Good day and welcome to the AGCO First Quarter 2025 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. Please go ahead.

Thanks and good morning. Welcome to those of you joining us for AGCO's First Quarter 2025 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 measures in the appendix of that 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 and timing of those plans and our expectations concerning the costs and benefits of those plans and the timing of those benefits. We'll also cover revenue, crop production and 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 and price benefits, difficulties in integrating the PTx Trimble business in a manner that would produce the expected financial results, 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 and in a manner that produces the 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, 2024. AGCO disclaims any obligations to update any forward-looking statements, except as required by law. We will make a replay of this call available on our corporate website later today. On the call with me this morning is Eric Hansotia, our Chairman, President and Chief Executive Officer; and Damon Audia, Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead.

Thanks, Greg and good morning to everyone on the call. I'm pleased to announce AGCO delivered solid results in the first quarter in the midst of a very challenging industry and an uncertain and evolving trade environment. We achieved over $2 billion in net sales, down approximately 30% compared to quarter 1, 2024. The lower net sales are a result of continued soft demand in the ag market, coupled with our efforts to destock dealer inventories, as well as the impact of the divestiture of the Grain & Protein business. Excluding last year's Grain & Protein results, sales declined by about 25%. Consolidated operating margins were 2.4% on a reported basis and 4.1% on an adjusted basis, reflecting decremental margins in the low to mid-20% range. This reflects the strong performance from our teams around the world. They are executing on our sales plans as well as on the restructuring actions. We achieved these decremental margins despite a 33% reduction in production hours versus quarter 1 2024 as we look to better align dealer inventories. We've made headway lowering both working capital and dealer inventories, which were down across all regions. Our working capital progress showed up in our cash usage for the quarter, which was significantly improved compared to the first quarter of 2024. Sentiment in Europe, as measured by the [ SIMA ] index is on an upward trend. Europe currently represents the majority of AGCO's sales and should help mitigate the adverse impact of the U.S. trade policy on our financials. Geopolitical uncertainties and trade friction have dampened U.S. farmer sentiment recently. And as a result, demand for machinery was lower in the quarter than we had expected. Despite higher net farm income forecast related to government aid, margins for U.S. farmers remained tight due to high…

Thank you, Eric and good morning, everyone. Slide 8 provides an overview of regional net sales performance for the first quarter. Net sales were down approximately 25% in the first quarter compared to the first quarter of 2024 when excluding the negative effect of currency translation and the positive impact of acquisitions. For comparison purposes, the impact of the divestiture of the Grain & Protein business, which was approximately $200 million in Q1 of 2024 has also been excluded. Pricing in the quarter was roughly flat compared to the first quarter of 2024. Positive pricing in North America mostly offset negative pricing in South America and in Europe. By region, the Europe/Middle East segment reported sales down roughly 23% in the quarter compared to the strong results in the same period in 2024, excluding the impact of unfavorable currency translation and favorable impact of acquisitions. Sales were lower across most of the Western European markets, partially offset by growth in Spain and Eastern Europe. The products showing the most significant declines were high horsepower and mid-range tractors as well as hay equipment. South American net sales decreased approximately 6%, excluding the impact of unfavorable currency translation and the favorable impact of acquisitions. The market for larger equipment continues to be challenged and we continue to underproduce relative to retail demand. Lower sales of high horsepower tractors and planters accounted for most of the decline. Net sales in the North American region decreased approximately 34%, excluding the impact of unfavorable currency translation and the favorable impacts of acquisitions. Softer industry sales and underproduction relative to end market demand contributed to lower sales. High-horsepower tractors, sprayers and combines saw the largest declines. Net sales in Asia Pacific/Africa decreased 38%, excluding the favorable currency translation impacts and the favorable impact of acquisitions due…

[Operator Instructions] The first question comes from Jamie Cook with Truist.

I guess my first question, the first quarter came in better than you guys had expected. I think you were guiding to breakeven and on an adjusted basis, you came in at $0.41. So Damon, just any color on where you performed better versus what you would have thought? And then I guess my second question, just a little more color on tariffs and the actions you're taking to mitigate tariffs. I guess, one, can you talk to your order book? Is there any risk in order book -- in your order book associated with tariffs sort of the price increases that you're talking about and actions you're taking? I don't know if you can put a dollar amount on that because it's impressive you are still maintaining your guide.

Yes. Sure, Jamie. So you're right, we did do better in our -- in the first quarter than what we had originally expected. I think there's probably 2 items or 2 different categories. But I think at the operational side of the house the teams did a little bit better in pricing and mix was stronger, especially in our European operations. And then as you heard us talk last year about our cost control actions, we're starting to see those. We're a little bit ahead of schedule in what we dropped to the bottom line. So I think price, mix and costs were a little bit better. We did cut production a little bit more in the quarter than what we had originally guided to. So that was a little bit net negative of a headwind. So when I look at those categories operationally, I'd say that was about $0.25 of a positive versus our outlook. And then we did better below the line. So if you look at the foreign currency gain and losses, we had some lower discounting of receivables. So those other below-the-line items were about $0.20 and that's what brought us to the $0.41 for the quarter. As we think about your question on tariffs, as we've said, we are looking at what is in effect today. We have assumed some modest price increases. We have already had some in effect for our parts operations -- or parts products, excuse me. Those have already been in effect. We are contemplating things on equipment. In that, though, we have also assumed that to the extent we do take pricing actions, there would be an incremental slowdown to the North American business. We have not factored that into our industry outlook as we're not sure whether that would…

The next question comes from Kyle Menges with Citigroup.

So I know, Damon, you called out just the EME margins, particularly strong in the quarter, at least partly driven by mix. So I guess the question is really just around the sustainability of EME margins. And just how do we think about the risks of a potential mix shift from Fendt to maybe the other brands? And just how to think about the mix impacts on EME margins, how to think about that for the rest of the year and then maybe in the kind of medium term?

Yes. I think overall, Kyle, the European market, again, reminding for the group, is the most stable of all of our 3 major markets. Given the level of subsidies in that market, it's historically been the most stable and predictable. And so that -- in that part of the world, at least thus far, has been relatively solid for us. If you think about what we've been seeing here, there's somewhat of a sense of a flight to quality as farmers are on the fringes, who are less profitable, think about them likely buying more of our volume-orientated brands. And so Fendt has continued to do well in gaining significant market share over the last 1 year. Fendt has done exceptionally well in gaining share with -- whether that's through some of the new product introductions or some of the next-generation products. And the portfolio of new products coming out for Fendt is still pretty rich as we look over the next couple of years. And so again, you've heard us say this before but Fendt is the best of the best. It's driving the latest innovation, the best fuel efficiency out there. And so as farmers are really challenged on their profitability, they're looking for ways to minimize their input costs, maximize their output and their yield and Fendt delivers on that in the products that they're offering. So I don't see necessarily Fendt eroding in exchange for another product or another brand. But what you may see is if the economy recovers and some of these more volume orientated brands start to outpace in a recovery mode, it may have a little bit of effect but I don't see that changing the overall EME margins significantly from what you've been seeing us perform over the last couple of quarters.

That's helpful. And then I think it'd also be helpful just to get some sense of what Trimble top line and margins looked like in the quarter. Like, were margins possible-- positive? And then just how should we be thinking about as you start lapping that CNH dealer stock up that we saw? Just what are you seeing now in terms of the dealer inventories and order trends from those dealers?

Yes. So I'll touch on maybe the numbers and I'll let Eric talk about what he's seeing specifically related to some of the dealers and the products here. But if you remember, we did not have PTx Trimble in the portfolio here in the first quarter. So our overall PTx revenue, that's incremental. Sales for that part of the business were just over $60 million in the quarter. And if you remember what Trimble would have announced, it was a little bit over $80 million. That did include AGCO-related sales. So down a little bit, not too different than the overall industry, so very much in line. So we're feeling pretty good about what we're seeing relative to the industry dynamics. But Eric can talk about what we're seeing with the CNH channel and some of the other AGCO dealer channels that we're bringing on board right now.

Yes. The main focus we've got is establishing the channel of the future and that's ramping up our AGCO dealers to also take on the PTx contract. From where we were at the end of 2024 till today, we have about tripled the amount of industry coverage that we've got covered by AGCO dealers that also carry PTx. We expect that the bulk of that work and -- to be done by the end of the second quarter, we'll have most of the large-sized dealers signed up. And so that channel is our most urgent to get activated and it's underway in a good way. Second topic is utilizing Trimble technology on AGCO products. We started -- when we launched the JV a year ago, we were at about 20% take rate. We got it to about 70% take rate at the end of 2024 and now we're more like 90% take rate, which is about where we think it will stabilize because there will always be niches that we may still provide other brands. But -- so that's fundamentally well in place. And we think that the last time buy of the CNH made just prior to the deal closing is getting closer to being exhausted. And so that should no longer be a headwind to the overall business. So feeling very good about first quarter acceleration of channel readiness as well as the cross-selling activity in the full-line tech channel. I talked about the AGCO dealers. Those are the machinery dealers that sell planters, sprayers, combines and so on that also sell PTx. But then we've got this unique -- we're the only ones in the industry that have a full-line tech channel and all the sell is technology. Those are either former Trimble dealers or former Precision Planting dealers that are going to sell the full portfolio. And we're working on cross-selling -- helping those dealers be capable and proficient at cross-selling the entire line. That will -- that's taking hold this year. It will be a little bit longer runway on that because it's a little bit more complicated. But we feel like we're on pace with that as well.

And then Kyle, wrapping up on the profitability. PTx Trimble was profitable for us in the quarter, not to the levels we want just yet. But again, as we talked in the past, given the lower levels of volume and the high incrementals and decrementals there, we know we need to get volume back in but we were profitable here for the first quarter. So a good start to the year with the PTx Trimble team.

Maybe one more comment because I imagine that there's other questions on other people's mind, so I'll just say. We reorganized the leadership team of the PTx business in quarter 4 where we had PTx Trimble as the JV and Precision Planting along with the other tech companies that we had bought. We blended all that together, melted together into 1 global PTx leadership team. And with that, in quarter 1, we've seen a significant acceleration in the synergies, both within PTx, ideas of revenue synergies and cost synergies as well as with PTx to AGCO. So that's the other element that we were committed to getting done and we found a nice acceleration in quarter 1.

The next question comes from Kristen Owen with Oppenheimer.

I wanted to follow up on some of what Jamie touched on in her question and just making sure I understand the mechanics on the full year guide. So you've got the Q1 top line in line, full year maintained, bottom line beat by $0.40, full year maintained. But you've also lifted some of the outlook for price for FX. So is it fair to think that your assumptions around tariffs are something on the order of the 4 points that you added to the top line that, that could be a 4 percentage point headwind and similarly, a 40% headwind on the bottom line? Sorry for the long-winded question there but I just want to make sure I understand the mechanics. And then I do have an unrelated follow-up.

Yes. I think -- so Kristen, maybe I'll do it by EPS or by earnings per share, just to keep it simple for me. Our guide was $4 to $4.50. If I roll through the $0.40 beat directionally that we had in the first quarter, foreign currency is a positive for us. As we've said, we went from negative [ 3 ] to around flat. Think of that as probably directionally around a $0.40 pickup as well. We've taken the industry outlooks in North America and Europe down. Asia is also down. And so when I look at those industry dynamics, South America is up. That's around a $0.30 headwind for us, tariff -- the net tariff impact to us. So pricing, coupled with that volume comment I made earlier, that's around $0.30 and then you've got some incremental negative absorption because of the industry changes. We're still in the 15% to 20% hours cut but that's because we're taking the industry down and we have the assumption in North America. We have some further absorption embedded in our numbers. So that's -- that, coupled with some other things is about another $0.10 or so.

That's incredibly helpful. And then I did want to ask since you mentioned it in the prepared remarks, as you typically do, about your capital allocation strategy. Just given the progress with your large shareholder and their decision not to stand for reelection, I'm wondering if you can maybe update us on what potential outcomes could look like there, and how that might influence your capital allocation going forward?

Yes, I'll take that one. We feel really good about the progress we've made in discussions with TAFE. And you've seen that, that the Board seat that TAFE had is no longer in place. And so we've gone from 10 directors down to 9. And so you can kind of imagine that the overall discussions are pretty robust. We're not all the way done with them yet but we're getting close. And we recognize that investors would like us to do share buybacks. And because of that, we would like to do that as well. We've been constrained from doing them over the last several years because of that shareholder concentration. As you can imagine, that's part of our discussions and we're trying to represent that on behalf of our investors. I can't see any specifics right now because the discussions aren't done but I promise you that, that's certainly at the forefront of what we're trying to get accomplished. And as soon as we can share it, I promise you, we will.

The next question comes from Jerry Revich with Goldman Sachs.

Nice quarter. Eric, I wanted to ask, if you folks look at the scenario that I'm sure you've evaluated if you were to bring Fendt production into the U.S. for the U.S. market. What would that look like for AGCO? What would the impact be on unit costs if you were to move in that direction? How long would that transition take? Can you just fill us in on that contingency plan and how you folks have evaluated it, if it were to come down to it?

Yes. We've looked at that. We actually even looked at it before the tariffs. We look at it every year of our overall footprint and understand what market demand is looking like and where is the best place to produce as exchange rates move and the volumes change and things like that. And we've been gaining market share nicely with Fendt in North and South America. So it's a natural thing that we do annually. I would say that for any of these footprint decisions, one of the things that we need to count on is a sustainable set of assumptions and that we can count on those for the long term. So right now, that environment doesn't exist. And so we're -- we've got a few different scenarios of what we might do. But as you can imagine, tractor production, especially involves a lot of machining capability, designing the transmission and engine and powertrain particularly but a lot of the castings take a lot of machining, machining high capital good items. And so all the major players kind of centralize those into 1 spot for high horsepower production. Now those -- that's for the components. To do final assembly, it's a little bit more flexible. So we've got options for different levels of how much vertical integration we would potentially do. We've got the sites selected and understand what the impact of the supply base. But right now, we're waiting until things stabilize. We don't anticipate to make any real changes in manufacturing locations in the short term. Now we're working with our suppliers to move component production around because that's a little bit more flexible. But final production is something that we're holding off until things stabilize further.

Super. And then just to shift gears and nice to hear progress about the Precision Ag reorganization and what that has meant for cross-selling. Can you just update us on your views on the legacy Trimble retrofit kit? You've got a competitor that's spoken publicly about making good headway in terms of launching that product at a lower upfront cost with subscription over time? What's the AGCO counterpoint to that offering? Are you folks in the market? The numbers that Damon quoted earlier include potential lower ASP but higher subscription value. Can you just talk about how you're thinking about the competitive landscape for you?

Yes. In fact, this week, we're launching the new latest and greatest guidance technology. We call it the NAV-960. That's just the new model number. It's at Agrshow and it's getting tremendous interest from the market down there. In fact, the overall Agrshow is very positive. We see ordering up across all of our brands, lots of interest, especially in Fendt but across all 3 of our brands in South America. And then coming back to the technology, we've got PTx marketing and education embedded in each of our brand booths within the show as well as our PTx unique store. So PTx is playing a very strong position in the market and we just rolled out the latest new technology. We're excited about the new 960. As it relates to pricing, we have experimented with both full price on the hardware upfront and subscription-based pricing. And I think we're going to end up having a bit of a mix as it goes into the market, where depending on where we are in the world, we'll probably use different tools. And it's really because we want to be the most farmer-focused company in the industry and serve those markets the way the farmers want to consume that technology. We recognize the value in subscription as it relates to our income statement but we're trying to balance that with what farmers want, to make sure that they're most productive in their operation. So I think you'll see a little bit of both.

The next question comes from Stephen Volkmann with Jefferies.

Damon, I'm wondering if you can sort of mark us to market relative to your various cost cut programs? What have you achieved so far? What do you expect to achieve by year-end? Any changes in that outlook?

No changes, Steve. I think we are on a very good pace. I think at the end of the first quarter, we've expensed somewhere in the range of around $160 million. And if you remember, our guide was somewhere in the range of $150 million to $200 million in total cost. So we're getting through -- the bulk of that is past us here. Savings-wise, we are -- our guide was $100 million to $125 million. I feel very confident that we'll be exiting the year here at that level.

It's been a top priority for our whole leadership team, all last year and into this year. We just had 2.5 days working on that. We've got a very detailed management approach to this, a whole working tool that tracks every project by date, by location. And so it's not a hope, it's a very detailed and well-managed program to deliver on that.

I would say that we also announced that -- you remember at the December Investor Day, we announced another $75 million of cost opportunities we saw that we thought we could materialize by end of 2026. Given the environment we're in right now, probably no surprise to you, we are, as Eric said, working with our teams around the world and where our areas to potentially accelerate those cost-out opportunities, trying to enhance that $100 million to $125 million of run rate savings we have with the original restructuring. So nothing to add incremental right now. But I would say, as Eric said, it's a top priority of this team around the world, looking for ways to pull that in where appropriate.

Super. And I guess, as I think forward, I think, Damon, you said you're still looking at [ 25 ] as kind of the trough of the cycle. I guess just based on all this cost stuff, there shouldn't be any real reason that we wouldn't factor in potentially meaningfully higher incremental margins once we start turning back up again? Or is there some offset you'd like us to keep in mind?

No. I mean, again, I think as we looked at the structural cost that we're taking out, if you looked at our decrementals this quarter, we were actually slightly positive to our normal, call it, around 30% and part of that is the cost savings actions that are dropping to the bottom line. I think, obviously, as you start to go into an upswing in the market, Steve, there's some variable cost that comes in, things like variable comp, hopefully gets -- go to become a headwind for us. But I think overall, we would feel that we have structurally changed the profitability of this business through the cost actions, coupled with the large -- with the primary growth engines Eric talked about. So hopefully, the incrementals will be above our normal. But let's get to that point in the conversation when the industry is recovering and we can dig deeper at that point in time.

The next question comes from Tami Zakaria with JPMorgan.

So my first question is on Fendt. So if there is tariff -- import on -- tariffs from the EU starting in July, what's your plan regarding the Fendt brand? My understanding is it's a premium price product already. So would you consider raising prices? Or would you absorb the cost initially to not drive any price escalation in an already weak market?

Yes. Let me talk about tariff strategies and it applies to Fendt or any other product that we bring in. Just because 1 product from 1 country gets a tariff, that doesn't mean you can put all of that load on that 1 product coming from that 1 country. It gets that machine out of whack in the marketplace. So instead, we're looking at it more strategically and saying, what are the total costs the company is incurring across all components and all machines that we export to a new market and then evaluating what can we do about that cost? How do we -- that's why we're so aggressive at taking cost out of the core of the company that allows us a little bit more breathing room to be able to manage through that. #2, how much can our suppliers, either by us resourcing or working with them to take cost out, how much can be absorbed in our supply base? And then when we're all done, it's probably going to be a bit of a more broad-based pricing strategy versus the one model that originated the cost increase. And that's because you need to keep your overall portfolio essentially in line with the market. So the -- all of the models within a given brand but also from one brand to the next, you want to keep them matched with the value proposition that they deliver and the position they have in the market. So it will be more likely spread across the overall portfolio versus the models that originated the issue.

The next question comes from Steven Fisher with UBS.

I just wanted to follow up on the $0.30 of the tariff impact. Just to clarify, from a flow perspective, what are the tariffs that is really driving that? Is that Europe to U.S.? Is it China? Where does that all come from?

Yes. Steve, the largest headwind for us is going to be the tariffs currently in effect related to the EU. That would be our largest headwind that we're dealing with. And then secondarily would be the components coming out of China that we source given the high tariff rate there. And then it drops off after those 2. We do import, as you're probably aware, we import some smaller or low horsepower tractors out of countries like Japan, Indonesia, India, a little bit from Brazil. So that tail drops off after EU and China.

Very helpful. And then it seems like Brazil is obviously on the verge of perhaps really turning more positive here. So what can you do? And what are you doing to make sure you're keeping competitive pace there and really trying to -- is the objective to kind of win in Brazil? Can you just give a little bit of color there?

No. We are full speed ahead in Brazil. We've said each time Brazil comes up, we're bullish on Brazil. We've been bullish on Brazil for years. We think it's one of the most critical growth markets in global agriculture. It's got the capacity to grow 2 crops a season, sometimes even more than that and more -- put more acreage into the production, is along with more use of high-technology precision ag tools. So our brand leads, both of them. Our Senior Vice Presidents of both brands are down there this week. I wish I could have been but we had this thing going on today. Head of PTx is down there. So we're engaging with the market vigorously. All of them have given me feedback that the customer group is much more excited this year and sales sentiment is much more positive this year than last year. We're working with our factories and supply base to make sure that we can be ready for an increase in demand that is likely coming. Brazil is either going up or down. It doesn't stay flat for very long. And so we recognize that and we think we're on the path to be going up for some time because all the indicators are pointing towards Brazil being a winner out of the volatility that's in the marketplace. And so we're well positioned for that. Damon talked about, we're about 1 month high in dealer inventory but probably through Agrshow that's going to get evaporated here soon. And then it's really about building to the market.

The last question will come from Tim Thein with Raymond James.

All right. Snuck here, snuck into the -- bottom of the order. Just a quick one, I guess, Eric, just continuing along the line there, getting flashbacks, Greg, to my old baseball base days, batting here at the bottom of the lineup. But the -- just on the back of that comment on Brazil, I guess just curious, in light of the increase in interest rates that's putting a bit more pressure on the federal government in terms of the kind of the wiggle room they have in terms of announcing the subsidized interest rate program. I'm just curious if there's been any news or anything that's come out there in terms of what next year's program may look like? So maybe that's part one. And then part 2, just -- and I probably missed this but the change in the pricing expectations, I know it wasn't a brand change but the change from last quarter, was there a region? Or is that a mix dynamic going on with Brazil improving? Is that biasing the overall pricing higher from last quarter? Maybe just a comment on that.

Yes. Real briefly, Brazil, we haven't heard any indications yet. I don't think there's any indication that's been provided. But we do have confidence that, that government is highly supportive of farming and farmers. And so we think that the priority on farmers will remain but don't have any specifics yet to be able to digest. And I'll ask Damon to help out with the mix on pricing.

Yes. Tim, I think overall, our outlook from which was 0% to 1% to around 1% heavily weighted on what we've assumed related to the North American market there. So there's been a little bit of improvement here in Europe. But generally speaking, the change in guidance is solely focused -- mainly focused on North America.

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

Thank you. I just wanted to thank the group for joining us today and the great questions on the call. When you take a step back, AGCO has gone through a substantial transformation over these past several years, particularly in 2024, where we supercharged our precision ag portfolio with the PTx brand. We're so glad that we made that move. AGCO performed well in the first quarter, better positioning ourselves amidst global trade uncertainty and continued weak industry demand. We made substantial progress in our cost reduction efforts and reducing inventory. All these efforts will be priorities for the remainder of the year. We're excited about the fact that farmer sentiment indicators are trending positive in all the major regions 6 months in a row now in EME, which is our biggest market and we still see the trough being in 2025. Our key to our long-term success is the continued execution of our Farmer-First strategy. Our focus is on growing our margin-rich businesses like Fendt, parts and services and our Precision Ag business. I'll finish where I started. Our financial outlook reflects my confidence in the team and our strategy. Even in the weak industry conditions, we continue to execute on investing in the future, delivering market share gains and staying nimble on our costs. To all of our shareholders, we appreciate the support and look forward to building value and executing our Farmer-First strategy. Have a great day.

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