Good day, and welcome to the AGCO Third Quarter 2023 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations. Please go ahead.

Good morning. Welcome to those of you joining us for AGCO's third quarter 2023 earnings call. This morning, we'll refer to a slide presentation that's posted to our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP metrics in the appendix of that presentation. We'll make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts. We'll discuss demand, product development and capital expenditure plans and timing of those plans, and our expectations with respect to the costs and benefits of those plans and timing of those benefits. We'll also discuss future revenue, crop production and farm income, production levels, price levels, margins, earnings, cash flow and other financial metrics. All of these are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks include, but are not limited to, adverse developments in the agricultural industry, including those resulting from COVID-19, supply chain disruption, inflation, weather, commodity prices, changes in product demand, interruptions in supply of parts and products, the possible failure to develop new and improved products on time, including premium technology and smart farming solutions within budget and with expected performance and price benefits, difficulties in integrating the Trimble Ag business in a manner that produces the expected financial results, reactions by customers and competitors to the transaction, including the rate at which Trimble Ag's largest OEM customer reduces purchases of Trimble Ag equipment and the rate of replacement by the joint venture of those sales, introduction of new or improved products by our competitors and reductions in pricing by them; the war in the Ukraine; difficulties in integrating acquired businesses and in completing expansion and modernization plans on time in a manner that produces the expected financial results; and adverse changes in financial and foreign exchange markets. Actual results could differ materially from those suggested in these statements. Further information concerning these and other risks is included in AGCO's filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2022 and subsequent Form 10-K, 10-Q filings. ACCO disclaims any obligations to update any forward-looking statements except as required by law. We'll make a replay of this call available on our corporate website. On the call with me this morning is Eric Hansotia, our Chairman, President and Chief Executive Officer; and Damon Audia, our Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead.

Thanks, Greg, and good morning. AGCO has consistently delivered record results over the last two years, and I'm pleased to tell you that the third quarter of 2023 is no different. AGCO delivered $3.5 billion in third quarter sales, nearly 11% higher than the third quarter of 2022. Operating margins in the quarter were 12.3% and 12.6% on an adjusted basis. That's 190 basis points better than 2022. This marks the fifth consecutive quarter with operating margins above 10.5%, which is evidence of how we have structurally transformed our business and further demonstrates the progress we are making towards our mid-cycle 12% operating margin target. This strong financial performance reflects the continued success of our Farmer-First Strategy, focused on growing our Precision Ag business, globalizing a full line of our Fendt branded products and expanding our parts and service business. Our North and South American Fendt sales are ahead of our growth targets as we expand our distribution networks in the regions to give more farmers access to the industry's best equipment, and we continue to have the best parts fill rates in the industry. Our strategy is generating strong growth in each of these margin-rich businesses, providing the foundation for 2023 to be another record year in sales, operating margin, earnings per share and free cash flow. Our expanding tech stack is taking our products to new levels of performance and efficiency, putting us in a winning position as farmers' most trusted partner for industry-leading smart farming solutions. The recently announced joint venture with Trimble is truly transformational for AGCO and for farmers. It also aligns perfectly with our strategy of focusing on a greater percentage of our business and the high-margin, high-growth Precision Ag segment of our industry. We'll talk more about the planned JV in a few…

Thank you, Eric and good morning everyone. I will start on Slide 9 with an overview of regional net sales performance for the third quarter. Net sales were up approximately 7% in the quarter compared to the third quarter of 2022 when excluding the positive effects of currency translation. Pricing in the quarter, which was in the high single-digit range, was the primary contributor to higher sales. As you may recall, the third quarter of 2022 was a very strong quarter, partially due to a catch-up in sales related to the cyber event in the second quarter, which had a bigger effect on our European and North American operations. By region, the Europe/Middle East segment reported an increase in third quarter net sales of approximately 9%, excluding the positive effects of currency translation compared to the prior year. The improvement was driven by increased sales of mid- and high horsepower tractors, strong part sales, along with favorable pricing. In South America, net sales in the third quarter grew approximately 19% year-over-year, excluding the positive effect of currency translation, driven by the continued strong sales growth in Brazil and Argentina. Higher sales of tractors and momentum planters as well as favorable pricing drove most of the increase. Net sales in North America increased approximately 3% in the quarter, excluding the favorable impact of currency translation compared to the third quarter of 2022. The growth resulted primarily from increased sales of high-horsepower tractors, sprayers and tools, along with the positive effects of pricing that more than offset inflationary cost pressures. On a constant currency basis, net sales in our Asia-Pacific/Africa segment decreased approximately 15%. The most significant declines occurred in Australia, Japan, and China, driven by lower farmer confidence and dry weather. Finally, consolidated replacement part sales were approximately $468 million for…

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Seth Weber with Wells Fargo Securities. Please go ahead.

Hey. Thanks. Good morning, guys. Eric, in your -- I think it was Eric, in your prepared remarks, you talked about a potential risk or trying to have to navigate around the loss of a potential -- of an OEM customer from the Trimble JV. I'm wondering if you could just give us a little bit more detail on how you expect to offset that loss that's slightly coming on that side of the JV. Thanks.

Yes. We've got a really solid plan here that is largely in our control in that today, AGCO offers two suppliers or two choices on our navigation systems. One is Trimble and one is another supplier. A majority of the customer sales actually go to the other supplier. And so as we migrate into the -- once the JV is official and we migrate into that chapter of existence we're working together, we can influence sales to move significantly towards a predominantly Trimble offering out of the factory on our new products. And then also, we can continue in the marketplace to help those that have bought Trimble systems in the past, regardless of brand, to continue to have confidence. There's over 100 OEMs that are already partnered with Trimble. We've talked to many of them already, and the feedback has been consistently strong that they said that under the new arrangement, they still feel very comfortable and want to continue to grow the business. And then there's the retrofit business, a retrofit portion of the market that we intend to focus on as well. So, retrofit OEM from the factory, working on all three of those paths, to make sure that plenty of customers can get access to this great technology.

That's helpful. Thanks. And then maybe just, appreciate the color on the order boards for next year. Can you just give us any details on how you're handling pricing for 2024 at this point?

Yes. I think, Seth, we haven't given any sort of official outlook for our 2024 pricing yet. But I think if you think about our outlook here for the 2023 performance where we said we're around 8% and you look at our year-to-date, we're starting to lap some of those big price increases that we put in place last year. And so we see pricing becoming what I'll call more normalized here in the fourth quarter. And again, we're probably seeing that to be a more reasonable assumption as we move into 2024.

The next question is from Nicole DeBlase with Deutsche Bank. Please go ahead.

Yes. Thanks. Good morning, guys.

Good morning.

Can you maybe talk a little bit about what you're seeing in South America with respect to recovery in retail sales, your inventory levels? And also, any thoughts on margins for 4Q, given the very extreme strength that persisted again in 3Q?

Yes, Nicole. So I think if we look at the fourth quarter, we're definitely -- we've seen -- at the start of the third quarter, as you may recall, the government subsidized funding plans were a little bit delayed in ramp-up to the small and medium-sized horsepower type farmers. We saw that improve in the back half of the quarter. As we think about that, what we're seeing is a continued slowdown in that market, especially on the lower end side of the market. As we look at the dealer inventories, they definitely have moved to what I'll call more normalized level here in the fourth quarter or at the end of the third quarter, and we expect that to stay here into the fourth quarter. And as we think about, and we've been talking about this for the past couple of quarters, as the dealer inventories level out and the farmers' confidence in their available to get products to stabilize, we're expecting to see more of those traditional retail incentives that we would provide to our dealers and our farmers to start to materialize here in the fourth quarter. And what I would tell you is we looked at the third quarter, we started to see that at the back end of the third quarter. And so as we extrapolate that into the run rate for the fourth quarter, we definitely see the South American margins coming down. First is that third quarter, I would probably put them more into the high teens as we look at the fourth quarter, and that's sort of embedded in our Q4 outlook as we gave you that 12% full year versus where we are year-to-date.

Okay. Got it. That's really helpful. And then just a higher-level question on the implied outlook for 4Q. I think you guys are kind of embedding like EPS kind of flattish sequentially, but you usually see a pretty material Q-on-Q step-up. So what are the big drivers of that divergence from normal seasonality? Thank you.

Yes. So a couple of things driving the fourth quarter, Nicole. One, if you look at my – the currency outlook that we gave you this quarter versus the prior quarter, last quarter, we said it was going to be a 2% positive. Now we're saying it's going to be relatively flat. That influences sales by about $200 million. So, the fact that we've kept our number at $14.7 billion as a positive of our Q3 performance and our outlook for Q4, that also translates to around $0.20 of earnings per share. And so when you look at our outlook of $15.75, that's been diluted by about $0.20 of lost FX versus our third quarter outlook. But more importantly, when I think about the year-over-year Q4, if you remember, last year, we had an exceptionally strong fourth quarter as we were recovering from the cyberattack in the second quarter and the supply chain disruptions that we were dealing with. And just to put that in perspective, specifically in Europe, we had that really strong fourth quarter because of supply chain. And if you remember, we were talking about the semi-finished inventories at the end of the third quarter last year. This year, they're down about 70% -- almost 70% versus where they were a year ago, because we've improved the supply chain, because we've been able to get these tractors and combines out of the factories and off to the farmers much more effectively through the course of the year. So we don't expect that big fourth quarter, that massive fourth quarter we saw last year, specifically in Europe. And that's going to create a year-over-year challenge for us bringing those numbers down a little bit relative to what you would have saw last year.

Our next question is from Mig Dobre with R.W. Baird. Please go ahead.

Thank you and good morning. Hopefully, I understood this correctly, but I mean, what I heard from your comments is that inventories, dealer inventories have largely normalized at this point, and it sounds that demand maybe is starting to soften a little bit. So, I'm kind of curious as to how you're thinking about managing the channel as you look into 2024. Are you thinking a downward adjustment in production? And if that's the case, is there some context that we should have about the first half versus second half as we think about next year?

Yes. So I think, Mig, you're right. The inventory levels at the dealers, generally speaking, have normalized over the last quarter, I would say, with a couple of caveats to that. North America, for example, we do know that the dealer inventory is just around six months or so. The third quarter is usually the highest level. If I strip out the low – the small ag portion of that, the dealer inventory is actually around about five months. So it's still a little bit low so there's still some opportunity there. If I look at Europe and Eric, in his opening remarks, talked about the inventory levels being at about four months, again, that's an overall statement, but there are still a lot of areas where the Fendt high-horsepower tractor inventory at the dealers are below the optimal level for us. So we still see some opportunities for some dealer fill there. But generally speaking, I would say inventory levels are normal. As we think about 2024, as we go through our budget planning process, the question is going to be about our market share initiatives and what we think we can gain relative to where we were in 2023, given some of the supply chain constraints. And that's going to influence our production, especially as we see these markets potentially continuing to soften. So we don't know how the production is going to shape out just yet. We'll give you that update. But I would tell you, you should be thinking more about production aligned with overall demand as we think about 2024.

All right. That's helpful. And I guess my follow-up, your North America margins, as you talked about already have been quite good. I'm, sort of, wondering about the sustainability of that going forward, especially as you talk about Fendt continuing to build momentum? Thank you.

Yes. Again, I think, Mig, for us, North America has been a really good margin performance for us, and a lot of that is predicated on that Fendt's market share expansion. We've talked about introducing Fendt to North America and South America. Adding these Fendt dealers and really focusing on that Fendt experience, we've talked about being very selective on how fast we roll Fendt out into the dealer networks who is able to offer it because they need to deliver on that overall Fendt experience, which includes the Gold Star warranty, the replacement tractors. So we've seen great growth, great share growth in North America. And again, if I think about that performance year-over-year, a lot of that or the majority of that is coming from the Fendt market share growth that we're seeing or the Fendt performance in North America. And as we've said in the past, we still see opportunities. Remember at our December Investor Day, we said that we are going to outpace the industry regardless of where we were in the cycle by 4% to 5%. One of in those three growth factors were going to be the Fendt market share, mainly in North America and South America. We remain convinced that, that is still an opportunity as we move forward into 2024 Precision Ag growth, which we've said is going to grow at around 15% per annum on average and then our parts growth. So those three are going to help us outpace the industry by 4% to 5%. And I think North America is showing that this quarter, and we remain confident in its potential going into next year.

Yes. Just one more comment on that. We've grown the Fendt market participation in North America from about 40% market coverage to 70%, 75% market coverage with a step-by-step dealer expansion that Damon talked about. We expect to grow that from 75% up to 90%, 95% over the next couple of years, steadily only when the dealer earns it but much like we've been doing over the last few years. So there's more market potential there to be able to experience the full Fendt overall brand promise. Same thing in South America.

The next question is from Steve Volkmann with Jefferies. Please go ahead.

Good morning, everybody. Eric, I think you talked about farmers becoming more selective in their capital spending. What does that mean exactly? Are you seeing sort of a mix shift in the types of equipment that they're buying?

I don't know, if I'd say a mix shift. But I would say that, some of the applications, new applications for financing are cooling off. It's coming back to more of a normal market. We've had such a hot market these last couple of years. But the mix is still oriented towards large ag. The growth is still very much in the Precision Ag retrofit business to make an existing machine more capable and more intelligent. Small ag is still, on a relative basis, weaker than large ag. So I don't think it's much more -- much of a mix shift. It's just a general -- a little bit more caution on the farmer's part.

Okay. Thanks. And then it sounds like everywhere we turn, people are talking about sort of normalization. But does it make sense to think about 2024 just really big picture terms as kind of mid-cycle year for the industry, and you guys may do what you do if you have outgrowth targets, but is mid-cycle the right way to think about 2024 for now?

Yes, we're not giving exact numbers, but I think that we don't see any dramatic moves in 2024, let's say it that way. And so it's a general slight movement into 2024, but we haven't committed to any industry numbers. But wouldn't be shocked with your kind of prediction.

The next question is from Kristen Owen with Oppenheimer. Please go ahead.

Hi. Thank you for taking the question. I'm also going to ask a normalization type of question. And in particular, on the pricing front, as we think about pricing normalizing, can we just double-click on what pricing normalization for AGCO means today? So arguably, you've got a much richer technology mix, a much higher contribution from Fendt. Just how we think about what norm pricing means on a go-forward basis?

Yes. I think, Kristen, directionally, when we think about pricing, I would sort of tell you, it's 2% to 3% has been the historical. Again, when you think about the pricing and you referenced Fendt, Fendt is driving more of the margin enhancement. Again, if we're raising prices on a Fendt tractor, it may not be different than what we do with a Massey or Ultra tractor, when we think about that 2% to 3%. And to your point, when we think about the Precision Ag, the retrofit, that does operate at a slightly different price point. And so the pricing there may be slightly different. But in aggregate, you're probably looking at us being in that more 2% to 3% based on our historical rates.

Maybe just another comment, both your and Steve's question touched on this normalization. It works -- we believe it works on both sides of the equation. So although pricing won't be going up as much as in years past, we also expect that, there's going to be a lot more opportunity for farmer costs to come down and AGCO costs to come down. So, farmer costs in terms of fertilizer and some of their other inputs and then in interest rates, we feel like they're probably near peak or close to it. So that has a potential to go more down than up. And then AGCO costs similarly, both in our factories and our supplier factories, we've had a lot of inefficiencies over these last two or three years. And we've not gotten all that out yet. So, although, we've had a much better performance this year, our plant shortages are down 54% year-to-date, there's still cost in the system that we intend to take out in 2024. So that's the other half of the normalization discussion.

Appreciate those puts and takes for next year and beyond. But so then my follow-up question is related to the Trimble JV. You talked about the fill that needs to occur in order to replace the existing OEM relationship. But the $2 billion in Precision revenue implied by 2028, it's about a 15% CAGR off of a much higher base. Just help us dimensionalize the sources of growth in terms of technology solutions and how to think about the cadence to that $2 billion revenue. Thank you.

Yes, Kristen. I think for us, again, that 15% CAGR, I think what you're going to see here over the first couple of years is actually a decline in some of the OEM revenues coming out of the system, which we knew about as we were looking at the partnership with Trimble. As Eric alluded to in his comments, our plan is to replace that with our OEM fitment opportunities here and we expect to sort of recover that. But again, from an absolute level over the first couple of years, you won't see much growth there but see more of a transformation of the mix of that revenue. And then as we introduce new products, we start to leverage more of the combined channels, so again, bringing the Trimble type products into Precision Planting, some of our OEM channels, looking at accessing advantage channel with Precision Planting, we see significant revenue growth coming there, plus some of the new product introductions that they have in the pipeline that we're excited to bring to all of those different channels. And those are the two sort of the primary drivers that will help drive that growth over the next several years.

The next question is from Larry De Maria with William Blair. Please go ahead.

Hi, thanks. Good morning, everybody. Just want to follow up on this -- the Trimble discussion. And the $170 million in pro forma EBITDA, there's obviously a big portion that you've referenced of CNH and CNH dealer EBITDA. Can you maybe give us some color on specific numbers on what 2024, that $170 million looks like in 2024, given all the dynamics? Let's say, it's a flat market for what they sell and you're going to lose some sales and EBITDA but also gain some. So how would that $170 million translate on a full year basis, given those dynamics?

Yes. I think, Larry, it'd probably be a little premature for us, given that we're still in the midst of closing the transaction right now. I think we're going to defer any comments on 2024 on the JV portion of 2024 until we actually get to closing. Again, what I would tell you, as Eric has alluded to, once we're able to, we're going to start to work with the team there in shifting the receivers and our base offering to Trimble. But we have to work through the process here to ultimately close the transaction. But once we're able to, we'll give you guys more clarity on how we envision and what we see for the joint venture for 2024.

Okay. Thank you. And then maybe switching gears. You said, I think, in your comments, the tractors, planters, application equipment in North America are sold out for 2024 or for model year 2024. Can you put some context into that? What percentage of North America is covered by that? And is it -- are those sold-out levels higher than the 2023 levels? Just what does that directionally mean for North America?

Yes. I think that's directionally speaking, it's about 20% of the North American revenue. And it's, I'd say, relatively flat volumes year-over-year in those particular products.

Since supply chain has improved, Larry, it probably means we'll produce a small amount more than we did the year before but relatively similar.

The next question is from Tami Zakaria with JPMorgan. Please go ahead.

Hi, good morning. Thank you so much. So most of my questions have been asked, so just two quick ones. The first one is on fleet age, I think you mentioned it's trending younger. Is it for both tractors and combines that you feel like it's trending younger? And any quantification like what is the age now versus, let's say, two, three years ago?

Yes. So Tami, I would say, yes, both categories, tractors and combines. And we've moved down probably from the beginning of the year to where we are at the end of the third quarter to somewhere between half year and one year closer to normal. So I think we were probably a full year ahead of a 10 or 15-year average, 7.5 years versus this more normal 6.5. We're probably about halfway back to that 6.5, so probably closer to seven in terms of age of the fleet.

Got it. That's helpful. And then I think getting – going into the third quarter, you were expecting flattish production hours but it seems like it was down 2%. What drove that disconnect? And also related to that, in the fourth quarter now, it seems like you expect production hours up a little bit year-over-year. Again, which regions are driving this up expectations?

Right. Tami, most of that change in fluctuation related to what happened with the financing program in Brazil, so that program ran out of money, as we've talked about. As the loans began to be processed again, well, so that led to us cutting production in the third quarter in Brazil, and then as those loans now are being processed, some of that production got shifted into the fourth quarter. So net-net, most of that change related to South America.

And just one other thing to think about when you're thinking about the age of the fleet, the other indicator to watch is used inventories. And so for example, in North America, the tractor is 175 horsepower to 300 horsepower, which is right in the middle of the bell curve, we've got like 300 units in the industry now versus 6,500 units pre-COVID. So inventory is still low, maintaining good, strong price of used inventory, that's a good health barometer for the industry.

The next question is from Jerry Revich with Goldman Sachs. Please go ahead.

Yes, hi. Good morning, everyone.

Hi, Jerry.

I'm wondering, if we could just expand the discussion on the Trimble JV integration. So one of the compelling points about the acquisition is just how quickly you can transition the receivers and drive that additional upside for the joint venture. So as we think about the mix of receivers that are going to be Trimble JV over the course of fourth quarter, first quarter, can you give us a sense? Is it possible for us to be at a healthier run rate from a mix standpoint exiting the first half of the year than what the run rate of the joint venture is now? Or are we really waiting until we close to pull that lever, Eric, that you spoke about earlier in the conversation today?

Well, so there's two elements to that. One is, is there a technical design work to be done? And the second one is how big is the order bank? And so on the positive side, there's no technical redesign work to switch over, because we're already offering the Trimble receiver on our products. It's just a -- we offer two versions, and we actually have the other brand in base as the base offering. We would switch that, have Trimble and orient the customer towards Trimble. So there's no technical work to be done, but there is an order bank. And so whatever the order bank had been ordered over the last several months is what it is, and we just need to work through that. But we expect the deal to close in the first half of 2024. If regulatory approval happens to go at the pace we anticipate. And that's about the same time -- that's about the same size as our order bank. So we're trying to organize it such that we could get a running start early into the new joint venture with much stronger rates of Trimble take rates.

That's great. And can I ask on an unrelated question in Brazil. The industry year-to-date retail for 180-plus horsepower tractors down 8%. Your shipments are up over 20%. Is that how much share you're gaining? Or can you just flesh that out a little bit in terms of your market position now? And can you touch on where do you expect the margin rate to be in that region relative to your other regions on your normalized framework, considering the 20% that you're running at now?

Yes, Jerry. Some of that increase in terms of our sales was shipments to our dealers, and we talked about our dealer inventories kind of normalizing. So, some of it related to kind of restocking. But you're right in terms of -- especially when it comes to the higher horsepower categories for tractors, sprayers, and planters. I would add in there, too, in terms of market share gains. The Fendt brand has done really well in Brazil as we've launched it, and we have aggressive growth targets. And to be honest, we're actually ahead of those growth targets. So a good bit of that share gain a little bit of it is also restocking of our channel down there.

And Jerry, in regard to your margin question, again, South America has done exceptionally well, and again, you followed us long enough. We were in a money-losing position there years ago. We've taken that business as part of the strategy, mixing up to generate these 20%-plus margins. Again, a little bit of that is ahead of themselves because they've been very good in pricing and ahead of material cost and we have been giving those dealer incentives. As I said, in the fourth quarter, we expect that to come down more into, I would guesstimate, 17%, 18% margin range. I think over the long-term, I'll say, in a more normalized environment, we would expect the margins in South America to be more in that mid-teens sort of range over the longer-term when we get into what I'll call more of a normal run rate. But the balance of this year, we still expect it to be above that year as we enter the fourth quarter.

The next question is from Chad Dillard with Bernstein. Please go ahead.

Hi. Good morning guys.

Good morning, Chad.

So a couple of questions for you. First on pricing. So if I look at your year-to-date price and your 8% guide, it looks like 4Q implied is flat so I just want to confirm that. Second, just would like to get some early color on 2024 farmer profits for the US and Europe? And then finally, I just wanted to get a better sense of where you are versus mid-cycle exiting 2023 on a volumetric basis.

Yes, sure. So for Q4 pricing, Chad, I think directionally, you're in the ballpark. Flat to mid to low single digits is sort of the range that we would expect to see in the fourth quarter. I'll let Greg handle the '24 probability. But as I think about where we are mid-cycle, I'd say we've seen, as the markets have weakened here in the back half of the year, directionally, I would expect that as a total company, we would be exiting the year at around 105% of mid-cycle would sort of be our current estimate. And we started the year a little bit stronger than that. But given the weakness we saw in Asia-Pacific, some of the weakness we're seeing, especially in the low horsepower South America, probably about 105% as we finish the year. And I'll let Greg touch on the 2024 farmer profit outlook.

Right. So we've talked a good bit in our prepared remarks about commodity prices coming down, but still remaining at attractive levels kind of well above, if you look at 10-year averages and stuff. That being said, we've also seen input costs come back, diesel, fertilizer, some of the other input costs. So the outlook kind of at a high level would be to see a modest decrease in 2024 in terms of farm income, but certainly still in a very supportive range as we think about farmers' ability to continue to refresh their fleet and invest in new technology.

Great. That's helpful. And second question, just on R&D intensity. With the integration of Trimble, any change in terms of how you're thinking about that line item?

No, I mean, we've raised our R&D or engineering spend 60% since we launched our new strategy. We've invested in six tech companies, including Trimble JV. All of this is to accelerate our progress on developing industry-leading smart farming solutions. We have very minimal overlap between the Trimble Teams projects and the Precision Planting or AGCO team's projects. Where there are a little bit of overlap, we'll redeploy those on more projects. We've got like 150 projects lined up that are not being worked on yet to automate more features on the machines all the way on the crop cycle. So plenty of work left to be done. Lots of great people to work on them, and we want to help find max velocity on the overall portfolio. We think there's probably going to be some synergies as just like when we bought the six tech companies. Even though the project isn't redundant, if you develop a center in one place, you don't have to develop in another, you can just reuse it and things like that. So, we're looking forward to additional traction and velocity by having all these teams work together.

And the final question today will be from Tim Thein with Citigroup. Please go ahead.

All right. Those combined. Maybe just, I guess, part A is just on the Fendt in Europe, rather, in an environment where -- let's just -- let's call the market flat to down as a market. What kind of -- to the extent in a flat market, getting inventories back to normal, any way to think about, obviously, that carries a richer mix? So any way to think about kind of a margin range to the extent there's some channel fill in that product line? And then just on South America and Brazil, specifically, I just want to make sure I kind of get the message with respect -- not on the small side, but just on the high horsepower market. We've seen some of the crop chemical companies that put out some pretty big declines in terms of crop chemicals and other inputs. What, if anything, does that kind of signal to you in terms of demand profile as we head into 2024, not on the smaller set but just on your high horsepower market in Brazil? Thanks.

So, I think, Tim, if we think about Europe and again, using the commentary about the dealer inventories being at a relatively normal level, as I alluded to in my remarks, the high horsepower inventory levels are still below in many areas. So again and you know this Fendt is a richer mix product for us. And so to the extent using your analogy, things staying normal, as that sort of part of the inventory fills up, that would be margin enhancing for us, all else being equal. You layer on top of that some of the new products, the market share initiatives that we have, also Precision Planting, looking to expand in Europe, we definitely see opportunities. I go back to our December Investor Day where we said, we're going to outpace the industry by 4% to 5% regardless of where we are in the cycle and that between Fendt, Precision Ag and parts, Europe had an exceptionally strong growth parts business in the third quarter. So team is doing quite well as they look continue to maximize those three growth vectors for us. And again, I think we'll see where the overall markets are in 2024. But again, those three items, we expect to continue to help us outpace that. On South America, again, the team has done exceptionally well on the high horsepower segment of the market, the Fendt product portfolio, but even the high horsepower Valtra products, high-horsepower Massey products have done exceptionally well in gaining share there. So, again, we see significant white space opportunities in the Mato Grosso region. Again, you may recall, we have about -- we've covered about 70% to 75% of the white space there. There are still opportunities to gain share there as we open up incremental dealers. Our existing dealers continue to penetrate that farm. I would tell you, I was in the Mato Grosso region just a couple of weeks ago, met with multiple farmers in the region, and they are ecstatic with what they're seeing with the Momentum planter. The Fendt and Valtra products in the region are performing exceptionally well, and they were very excited about what they saw as there are opportunities for growth as that region continues to expand in arable land, as they continue to becoming more of a global exporter and we're very excited about the long-term process in Mato Grosso and what the Fendt product line, what was offering them in their overall profitability. So I think over the long-term, we feel very good about what we see in that part of Brazil specifically.

This concludes our question-and-answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks.

Very good. Thank you very much. I'll close today of saying thank you very much for your participation and your support of AGCO. We're really proud of our performance throughout 2023. It is a great third quarter in many ways and is setting us up for a trajectory to deliver even another record year big time. Just to give you some examples, our smart planters, we're expecting those to be up 20% from 2023 versus 2022. IDEAL combines forecast those sales will be up 65% versus 2022 and 118% versus 2021. And sprayers, our smart nozzles be up 75% versus 2022. Those are all just the indicators of the value we're generating for farmers through smarter and smarter machines that add not only more productivity but more sustainability to their operations. Our key success overall is the continued execution of our Farmer First strategy. Our focus is on growing our margin-rich businesses like Fendt, parts and service, and our Precision Ag business that we mentioned several times. We've invested heavily in all of these, and we continue to do that. The announcement of the AGCO-Trimble joint venture is -- in this past quarter, represents the biggest ag tech deal in history and will enable AGCO to further develop farmer-focused solutions that are solving critical problems, many of them with very short paybacks. The large ag markets continue to be higher than historical averages globally, and farm fundamentals are supporting farmers' investments. Over the last few quarters, we've touched on many factors supporting our markets, including growing populations, changing diets, low stock-to-use levels, increased demand for biofuels and relatively healthy commodity prices. All of these trends give us confidence in the long-term health of our industry. In fact, when you take a look at just renewable diesel, we're seeing that in the US by 2028 -- or 2025, sorry, renewable diesel demand will grow to about -- to consume about 40% of the current US soybean makers. That's very similar to what's happened with ethanol consumption of the corn acres. So, there's a big demand growth driver right on the horizon here. We look forward to seeing many of you at our AGCO Technical Meeting on November 14th in Hanover. Thank you very much for your participation today and have a great day.

Thank you for joining the AGCO third quarter 2023 earnings call. The call has concluded. Have a nice day.