Q4 2019 Earnings Call
Good morning, My name is the Colin I'll be your conference operator today.
At this time I would like to welcome everyone to that come 2019 fourth quarter earnings release Conference.
Meeting is being recorded.
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I like to hand, the corporate Secretary Speaker for today, Mr., Greg Peterson head of Investor Relations.
Thank you Nicole.
Good morning, welcome to those of you joining us breakers fourth quarter earnings call.
You will find a presentation. This morning posted at our website that will reference today.
You W.W., daughter, Corp. Dot Com, we will discuss non-GAAP measures and those.
Measures are reconciled to GAAP measures in the appendix of that presentation.
We will also make forward looking statements the sporting including demand.
Product development in capital expenditure plans and timing of those plans expansion modernization and our expectations with respect to the costs and benefits of those.
Those plans and timing of those benefits.
Also discussed production levels share repurchases dividend rate.
And our future revenue price levels earnings cash flow tax rates and other financial metrics. We wish to caution you that these statements are predictions and actual events may differ materially.
We refer you to the periodic.
George that we filed from time to time with Securities Exchange Commission, including the Companys form 10-K for the year ended December 30, Onest 2018. This document discussed as important factors that could cause <unk> actual results to differ materially from those contained in our forward looking statements, we disclaim any obligation to.
Update these forward looking statements, except as required by law, we will have a replay of this call are available on our website.
On the call with me this morning, our Martin Richenhagen, our chairman President and Chief Executive Officer, Andy Beck, Our senior Vice President and Chief Financial Officer as.
<unk> as Eric and sodium our senior Vice President and Chief operating officer and with that Martin. Please go ahead.
Thank you.
Hi, good morning to those hope you joining us.
On the call you appreciate your into that an ankle and your participation today.
I'd.
To begin my remarks on slide the where you will find a summary of our fourth older and full year results.
We ended the year in a disappointing fashion with a number of our jumps negatively impacting our fourth quarter results.
The end markets, where we kinda that'd be.
In fact, it no ODAC voluntary costs increased significantly that's rationalization of our grain that 14 business added expenses to the quota.
Our effective tax rate was higher than anticipated.
Andy will discuss all these items in detail.
In the fuel minute.
Well for.
Did not meet our goal.
We did make coke that in many important area in 2019.
We launched a number of smart Kodak, we dropped being well received in the marketplace.
And that up.
The margin.
Based on <unk>.
Without any top line Oh.
We generated over 400 million feet cash flow, we purchase a.
One other than 30 million up yeah.
Days, our David.
Well I know markets remain challenging we.
Maintained our Twentytwenty financial outlook.
We are targeting margin expansion.
Earnings go because I've been by price increases.
Well as ongoing cost one called initiatives.
And productivity improvement.
Slide four.
E tail end up you wouldn't its detail failed by region for the first for 2019.
Weak industry demand in the fourth quarter and most of all major market.
<unk> key cost they don't think factor direct cost saves underperformance in Florida.
North America.
Well, yeah indefinitely, we don't like that's that's my down modestly.
After 2018 with no effect of fans across most categories about 40 horsepower.
The mine was negatively impacted by a difficult going see.
The paid this year old with China.
And that.
They market that's city facilitation payment.
Core water industry says, that's slightly lower than the prior year as an eight yeah buying such did not materialize.
In Western Europe indefinitely, the mine and if that's the lower in the back half.
The 19.
What challenging commodity price environment.
Hi input cost what they have equal do so.
Well, what I indicated he said mid west I knew all the good significantly resulting in a 7% line.
Yeah.
Industries as well.
Full year Union, UK, Germany, and Scandinavia were partially offset by growth in bonds and Finland.
Oh boy that's dependent.
Not for the combined we expect that resulting in a significant decline.
The Bose caught time before.
Well, what I indicated he said in Brazil, and all but South America adult down over 20% compared to.
Well I must remain very cautious despite the pool and production in Brazil, and expanding faith sorry.
In echoes Asia Pacific I think I've eaten.
India indices have significantly lower due to the all conditions in Africa and Australia.
Echoes, who called in 19 as well because he put back out.
So on slide.
Hi.
Total company production decline by about 4% for the fourth quarter, but let's say theater yet in 2018.
Compared to the pie yet what actually wants to know what in South America flat in Europe and hard.
What twentytwenty be I've.
Good thing I went back to decrease of approximately 1% to 2%.
And finally, our December on a bought.
Up in North America.
And South America compared to a year ago.
I will now turn the call over two and be back who will provide.
Our two more information about our fourth quarter is up.
Andy.
Thank you Martin and good morning, I'll start my remarks on slide six with with the items that impacted our results in the fourth quarter.
The white portion of the slide with the items that are excluded from the get adjusted deep.
Yes, and we report the first item relates to goodwill and other intangible impairment charges, approximately $177 million or $2.33 per share primarily related to our European grain and protein business. Why we expect this business to contribute positively to our future results are accounting assessment was this.
Charge was appropriate and the fourth quarter.
The other items excluded from our adjusted Dps also include restructuring expenses.
In a onetime tax gain related to Swift federal income tax reform.
And the shaded portion of this slide Weve listed the items remain in our adjusted result, the first.
Adam relates to warranty expense, which was 23 million over about 20 cents higher than fourth quarter 2018, a majority of the increase related to the yield product improvement campaign that we initiated to correct performance issues on some new harvesting products. The most significant issue was within model of our large.
Quarter Baylor.
Second item in the section relates to our decision to rationalize certain brands and products within our grain and protein business.
As a result of these actions we incurred cost of about $7 million were about seven cents a share we anticipate this rationalization will reduce cost and complexity while.
King our overall product line.
In addition to these items are fourth quarter results were heavily impacted by our sales falling well below forecast.
The chart shows the estimated impact to the lower sales compared forecast as Martin discussed previously industry sales in the quarter were weaker than anticipated which contributed to.
Significantly to our variance in sales.
Our sales operating income and earnings per share were all negatively impacted by the lower demand, particularly in our Europe middle East.
Asia Pacific Africa in South America region.
The last item list the impact of the fourth quarter effective tax.
Tax rate, which was higher.
Excluding the gain on the Swiss gain a the rate was approximately 45%.
On slide seven we look at AG, because net sales performance for the fourth quarter and full year of 2019, Agco sales were down 1%.
Compared to the fourth quarter of 2018, excluding the negative impact of currency translation, which impacted sales by approximately 2%. The Europe Middle East segment sales were up 3%, excluding negative impact of currency translation compared to the fourth quarter 2018 sales growth in Germany in Central Europe.
Were offset by declines in the UK, Finland, Spain and the politics.
Echoes fourth quarter 2019, net sales in South America decreased approximately 15% compared to the fourth quarter of 2018, excluding negative currency impacts.
Weaker market demand in Brazil, and other South American markets.
It's resulted in a decline.
Sales in North America increased approximately 2%, including favorable impact of currency compared to the levels experienced in the fourth quarter of 2018.
Higher sales in our precision planting products and combines were partially offset with lower grain and protein equipment sale.
Net sales in our Asia Pacific Africa segment decreased about 11% in the fourth quarter.
2018, excluding the impact of currency.
Sales were lower in both Africa in China.
Part sales were approximately $299 million for the fourth quarter, which were up about 3% compared to the same.
In 2018, excluding currency impacts.
Slide eight examines agco sales and margin performance and cause adjusted operating margins were lower in the fourth quarter 2019 compare to the same period last year reduced levels of production and sales the impact of higher warranty.
Expenses as well as grain and protein rationalization cost all contributed to decreased operating margins in the fourth quarter for the full year Echo's operating margins improved by more than 50 basis points, despite lower sales and production volumes as well as the charges that we discussed.
On a.
Regional basis for the fourth quarter, Europe Middle East margins declined 40 basis points compared to the fourth quarter 2018 on relatively flat sales higher warranty expense was mostly offset by the benefit of pricing as well as ongoing cost control efforts North American operating margins were similar to the prior year as margins were impacted by.
The warranty in grain protein and protein rationalization costs.
In South America, the fourth quarter operating results did not improve as expected primarily due to a much lower sales and production levels, resulting from weaker market demand as well as bio higher warranty in bad debt cost the cost of.
Our new tier three technology products remain above targeted levels, and we're working to lower them through new sourcing and cost efficiency efforts.
While sales did not reach our targets in the Asia Pacific Africa region in the fourth quarter, our operating margins that are Apiay segment improved by about 75 basis points.
Over the prior year, a favorable product mix and cost control efforts contributed to the improvement.
Slide nine details AG, because grain storage and protein production equipment sales by region and product sales in this product group decreased about 5% excluding currency impacts.
For the full year 2019, compared to 2018 globally grain and oilseed equipment sales grew about 1% on a constant currency basis with growth in Europe, and South America protein production sales decreased approximately 10% on a constant currency basis with the largest declines on the Asia.
Specific Africa, and North America regions.
We mentioned that our analyst meeting in December that we were in the process of reassessing, our grain and protein business to determine how to improve its performance for our customers. Our goals included a more technology rich product line up a stronger focus on key markets and.
Improving cost structure through footprint and other efficiencies as already discussed some of these actions taken related to brand and product resin rationalization and footprint changes in the fourth quarter and pick that impacted our results this year.
We project that these actions will support better solutions for customers.
And improve result for AG.
Slide 10 looks that AG, because investments both capital expenditures and Richard Research and development, we intend to maintain a strong level of investments in our products, resulting in capex at about 3% timber sales and R&D spend at about 3.9.
Of our sales in 2020, we are continuing to refresh our full line of equipment with a focus on smart machines.
Slide 11 addresses that goes free cash flow, which represents cash resulting from operating activities less capital expenditures free cash flow total approximately 400.
$23 million for 2019 after funding new product development programs and factory efficiency initiatives. As a result is a strong free cash flow that cogenerated over the last few years, our balance sheet and liquidity position remained solid and we continue to return cash to shareholders.
2020 after.
Covering our spending on strategic investments were targeting another healthy free cash flow year.
At December 30, Onest 2019, our North American dealer month supply on a trailing 12 month basis was flat for tractors and hay equipment and higher recombine losses on sales receivables.
Associated with our receivable financing facilities, which are included in other expense net roughly 12.1 million during the fourth quarter compared to 11.8 million in the same period of 2018.
Moving on the next slide as we focus our returns on.
For share returns for shareholders, we expect.
Cash distributions to continue to be an important component of our long term capital allocation plan over the last seven years, we've executed share repurchases of over $1.3 billion, which had the effect of reducing our share count by over 26%.
During the full year 2019, we completed $130 million to share repurchases.
And expect cash generation to find additional share repurchases in 2020 during the fourth quarter Echo's Board approved a new 300 million dollar share repurchase program.
Our updated 2020 outlook for the three major regional markets is captured on.
Slide 13, we've maintained our forecast for 2020 regional industry sales, despite the lower than forecast results for 2019.
In North America the U.S.
The U.S. da is projecting 2020 farm income in the U.S. to remain challenged due to low commodity prices and uncertainty with.
At this limitation program payments, we project North American industry tractor sales to be down zero to 5% in 2020 compared to 2019.
He you farm income is expected to soften in 2020, driven primarily by lower milk prices, partially offset by normal more normal.
Crop production.
Based on these assumptions, we expect sentiment to remain weak and 2020 industry demand to continue to soften across the western European markets.
Following two years of supported farm income and low lower level of industry demand in Brazil, we expect to see modest market improvement in 2000.
20 demand in Argentina is expected to remain at low levels.
Slide 14 highlights the assumptions underlying our 2020 pulmonary outlook prior pretty hot the priority for 2020 continues to be managing our cost and continuing to invest in our product.
And business improvement opportunities.
Our 2020 forecast assumes a modest softening of industry demand in Western Europe, North America, and higher industry sales in South America. Our plan includes market share improvement with price increases.
About 2% on a consolidated basis.
At current exchange rates, we expect currency translation to be relatively neutral.
Industry excuse me engineering expense is expected to be relatively flat compared to 2019 at about 3.9% of sales.
We are targeting an effective tax rate of about 33%.
For 2020 interest and other expenses the spec is expected to be approximately flat compared to 2019 level.
Slide 15 lists our view of selected 2020 financial goals, we are projecting sales to be in the $9.2 billion range higher sales.
Sales and cost reduction initiatives are expected to drive margin improvement based on these assumptions were targeting 2020 earnings per share of approximately $5 to $5.20 with a projected earnings improvement expected to be phased in the second half of the year.
We expect capital expenditures to be approximately.
Flat compared to 2019 level and free cash flow to be in the $325 million to $350 million range.
In terms of our first quarter results. We project 2020 operating income to be approximately 10% below Q1, 2019 with a significantly higher.
Our effective tax rate versus the prior year with these details in mind Q1 2020 earnings per share are projected to be in the 50 to 60 cents range.
That concludes our prepared remarks, operator, we're ready to take questions.
As a reminder, if you.
I'd like to ask an audio question. Please press star and the number one on your telephone keypad.
And so that we may get to everyone's question, we do ask that you limit yourself to one question and a follow up.
Thank you.
The first question will come from the line of 82.
What's Steven.
Hi, good morning, Thanks for taking the question.
Maybe you can give us a sense for.
Acting end market improvement to come from.
I know you spoke to kind of South America, being a little bit better.
In Europe, but.
Certainly you know the sales.
Outlook ended the year on.
Oh I'm just.
Wondering where we're going to see that revenue improvement in 2020.
Well when we did put our plan together, we basically did not assume and knee.
Great deal with between the U.S. and China, so which in AD.
After the fact that there was an agreement in the meantime might look a little conservative. So what we would want to see is of course commodity prices going up which then my cost investments from the American Thomas.
Okay, and then maybe.
Taking it another way could you.
Maybe just kinda talk about the progression of the year.
By region.
I mean, obviously the outlook for one.
Sure.
And just sort of maybe the cadence.
That what you do that sure.
Yeah in terms of Oh look in terms the sales.
Hello.
It's heavily as we say sales are up.
To reach about 9.2 billion for the full year first quarter sales were looking to be relatively flat and then some some modest increases in the Alex here with a little higher increase of about two or three.
The person in the fourth quarter. So we are expecting that.
These markets rate remained relatively stable.
But trending down as we mentioned in North America, and Western Europe, and then up in South America.
You know I think overall.
Overall, we are orders are.
You know in line for our first quarter and then we'll obviously have to continue to build orders for for the balance of the here.
It's a leap out to also Jen.
Okay.
Yes.
Great. Thank.
The next question comes from the line of Joel Tiss with BMO.
Hey, guys has gone.
Joel so far so bad.
[laughter] can you give us a little bit of an update on the progress to incorporate fenton to dealers like what the dealers have been learning and what they're hearing from from the initial.
Actual customers.
Hey.
You bet. So yes, I think it is quite positive all throughout our customers are excited about both the product and the relationship. They are building with the dealers. We set a very very high bar with all of our dealers taking on this new product in terms of their.
Vacations and.
And there they're excited to live up to that so high energy that our customers and dealers I think it's off to a good start.
And then Andy how come the the free cash flow is expected to be down in 2020 with the profitability up a little bit.
Joel.
We were forecasting a slight a working capital you.
In 2020.
We do expect to have our inventories come down as you can see that inventories ended up higher than where we'd like to see them.
But we anticipate that.
It will be.
So those will be offset by increases in a are as well as probably in some of our payable and other other it can't working capital accounts. So.
Pretty much.
Balancing out the inventory reduction.
Okay. Thank you.
The next question comes.
From the line of Jamie Cook with credit Suisse.
Hi, good morning, and I guess two questions. One can you just provide an update sort of where we are in some of their supply chain initiatives associated with tier three in South America, and whether your assumptions on profitability, indicating as <unk> earnings in South America.
Change relative to the analyst day, and then my second question relates to GE ESI whiskey.
Paramount charge you guys check can you just talked you where G.S. I profitability sits today sort of you know the difference between U.S. overseas and in sort of the longer term view on on how we think about G.S.
Hi profitability outside North America. Thanks.
Sure. Thanks, Eric maybe can start with what's <unk>, what we're doing in South American then cover the rest of the question Yeah. So South America, we've actually been pretty positive about some of our products like planter growth sprayer growth.
And actually even green and protein in South America and combines we had a weak year in the beginning of 2019, we feel like we found bottom there and and.
Got that business moving in the right direction. Our primary focus is on and improving the business of tractors in that that's the one that really was impacted by the transition to tier three.
And.
And if were we talked earlier too that we had an assumption on our portfolio plan that that proved out to be not his actions. We had hoped so weve brought back into production, what we call a heritage line of tractors, which is a lower spec lower cost position product line and then.
We've got all hands on deck.
In terms of across functional effort manufacturing purchasing.
Engineering and quality all co located working very very hard at.
Effectively getting that product costs back down.
Im sorry did your profitability assumptions change at all or I think youre expecting loss.
In the first half a year and then things improving it back.
Jamie that that's a still accurate we're we're looking for a lot there in the first half.
Typically in the first quarter with improvement in the second quarter and then.
Offsetting with them.
Was it results.
Given the positive results in the third and fourth quarter the.
Turning to your question on on grain in protein.
We pointed out the profitability is.
Being challenged right now by number of factored and market conditions in North America, the grain market.
Just the most profitable sector of our business there has been down kind of in the same pattern of what we've seen with high horsepower row crop tractor and combine business in North America. So it's down.
Significantly from where we've seen it before.
The protein.
Sector is as we pointed out was down this year.
But that's been really running fairly well, but theres been some fairly sizable spending levels over the last couple of years and thats trending cycling and trending back down overall outside of North America, we've seen weaker market conditions.
Additions.
Particularly in some of our seed treatment products as industry consolidation has it impacted us and also the impact of the African swine.
Issue in Europe, I mean in Asia has impacted our business, there, which is a sizable portion of the business.
So right now our sales as we pointed out are not where we'd like them to be our margins are more or like mid single digits right now.
With the margins, we expect growing in 2020 as we get some of these rationalization and cost reductions done.
So we expect to see margin improvement this year.
North America segment is still the of that business is still the most profitable piece and.
That once we expect improvement there as well.
Thank you I appreciate the color.
Nicole lets in favor of since we have.
Limited time today, let's limit the questions to one per analyst as we go forward. Thank you.
Certainly and the next question will come from the line and and domain with Jpmorgan.
Hi, Good morning, Yeah, I've only got one question no follow up Barton.
Yes again.
I would like.
To discuss the margin performance by region, I mean margins seem to be weaker in all regions.
Quarter versus your expectation and in Brazil, It looks like factory shipments in January which just came out.
We are up significantly more.
Or in some segments versus your guidance until it shipments are up more than expected does that mean, a bigger than expected loss in the first half. Thank you.
In terms of margin performance, you're you're exactly right. We didn't meet our targets here the fourth quarter again, a lot of that.
As related to.
Some of those.
Warranty charges that we took as well as the rationalization in the grain and protein.
If you would.
Look beyond nodes.
We did see some margin improvement even in the fourth quarter and North America.
Pretty flat in Europe, and up in Asia, and then obviously down in South America.
As we as we look forward, we're looking for margin improvement in all our of our regions in 2020.
In terms of Brazil margins will continue to be challenged.
Our production was down about 20% and the fourth quarter, which impacted our results and then the first quarter, you're going to be down. Similarly, I think down 20, 20% from a year ago and so that's going to impact our results you're right that we're we're seeing shipments a as we mentioned we.
We hit our numbers on the first first month of the year, which isn't a big money, but they'll positive.
But we're also working through some of this inventory that we had on hand, it in the year and some of those corrections or in the first half of the year and in terms of our production.
The next question concerning <unk> V.C. capital markets.
Good morning wanted to ask about the warranty issue that you called out.
I guess I was thinking you're prepared remarks sort it sounded like it hit all three regions I guess my questions are really.
How comfortable are you that this is a one.
Most of this pain was hit in the in the fourth quarter and it won't kind of bleed into 2020 and can you give us any detail on the break out on how much it hit each region. Thank you.
Sure.
In terms of the warranty that these were Tam mainly campaign cost. So these are or lack the field efforts to correct issues that we have on sold unit.
So that's kind of you know, we it's an isolated program and it doesn't affect kind of the overall warranty cost of the product, but it's it's all obviously.
Focused on key products, where we had some issues that we need to address in order to support our customers in the right way.
So in terms of our overall warranty we would expect you know this not to impact us here and and future quarters at the same rate in terms of the cost of the warranty.
There was about a quarter of it in North America, a little more than a quarter in Europe.
And then the the remainder kind of split evenly between Asia Pacific in South America.
Well he did impact every market.
<unk> you called out how much that delta was year over year, but can you give us an absolute dollar number for what this campaign cost.
The the campaigns on the two there were there were a number of campaigns, but the the two major ones was about three quarters of that <unk>. A result of about three quarters of the increase that we've talked about.
Right I'm just wondering <unk> is there an absolute number though that we can try and get get to normalize margin. If we were to add that back.
Yeah, I always I <unk> again, I would say you know we said 23 million was the 20 223 million was the increase in about three quarters as it related to those two campaign.
Okay, alright, thanks, very much any.
As your mind your <unk>. Your question. Please Palestine. The number one for question has been answered you may remove yourself from the keep by pressing the pound key.
Where am I do we do asked you limit yourself to one question.
The next question concern line of Quinnipiac, one is Morgan Stanley.
Hi, Thanks for the question just going back more into your comments that Jane came in higher than expected to you know obviously as <unk> was that also the comment about North America in any of the search that you didn't see in December you know have you seen it come in.
Later, and you know kind of just pair that first to this you know what you're talking about with your order Buck right now I'm still being down in South America.
<unk> well actually U.N.B., when we had I walked <unk>.
We were still optimistic that we would basically be on target and on guidance.
And so the.
Downtime and the market K. <unk> I'm expecting a baby be all over.
The world and so we see now things being more stable than before.
Okay Gotcha.
I'm not sure whether this was a great and stuff. So maybe I need we want to add something <unk>. The only thing I would say is just everyone keep in mind January the probably the smallest month of the year and right now, particularly north America's not a lot of retail activity because you know being in the winter months no not a lot I not like going.
On so the market really starts to pick up in terms of retail activity.
Maybe in March and then even more heavily in April so can we get into those parts of the market tough to judge what we're doing right now it is basically filling orders to our dealers to be ready for those.
Seasonal peaks that happened in the springtime.
And in Brazil in in Brazil, basically we we have started to do a lot of things. So we will have a bad <unk> as you.
You mentioned before so basically the lounge, the the very small low Tech fact, and so therefore gain market share that segment again. This basically also had an impact on I'll a market share and in fact, as we have basically a lot of new poll doctor speech, Normandy might or <unk>.
<unk> to to to <unk>.
Things in it and then just maybe that comment on combine inventories being higher than they were.
It was that expected given the ideal launch or you know. It's this is this also part of the you know drop off that we saw the end of the year within minutes, so tired, but it's a combination of both.
Okay. Thank you.
The next question comes from <unk> with Bank of America.
He didn't want to guys.
Morning <unk>.
I guess I just wanted to sort of ask the elephant in the room question here and you know why didn't you cut the queue for guide.
On December 13th at the analysts day, and and how do you not cut the 2020 guidance with with the fourth quarter coming in.
50% below consensus as you say Martin you saw this sudden deterioration in market conditions and as you guys. Just explained January doesn't really tell you anything about the year, you know you're you're implied guidance for 15% earnings well it seems pretty optimistic given the downbeat commentary you provided on the N. market.
Yeah, when you look into the hits the the we always we we basically all based that'd be very consistent consistent and babbitt, good and basically they live living on the guidance. So that's why not since you exception.
<unk>, but we didn't know what was going on yet. So therefore, we didn't want <unk>, we actually we we couldn't see but well, but wasn't the pipeline and had no reason to change the guidance when he comes to to Twentytwenty I'm very optimistic that the guidance as feasible.
Stick I would even say most probably like before slightly conservative.
But Martin how can you say that if if you just admitted that they you you didn't have the information on December 13th the quarter was gonna be so bad how could you, possibly reiterate the 2020 guidance not knowing what you now know based on one month of of results in the seasonally.
Least important month of the year.
But the guidance is based on just a month or two so the the <unk> Oh, Oh ballpark I think it's it's pretty realistic I'm pretty strong. So we will just come back to me if I'm wrong at the end up for years. So that's the best buy know today.
Good luck.
Yeah. Thank you very much it does.
<unk>.
It will be on it.
[noise] next question will come from the line that Stephen bulk Jefferies.
[noise] Hi, Eric the morning, guys.
Yeah, right I'm wondering can we just do a little bit more detail on the rationalization and the storage protein business. It seemed like a fairly meaningful charges I guess I'm just trying to figure out sort of what you're doing there and if you're accepting certain markets or businesses or something what would that have an impact on 2020 revenue and.
And and then I think you said that profitability would improve on the remaining business I'm. Just curious if you can kind of size that for us. So I'll put it all there and and leave it at that one question.
You bet I'll start as often in Andy can add a few the numbers, but you know direction essentially what we did is just took a look all the way from one end of the other of that Greenham protein business and in in spent some deep analysis on it during 2019 to understand where we wanted to focus on that business going forward out of that assessment, we identified a few.
<unk> that could be consolidated with other facilities and and you saw those being announced and that was part of the charge of of the restructuring. We also exit business that we felt was redundant in our poultry production operation that we felt was more efficient to consolidate with one of the others and and the end up with less complex business for our dealers and customer.
And so we've done that and and that it can one of the brands and businesses out of the market intention is still to serve the full protein in and.
Protein market through poultry and swine.
In in our core markets and yeah, but just do so through a a later footprint for production and the simpler offering in the marketplace in terms of brands and products. So that that was the main focus and rationalization. We also rationalize some of our leadership structure to get a more clarity on ownership and accountability.
And they even in terms of Ah profitability, you know well as we said or a revenue this year was.
A little little bit over a billion dollars don't see much growth there probably flat to slightly down as our first estimate from profitability standpoint, because we at some of these charges.
We've called out that there were $7 million within our results relating to that we should see an improvement <unk> you know double digit Marge improvements so somewhere in probably the 10 to 15 million dollar range improvement in those results and in 2020.
Great. Thank you.
Mm.
The next question comes from the line of Andy Casey was Wells Fargo Securities.
Thanks in the morning like task.
Another question on North America, but on workers.
I I appreciate your earlier retail sales comment about the you know the months typical weakness but.
The industry at large has been talking about pent up demand that had been kind of held back by all the and start date that's out there.
We look at the sentiment indicators they picked up pretty sharply with the trade deal I know, it's it really short term question, but did you see any incremental order pick up.
During January for some of the early season.
Yeah type of equipment like sealed prep plant, taking high horse power equipment.
On top of the already improving end of December order board and that if not you know what's the typical lag that you might see between set them and improving and an order pickup.
Yeah, you know one of the indicators that we watch is for North America market, especially Lita somebody seasonal products is the precision planting winter conference, which is our release or a new products and and that attracts somewhere you know about five 6000 of of the top producers around the country it actually outside the country as well.
<unk> myself and.
Talked to them quite a few of the farmers in the the sentiment is certainly up there feeling like it was a positive for the trade deal to be resolved in <unk> brought a fair bit a certainty, but it also came with a comment that.
What really will drive they're buying behavior is when they see commodity prices rise because of those trade deals being put in place so they're optimistic but yet not not.
Pulling the trigger on a lot of orders yet until actual market dynamics move more positively.
Okay. Thank you.
The next question comes from the Whine and carry ridiculous Goldman Sachs.
Hi, Good morning, everyone. This is Ben brewed on for Jerry.
<unk> just had a too quick questions on on the 2020 guides one that can you just provide us with color on the market share tail when that that's embedded in the <unk> point that on the slides, but be helpful to you know get some color on where that sure games coming from what markets you'd largest opportunity and if any competitor.
Yours are playing defense on that Angel and then quickly. The second question would just be on you know the margin improvement you made in 2019, you know the 55 days she mentioned earlier in the call. It how much what is there to chop off on that angle, meaning you know five sales were flat again and 20.
We assume that you guys will be able to expand martians further from here. Thank you.
Sure in terms of your second question terms the margin improvement, we certainly anticipate as we pointed out marking improvement I think that that range that we that you've discussed is in line with what we're expecting to do it's obviously dependent on us achieving.
The pricing levels that we've talked about as well as managing our cost in our productivity in our factories as as we expect to do so those are all you know all important factors in achieving margin improvement first question.
<unk> yeah, the market share games, you know there there are some a key new products that we're introducing and expanding Eric touched on some of those already in terms of growing or a high horse power market position.
In South America, and and as well as in North America, We have second year of our ideal combine.
Into the season and so we expect some growth over the first year, which was kind of a limited release and so there are a number of areas I would say all relating to new products that where we feel confident that we'll get a good bump from the market and that should offset some of the market weakness that we're we've talked about.
Wow.
Got it thank you.
The next question comes in line at 10 Fine what city grants.
Mm.
Great <unk>.
First on clarification on your comment earlier on G.S. I.
The the I think you said most single digit margins was that a a fourth quarter comment or is that 2019.
That's a whole year four year <unk> other businesses fairly cyclical or seasonal excuse me and their their best quarters or the second and third quarter four quarters relatively weak we quarter for that does nothing at all historically.
Okay.
There's there's a fair amount of memory.
So that but <unk>. So obviously you can smart ones are better, but if I know going back say two or three years ago.
What am I right in thinking that was like a mid teens business for yeah for G.S. when we total when we.
When we first started with the business.
When it was just North America, and we had an expanded it into some of these other markets and.
Within other product lines, particularly some of the new protein product lines that we added it was that high was in a in the double digit range.
That as I pointed out earlier was when they the grain.
Market was much stronger and that was the most profitable segment of that business. So if we see some recovery in that market, particularly in the <unk> you know as we're talking about it being mainly in North America business, we see recovery that in North America grain business, we can get back into the double digit.
Margin levels for a bar grain business in North America overall, I would say you know.
Hi single digits, a low double digits for the whole business. If we can see some recovering these markets, but that would be our overall targets for that business.
Okay, Alright, and it just real quick on the 1% to 2% products in our decline that is split assumes and pretty but hi single digit down in the first half and but maybe scientists in the back end up is that I was thinking about it or.
I kinda, probably mid mid single digit first quarter or something like that and then progressively getting better for the the year.
But you're right, it's more second half a improvement.
Okay alright, thank you.
The next question comes from the line of calculate what to what you think.
Hi, good morning, everyone.
Dread.
<unk>.
So I still be you guys could talk more about your expectations for G.S.I., what's embedded in the guidance and it has racing about the the kittens of revenues as we kind of bills through 220 20.
Sure as I just mentioned the business is really fairly seasonal and so what we what we have is.
The revenues in the first quarter in the fourth or or much lower.
What we see in a in a second and third so.
You know, we're as I said, the overall park at improvement or sales will be you know, we'll have margin improvement, but no top line improvement this year I expect to be down in the first half of the year, probably about 5% with a little flat or in the second.
Half of the year.
The sales are I think about two thirds of the sales or in the second and third quarters.
That's all full and then just on on cutbacks and the fourth quarter seems like it it came a little higher <unk> what was guided too.
What more color on that.
Yeah, we.
We we finished some projects ahead of time, we we had some spending relating to some improvements in some of our factories and then new product tooling came in a little higher than we expected, but nothing unusual or anything specific to point out.
<unk>.
Mm.
The next question is from the line of Rob North Man was Meles research.
Hey, good morning, everyone couldn't you continue the discussion please in Brazil, and you talked about sort of revamping or.
You know whatever some of the smaller tractors in the low red.
I did about your your progress in larger farmers monographs, and so forth as opposed to spend considerable regions. Thanks.
Yeah. The the clear intention is to move the center of mass that business up further north and and build further success in that matter gross region. We've got a company store now in <unk>, which is one of the essentially the heartbeat cities of might have grow so.
The intention there is to do a great job with parts and service targeting customers supporting customers and a establish a a lighthouse success story there.
We've got a dedicated team of of skilled folks that are doing a really good job there and we're engaging with some of the top customers in that region.
But in general we're also <unk> evolving or dealer network, where we're signing up new dealers in that region as well. So we've got to two pronged approach, creating a lighthouse of our own and then attracting more dealers into that region.
In the combined with bring large product, but of course, our product into that area.
So we've already launched the momentum planter, it's been a huge success way beyond even our expectations and so we had to raise production on that.
The ideal combined is out running in the fields right now we're taking that on a demo tour through of the key farmers and then we're bringing the a high horse power tractors. So we've got a high horse power product plan and a distribution plan to go with it to be successful in that region.
And what's the piece of chains on horse power tractors, you know just being.
More present, the region and launched.
So the industry pace or or are activity no no I'm, sorry, I'm, sorry, I'm just your your localized an introduction.
<unk>, it's not up there.
The the the products that we sell in Brazil arm, primarily localized with the exception of the some of the largest equipment that we import so almost everything that we sell in Europe in Brazil is local.
And that and the the largest horse power machines that we have don't have a natural competitors. So they they don't.
They don't have the issue of of some of the import duties and and I mean do challenges.
Thanks.
It makes questions from the line of <unk> day with <unk>.
Hi, Good morning could could you talk about any supply chain impact related to Corona virus and kind of what's what's.
Embedded in the in the one cute guy you're you're talking about and just kind of have higher power you're planning for sort of what you can see at this point.
Yeah. Thanks for that question you know, it's something that we're monitoring very closely I don't think we can give you very concrete answers at this point, we've got teams and purchased saying and supply chain managing a in monitoring the situation very closely.
It's important to understand that we have our own factories in China and those those back resupply not only the local market, but our our heavily focused on supplying a the global series tracker, which is our small tractor into a number of our regions around the world.
We also make components in those factories that are that go into assembled equipment and mainly in Brazil in in Europe. So it's it's something that's important to us and we're monitoring very closely because of the fact that there could be some disruptions too.
Getting parts to our other factories in getting products to our customers in time right now we think that.
Right now the production levels are to cured at least through probably mid March and then we'll start to see if there's going to be any any disruption it's something that were.
Hopeful because of the levels of inventory that we're carrying a these types of components that there won't be a disruption and we can get back up to speed, but it's difficult to really give you much more than that at this point in time.
I appreciate the details thanks.
And we do have time for one additional question. The final question will come from the line of Adam Oh Man was clean flame research.
Okay. That's good morning, well, it's wonder if he could speak a little bit more about your your outlook then.
Typically I'm curious as to the sensitivity or potential downside scenario, if it's not spread them to Germany.
You know how how much of an into how do you think that that would have on farm equipment demand and then related to that I guess, what it would have you been seeing and in eastern Europe. A demand trends is is is is you know pumping them there. Thanks.
Okay.
So you know we're still minded there's not much that's changed from our last discussion on Europe demand as we as we finished the year, we've and also evaluating going into 2020, and and U.S.F. was already in Germany, and pockets and and up in Belgium. So we don't see that.
As a big change factor the sentiments seems fairly stable to the to the feedback that we gave you in December.
In that it was sluggish in the fourth quarter.
But somewhat stabilized going into the new year, we I think we're forecasting zero to five down so that's still how we see the market.
Okay. Thanks.
Well, but it's all maybe that's interesting to know the German government comes in with a billion off additional of subsidies. We don't know yet where they will go back over all of that show dogs. So I have a positive impact on the market in Germany.
And that does conclude the question and answer session of today's call that one now in the call back to me to Grace Peterson for closing remarks.
Thank you Nicole and thank you for all of your participation today and your interest an echo and we will look forward to being around today to <unk> handle your follow up questions. Thanks and have a good day.
Just as conclude today's conference call. We thank you for your participation or not set you. Please disconnect Caroline.
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