Good day, and welcome to the AGCO Third 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, Gary, and good morning. Welcome to those of you joining us for AGCO's Third Quarter 2025 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 the presentation. We will make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts, demand, product development and capital expenditure plans and timing of those plans and our expectations concerning the cost 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 forward-looking statements are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks are further described in the safe harbor included on Slide 2 in the accompanying presentation. 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 SEC, including its Form 10-K for the year ended December 31, 2024, 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 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, our Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead.

Thanks, Greg, and good morning to everyone joining the call today. We delivered a strong third quarter performance, underscoring the effectiveness of our strategic execution and the resilience of our global team. While macro conditions continue to be volatile, we benefited from a more favorable regional mix and stayed laser-focused on what we can control. Our disciplined approach to production and cost management continues to position us well in this environment. Thank you to the entire AGCO team for their continued focus in these 2 areas, where we remain agile in the face of a complex and evolving landscape, and our people have been instrumental in helping us navigate this uncertainty, maintaining our momentum and continuing to put farmers first. Net sales were $2.5 billion, down approximately 5% year-over-year or up nearly 6% when excluding Grain & Protein business divested last year. Strong growth in EME led the quarter, which continues to be our largest, most stable and most profitable region. Near record global crop production in 2025 is leading to an elevated grain inventories and putting pressure on commodity prices. While farm income is being supported by increased government assistance in the U.S., crop margins are still tight and farmers around the globe remain cautious on capital spend. During this industry downturn, we are staying focused on executing our strategy, supporting our dealers and customers and investing in technologies that will drive long-term growth. We also continue to look for every opportunity to limit the impact of tariffs on our farmers. We are closely monitoring evolving tariff policies and government support programs around the world while continuing to engage with suppliers and adjust our supply chain. We continue to assess and implement price increases where appropriate and feasible. For the quarter, consolidated operating margins were 6.1% on a reported…

Thank you, Eric, and good morning. Slide 8 summarizes our regional net sales performance for the third quarter and year-to-date. Net sales for the quarter increased approximately 1% year-over-year, excluding the positive impact of currency translation. For comparability, we've also excluded the $251 million of sales associated with the divested Grain & Protein business in Q3 of 2024. Breaking net sales down by region. Europe, Middle East posted a 20% increase compared to the same period in 2024, excluding the impact of favorable currency effects. This reflects a recovery in the production levels and corresponding sales following extended plant downtime last year. Growth was strongest in the high horsepower and mid-range tractors. South America declined close to 10%, excluding favorable currency impact. Weaker industry demand drove most of the decrease with lower sales across most product categories. North America was down 32%, excluding unfavorable currency effects. The decline was driven by continued market softness and our focused underproduction to reduce dealer inventories. The largest decreases occurred in high horsepower tractors, sprayers and combines. Asia Pacific/Africa declined 5%, excluding unfavorable currency translation impacts. Lower demand across the Asian markets were partially offset by stronger performance in Australia and Africa. Finally, consolidated replacement parts were $498 million in the third quarter, up 2% year-over-year on a reported basis and down approximately 2% when excluding the favorable currency translation. Turning to Slide 9. Third quarter adjusted operating margin was 7.5%, 200 basis points higher than the prior year. The industry backdrop remains challenging with continued pressure from factory underabsorption and elevated discounting. The margin improvement was primarily driven by strong performance in our Europe/Middle East segment, where higher sales and production volumes supported improved operating leverage. By region, Europe/Middle East income from operations increased around $163 million, with operating margins approaching 16%. The…

[Operator Instructions] Our first question today is from Kristen Owen with Oppenheimer & Company.

Wondering if we can start here with the strong Europe results. And maybe just ask a simple question, how Europe performed relative to your expectations? I'm just trying to parse through some of the onetime items versus the underlying trends there and what's supporting the outlook for a little bit more constructive growth in 2026? And I'll start there.

Yes. Sure, Kristen. So I think Europe, I would say, performed modestly better than what we had expected more on the top line. So volumes were a little bit stronger than what we had originally anticipated. The production, what you saw with the margins heavily influenced by the production schedule, I would say, was relatively in line with what we had expected. So overall, we feel good. I think the key point for us as we look at Europe right now, the dealer inventory levels are sitting below the optimal level for us. So we feel very good as we go into the fourth quarter and into '26 here that we're sitting in a relatively strong position from producing in line with retail or hopefully, if the markets were to pick up. And again, we haven't given a full outlook for '26 yet, but the dealer inventory levels are positioned well there for '26.

And then my follow-up, understanding it's very early days to digest, but any initial thoughts on the China trade agreement that was announced yesterday and how that might complement some of the government support that's been floated out there. Just early thoughts on what that could do for your North American outlook next year.

Yes. We see this as clearly net positive. There's a combination of the soybean purchases that are more clear now for this year and the next few years. So farmers can -- that's really the core of what farmers look to is market stability and predictability. But then there's also the government support that's been strengthened. And so it's a dual positive outlook. Having said that, we think this is going to be a little bit of a show-me situation where the farmers are going to need to have this -- have the trades actually happen, the deal actually finalized, the beans actually being purchased, which will then drive real pricing in the market. So our phones weren't ringing off the hook yesterday with all kinds of purchasing orders coming in. But it's net positive. That will just take some time to play out in the market. It's probably more of a 2026 effect.

The next question comes from Jamie Cook with Truist Securities.

I guess just my first question, just on the North America dealer inventory. It's nice that it came down to 8 months, I guess, versus 8 to 9 or 9 months last quarter. I mean this sounds like this is obviously going to go into -- the excess inventory is going to go into 2026. So just any color there on at what point in 2026 do you think we could get rightsized? And if we continue this way and given what you're saying about North America, is there greater risk in 2026, North America would be at a loss again for 2026? I guess that's my first question. And then I'll ask the next one after you answer this.

Yes, Jamie. So I think overall, North America, the team did a really good job in reducing the units on hand, as I think Eric said around 13% down sequentially. Given the change in our industry outlook for this year with large ag being down now around 30%. And as Eric alluded in his opening comments here, we do see North America down -- large ag down in North America -- next year as well. That is putting pressure on us to get to that 6-month target. I don't -- we won't get there by the end of the year. I think we'll make improvement from the 8 months down, but we won't get to the 6 months now. Again, that's based on our current outlook. I think as Eric just said on the prior question here, a lot of new information has come out over the last couple of days with the China trade agreement, with more conversations about subsidies for the farmers. And just to put it in perspective, again, our industry -- our inventory levels are based on the 12-month forward look. So again, if hypothetically, if large ag in North America was flat next year instead of what we're assuming is down, that would have changed my current 8 months, would have reduced it by around half a month. And so it's fairly sensitive to what looks -- what '26 will look like. So again, if we see that market turn here based on farmer sentiment, based on increased purchasing in '26, we're going to be in line with our target fairly quickly. So a little bit hard to answer right now because I think there's a little bit of flux in the system based on some of the most recent news.

Okay. And then I guess just my second question, tariffs and the lower price. I think last quarter, the guidance assumed $0.45 in net tariff impact to EPS. Any update sort of with Section 232, how that impacts you? And just curious how we're managing the higher cost, but then obviously, you lowered your pricing assumption. So where are you seeing the discounting? And how do you think about pricing into 2026, given what some of your peers have communicated?

Yes. No, we're definitely -- I think the incremental Section 232 items had a relatively modest impact to our overall tariff cost. Again, as we've sort of quoted a net tariff number for 2025, I would say we are marginally worse relative to the $0.45 more due to the incremental lost volume that we're estimating here versus the industry. And so I think that's sort of a little bit of the challenge for us here. As we think about the pricing comment for this year, we have seen some increased competitive pricing tension more in South America and Europe, and that's what's forced us to change our outlook from what was up around 1% to somewhere in the range of 0% to 1%. We will still be net neutral to positive on price versus material cost, and that does include tariffs on a global basis. So we're still going to be able to cover it, but maybe not as much as we had hoped given the current environment. As we look into 2026, we're going to see how the industry dynamics play out. As we've said from the beginning, our goal is to limit the cost of the tariffs to us and to the farmers, where we can't do that, we know that those costs will be centralized likely here in North America, and we're going to look to try to spread pricing as broadly as possible. And as I, again, early look into '26, again, I think we'll -- as a total company, we should be able to cover the material costs and the pricing, but we want to get through the year-end before we give more official outlooks for '26.

The next question is from Kyle Menges with Citigroup.

Maybe just jumping off from the last question. It'd be helpful to just hear you guys elaborate a bit more on the pricing competition you're seeing, particularly, it sounds like in Brazil and Europe, just maybe what's going on there.

Yes. I think, Kyle, what we've seen is the South American market, especially Brazil, as we said the last quarter, has started to recover. It was the first of our 3 major markets into the downturn. It started to recover, mainly in the medium and low horsepower segments of the market, again, influenced a lot by the specialty crop farmers, coffee, citrus, -- and what we've seen is a little bit of a slowdown in those markets here. And so the market is still growing. I would say we were 0% to 5% last quarter. We were probably closer to the high end of that. And as we look at some of the competitive nature down there with some discounting, especially in that segment, it's reduced our outlook now closer to the lower end of that segment. Again, I think the markets are still doing well. But just given the push to try to drive volume there, we're seeing that segment of the market be a little bit more competitive in nature.

Got it. And then just on your earlier comments on global retail sales, looking like they could be flattish year-over-year next year, assuming that's more so just talking about unit sales. I'm curious if that includes Precision at all. And would be helpful just to hear you discuss a little bit the trends you're seeing in demand for your precision solutions into 2026 and how you feel like you're positioned in that retrofit market going into next year?

Yes. So maybe I'll touch on the industry comments, and then I'll let Eric elaborate on the PTx business. So our outlook for next year is really based on retail unit sales. It's not really including parts or our PTx business. Think of that more as whole goods sales.

Yes. And then PTx , we're hitting all our forecast this year. It's going as we would plan it to be at this stage of the cycle. We're at the trough. So the margins are lower than where we ultimately want them to be. But we're signing up dealers. We've got 90 -- over 90% of our AGCO machines now going out of the factories with Trimble technology. Essentially, if you look at the 2 channels that we inherited, the Precision Planting and the PTx Trimble channels, we've got over 90% of the market covered in everywhere except for Brazil, and that's in the low 80s with that dealer network, and we're working on melting those together. The effort to end up with combined dealers that have the full portfolio is well underway. We've got 50 of those done. Target is to have 78 of them by the end of the year. That will cover about 70% of the U.S. market, which is the fastest-growing Precision Ag business. So just trying to give you a few data points on both channel as well as technology and our product. And then new technology, we had our Field Tech Days and PTx launched 11 new innovations this year, well ahead of what we had anticipated when we were putting the business together. So the innovation engine is probably running ahead of schedule. Financials are on track. Channel development is on track. We've got a new leader in charge of PTx. He's hitting the ground running really well, has visited many of our global operations in terms of sites and dealers. And so I'm very pleased with how that's going. Just as a reminder, retrofit doesn't go down as much as the rest of the business. It only declines about 1/3 as much as the overall decline of the whole goods. And so we're seeing -- although it's down, it's not down nearly as much. And as it recovers, we expect that, that will recover as well.

The next question is from Tami Zakaria with JPMorgan.

I wanted to get a little more clarification on the pricing outlook being changed. Can you help us with which regions or region is driving that reduction in outlook? And I just wanted to make sure, is fourth quarter pricing still positive? Or are we talking about negative pricing?

Yes. So Tami, fourth quarter, it will still be positive. If you look at our year-to-date, I think we're up around 50 basis points, give or take. And so pricing will be up around 1% in the fourth quarter total company-wise. Again, if I think about the change in the pricing, again, based on the prior -- one of the prior questions, the change really was driven more in South America and Europe is sort of where we saw the reductions relative to our Q2 outlook for you guys.

Understood. And my next question is, I think I heard you say North America large ag, you now expect to be down next year. Can you help us frame what that down means as of right now? Are we talking about flat to down or down to some degree, but less than this year's 30s? Any way to frame that?

Yes. Prior to the news of the last 2 days, we would have said down, like, say, single digits, nowhere near as much as this year. But then since then, we've had a couple of pretty significant positive indicators in terms of farm support for farmers from the government and pricing stability of China buying soybeans. So where that will actually end up is unknown, but it won't be anywhere near what we saw this year. We believe we're at the bottom of a global industry. We believe pricing is probably at about its worst. We think pricing power will be stronger next year. And so I think that '25 is probably, in many cases, the worst of the cycle.

The next question is from Stephen Volkmann with Jefferies.

Damon, can you just give us a little bit of a walk into the fourth quarter? There's a pretty big margin expansion kind of implied in your guidance. And I'm just curious what are the buckets that kind of deliver that?

Yes. I think, Steve, for us, the margins in the fourth quarter should finish up at around 9% or a little bit over 9% to deliver the 7.5% full year. And as we look at some of the improvements, I think Europe, again, fourth quarter is generally a fairly strong quarter for Europe. And so with from a volume standpoint, so we should see the margins tick up there. Asia Pacific is one of the early -- was in the down market early, and we see that improving. So I think we see a little bit of the margin coming out of there. And then South America would be the other one. North America continues to be the challenge. And if I think about the margins in North America relative to the third quarter, given the increased level of underproduction. Again, we said on the scripted remarks that we were down around 50% and Q4 will be down we'll be cutting production over 50% as we continue to try to focus on that dealer inventory. So I think sequentially, those margins will be even lower here in the fourth quarter for North America.

Okay Helpful. And then maybe just to focus on the restructuring program. So the $175 million to $200 million, is there a benefit of that in the fourth quarter? And then what would the benefit of that be in '26?

Yes. Again, year-over-year, we're picking up steam as we move through the restructuring actions. So there will be some benefit in the fourth quarter relative to last year. That's embedded in the outlook already. As I look at next year, you're going to get the carryover from the original $100 million to $125 million and you'll get some of the early parts of the incremental $75 million. So next year, as we look at the restructuring benefits today, I'd say it's probably in the range of $40 million to $60 million of incremental improvement relative to 2025.

The next question is from Mig Dobre with R.W. Baird.

I want to go back to the tariff discussion, if we can. And what I'm confused about, frankly, is this interplay between Section 232 and just the normal reciprocal tariffs. And I guess the way I would ask the question, when we're sort of thinking about your guidance for 2025, there was a sort of cadence in the way these tariffs kind of came into play, not much impact in the first half, maybe more impact in the second. You also have FIFO accounting. So I'm wondering, is it fair to think that the impact from these tariffs is actually greater in 2026 than what's embedded in the 2025 guidance? And if so, is there a way to maybe quantify it for us?

Yes. Sure, Mig. So yes, in answer to your question, if we look at the -- there's a couple of variables to your point, we still have some costs that we have costs that have flown through our P&L related to the tariff payments we're making. Some of it is still tied up in inventory. And then we will have the full year run rate of those tariffs, assuming there are no changes. So again, when we think about that, we've also announced that we put price actions in effect in many of our businesses, PTx parts, whole goods for model year '26. And so we have only seen a portion of that, and that's why we're sort of giving you that net effect this year. But if I just try to quantify in absolute terms what the tariff costs are, again, not mitigating with price or other actions. For next year, again, assuming no changes to what's in effect today. I would tell you that the total tariff costs are less than 1% of my total company sales. So this year, we're guiding to $9.8 billion. I'd tell you the total tariff cost on an annualized basis would be less than 1% of that. Now that would be concentrated here in North America. So the percent would be more. But as we've talked about in the past, our philosophy is to try to price in the region where we can. But to the extent we're not able to pass all of that given competitive dynamics in that region, we look for opportunities to be strategic and increase prices in other parts of the world to offset that total cost here for the total company.

Okay. That's really helpful. And then maybe a quick follow-up on South America. And I don't know if this is the right way to think about it. But when I'm sort of looking at margin here, your revenue has gradually recovered sequentially through the year. We've seen a sequential step down in margin from the second to the third quarter despite revenue being higher. And I'm kind of wondering if this is a function of pricing, as you talked about earlier or if there's something else going on that we need to be aware of as we think about the fourth quarter?

Yes. So I think, Mig, there's been a couple of things. The mix, if you think about year-over-year and you're thinking more -- the mix is as we talked about the high horsepower segment, despite all of the geopolitical stuff that we're hearing about Brazil being a beneficiary, we're not seeing the large ag part of that market pick up yet. And so what we have been seeing is, again that medium, low horsepower specialty crops. So what you're seeing year-over-year there is really more of a mix challenge. In the quarter, we had a little bit of a warranty spike year-over-year, nothing significant, but just on a quarter year-over-year basis, warranty was a little bit higher. When I think about the fourth quarter, again, you're going to see that mix headwind come in, in South America as again, we're not seeing the large horsepower pick up. And if you look at the fourth quarter for South America specifically, last year, we called out a special tax benefit for R&D. It was about 1% to 1.5% of a margin lift. That's not repeating this year. And so those are the 2 drivers as I think about the fourth quarter is really the continued mix decline year-over-year and then that one tax benefit that I had in the fourth quarter of 2024.

The next question is from Chad Dillard with Bernstein.

A question for you guys on North America. So can you walk through the path to margin recovery? Is there further restructuring that you can do? And then also, I guess, like how much of that headwind is just coming from tariffs?

Yes. So Chad, the part of the overall restructuring programs that we're talking about, some -- a portion of that is in North America. So we will see some marginal benefits of that as we move into next year. When I look at the margins right now or the negative margins it's heavily influenced by the level of underproduction. Again, I think as Eric mentioned, when you look at where we were producing in 2023, the number of hours versus what we're producing right now in the back half of '25, we're down around 70-plus percent in hours in North America. So when you just think about the cost of those factories running at that lower level of utilization, that is a significant drag on the margins. On top of that, as I said, the tariff costs are centralized here. The team is doing a nice job in trying to offset that I'd say, on a dollar basis, we're not offsetting it on a margin basis. So obviously, that's going to be margin dilutive. So the key for us is to get the volume, right? We look at this industry. And I think last year, when you exclude Grain & Protein, we were $2.3 billion or so, give or take. We need to get that volume back up. And whether that's the industry recovering, whether that's the continued focus on gaining share, all of those things are going to be critical. I'd say parts is doing quite well. But in North America, parts is a little bit weaker year-over-year. So again, that's a high-margin part of the business. So we need -- the volume has to start flowing back in North America, and it's not necessarily a reflection of what we're doing. It's more a reflection of the industry because when we look at Fendt, we're actually gaining share here in North America. You're just gaining share on a much smaller pie and you're not seeing that drop to the bottom line just given the overall industry decline.

Got it. That's super helpful. And then just secondly, you were talking about your pricing strategy to mitigate tariffs and talking about spreading it, I guess, more globally. I'd love to get a little bit more color on that. I guess what I'm trying to understand is how successful are you seeing pricing stick if you're looking to expand more globally than merely focusing on pricing in North America?

Maybe I'll take that one. Our strongest -- our biggest market is Europe, and we continue to grow share there even though we put pricing into that market. South America is probably the opposite. It's like Damon said, it's the most price competitive right now. And so it's been the one that's the most difficult for us to have pricing power at the moment. But big picture, South America is going to come back as the industry comes back. But we've had the most success in Europe, put the price in and gain share at the same time. So our disconnect between where we incur the tariffs and where we offset it has been working. Remember, there's a 3-pronged strategy there. Number one is work with our supply chain to minimize the cost impact and moving products around from -- within our supply base or within our manufacturing operations is item #1. Item #2 is Project Reimagine. We're going to take about $200 million out of our cost structure on a little over $1 billion base. So that's a self-help area. And then only third is the pricing action. And we've been really clear all the way along is we're going to put price around the globe wherever we can, where the market will bear, and that focuses on North America.

The next question is from Joel Jackson with BMO Capital Markets.

On your outlook that you expect next year, global sales flat, Europe up, the rest of the markets is down a bit. Can you speak to knowing what your inventory levels will be at the end of this year, what that might mean for underproduction in the various regions we might expect next year?

Yes, Joel, obviously, I think if we look around the world, Europe, we continue to be in a really good position. You didn't see much underproduction in Europe this year. And again, given the dealer inventories right now are sitting below our optimal level, I would say, sort of consider that relatively flat year-over-year, again, producing closer to retail or in line with retail, excuse me. South America, again, the industry is picking up year-over-year. If you remember, we had a lot of underproduction here in the first half of 2025. And so as I think about South America, you probably see some incremental positive from absorption on the full year. It will be first half weighted, and then we'll start to lap the comps that we're seeing here in the third and fourth quarter, where we're producing closer to retail. North America, again, is a little bit of a wildcard. Again, if you look at what we've said with North America large ag potentially being down, our dealer inventories at 8 months right now, hoping to get that closer to our target. That would likely result in some underproduction here in the early part of 2026. But as Eric said, given the recent news with the trade deal with potential incremental subsidies in my comment that if that changes the industry outlook for large ag, that may help us accelerate or not have to underproduce. But again, North America is still a little bit of a TBD next year.

And then finally, can you maybe talk about what sort of subsea package states to package in the states of magnitude might move the needle for your end customers, $5 billion, $10 billion, $15 billion programs, whether that's $50 an acre, $100 an acre, have you thought about sort of what's needed to move the needle to get farmers to look at capital purchases and not just deleveraging or working capital?

Yes. I think it needs to be over $10 billion. $10 billion to $20 billion, anything in there will get farmers' attention. Granted, that money is not seen as the same as market-driven profitability. They're more likely with subsea money to pay down debt and other things because they're not sure if it's going to be sustainable into next year and year after. So if the trade deal really sticks and there's a 3-year commitment to purchase 25 million metric tons type purchasing or more, that's going to drive confidence way more in farmers than will the subsidy.

The next question is from Angel Castillo with Morgan Stanley.

I just wanted to go back to maybe one of the earlier discussions on North America margins and tariffs. I just wanted to check, I guess, am I doing the math right based on what you talked about with the 1% of sales impact next year that, that kind of implies something approaching or kind of roughly $1 of tariff headwind. So if you could just comment on that? And then just related to that, I guess, based on what you're estimating today for kind of the North America outlook, fully accepting that there's a lot of moving pieces still, which quarter would you kind of expect to see the kind of peak pressure in?

So Angel, can you give peak pressure in what regard?

In terms of how you kind of spread that tariff headwind, which I'm assuming there's a little bit of a ramp-up as you kind of work through inventories and the flow-through of that tariff impact on your kind of P&L. So just curious which quarter would kind of see the peak of it before it starts to comp the year numbers?

Yes. Well, I think the first question, again, is if our sales right now are $9.8 billion, I said less than 1%. So you're probably looking at sort of less than $1, call it, closer to $0.80, give or take, depending on how things finalize again, some of these tariffs, as you know, are still changing, and those will influence some of the small horsepower tractors that we buy from others -- that are imported from other countries. So I don't want to be too precise, but directionally, less than that. And again, that doesn't take into consideration the pricing actions that I mentioned as well. So again, when I gave Mig that number, that was the absolute tariff cost. That's not my net effect to P&L next year because I already have pricing actions in effect in parts in PTx for model year '26 equipment. And so the net number will be less than that. Again, we haven't given a specific outlook. We want to see how the fourth quarter unfolds, but it will be a lot less than that absolute number that I'm quoting you for the tariff costs themselves. as I think about the cadence, we're starting to already see that flow through our P&L in North America, depending on the product. Again, as you know, we buy a lot of these medium and low horsepower tractors from other companies, depending on the level of inventory that we had in stock and that our dealers had in stock, that's flowing through over a period of time, coupled with the cost that we're incurring for some of the raw materials that we're purchasing for our assembly operations here in the U.S. So again, I think it's going to phase itself in. As we get into the second quarter, I would think we'd work through most of the inventory that we've had, and we start to see more of the full effect, I'd say, directionally around Q2.

That's very helpful. And then maybe earlier, I think you had indicated that flat volumes next year would actually reduce your inventory levels by about half a month. And I think your current assumptions was down single digits. I guess, first, can you put a finer point on kind of what that assumption was for North America? Is that closer to mid-single digits or high single digits type of decline? And then if for some reason, I guess, volumes in North America, large ag wind up being closer to down kind of mid-teens, which I think some investors kind of channel checks suggest that might be a realistic risk. I guess what's the sensitivity or math or impact on your inventory levels if it were to be closer to the mid-teens? And how much -- what does that mean for production next year?

Yes. So I mean, we haven't given a specific number related to what we were thinking for '26. Again, it's more -- as we look at the data, as we look at the analytical models running, we're starting to see it down. I think, as Eric said, sort of in that mid-single-digit range is what we were directionally looking at. I'd rather not speculate right now with all of the recent news that's come out this week. Again, I think as Eric said, those are both net positive data points for farmers in North America. And we're hopeful that, that has more of a positive catalyst as we go into '26. But obviously, to the extent it was down, you're using your mid-teens numbers, we would be forced to keep the underproduction probably longer to continue to reduce the dealer inventories. We want to make sure that we're not -- that we're getting that down to that 6 months as quickly as possible. And again, given the numbers you hear us quoting with production down over 50% again in the fourth quarter, we're being as aggressive as we can in trying to minimize the -- putting incremental inventory into the dealer channel here.

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

Yes. Thank you for joining us today and all these thoughtful questions. AGCO continues to make meaningful progress on our transformation journey. We delivered a strong third quarter performance with strong margins, disciplined inventory management, accelerated cost reduction and healthy free cash flow generation year-to-date. I'm really proud of the team for achieving this amidst macro volatility by focusing on what we can control in a dynamic environment that always -- and always keeping our eyes on putting the farmer at the center. In fact, the feedback we're getting from our farmers is real strong. Our Net Promoter Score is at our all-time highest level in the company's history. They like the net impact of our products and what we're doing with our dealers to serve them better. In the quarter, Europe is our biggest market, continued to provide stability. We know farmers around the world are under pressure. Our priority is supporting them with efficient machines and technology that keep them productive and profitable. We continue to execute our strategic shifts that sharpen our focus and unlock long-term potential, including the TAFE exit, the PTx creation and Project Reimagine. Our innovation flywheel is spinning faster than ever with new autonomous solutions and the launch of FarmENGAGE, reinforcing us as one of the most progressive leaders in smart farming. And I think you'll see that on display big time at AGRITECHNICA the world's largest ag show coming up here in a week or so. That will be a great way to engage with all the exciting things that AGCO's got going on. Our 2025 financial outlook reflects our confidence in the strategy and the strength of our global team. Even in this challenging environment, we are investing in the future, gaining share, executing with agility and always putting the farmer first. Thank you for your participation today. We really appreciate it.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.