Good day, and welcome to the AGCO Fourth Quarter 2024 Earnings Call. [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.

Thanks, and good morning. Welcome to those of you joining us for AGCO's fourth quarter and full year 2024 earnings call. We will refer to a slide presentation this morning 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 the presentation. We will 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, the timing of those plans and our expectations concerning the costs and benefits of those plans and timing of those benefits. We'll also cover future revenue, crop production, farm income, production levels, price levels, margins, earnings, operating income, cash flow, engineering expense, tax rates 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, tariffs, weather, commodity prices, changes in product demand, the possible failure to develop new and improved products on time, including premium technology and smart farming solutions, within budget and with the expected performance in price benefits, difficulties in integrating the PTx Trimble business in a manner that produces the expected financial results, introduction of new or improved products by our competitors, and reductions in pricing by them, the war in Ukraine, difficulties in integrating acquired businesses and in completing expansion and modernization plans, on time and in a manner that produces expected financial results and adverse changes in the 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, 2023, and subsequent Form 10-Q filings. AGCO disclaims any obligation to update any forward-looking statements, except as required by law. Later today, 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. Earlier today, AGCO reported fourth quarter results for 2024, where we delivered a strong 9.9% adjusted operating margin and $1.97 in adjusted earnings per share and sales that were down 24% from quarter four last year. On a full year basis, we achieved an 8.9% adjusted operating margin and $7.50 in adjusted earnings per share and sales that were down 19% from 2023. The adjusted operating margin performance is by far our best performance in an industry downturn. What makes it more impressive is that the North American industry decline in 2024 was the worst single-year decline since the downturn in 2009 associated with the financial crisis. Our margin resiliency in this challenging environment is clear evidence that we have structurally improved the company through our ongoing transformation efforts over these past years. I want to take a moment to thank the AGCO team around the world for delivering such strong results for the year despite a challenging and dynamic macro environment and at the same time, with significant portfolio shifts that occurred in our business. The organization teamed up and put Farmer-First reinforcing AGCO as the most trusted partner for industry-leading smart farming solutions. 2024 was a transformative year for AGCO. We closed the largest ag-tech deal in our industry's history with PTx Trimble joint venture. And we also exited a noncore part of our business by divesting the majority of the Grain & Protein business. These portfolio changes helped us enhance our strategic ambitions and allow AGCO to focus on agriculture machinery and precision ag technology. These strategic changes will also provide margin tailwinds for us over the long term as we outlined at our Analyst Day in December. On the Precision Technology side of our business, we combined all our brands under…

Thank you, Eric. Good morning, everyone. Slide 9 provides an overview of regional net sales performance for the fourth quarter and full year. Net sales were down approximately 24% in the fourth quarter compared to the fourth quarter of 2023 when excluding negative effect of currency translation and positive impact of acquisitions. Pricing in the quarter was roughly negative 1% compared to the fourth quarter of 2023. By region, the Europe/Middle East segment reported sales down roughly 17% in the quarter compared to the same period in 2023, excluding the impact of unfavorable currency translation and favorable impact of acquisitions. Sales were down in most countries with declines in Germany, the United Kingdom and France showing the largest reductions. The products showing the most significant declines were high-horsepower tractors, hay tools and combines. However, part showed modest growth even in this environment. South American net sales decreased approximately 24%, excluding the impact of unfavorable currency translation and favorable impact of acquisitions. The market continues to be challenged, and we continue to underproduce relative to retail demand, high horsepower tractors, combines and planters showed the largest reductions. By geography, the Brazilian market was down the most, partially offset by increased sales in Argentina. Net sales in North American region decreased approximately 39%, excluding the impact of unfavorable currency translation and favorable impact of acquisitions. Lower farm income continues to pressure its farmer purchasing behavior. High-horsepower tractors, hay tools and sprayers saw the largest declines. Net sales in Asia/Pacific/Africa decreased 28%, excluding favorable currency translation and favorable impact of acquisitions due to weaker end market demand and lower production volumes. The most significant declines occurred in China and Australia. Finally, consolidated replacement parts were approximately $418 million for the fourth quarter, up 4% on a reported basis and up approximately 6% year-over-year…

[Operator Instructions]. And the first question comes from Stephen Volkmann with Jefferies.

Thank you. Damon, I'm just going to start off with your Q1 commentary. I guess the implication there would be North America probably has a negative margin in the first quarter, but I don't want to put words in your mouth. Can you just give us a sense of how you're thinking about the profitability by region in the first quarter?

Yes, Steve, I think you're right. With the level of underproduction that we're expecting to see in the first quarter, North America would likely be in a negative margin. Europe, we would still expect it to sort of be in that low double-digit range. And then sort of South America, probably a little bit negative as well given the large underproduction there. And then Asia Pacific sort of that low single-digit margin range. But again, I think the key for us is the level of underproduction here this -- in the first quarter is going to be heavily weighted in North America and South America as we look to further drive down the dealer inventories in those regions.

Okay. Understood. And then as a follow-up, I'm trying to get a sense if you could remind me of your total North American sales, how much of that is basically sourced in Europe?

Yes. So, I think if we look at North American sales last year, Steve, in total, about 35% of that came in from overseas, 25% of the 35% came from the EU.

And the next question comes from Tami Zakaria with JPMorgan.

Good morning. So, my question is on the EME margin. It was quite impressive on a 17% sales decline and you're seeing low double-digit operating margin in the first quarter. So, given the cost savings there, how should we think about the mid-cycle margin for that region when volumes do inflect in the future?

Yes. I think, Tami, Europe has done quite well with the [indiscernible] the market share growth the team has done there, done quite well. Parts has been relatively strong. Generally speaking, we would see -- most of our regions, sort of in that mid-teens, mid-teens margin at around mid-cycle.

And the next question comes from Mig Dobre with Baird.

Thank you. Good morning. Given though you framed Q1 for us, I'm sort of curious as to how you think about dealer inventory progression? Do you think this issue this problem largely gets solved in Q1? Or is this more of a Q2 factor? What are some of the benchmarks that you're watching in determining production for Q2?

Yes. I think, Mig, so if we go down by the -- if we look at the regions as -- for Europe, we're in good shape. We don't anticipate really any significant changes. I think, for South America, we're working to cut production significantly there. I would say we're probably looking into the second quarter as we adjust production given some of the seasonality of the business there as well as Q1 is generally speaking, a fairly low selling season. So Q2 is where we'll see more sell-out. North America, I think, is the wildcard as we look at we're sitting here with around 9 months of inventory despite the lower number of units because of the negative outlook. So, you're sort of looking at two variables there: how does the industry evolve over, let's say, the next 6 months. So, if we start to see farmer sentiment improve, grain prices, if you look at corn futures now, I think they're slightly over $5 for May. So, a couple of positive data points. If that improves the sentiment, and we start to see the demand pick up, that would be an ability for us to maybe slow down. But I think in the near term here, it's going to be looking at the days on hand for the dealers, the units to have on hand and taking an aggressive approach to the inventory. So, I think that's the one I would say -- Q2 may be a little bit longer depending on how that second half farmer sentiment looks here in North America.

Okay. And if I may, one quick follow-up on pricing. Negative in Q4, but you expect it to get better, slightly positive in '25. What gives you that confidence? And again, any commentary by region would be helpful as well.

Yes. Sure, Mig. So again, we're still with the 0 to 1 positive. If we look at it, we're going to be a little bit negative here in the first quarter. We have some couple of things here. We have some carryover pricing here. If you've heard me talk about the new Fendt 700, we have the Gen 6 and the Gen 7 out there. So, we have that year-over-year still affecting the European margins. We're likely going to be slightly negative in South America, not driven by, I would say, pricing or discounts, driven more by a tax law change. In Argentina, where the industry was pricing for the 15.5% tax in Argentina, that stopped in December. We, and I believe the industry as a whole have reduced that. So that comes shows up as negative pricing for us, but it's really more of a pass-through for some taxes there. North America, we expect to be positive for the quarter and for the full year. So -- but still looking similar to what we said in December, a little bit more geographic wither with our exposure to Europe being slightly negative, driving us down to that 0% to 1% for the full year.

And the next question comes from Kristen Owen with Oppenheimer.

Good morning. Thank you, for taking my question. I wanted to follow up on Tami's question about the margin recovery in Europe, particularly in the fourth quarter and how we think about that flowing through to 2025? Just specifically, can you give us an update on the reorganization at BayWa? Anything else that you might call out that's helping to contribute to that recovery?

Yes. Sure, Kristen. So BayWa, as they've stated publicly, as part of their restructuring efforts, have made a lot of progress. I think the reports from the third parties show that the business is improving. We continue to have a great partnership with them. We're working very closely with them. Their ag business has been extremely strong. And obviously, that's helped the Fendt business. So, we continue to be very close with them. Obviously, as a restructuring initiative they are not eager to take on a lot of the stock units, and that's been part of our challenge here with Fendt and BayWa is we're doing great pass through to the retail to the farmers, but the stock units as they start to preserve cash, I think we won't see that recover at least here in the first part of 2025. But overall, the market looks good there. I think what you should expect to see for us in EME, again, as you know, macro is the most stable market. We still see it down. But the cost actions, we've talked about a lot of those cost actions as we work through conversations with workers' councils. If you look at the restructuring efforts, we accrued quite a bit in the fourth quarter as we've gained some clarity and confidence on that, we would expect that start to really drop to the bottom line more in the back half of the year as we start to execute on some of those actions here in Europe.

Great. And then my follow-up is related to the free cash flow outlook for 2025. Mean -- you mentioned some of the inventory that you want to wind down in the first half of the year. But against the comments that this may be the trough in 2025, how do you think about the working capital in the back half of the year if there's some anticipation that we could see maybe a little bit of volume recovery next year?

Yes. So again, if I think about our free cash flow, we still feel fairly confident. Again, if I looked at where we delivered just in this 2024, we fell short of our expectations. But I think it's important to remember because of how we work with AGCO Finance, Eric and I both alluded to that we missed our sales by around $300 million versus our expectations. Had we made those sales that would have come out of inventory and would have dropped right into cash for us. So that would have put our conversion rate at just around 100%. So, we still feel good as we look forward into 2025, knowing that there are some finished goods that we have to work through the system here because what we're carrying is more what we would want in the current environment. And so even if the industry picks up, it won't be sort of a one-for-one build as the industry is recovering because of where we finished the year here falling a little bit short of the sales target.

Thank you, so much.

And the next question comes from Jamie Cook with Truist.

Good morning. I guess two questions. Damon, first, a similar question on South America, given we start off the year negative and just the volatility in the margins, how are you thinking about margins for the full year and sort of the cadence? And then I guess my second question, obviously, you guys announced some restructuring actions that you started, I think, last summer. Given the weakness in the markets, anything more that we're contemplating? And then last, finally, just what's the expectations on PTx in your guidance in terms of sales and profits, if any?

Yes. Sure, Jamie. So South America, I think for the full year, we would sort of today expect those margins to be similar to where we finished the full year of 2024 sort of in that mid- to sort of higher single-digit range. As I mentioned on the prior -- one of the earlier questions will be negative in Q1 and then we start to pick up some profitability in Q2. Q3 is generally their strongest seasonal quarter there. So, we'll see that be the richest or the best profitability and then tamper down a little bit in the fourth quarter, again, driven more by seasonality. But the full year, I'd sort of put it close to where we finished last year. On the second part, restructuring actions. So, we're on a good pace to deliver the $100 million to $125 million of cost savings by the run rate by the end of this year. At the December Investor Day, I did announce that as we were looking at further efficiencies, better opportunities to leverage global Centers of Excellence. We added another $75 million of run rate savings. Those will not happen likely until run rate of end of 2026 as we start to migrate things to international locations, leverage a little bit more technology. So that being said, we're -- as Eric alluded to, we're watching this market very closely. To the extent things get worse or worse than our plans. Obviously, there's always discretionary spend that we can control. We're doing the investments as we feel appropriate for the business for the long term. But at the end of the day, we have to make sure we're delivering a certain level of margin and earnings as well. And so, we do have some discretionary cost levers that we could layer on if necessary on top of the normal restructuring. As it relates to PTx as a whole, so again, as a reminder for the team here when we talk about PTx, that includes our Precision Planting business, our PTx Trimble business and our Fuse business, when we look at that as a whole, last year's revenues were just, call it, around mid 8s and I would expect that business to be relatively flat in 2025 at a similar type of sales level amongst those three groups combined.

And the next question comes from Jerry Revich with Goldman Sachs.

Good morning. Eric, I'm wondering if you can just expand the comments you made in the prepared remarks on the company's philosophy on upfront pricing versus subscription pricing within the context of one of your competitors doing aftermarket guidance kits with heavy aftermarket pricing. Can you just talk about what feedback you're hearing in the market? And just your broader philosophy on upfront versus subscription?

What we -- we aim to be the most farmer-focused company in the industry. And what farmers continually tell us is that they have different appetites in different parts of the cycle. And when they want to purchase something, they'd like to finance it and get it all purchased in the good years. And then when the lean years come, they'd like to minimize their ongoing costs. So, they're, in general, not too favorable for subscription fees. Now there are exceptions to that rule, and we have some -- a subscription model as part of our outrun autonomy system. We've got some subscription aspects to our radical agronomic system. And so, there are elements where it makes sense, especially for newer technologies and things like that. But as it relates to the technology I mentioned, which was time frame, we feel that the feedback we're getting is that they would rather pay for it one time and then be able to use it on a -- have their fixed costs done and that have an ongoing variable cost because that way, they can run over the field. So, part of the problem is right now if you have a variable cost, if you run over the field a second time just to capture a few read spots, it's actually very expensive from a variable cost standpoint and so they don't do that path. We want to be able to do that path, which is one of the features that is attractive with that system. So that's how we think about it. Trying to be very farmer-focused and use the subscriptions where it makes sense, especially on newer technologies.

Super. And then in terms of the South America performance in the quarter, I wasn't surprised. Can you just talk about what the run rate you expect to be in 2Q, 3Q of that business? I appreciate the -- a little bit of 150 basis points benefits in the fourth quarter, but can you talk about once production cuts are done, what's the margin trajectory that you folks expect to be on this year?

Yes. I think, Jerry, as I mentioned on the -- maybe in the last question, we expect to be -- given the heavy production cuts in the first quarter, we would be negative operating margin in South America, slightly positive in Q2 as we start to hopefully improve the production levels a little bit there. Q3, we should lap the challenges and we start to see the industry improving. It's also the strongest -- one of the strongest selling quarters for them. So, we should see the profitability jump up in the third quarter and then tail back on a little bit more because of the timing of the sales here between South America. And then for the full year, I would say, similar to last year's performance, maybe a little bit below just given the pricing in Argentina that I mentioned on one of the prior questions, but sort of that mid- to high single digits.

And the next question comes from Kyle Menges with Citi Group.

Just wanted to ask a little bit about just anything that you guys or we should be thinking about with upcoming elections in Germany and just any potential impact either pre or post-election?

No. I think what you've seen -- there's two different factors. One is the country elections and then it's the EU parliament. And we saw the EU parliament move to the right. And I think that's the one that is maybe more important for overall EU regulations relative to climate change policies and restrictions on farmers and things like that. I think it was a bit of a friendly move to farming practices, allowing them to continue to farm the way they want to be farming instead of adding more restrictions. As it relates to a country-specific, maybe that's more leaning toward an impact on how well there will be cohesion between those countries and the U.S. administration. But regardless of who's elected, I don't see a big difference there. So, we don't see much impact yet in our scenario planning on country-specific elections.

That's helpful. And then I just wanted to touch on the Trimble top-line synergies you're thinking about in 2025. And I think, if I recall correctly, I think you guys have talked about 450 or so Premier Precision planting dealers in North America, but only 50 or so selling Trimble. So just could you help us frame the opportunity there? And do you anticipate getting the 400 -- basically adding sort of self-Trimble? And how many do you think could be added this year? Like how fast do you think that can happen? And what do you think of their overall willingness and ability to start carrying Trimble as well?

Yes. There's been a lot of progress in the fourth quarter, especially on two fronts. One is signing up AGCO dealers to take on the Trimble aftermarket technology and then also to establish the understanding in the market about where we're going with what we call full line tech dealers. And these are dealers that previously could have been a precision planting dealer or could have been a Trimble dealer and we want them to carry both portfolios going forward so that they've got the full breadth of all technology. If you add them all up today, we've got over 1,000 dealers in the marketplace and over 95% of the acres covered with dealers that cover our technology, PTx technology. Now what we don't have fully penetrated yet is the full cross-selling. That's going to be the primary focus in 2025, as well as continuing to build out our AGCO dealer portfolio. We've got a little over 100 dealers in the AGCO lineup signed up today. We'll be between 200 and 300 by the end of this year, which is where we want to be. We've got the CNH dealer sign-ups about where we want it to be. So, our main focus is cross-selling of the full-line AGCO dealers and filling out the rest of our AGCO dealers. We think both of those will make big progress in '25.

Got it. That’s helpful. Thank you.

And the next question comes from Angel Castillo with Morgan Stanley.

Good morning, and thanks for taking my question. I just wanted to go back on the PTx. I think there was a discussion around the sales maybe expectation this year. But just curious if you could kind of overlay the expectations on operating income for 2025? And maybe just expand on the impairment charge. It sounds like some of the adoption rates on penetration or position that you're seeing is still good. So just to what extent are you seeing any kind of deterioration around that relative to PTx in particular?

Yes, I'll talk about the strategy elements and will have Damon talked about the margin projection. If you took a look at all the activities we wanted to do in 2024 and that we're aiming for in 2025, we got them done or more so. We launched the PTx brand. It's well understood in the marketplace. And everybody understands that's the collection of all of these assets that we've gotten is now the strongest mixed fleet precision ag business in the world. We retained our key talent within the business. We retained all our OEM partners in the business. We built up a strong channel I just talked about. We got over 1,000 dealers and over 95% of the acre is covered. We got to fill that in and make it penetrate better, but we've got a great foundation. We're building the innovation factor where we launched OutRun technology on the automation kit. The data platform team is running at full speed. That's one of the outputs that we wanted out of this deal and we'll have our first launch coming soon. And we converted the technology guidance systems on our AGCO machines. It used to be about a 20% take rate of Trimble. It's up over 70% now, and we think it will be over 85% in '25. And so, the activities we're aiming for are done, it's just that the market was so depressed that the market demand was down in addition to the last time buy for CNH continued to run longer than we had expected because it lasted longer in a weaker market. We also implemented significant cost synergies in 2024, and we're going to continue that in 2025. We haven't gotten revenue synergies just because there's not much revenue in this market. But we still are aiming for that, and we still are committed to delivering it as the market recovers. So, with that, I'll have Damon maybe give a little more color on margin expectations.

Yes. I think, Angel, for PTx Trimble, we do expect the margins to improve in 2025 versus 2024, as you've heard us talk about the integration, the CNH last time buy, it definitely was a challenging year in 2024. But as we start to see some of that work through the system here. We do see sales up in that part of -- in that business next year, and we see the margin improving year-over-year. As it relates to the impairment, as I said in my comments, we follow a traditional discounted cash flow analysis that's heavily weighted on the near term as you would expect. And just given the industry drop in 2024 in the industry, projections for 2025, it put a lot of pressure on the sales and earnings that we had expected relative to the deal model that we had built when we formulated the goodwill. And as a result of that, we had to take the charge here at the end of the fourth quarter. But as Eric said and I said, doesn't change the long-term plan, it doesn't change the technology, the adoption rates, the excitement we're seeing from farmers and from our dealers. It's more of just that DCF and the timing of what we had to recognize when the cycle hit this year or last year versus it hitting 2 years or 3 years from now.

That's very helpful. And then maybe I just wanted to go back to the comment, I think, on free cash flow. Just the confidence to be able to kind of reach that 75% to 100% conversion. Can you just unpack that a little bit more? I think, again, you made some comments around that in -- earlier, but I just want to understand, given the kind of 50% conversion in the last couple of years. And I think we've heard from other peers maybe timing around pool fund cash payout, just anything that might be impacting or might be a risk? And then just how you think about that confidence on that 75% to 100%?

Yes. Again, today, we feel -- again, if we would have delivered the sales that we were expecting in the fourth quarter, we would have been around 100% conversion in 2024. Falling short on those sales affected the conversion this last year, left me or left us with excess inventory at the end of 2024. So, when I think about 2025, we would expect to normalize that finished goods inventory sitting in AGCO's balance sheet, getting that into the channel to the dealers and ultimately to the farmers. And so, we still feel good about the conversion rate. I think the one question mark we would have is if the industry starts to recover, and one of the other analysts had asked that question, if we start to see a rapid acceleration of the industry moving into 2026, how much will we have to start building in anticipation. So, would we be adding incremental inventory into the system in anticipation of a strong 2026. I would tell you that's a good problem to have if we feel that the industry is recovering right now, based on our outlook, we don't see that level of extreme outlook for 2016, but I think that would be the one thing we'll watch as we move through the year is that farmer sentiment and how do we plan the production schedule for the back half of the year.

And the next question comes from Mike Feniger with Bank of America.

Can just help us understand with North America? I know you touched on this earlier with -- if there are tariffs with Europe, does it change any of your thought process or strategy when we think of Massey? And any big shift there that allow you to be kind of flexible or how to think about that with North America, if we do start seeing more of this tariff conversation pick back up?

Yes. Our supply chain team has looked at several different scenarios of what we might do. I think a lot of this depends on what are the rules of the game going forward, what constitutes a tariff what would be required to be local production? And how long do we think it will be in place? Any kind of major footprint change usually takes a multiyear payback. And so, until we get some clarity on stability and what are the exact rules and details, we don't expect to be making supply chain shifts. But we've got plans on the shelf ready to go if some of those materialize. But right now, we don't have anything in action mode.

And I think, Mike, just to add on to give a little bit more color, the team has got an array of scenarios. Again, as I mentioned, the Canadian -- U.S. to Canadian tariffs would be -- would have some effect on us. And so, do we shift the land and have some certain products into Canada versus the U.S. We're looking at things, do we do some minor kitting here in the U.S. without large-scale investments that may help us ease the short-term pain. So as Eric said, there are an array of scenarios being running -- run this company, but we want to make sure we have some clarity before we actually execute any of those things.

Fair enough. And just lastly, guys, I realize the production cuts are really helping trying to make that progress on the inventory side. You mentioned North America, I think it was 9 months versus a target of 6. I'm curious how we think about the used side, if you're seeing progress there? And how you kind of help facilitate on the used side as I know you guys are making progress on the new side of the inventory?

Yes. We don't have as much of a used problem as some of our competitors do. We continue to use pool funds and things like that and other financing tools. But right now, used equipment values are holding up and used equipment volumes are similar now back to pre-COVID levels, but not at a concerning level for us yet. So, we're managing -- using the regular tools in a partnership with AGCO Finance.

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

Yes, I'd just like to say thank you for joining us today and the great questions on the call. AGCO has gone through a substantial transformation over these past years, particularly in 2024. It was a big year of change, where we supercharged our Precision Ag portfolio with the PTx brand. Our team was instrumental in delivering the 8.9% adjusted operating margin result for 2024. That's a high watermark for us at this stage of the cycle and it's 300 basis points better than the last cycle, as Damon talked about. I want to thank each of them for their contributions. It was a big year of lots of hard work, all focused on the farmer. To all of our shareholders, we appreciate your support and looking forward to building value through our transformation program and executing on our Farmer-First strategy. Have a great day, and thanks for your participation.

Thank you for joining the AGCO Fourth Quarter 2024 Earnings Call. The conference call has now concluded. Have a nice day.