Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the AGCO Corporation's 2013 First Quarter Earnings Release and Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Greg Peterson, Head of Investor Relations. Please go ahead, sir.

Thank you, Sarah, and good morning. Welcome to those of you joining us on the call and over the Internet for AGCO's First Quarter 2013 Earnings Conference Call. We will refer to a slide presentation this morning, and we've posted those slides on our website at www.agcocorp.com in the Investors section. The non-GAAP measures used in that slide presentation are reconciled to GAAP measures in the last section of that presentation. We will make forward-looking statements this morning, including demand -- those including demand for our products and the economic and other factors that drive that demand; product development plans and timing of those plans; acquisitions, expansion and modernization plans; and our expectations with respect to the costs and benefits of those plans and timings of those benefits; also, with regards to our future revenue, earnings 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 ended December 31, 2012. These documents discuss important factors that could cause actual results to differ materially from those contained in our forward-looking statements. A replay of this call will be available on our corporate website. On the call with me this morning are Martin Richenhagen, our Chairman, President and Chief Executive Officer; and Andy Beck, our Senior Vice President and Chief Financial Officer. With that, Martin, please go ahead.

Thank you, Greg, and good morning to everyone. Slide 3 summarizes our results for the first quarter of 2013. AGCO started the year in a very positive way. Our first quarter sales were the best in our history, as we capitalized on improved demand in South America and continued market strength in North America. In addition, AGCO executed our important margin improvement initiatives. First quarter operating margins in our South American segment improved over 400 basis points to 10.4%. In North America, the economics for row crop farmers continue to be outstanding and the market demand for large equipment remains very strong in the region. AGCO sales in North America grew by approximately 10% compared to the first quarter of 2012. North American operating margin reached 11.6% in the first quarter of 2013. In addition, production rates at our new Fendt assembly facility in Germany increased to normal levels during the first quarter. As expected, sales mix and Fendt productivity impacted EAME's first quarter operating margins. However, we remain on track to deliver significant EAME margin improvements for the full year of 2013. I'm also pleased to say that we made our first dividend payment in March, a strong testament to the progress of AGCO's ongoing profitability improvement and to the health of our balance sheet. AGCO's tractor and combine production volumes are illustrated on Slide 4. First quarter 2013 production was flat compared to the first quarter of 2012. Higher levels of production in our South American and North American factories were offset by lower build rates in Europe. As I mentioned earlier, our production volumes at our Fendt plant in Germany improved throughout the first quarter, and our total output was higher than expected. In 2012, Fendt had a front-end loaded production schedule ahead of the cutover to…

Thank you, Martin, and good morning to everyone. AGCO's regional net sales performance for the first quarter of 2013 is outlined on Slide 6. Currency translation had a negative impact of approximately 3% on AGCO's consolidated net sales in the first quarter of 2013 compared to the same period in 2012. The Europe, Africa, Middle East segment reported a net sales decline of approximately 1% excluding the impact of currency during the first quarter of 2013 compared to the first quarter of 2012. Lower farm income last year and a cold wet start to 2013 contributed to sales declines across many of the Western European markets, offset by growth in France. North American sales increased approximately 10% during the first quarter of 2013 compared to the same period in 2012. The positive economics being experienced by the professional farming segment produced increases in high horsepower tractors, combines and implements. AGCO's first quarter 2013 net sales in South America grew about 26% from comparable 2012 levels, excluding currency translation impacts. Higher sales in Brazil due to healthy farm economics and attractive government financing plans accounted for most of the increase. Net sales in our Asia Pacific segment increased approximately 31% in the first quarter of 2013 compared to 2012, excluding the impact of currency. Growth in China and East Asia produced most of the increase. Parts sales were $282 million for the first quarter of 2013, a decrease of approximately 6% compared to the same period in 2012, excluding the impact of currency translation. Slide 7 details AGCO's sales and margin performance. Gross margins improved about 50 basis points in the first quarter of 2013 compared to the prior year period. The benefits of additional volume, positive net pricing and cost reduction initiatives were partially offset by additional costs associated with…

[Operator Instructions] Your first question comes from the line of Jerry Revich from Sachs.

This is Ravi Gill on for Jerry from Goldman Sachs. You had excellent margin performance in North America. Can you talk about the moving pieces that contributed in the quarter? And do you expect to see a sequential margin increase consistent with a typical seasonality?

Yes. In first quarter, I think what happened in North America was a little better volume than expected and that helped drive some margin improvement. Also, material cost in our factories was well under control. There's a fair amount of steel being used in some -- like our Hesston products. And that was well under control. And with some good price increases, we're able to drive those margins up. So we were pleased with our performance in North America in the first quarter. When you look at the second quarter, there is a typical seasonal increase in margins that we would expect to see and we'll expect to see that again. We're looking right now that North America margins for the second quarter should be relatively flat to the year before -- same period in the year before.

Okay. And can you talk about whether your ERP implementation is complete at this point in time?

No, it's not. We've successfully implemented our SAP system in our Fendt facility and our Valtra facility, and we're moving into other facilities this year and next year in Europe and in China. And after that, we'll start to think about North America.

Okay. And then just lastly, can you give us a sense for which European markets you expect to be more resilient than others this year?

Actually, when you look into the markets in Europe, the U.K. had a pretty weak start because of the bad or the cold spring, which had mainly an impact on the apple [ph] farmers so far but also on the feed farmers in the northern part of the country. I think that England will catch up because we know that nature normally is pretty good in doing that. They're about 4 weeks late. So Germany and France look rock solid. We see increased demand in Eastern Europe and Central Europe. Nordic countries are also a little slow. That also might be caused by the cold spring. And then when you look into Southern Europe, Spain and Italy, they are still slower than previous years, but that doesn't have such a big impact on us because they're mainly consuming small tractors from local Italian suppliers. So companies like Sami or Landini might be hit more than we are. Partially, this also would affect New Holland.

Your next question comes from the line of Robert Wertheimer from Vertical Research.

It's Joe O'Dea on for Rob. First question is just on Fendt production. You talked about getting to sort of normalized levels in the quarter. Could you just talk about it from a cost perspective and how costs are aligned with those production rates right now? And any specific actions you might be taking in the second quarter to bring costs down there?

Yes, well, the normalized levels of production are being actually record levels because we now can take advantage of the new capacity, and we're talking about 90 to 100 units per day. So we are, I'd say, getting to about 90 on a more stable basis. And when it comes to margins, that's the bad news, all bad news, at AGCO, we have a CFO in charge of this.

Yes, exactly. So as Martin said, the production levels are in line with where we project them and need them to be to meet our demand for our customers. From a cost standpoint, the productivity is still not in line with where we will ultimately want to see it. During the first quarter, we had what we're calling start-up costs or lower productivity in that facility that amounted to about $15 million. So that did impact our margins. As we move into the second quarter, we'll look to about half that number. And then in the second half, hopefully not see those additional costs coming through. So we're making progress with the output as well as the productivity in the plant. And we're confident that we'll get there.

Okay, great. Second question is just on Brazil. I mean, easier comps in the first half of the year than the second half of the year. But are you seeing any pull-forward of demand related to favorable financing right now or the clarity of financing that you saw? Or is it more sort of just a catch-up on needed equipment?

It's a catch-up on needed equipment. I don't see any pull-forward, and the market is very stable. They -- Brazil is -- they're facing a record harvest. And so they just also need product, capacity wise, in certain areas, like for example, in harvesting.

Your next question comes from the line of Jamie Cook from Crédit Suisse.

This is actually Andrew Buscaglia on behalf of Jamie Cook. So I just had a -- I was wondering if you guys could give us an update. I mean, obviously, the market looking better and your visibility probably is improving. Can you give us an update on the -- your visibility you have in your order book and then how it compares to last year at this time? I imagine it's quite a bit there.

Yes, I would like to talk about the market a little bit in general because this is a question we are asked very frequently. I see the situation as such that we had some very stable markets in the last years when you look into the past, 2011, '12 and so on. And we are in a very stable environment again this year. And this is how I see also the future. So that means there will be globally regional changes due to climate or due to finance programs or subsidies here and there. But overall, we are very optimistic and very positive about the market environment also for the years to come. And I think you will hear the same from the 3 global players. And I think that the markets are big enough and also enough opportunities and growth for all 3 players. So our industry has been consolidated a lot and therefore, I think, most probably, there's not one other industry having the same market environment and the same long-term stability and growth potential like our business. And now, that was a commercial, now I hand it over to Andy.

Yes, on the order board, our orders are all up from where we were at the end of the year. And as we mentioned on our comments, they're up in North and South America and then down in Europe. Our order visibility overall is about 3 to 4 months. At least 3 months in each market, probably a little more visibility in North America.

Okay, that's helpful. And then I had another question. I know, first off, Asia Pacific, your margins there were pretty impressive. Did that surprise you guys in the quarter? And then I know your commentary was that this won't continue going forward due to, I forget what you guys mentioned, some -- what was it in the quarter, market expenses in China. Can you just explain that a little bit more?

So Andrew, when you look at our Asia Pacific segment, the majority of our ongoing business is in Australia, New Zealand, and a lot of the growth that we're seeing is China and Asia. Some of that growth is related -- going forward, anyway -- related to GSI but then also to the fact that we're building a plant there and localizing a lot of production. And so now in the period when -- where we've got that plant under construction, as you say, we're developing the market, we have a lot of market development expenses. So this quarter, our margins did improve from the -- sequentially, anyway. And that was a function really of timing of those development expenses. And as we go through the year, you'll see our development expenses accelerate. So you'll see -- we talked about an additional $10 million this year. So you'll see that as we go through the year, and our margins will come back down in that region.

Your next question comes from the line of Andy Kaplowitz from Barclays.

It's Alan Fleming standing in for Andy. Nobody has asked you about GSI yet, so I will. But the quarter seemed relatively in line with expectations. You had talked about a slow start to the year. But your guidance implies some pickup through the balance of the year. So will we start to see that in 2Q? And then generally speaking, can you just comment about the level of inquiries you're seeing specifically in North America? Are you starting to see any improvement on the grain storage side?

Well, the business is very solid. It is in line with the business plan, which we used when we bought the company and with the budget. We see some upside, yes, in North America in grain storage, but also in broilers and layers in China due to the bird flu. So that means, overall, we are very optimistic that we will have a pretty good year.

Okay. And will we start to see improvement as soon as this quarter?

Yes.

Most of the improvement is in the second half of the year; we still project our sales to be down in the second quarter. As Martin mentioned, there could be some upside there depending on how the market develops. Things are -- the environment with the more volatile crop prices is a benefit to that -- the grain storage business. And with the crop prices coming down a little, that does help feed cost, which helps our protein business. So there are some positive signs there. So we're hopeful there can be some upside. But at this point, we're saying still down in the second quarter and then up in the second half.

Okay, that's helpful. And if I could switch gears and ask you about Europe. Coming out of SIMA, I'm curious what your guys' perception was of the sentiment at the show, kind of -- and what your dealers are telling you now versus maybe what they were saying 3 to 6 months ago? And did SIMA drive any pickup in orders in 1Q or do you expect to see any follow-through in 2Q?

Well, this was one of the best shows in France. So the attendance was extremely, extremely high. And what you could see also is that we had a lot of people at our facilities. So we had a lot of visitors from all over the world, a lot of traction from Africa and Eastern Europe as well. And it was overall a very positive show for us. So the mood of the European farmers is pretty good. We do analyze that on a quarterly basis. We have external, it's called the -- how do you call it? The barometer. So that means, overall, everybody is interested and also looking into investments. One thing is how good they are feeling, but important for us is how much do they intend to buy and from whom. So we are, I think, facing a pretty good year in Europe.

And Alan, the only real change from the show, I think, is just the winter has been extended and kind of wet, as Martin mentioned, wet and cold weather in several places or in a number of places that has kind of delayed planting, similarly that we're seeing in the Midwest of the U.S. So just a little weather involved more recently.

Okay. And then just one quick one. So with normal production levels at the Fendt facility now or even maybe a little bit better than we saw year-over-year with the additional capacity, should mix be neutral to maybe positive going forward from here?

I think in Europe we will see the mix start to get better in the second half of the year. Probably not in the second quarter but -- because we were producing at very high levels for Fendt a year ago in the second quarter. When we get into the third and fourth, we'll certainly see that.

And the sales mix, of course, will be positive because we plan to sell more Fendt tractors than last year.

Your next question comes from the line of Ross Gilardi from Bank of America.

I had a few questions. First of all, just could you talk about your 3-year margin targets? You started the year ahead of schedule. Do you see room for upside on the 3-year goals now? And if so, what book -- buckets do you think you have room for upside in?

Wow, that's a great question. As soon as we make it, you start to stretch the goals; that's pretty much like our board does it. Greg?

Yes, so I think at this point, we're going to stick to our 10% in the next 3 years. As you say, we're on target for that. We've shown some good progress in the first quarter. Some of that is related to the pricing that we've seen but some of it, as you say, is related to the initiatives that we have in place. A lot of the initiatives are aimed at our material costs. And as we continue to do a better job of designing products across our company using more common platforms, we would expect to -- we do have internal goals beyond that 10%. But right now, we're focused on hitting the 10% in the time frame that we talked about. So when we do that, then we can talk about raising the bar.

Every year we do have a strategy meeting in July, and this is when we typically review our targets and we might also then adjust them. So that is something we will talk about soon.

Okay, great. And then Martin, I have one for you directly. Could you talk a little bit more about your relationship with TAFE? I mean, they bought 6% of your company in the last 6 months and are now your second-largest shareholder, and you've owned 24% of them, I think, for a very long time. So is the nature of the strategic relationship changing at all? Do you see room to broaden it? And are you happy with TAFE continuing to buy shares in AGCO?

Well, the relationship with TAFE is basically improving. It's a very old relationship, so the joint venture was started in 1960 between Massey Ferguson and TAFE. We have basically various areas. We -- the AGCO does benefit from this relationship. One is we do get paid a dividend. Second, we generate earnings and they contribute to our margin improvements because they are our, you could call that agency for all sourcing in India. And you can see this, we call it, best cost country sourcing getting more traction. And so we will buy more and more components in India. Mainly those will require a lot of manual work. And then third, we distribute Massey Ferguson tractors made by TAFE in India in markets mainly like North America, South America, but also Africa. And this business is also getting more and more important. So overall, we have a very solid operational cooperation and alliance with TAFE. The owner of TAFE is a member of our board, and the family wanted to make sure that everybody understands how serious they see their cooperation with AGCO and therefore, they started to invest. I think, my -- or our understanding is that they will be between around 5% and 10%. So this is where we want them to be. And they are very strategic shareholders. So they are in for the long run. So they're not buying and selling. It's a more strategic, serious investment in AGCO, lengthy investment.

Okay, that's very helpful. And then on GSI, you touched on bird flu and you said you're still guiding the growth in Asia Pacific. Do you get a negative impact from bird flu initially and then you see a pickup after, just do a bias for maybe stronger hygiene standards in the poultry markets? Or what's kind of happening in the here and now related to the bird flu?

We do not get a negative impact from our business. It's not suffering from bird flu. But as you can you imagine, the bird flu is caused by the way how they farm and how they keep animals. So -- and this is partially far away from what we are used to. And so therefore, you see more and more farmers being interested in more modern and more state-of-the-art facilities, which basically help to avoid the problem.

Your next question comes from the line of Steven Fisher from UBS.

You guys mentioned the benefit from steel prices in the first quarter. I'm just wondering how to think about how that might carry forward into the next couple of quarters of margin? And then potentially, if there's any impact on pricing at that point?

We are pretty much covered, so I don't see any major change in steel prices. And therefore, I think we will have a good year in this area. Also, the demand -- the main driver for demand in steel is automotive, and that automotive with the exception of Fiat is not booming. That was a joke.

Okay. Sure. And in terms of GSI, you mentioned some potential upside in the second half. Is that in North America as well?

Yes. Probably, most of the upside that we would see over where we are today would be in North America. We have aggressive growth plans already in place in our international markets as we're really developing ourselves in the market. And so the real upside would be if North America demand picked up a little more than what we have expected at this point.

Okay. And then lastly here, corn plantings in the U.S. certainly not off to an early start. I guess I'm wondering if you have any thoughts at this point about that trend and how that might ultimately have an impact on the business, or is it -- related sales?

We do not have a specific insight, but we are in very close contact with some of the big seed growers and they're all optimistic and no concern, whatsoever.

Your final question comes from the line of Michael Cox from Piper Jaffray.

My first question is a comment that was made in the prepared remarks about building inventory at the end of the year and buildup for the final Tier 4. I was wondering if you could quantify what that impact might be, either on inventory levels or production.

Sure. On the -- it's on the inventory side, we'll be having to build up inventory to transition ourselves into the new -- production of the new Tier 4 products that we will be putting in, in 2014. Our projection right now is that our inventory levels related to that buildup will be in the $125 million range for the year.

And then on the production side, within that 5% to 7% production increase, some portion of that, I assume, is related to this?

Yes.

It's mainly in engines.

Okay. And then one quick question. With the China production coming online, is this something we should start to see benefiting margins in 2014?

We will-- we start production of our new platform of products in 2014. It's -- the volumes start getting more interesting, probably more in 2015. We also have, as Greg mentioned, localized a product that's really a Brazilian design also that we're producing in China right now. And as we develop our sales there, then we can start to see some improvement in the margins. This is -- I would say that maybe you see some benefit in 2014, but probably more 2015, '16 will be the more significant benefits out of all of these investments and projects we have going on.

I want to thank all the participants today for your interest in AGCO and encourage you to contact me with additional follow-up questions. Thanks, and have a great day.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect. Thank you, and have a great day.