnect. I mean for many quarters you guys were outgrowing the overall market. It seems like in this quarter, year, your organic is flattish which is more what I would have expected given the overall environment, if you could comment on that too, that'd be very helpful.

Yes. We had some extraordinary issues to get all [indiscernible] because of basically quality problems and performance problems of some important suppliers. So you could see numbers more normal next quarter.

Okay. Got it. Thank you. That's my fill.

Your next question is from the line of Andy Casey with Wells Fargo Securities.

Good morning and thank you. Could you help with a clarification first on SG&A and engineering expense line items in Q2 those were down year-over-year? I'm wondering if that was all due to currency.

Yes. That's right Andy. Without currency the expenses have been relatively flat.

Okay. Thank you. And then, on the revenue outlook, I'm doing the math right. It looks like the implied second half revenue growth embedded in the assumption as is seems like it's set to reaccelerate to 2.5% from Q2's 0.6 organic. Could you help me understand the main growth assumptions within that meaning as the second half expectation more or less oil price?

Yes. I would say that most of that growth is in pricing as we said our price will be up to 2.5% for the balance of the year. And then, Andy, as we talked about two in Brazil with the financing coming online. The year-over-year growth in Brazil is going to be pretty significant in the back half of the year. So there's pent up demand in Brazil. So that's also going to drive a good part of it.

Okay. Thank you. And then, the Q3 comments suggest, earnings growth for the second half is going to be pretty concentrated in the fourth quarter. I understand the comments about Q3, what are you expecting in the fourth quarter to drive that reacceleration?

A little bit the usual cycle for the fourth quarter, it is already the strongest one. But, do we have any more details, Andy?

No. I think what we see in the fourth quarter is particularly North America, we talked about how North America will be relatively weak in the third quarter with a weak mix and high higher expenses. The fourth quarter is kind of reverses that trend and so we'll see better mix and better margins than what we saw in the fourth quarter of 2018. And then, we see margin improvement across the other regions as well. So, it's mainly driven by margin improvement in the fourth quarter.

Okay. Thank you very much.

Your final question is from the line of Chad Dillard with Deutsche Bank.

Hi. Good morning everyone.

Good morning, Chad.

Is Deutsche Bank still in existence?

We are we are still standing.

Yes.

Just wanted to get an update on the potential for share gain in Europe. Can you just talk about like how your plan increased penetration of the Valtra brand is progressing this year versus last year?

Yes. Valtra continues to perform well in the market, but actually all our brands are doing well in the market and that's both a tractor story as well as the non-tractor business. We bought Lely a couple of years ago and that's filled in our -- a few gaps that we had in our product line. We now have the largest green harvesting product line in the business.

Including loadout wagons, round balers and things which are very important for Europe.

Exactly. And then, we're -- the ideal combine continues to perform very, very well in the wide variety of crops and conditions that we have throughout Europe. And finally, Precision Planting is establishing itself nicely in Western Europe. So, that whole combination is creating a partnership with our customers in all brands and strengthening AGCO's position.

Great. And just actually switching over to the ideal combine. I just want to get an update on the rollout how it's going particularly in Europe since that's the first region filed by North America. I guess what are you expecting for this year and how are you thinking about the next one to two years here?

Our projections and experiences unchanged from all the previous comments. Volume is unchanged and the machine continues to perform very, very well in all crops and conditions. We run it very, very often against competition and our customers are really happy with the results that they're seeing from the machine in each region.

And we don't talk about volumes for next year yet, but they will be up substantially.

Great. Thank you.

We do have an additional question from the line of Larry De Maria with William Blair.

Thanks. Good morning. Apologize if asked, jumped on late. Hi, guys. Also, if you've discussed, I apologize. But, two things, first, you guys have been really vocal about the Fendt and it looks like you've been in with Ziegler, Sara in North America and you've been growing that brand in different markets as well. So maybe you talk about the financial impact for this year, and then, maybe longer term on the Fendt side. And secondly, Martin, you've talked about 8% margins in '19, 10% in 2020, given that the guidance is still considerably below that. Can you discuss this on -- rectify those public comments versus the guidance? Thank you.

My margin numbers are internal targets. And as you are going to imagine, of course, it's stretched to make life a little difficult for my team and myself. So therefore, the official numbers you always hear from Greg and Andy and you know the numbers for 2019 -- 2020 numbers have not yet been communicated. And the first question to be honest, I did not understand.

I'm just curious more about your Fendt plans, you discussed obviously, Fendt is a big brand for you in a way you're going to outgrow the markets, you've gotten with Ziegler distribution North America, you've done some distribution deals I think in Brazil. So, if you could talk about the broader strategy with Fendt and what the financial impact could be in terms of sales margins et cetera as this brand gets rolled out more meaningfully around the world over the next couple of years.

Sure. I'll take that one Larry. So, Fendt is a brand that has got great reputation in Europe and a strong brand globally actually. But we didn't really move it strongly into the other regions in the past years as a tractor brand because of its design not fitting so directly as a real crop application. With our new roll out of the 1000 series and now the 900 series those are designed to be a globally applicable tractor now, still great for Europe conditions, but now versatile enough to fit perfectly for North American and South American conditions as well. In addition to the tractor portfolio, we've brought out the ideal combine and in South America the momentum planter and in helping our dealers change their game to match the Fendt experience overall. So, that's the strategy and it's really just filling out the Fendt experience around the world. From a financial standpoint, it's still relatively modest in the early years as we want to make sure that we do this very, very well, as we get out of the gates.

Thanks. So, does that really close a gap for you guys versus competitors in the professional farmers segment having the ideal combine, the Fendt tractor and planters and things you mentioned, is that a flawed solution or is there more work to be done to provide a solution to the largest [Farm A] [ph] farmers?

Well, it does. We leapfrog. We basically are in a position now to offer better technologies as we do already for many years in Europe and this is the plan also for the Americas.

Okay. Thank you.

There are no further questions. I will turn the call over to Mr. Peterson for any closing remarks.

Thank you, Natalia. And we'd like to thank all the participants and would encourage you if you have follow-up questions to get back in touch with us later today. Thanks. And have a great day.

The AGCO team wishes you a wonderful summer.

This concludes today's release conference call. Thank you for your participation. You may now disconnect.