Good day, and welcome to AGCO First Quarter 2024 Earnings Call. [Operator Instructions] Please note that 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. Mr. Peterson, your line is unmuted. Please go ahead.

Thanks, Jigar, and good morning. Welcome to those of you joining us for AGCO's First Quarter 2024 Earnings Call. We will refer to a slide presentation this morning that's posted on 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 their financial impacts. We'll discuss demand, product development and capital expenditure plans and timing of those plans and our expectations concerning the costs and benefits of those plans and timing of those benefits. It will also cover 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, 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, putting premium technology and smart farming solutions within budget and with the expected performance and price benefits. Also includes difficulties in integrating the PTx Trimble business in a manner that produces the expected financial results, the reactions by customers and competitors to the transaction, including the rate at which PTx Trimble's largest OEM customer reduces purchases of PTx Trimble equipment and the rate of replacement by the joint venture of those sales. And it also includes introduction of the new or improved products by our competitors and reductions in pricing buyback, 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 included in AGCO's filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2023, and subsequent Form 10-Q filings. AGCO disclaims any obligation to update any forward-looking statements, except as required by law. We'll make a replay of this call available later today on our corporate website. On the call with me this morning are Eric Hansotia, our Chairman, President and Chief Executive Officer; as well as Damon Audia, our Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead.

Thanks, Greg, and good morning. Before I get into the details of the quarter, I want to take a moment to express my confidence in the team and our strategy. Despite weaker industry conditions, our focus on 3 growth drivers as well as integrating PTx Trimble and staying agile by adjusting production and our cost structure all continue to position 2024 to have the second highest level of full year adjusted operating margin in the history of the company. With that, let's look at AGCO's first quarter results. First quarter 2024 net sales came in at $2.9 billion, which was down approximately 12% from last year due to softening global end market demand for agricultural equipment. Consolidated operating margin was 9.3% of net sales on a reported basis and 9.6% on an adjusted basis. We focused on reducing production more than the industry decline and further tightened our cost controls in the quarter to align with slowing end markets. Lower sales and operating leverage were a factor in our reduced margins. Stability in the European region helped partially offset sales and operating margin declines in all other regions. Despite the industry being down in Europe, sales were flat compared to the first quarter of 2023 yet operating margins had an all-time first quarter high of 16.4%, an impressive 230 basis points better than the first quarter of last year. Margins in South America remained pressured as the industry weakened even further than expected. And we saw operating margins of approximately 5.3% in the first quarter of 2024 compared to nearly 20% in the first quarter of 2023. Market demand remained weak in Brazil. And we also underproduced retail demand there, which helped our -- lower our dealer inventories in the region. More challenging global market conditions are expected to continue…

Thank you, Eric. Slide 10 provides an overview of the regional net sales performance for the first quarter. Net sales were down approximately 13% in the quarter compared to the first quarter of 2023 when excluding the positive effect of currency translation. Pricing in the quarter, which was around 1%, contributed to higher sales. By region, the Europe/Middle East segment reported flat sales in the first quarter of 2024 compared to the same period in 2023, excluding the impact of favorable currency translation. Growth in Germany and France was offset by lower sales across nearly all other European markets. Positive pricing and increased sales of high horsepower tractors, especially Fendt products, was offset by declines in other products. South American net sales decreased approximately 42% in the first 3 months of 2024 compared to the same period of 2023, excluding the impact of favorable currency translation. Significantly softer industry sales drove lower sales of tractors and combines, which accounted for most of the decline. The substantial sales decrease in Brazil was slightly offset by modestly higher sales in Argentina. Net sales in the North American region decreased approximately 21% in the first quarter of 2024 compared to the same period of 2023, excluding the impact of favorable currency translation. Softer industry sales were partially offset by positive pricing. The most significant sales declines occurred in the hay equipment, midrange tractors as well as combines. Net sales in Asia Pacific/Africa decreased 16%, excluding negative currency translation impacts in the first 3 months of 2024 compared to the same period in 2023 due to weaker end market demand. Lower sales in China and Australia drove most of the decline. Finally, consolidated replacement part sales were approximately $434 million for the first quarter, down approximately 5% year-over-year or 6% excluding the effect of…

[Operator Instructions] The first question is from the line of Jamie Cook from Truist.

Two questions. One, could you help us a little bit on South America in terms of how you're expecting production cuts like the level of production cuts in South America, sort of pricing and how you're thinking about margins in South America in the back half of the year? I think before, you said you expected margins to be in the maybe low double-digit range. I'm just wondering if that's still an opportunity? And then my second question, Damon, I just want to make sure I understand Trimble, understanding you're saying it's going to be accretive for the first full year post the close. Do you mean by the first quarter of 2025? I just want to be clear there. And then I'm just wondering the path to get there, given it's going to be $0.13 dilutive, I mean, for the year. I guess it's just debt pay down. Any color you could help me there? And then, I guess, how accretive by the first -- by the full year, just given the farming trends aren't really favorable right now.

Yes. So Jamie, I'll start with the Trimble question, and I'll revert back to the South American question. So fully accretive in all of 2025. So not the 4 quarters. But if we look at all of 2025 is what we're planning on it being accretive. And it's really a combination of us being able to repay some of the debt that we took on here, given our strong free cash flow generation. But more importantly, as we really start to ramp up some of the synergies here in leveraging the precision ag channel that we have, our Precision Planting channel and also complementary products from Precision Planting moving into the Trimble, Vantage channels. So we see those 2 things really helping drive some growth next year and then paying down some debt. So again, accretive for the full year of 2025 versus the first 4 quarters. On South America, as you heard in Eric's opening comments, we did reduce our production again over 30% here in the fourth -- in the first quarter. That's after a 30% reduction in the fourth quarter. I would expect to see continued production cuts more heavily weighted here in the second quarter. We did make some marginal improvement in the dealer inventory down there, but still not where we need to be. So I would expect to see further production cuts here again in the second quarter. And then hopefully, as we move into the back half of the year, those production cuts starting to become less and hopefully, as we get to the fourth quarter lapping. As we think about the margins in South America, and again, I'm going to give you margins that are inclusive of the PTx Trimble being rolled into these numbers just to stay consistent. But we do expect the margins really in the back half of the year to start to get back up into those mid-teens. Again, under the presumption that the markets continue to improve, the new FINAME financing comes out here in the back half of the year, which spurs growth in some of the farmer activity. So right now, we see the first half continue to be challenged, both for farmer demand as well as our production and the absorption but then hopefully improving in the back half.

Our next question is from the line of Kristen Owen from Oppenheimer.

Sort of an extension of Jamie's here, but maybe broadening that out to the other regions. Just given the production cuts that were both higher than expected and broad-based and now the updated outlook, I'm hoping you can walk us through your updated assumptions for just organic volume growth across the regions for the remainder of the year. So maybe if we strip out the Trimble results, what those organic expectations are.

Yes. So I think, Kristen, if we look at the organic -- again, excluding Trimble, we expect to see the, I would say, the North American market probably down right around 10% for the full year, so a little bit better. They were down 21% in the first quarter. So call that sort of mid-single, upper single digits for the balance of the year. Europe, after the strong first quarter that we saw here, I would tell you, relatively stable year-over-year other than that fourth quarter. Remember, we had a record fourth quarter with Europe. We don't see that repeating, given the state of the market. So I would say Europe will likely be down sort of that mid-single digit for the full year, a lot of that though concentrated in the fourth quarter year-over-year comp. Asia Pacific, relatively flat as we move through the year here off the big decline here in the first quarter. We see that stabilizing through the balance of the year. And then South America, again, big decline here in the first quarter. We expect another large decline year-over-year in the second quarter and then a decline in the third quarter and then again lapping what, hopefully, is an easier comp seeing growth returning back in the fourth quarter. But I would put the sales in South America down at around 20% for the full year, and that sort of gets you to our negative 9% or so what we're looking at organically here for the company.

Okay. And then you didn't mention this in the prepared remarks, but I was wondering if you could address the 8-K yesterday regarding your commercial relationship with TAFE. Can you provide us some of the background, any terms related to the termination and just the strategic rationale there.

Yes. So thanks for the question, Kristen. Nothing -- I guess nothing significant other than -- again, TAFE, as you know, is one of our critical suppliers to us last year. We purchased about $172 million of low horsepower tractors that we sold in other parts of the world. And like any supplier relationship, we work through them on how they're performing. And we've had multiple communications with TAFE over the years on our supplier expectations of them. And we basically got to a point where we worked with them, and we needed to give them notice that we were going to take a different path to source these low horsepower tractor from a different supplier at some point in time in the future. So we follow the ordinary course. I would tell you, Kristen, we did this as we would treat any important strategic supplier relationship with significant communications over the last several years, outlining expectations. But at some point, as we think about the farmers' demand for our products, the dealers' needs for certain products around the world, we felt this was in the best interest of AGCO and our farmers and our dealers to make this change.

We have our next question from the line of Stanley Elliott from Stifel.

Can you talk a little bit more about what you're seeing in Europe? Curious, I guess, kind of how much margin is maybe mix versus some of the manufacturing improvements you all have had going on over there?

Yes. I think, Stanley, it's sort of -- Europe is maybe a little bit of a tale of 2 cities there. Our Fendt product line has done exceptionally well. We've seen good pricing, and I would say some very strong mix coming out of Europe. Again, we got the new 600, and we have the next generation 700. So seeing some very good performance, good share capture by the team. Our Fendt [ EMEA ] team has done phenomenally well in gaining share in the European region as well. So I would say that part of the business has done quite well. As the industry has weakened there, I would say we're seeing more pressure on the more volume-orientated brands in Europe. So Massey Ferguson and Valtra, although doing okay, I think they were a little bit more subject to the market weakness. And so again, overall, the markets are weakening, but Fendt continues to perform exceptionally well as that value proposition that those farmers see is being rewarded right now.

And just, I guess, a point of clarification. So the $300 million that's going to come from Trimble this year, those are only the sales to AGCO, and that kind of strips out your sales to other parties that Trimble used to sell to? And then if that's the case, at what point or can you help us with kind of a time frame when you think you recoup some of those sales?

Yes. So Stanley, I think it's the -- just be a little bit more of the inverse. So the $300-plus million of sales that I showed on the slide are to sales to everyone excluding AGCO. We do -- there is some sales. And if you looked at the 8-K that we filed about a month ago, you would have saw that last year, there was about $35 million of sales that the Trimble JV would have sold to AGCO. Because we now consolidate that business, those numbers are stripped out as part of the corporate eliminations. And so the 300-plus are all third-party sales. So again, similar to as we've talked to Wall Street about our precision ag business, as you know this well, we talk about 2 pieces of that business. We talked about the Precision Planting, the retrofit third-party sales, that's usually been about half of the number. And then we talked about our Fuse business, which is the OE sales that we're selling to high technology into Fendt, into Massey, into Valtra. Same thing that we're going to have to communicate to you guys now about PTx Trimble because we'll continue to make the sales third party. And again, that's $300 million plus. But there will be a growth in the AGCO sales that you won't necessarily see in that number. So we'll have to give you that similar overview of sort of what's the combined number versus what's in the reported number. I hope that makes sense.

We have our next question from the line of Tami Zakaria from JPMorgan.

So just wanted to understand the guide a little better. I think you're excluding PTx Trimble that you expect about $300 million plus. The core business, the new guide suggests like it's down by almost $400 million versus the previous guide. So can you just help me understand the buckets of this guide down? How much is North America versus South America versus if there's any FX in there. So really trying to understand what's the delta between the current and previous outlook for the core business ex Trimble.

Sure. No problem, Tami. So we went from 13 6 to 13 2 on the core business. I would tell you, just call it was around about $150 million of that is related to the currency weakness, give or take. You got about $200 million related to the change in the South American market. And then the delta would be the pricing coming down from about 1.5% down to around 1%. Those are the 3 big buckets.

Got it. Okay. And then I saw in the presentation, I think you're expecting a high 20% EBIT margin from the Trimble, PTx Trimble, which I would think is a little lighter than what Trimble as a standalone company used to do. So again, I know probably sales are down this year, but can you just help me understand what drives that high 20% EBIT margin? And where do you eventually see it going as, hopefully, that market recovers at some point?

Yes. So again, Tami, what we're showing you is the revenues excluding AGCO sales. So keep that in mind. Again, last year, that was $35 million. So -- but if I think about what we said is Trimble or PTx Trimble margins in the high 20s. If you look at what we showed in September, we would have shown an EBITDA margin in the low 30s. So again, I think if you add in about $5 million of depreciation, these numbers do reflect some TSA costs, and we're doing a transitional services agreement with Trimble. So there's a few million dollars embedded in these numbers. That will work its way out of the system over the next couple of years as we start to integrate them more into our system. So that will help pick up the margins there. And then again, with the revenues coming down, again, you're losing some of that leverage, which is depressing the margins a little bit. And then again, I would layer in, if, again, $35 million of good margin business, with no real change in the SG&A cost is what's bringing the margins down a little bit as well. So overall, when we look at the products and we look at the gross margin of what we're selling them in the marketplace, we feel really good about it. And then we start to talk about the synergies and the revenue growth as we integrate that more into the AGCO portfolio here going forward.

The next question is from the line of Mig Dobre from RW Baird.

Yes. I also want to follow up on the Trimble JV. Look, maybe I'm a little bit confused here. But using the information that you put out in the 8-K about a month ago, it strikes me that the margins that we saw there, the operating margins for the Trimble JV were a little bit lower than the high 20s that you're talking about here. So when I'm kind of looking at what's going on in terms of volume compression and obviously, the fact that the CNH business is going away from Trimble, I'm kind of curious how to square to that $300 million revenue guide that you provided but also to the high 20s margin here. So what assumptions are you making on the core Trimble revenue and on the CNH-related business?

Yes. So Mig, I guess when I think about the 8-K where we published the standalone financial statements, again, I think it's important to remember that this was a segment or a portion within the Trimble business that they were reporting. And as they went through or as we created with Trimble, the standalone cost, there were certain allocated costs that were applied to create, in theory, the pro forma of that business that we filed in that 8-K. That doesn't necessarily reflect all of the cost that we have taken over as part of the business or cost that we would incur because we'd be able to leverage many of our operating resources. And so again, it was trying to create -- the goal of that 8-K is to create a standalone financial statement for what that business, which has included some of the allocated costs that Trimble would not have shown or that we would not have shown in the -- when we did the announcement back in September but are not actually reflective of the ongoing cost structure. So hopefully, that explains -- when we give you the numbers that we're talking about now, it's the business that we're controlling, the cost structure that we see in the business. We see the revenues right now for the balance of the year. And again, that's for the remaining 3 quarters, we see that being about $300 million. We do see the CNH business coming down. Again, if you look at the revenue in that 8-K, we said the revenues were just over $500 million or right around $500 million. When you layer in the first quarter of what Trimble will ultimately announce related to this business, directionally, let's say, you're going to see about the numbers coming down around $100 million year-over-year, which is not surprising because when we think about that, our markets have come down since our initial announcement have come down around 10%. So you have around $50 million of revenue related to lower market. We do expect the CNH OE business to come down. We talked about that in September. We continue to expect that. I would say that's probably going to come down directionally $40 million or so year-over-year. And then the rest of the number is a little bit of the churn that we knew with the CNH dealer channel as they were beginning to either sign up with Trimble as a Vantage dealer or if they were going to be going elsewhere. And so again, when you look at the numbers, the decline year-over-year, we look at the margins, again, we still see this to be a great business. And again, we feel comfortable with these high 20s operating margin and growing as that volume continues to come back here over the next couple of years.

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

This is Clay on for Jerry. As a follow-up on the CNH side dealers, are you seeing sign-ups for those -- how -- can you just update us on the progress for sign-ups for those to become the Vantage dealers? Or is there still some destocking as we look forward?

Yes, Clay. So I think, again, the relationship with CNH and Trimble, they made that change long before the announced joint venture between us and them. And again, they had, had some very good success in signing up many of these dealers to begin to sell the Trimble products directly. We've continued to see good momentum as the sales teams have been out with the dealers, as some of our team members now over the last 1 month have begun to work with the Trimble team as well in working to update and connect with these dealers about the value and the benefits of the PTx Trimble products. And again, really no change in how we're approaching this. With our Precision Planting business, we're very much focused on the farmers and servicing all makes in all models. So our Precision Planting Group is very much similar to what the Trimble Group had been. And the key for us and with the dealers is that, again, we want them to be able to service the farmers the way the farmers want to be serviced. And whether that's with a competitive product or an AGCO product, we're agnostic to that. We're there to service them, make them more productive and drive their yields, reduce their input costs and make them more profitable. So I'd say we're seeing good momentum. Obviously, the market environment is a little bit more challenged. Farmer incomes in many parts of the world are lower this year than they were last year. So you're seeing a little bit of hesitation more just on farmer spending. But I would tell you the momentum that we're seeing with our team now engaging with the PTx Trimble team has been very good, and the engagement from the dealers has been very good as well. Again, we still have to work through some of the history of how many of these dealers receive their Trimble product because that would have come directly from the OE. And as this now transitions from the JV, we would continue to expect a little bit of churn here in the first half of this year and then hopefully normalizing as we move into the back half of the year.

And separately, you have an update for us on just the GSI portfolio review timing and what the last 12 months EBITDA has been?

Yes. So we continue to be under the strategic review of the grain and protein business units. Significant amount of external interest on this. And also the team continues to execute exceptionally well as we started the first quarter. What we've historically said is the EBIT margins for this business are sort of in that mid-single digits. Again, credit to the grain and protein team. They've done exceptionally well and had a great first quarter here. So I think we'll be in a position to sort of come to a final conclusion on that sort of in the summer here of this midsummer time frame.

The next question is from the line of Chad Dillard from Bernstein.

So my question is on the change in pricing guidance for '24. I just wanted to get a sense for what you're seeing from the regional standpoint. Was all the change driven by South America? Or are there other regions where you saw a pull back? And then specifically for South America, how should we think about the cadence of pricing from 1Q through the balance of the year?

Yes. I think, Chad, the pricing is going to be pretty much across the board. I wouldn't say -- a little bit heavily weighted here in the first half as we start to lap some of the comps especially in the South America in the second half. I would say, again, it's a little bit more concentrated in the volume-orientated brands if I had to weight it between Fendt and Massey and Valtra. But generally speaking, it's across all of the regions here.

Got you. That's helpful. And then just second question on your legacy AGCO Precision Planting business. What was the year-on-year change in revenues in the first quarter? And what are you embedding in your guidance for the full year for that business?

Yes. So if I look at precision ag revenue, it was flat year-over-year. If you remember the first quarter last year, we were still coming off the very strong momentum, supply chain challenges. So the revenues were flat year-over-year at just around $200 million. And that's inclusive of the Fuse business. So again, I think similar to the prior -- one of your earlier questions, at both the retrofit sales as well as what we would term the internal Fuse sales, that was around $200 million. We still expect sort of, I would say, mid-single-digit growth in that business. And again, we've talked about helping dampen the earnings of our business through the cycles. Precision -- our precision ag business is doing really well. The aftermarket or that retrofit, we see that continuing to grow despite the OE part of the business. So good momentum, great margin business, and I would say sort of that mid-single digits -- continue to expect mid-single-digit growth here for 2024 for that particular business.

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

Yes, I'll close today by saying that there's never been a more exciting time to be in the agriculture business. Technology is transforming how farmers operate and providing them with the potential to produce more food in more resource-efficient ways, a critical need given the world's expanding population. AGCO's farmer-first focus centers on helping them realize this potential, enables them to operate more profitably and sustainably. The key to our success is the continued execution on our farmer-first strategy. Our focus is on growing our margin-rich businesses like Fendt. In fact, I was just up at the launch of the Fendt Lodge, our brand home in North America. And we had unbelievable excitement by farmers and dealers about that brand and how it can grow -- continue to grow into the future. Secondly, our Parts and Services business; and third, our Precision Ag business, which we've been investing in heavily in the last few years. In April, we reached a major milestone in our company's history by closing the PTx Trimble joint venture, which creates an industry-leading global mixed fleet precision ag platform to better serve farmers and original equipment manufacturers. For the last few quarters, we've touched on many factors supporting our markets, including growing populations, changing diets, low stocks to use levels, increased demand for biofuels and relatively healthy commodity prices. All these trends give us confidence in the long-term health of our industry. I'll finish where I started. Our financial outlook reflects my confidence in the team and our strategy. Despite weaker industry conditions, we continue to execute on investing in the future, delivering market share gains and staying nimble on our costs. All these will help position us to deliver the second highest level of adjusted operating margin in the history of our company despite meaningfully weaker market conditions year-over-year. We look forward to seeing you at the upcoming technology event in June. Thank you, and have a great day.

Thank you. Thank you for joining the AGCO First Quarter 2024 Earnings Call. This call has concluded. Have a nice day.