Q1 2020 Earnings Call
[music].
Thank you for standing by unlocking Diego <unk> first quarter earnings Conference call.
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I'd now like to have a confidential, but she's because today Mr., Greg Peterson head of Investor Relations. Please go ahead Sir.
Thanks, Amy and good morning, welcome to those of you joining us for because first quarter 2020 earnings call. We will refer to a slide presentation. This morning that we've posted to our website at www Dot Echo Corp. Dot com.
And that presentation. The non-GAAP measures that are used.
Our reconciled to GAAP metric measures in the appendix.
We'll also be making forward looking statements this morning, including demand product development capital expenditure plans and the timing of those plans acquisition expansion modernization.
And our expectations with respect to the costs and benefits of those plans and timing of those benefits production levels share repurchases dividend rates future revenue in price levels earnings cash flow tax rates and other financial metrics.
We'll also be discussed and we wish to caution you that these statements are predictions and actual events may differ materially we refer you to the periodic reports that we filed from time to time with the Securities and Exchange Commission, including the company's form 10-K for the year ended December 30, Onest 2019 this stock.
You had discussed as important factors that could cause actual results to differ materially from those contained in our forward looking statements. These risks include but are not limited to adverse developments in.
And the agricultural industry, including those resulting from cobot 19, including plant closings workforce availability supply chains reliance and product demand whether commodity prices from changes in product demand, we disclaim any obligation to update any forward looking statements, except as required by law.
A replay of this call will be available on our corporate website later today.
On the call with me this morning, our Martin Richenhagen, our chairman President and Chief Executive Officer, Eric can sodium our chief operating officer, and Andy Beck, Our Chief Financial Officer, and with that Martin. Please go ahead. Thank you very much academic and good morning, everybody. We appreciate your interest in Agco and your participation in.
The call today I want to stop this morning by providing some thoughts on the cost.
Environment before we discuss our first quarter results in the mid South Dakota, 19, pandemic for health and safety of our employees and the communities inventory up of eight is our first priority we have input do with a robust safety protocols for our frontline Buck also includes.
Keeping our plans and Pottsville hogs in observation to support our customers. These practices include thing and cleaning staggering shifts and the organizing how we work to increase social distance distancing.
In addition, our support teams are working from home whenever possible.
The cost the communities heavy up of eight.
Thing with relief efforts, who company and employee let actions as well so our eco Okay Carson Foundation.
All of that funds go into this fivex and this year.
As they come so the other provide more information on this work we also deeply committed to meeting our customers' needs.
Our teams are working hot leveraging both our internal capabilities as well as the resources of our dealer partners and supply us to support our customers under these on but I'm precedented and unique circumstances.
Well nearly 30 years at glass face an over and overcome many challenges as in the past our employees izing to the occasion.
Yeah, very motivated and committed I appreciate that commitment to help echo tool, our part to support the global food supply chain, while keeping our factories and co work us fate.
On slide four we are facing a very dynamic environment, requiring that give us and coordinated business planning to manage our manufacturing supply chain and aftermarket obligations to effectively serve our dealer and cost.
From us as well as to maintain a productive work force SV ability view with you in more detail our manufacturing observations have already been significantly impacted by the crisis, our supply chain and production teams have done a great job securing pods to allow us to restart production our factories.
And we will take great effort to keep them running under unsettled conditions.
In addition, our sales marketing and service teams are finding innovative ways to connect with dealers and customers as we continue to promote our products and support our equipment in the field.
Given the substantial uncertainty facing us we have implemented implemented actions to reduce costs substantially and concept cash we entered this period from a position our financials. Thanks.
Andy both stuff that position with another 520 million of new debt capacity that we added in early April our goal is to emerge from this kai this stronger Lena and well prepared to succeed with our strategy.
With this backed off slightly looked at our financial results for the first caught up our first quarter results demonstrate that strong execution.
This slide you as its size for level it slice for.
So you can see.
Excellent.
We have a quality problem to be part of that's a joke.
So we talk about slight for our first quarter results demonstrated strong execution as we overcame Corbett 19 related production disruptions in China and fuel up to expand operating margins compared to the first quarter last year strong performance in our North America return highlighted our results driven by.
Hi, import product availability and an increase in the retail demand of our product.
Our Europe Middle East leads and live outside remained solid it but to the already impacted by Tom products in stock options late in March Despite a very strong auto bought.
For now.
So the mistake was not in the wording it was on the side so now.
We talk about flight for.
These so to say.
Slide four detest industry unit retail sales by region for the first quarter of Twentytwenty.
North American industry retail sales decrease in the first three months of Twentytwenty compared to the same period in 2090.
Sales of both low and high horsepower attract a soft.
During the quarter.
In the 10 sales investment give up the chi decreased modestly only in the first three month of Twentytwenty market demand was weak in our weakest in Spain, and Italy, but was mitigated by growth in Germany.
In us the Ito said in South America decreased during the first three month of Twentytwenty with the decline.
End markets all.
All markets outside of Brazil.
Looking forward the effects of the pandemic and other key factors on future equipment demand are difficult to assess at this moment.
Unlike other industries. The work of our farmers had has not slowed down and farm equipment is being used intensively.
Demand for agricultural equipment will be influenced by Tom income, which is a function of commodity prices cop yields and government support.
Currently the consumption of grain for food fuel animal feed is be negatively impacted by the economic constrains caused by the pandemic.
As a result grain inventories are expected to increase this year and soft commodity prices have tend to trend it significantly lower in the first quarter.
In addition, 14 post staffing has been severely constrained with which precious 14 producers regionally North America equipment demand is being heavily driven by an aging fleet balanced against increasing concerns about falling commodity prices and a week dairy and livestock.
Complex.
Invest on new up stronger we prices are serving to offset constant regarding another season of the high wherever by the way. We just had plenty of grain this week.
The weather conditions by dairy prices are declining currently equipment demand remained solid in key markets, such as France and Germany.
And while demand is significantly lower in other markets like Italy, and Spain in South America, the weakening Brazilian currency, serving to help the margins of Goldcorps produce I'll ever pharma buying sentiment is weakening due to the economic and political environment.
Outside Brazil, the markets are significantly lower due to the political social and economic situation in those countries.
Although the level of retail demand is difficult to predict the markets we serve relatively resilient.
And we are aggressively supporting retail activity our global markets.
I will now turn the call over to our COO Ethicon. So T. R who will provide you more information about the coal with 19 impact on our business and does a great drop in managing our teams. All this situation Eric Thank you Martin and good morning.
Since the beginning of the crisis, we have focused on addressing the needs of all of our key stakeholders, namely our employees our dealers our customers our suppliers our shareholders in our communities. We have developed developed comprehensive plans associated with running or operations and supporting customers. We have stepped up communication efforts.
To keep the echo team informed about the latest developments and the current view of the path forward.
The management team is leading by example, putting employee safety first modeling excellent teamwork, making fast decisions and demonstrating proactive care for all other stakeholders.
First and foremost we have established protocols for all of our facilities focused on employee health and safety.
The next slide I will cover how we're supporting our communities as well.
We have also prioritize part of our dealers and our customers as Martin said, we're proud of the way our employees are going above and beyond to keep farmers and dealers operating through these difficult circumstances.
Innovative approaches to connecting with dealers and customers through digital tools has been a positive byproduct that we can leverage when we return to normal.
In terms of business continuity, our focus has been on the supply chain manufacturing and parts distribution operations.
Keeping our factories running with component availability is the most important factor in minimizing the impact of the crisis to our customers and our business.
As for liquidity, we're in a solid footing following the additional debt capacity secured in April.
We're also actively managing costs and cash by reducing expenses and capex, particularly in our operations that have been shutdown.
We have prioritized our most important processes and products that will continue to fund them as we look to protect echoes long term health.
Slide six highlights some of the areas, we are helping to support our communities. We're re purposing, our spear manufacturing capacity to produce personal protective equipment for equity employees and for frontline workers in our communities.
Specifically, we are addressing critical PPD shortages like masks shields hospital beds respiration equipment and ventilators.
Our company and our employees are also providing financial and logistical help for hospitals and other support organizations.
And finally.
The Echo Agriculture Foundation is allocating its 2020 budget to support local and global efforts to help minimize the impact of the kroner buyers on our vulnerable communities.
The foundation funds are assisting with food security for the prevention or relief of hunger and local community development based on most critical nutrition and health needs. During this challenging time.
On slide seven we detail our production status across our four operating regions.
So far production has been significantly reduced or suspended in most of the company's Asian European and South America facilities, largely due to material shortages in the supply chain.
As we talked with you. This morning after being closed for the month of April all of our major facilities in Asia and Europe are now operational with exception of the Valter plant Ancelotti, Finland.
This lottie plant reopened in late April, but was forced to close again due to shortage of components from our casting suppliers.
And that was damaged in a fire in mid April we expect our plan to reopen in June after we complete the Resourcing of these components, we're planning to reschedule our plants normal summer shutdown vacation normally in July to me to recover a portion of the loss manufacturing capacity in the third quarter.
To their credit the North America facilities of manage remained open throughout the crisis with some plants and reduced hours due to workforce constraints.
And our South America plants have also reopened after being interrupted by component supply issues in April.
Echoes first quarter 2020 schedule for factory production hours is shown on slide eight.
Total company production was down approximately 9% for the first quarter versus the same period in 2019.
Most of the decline was caused by factory shutdowns, which occurred late in the quarter.
To give you a sense of the impact of the shutdowns. The chart on the right shows a difference in production hours compared to the prior year for both the first quarter and for the month of April.
The factory closures during the second quarter, we'll have a significant impact on our second quarter sales and earnings.
We'd like to caution you that our visibility into future disruptions in our supply chain or future Colvin 19 related impacts to our workforce is limited and may cause us to closed plants again.
Turning our attention to Echo's order board has at the end of March our order word for tractors and combines was higher in North America, Europe, and South America compared to year ago.
During the month of April we continued to receive orders, while a number of our factories or shutdown.
As a result or order board has naturally grown as the end of April as of the end of April resulting in a healthy backlog for our factories.
We are monitoring the quality of our orders very carefully as an indicator of future demand essentially watching the mix between stock in retail orders.
I'll now turn the call over to Andy Beck, who will provide you more information about our first quarter results.
Thank you Eric and good morning to everyone I'll start on slide nine which looks at AG codes regional net sales performance for the first quarter of 2020, Agco sales were flat compared to the first quarter of 2019, excluding the negative impact of currency translation, which lowered sales by approximately 4%.
The Europe Middle East segment reported a decrease in net sales approximately 5%, excluding the negative impact of currency translation compared to the first quarter of 2019 sales declines were driven primarily by lost production caused by the impacts of the covert 19 crisis.
Lower sales in the UK, Scandinavia, and France were partially offset by higher sales in Germany. So.
Sales in North America increased approximately 12%, excluding unfavorable impact of currency compared to the levels experienced in the first quarter 2019 growth in net sales of high horsepower tractors precision planting equipment, hey tools and replacement parts all contributed to the increase echoes first quarter net sale.
Yes in South America increased approximately 14% compared to the first quarter 2019, excluding negative currency translation impacts.
Growth in Brazil was partially offset by lower sales and the smaller South American markets.
Net sales in our Asia Pacific Africa segment decreased about 13% in the first quarter of 2020 compared to 2019, excluding the impact of currency.
Sales were also impacted by product availability and were lower mainly in Africa, China and East Asia.
Consolidated replacement parts sales were approximately $310 million for the first quarter 2020, and we're up about 6%, 6% compared to the same period in 2019, excluding negative impact of currency.
Moving to slide 10, we examine agco sales and margin performance at 'cause adjusted operating margins expanded approximately 50 basis points in the first quarter of 2020 compared to the same period last year margins benefited from favorable material cost and product mix compared to the prior year.
Upset by the impact of factory closures due to supply constraints.
Europe Middle East segment reported a decrease of $25.4 million and operating income compared to the first quarter 2019, resulting primarily from lower sales and production.
North American operating income increased 30.3 million in the first quarter compared to the first quarter 2019, higher sales and a positive sales mix contributed to the improved margins in South America. The first quarter operating loss was relatively flat compared to the same period of 2019 the cost.
Of our new tier three technology products remain above targeted levels and we are working to lower them through new sourcing efforts.
And our Asia Pacific Africa segment, the earlier impacted the pandemic resulted in significantly lower production and sales operating income declined about 4.7 million due to lower sales and production activity.
Slide 11 details Gs I or grain and protein business results by region and product a grand protein sales decreased about 11% excluding negative currency translation impacts in the first quarter of 2020 compared to 2019 glow.
Hopefully grain and oilseed equipment declined approximately 21% with our Europe Middle East in North America region, showing the largest declines farmers and grain elevators in North America had been slow to invest given a week profitability outlook stemming from low crop prices and a significant decline in ethanol dumb.
And we've also experienced some supply disruptions due to labor availability in our facility there in an assumption, Illinois that contributed to the decline increased us China trade would be supportive of crop prices and demand for more elevators storage capacity.
Protein production sales increased approximately 4% in the first quarter due to strong growth in South America that offset declines in the other regions. The protein production segment is expected to be significantly impacted by the pandemic, particularly in North America with nearly 50% of pork processing capacity in the U.S. currently.
Suspended in China protein producers are beginning to recover from the SF and have started rebuild the production capability our order flow for production equipment in Asia Pacific Africa region has improved throughout the quarter.
Slide 12 addresses that goes liquidity and free cash flow for the first quarter, starting with our free cash flow, which represent cash used in operating activities less capital expenditures are seasonal requirements for working capital are greater in the first half of the year and thereby result and negative free.
Free cash flow in both the first quarter of 2019 as well as 2020.
During this period of uncertain business conditions, we as a strong focus on cost and cash control. In addition to liquidity all of our businesses have identified specific cutting cost cutting actions to minimize our operating costs, while revenues were lower.
His actions include employee furlough hiring freezes delayed merit increases eliminated travel costs and reduced discretionary spending.
Extended these cuts will be dependent on the level of revenues in supply disruptions we experience.
Since we participate in a historically cyclical industry, we have experience in adjusting our cost structure to future demand levels.
On April nine 2020, we completed a new term loan facility, which provided an additional 520 million of liquidity, including the new facility and 'cause total liquidity as of March 30, Onest 2020 would have been approximately $1.2 billion consisting of cash of 380.
$7 million available borrowing capacity of about 820 million.
We're utilizing some of that liquidity during the second quarter due to seasonal requirements and the impact of factory shutdowns. However, we feel confident we have sufficient liquidity provided a length or severity. The a pandemic on our operations is not more significant than currently estimated.
Other details for the quarter include losses on sales the receivables associated with our receivable financing facilities, which are included in other expense net or approximately $8.1 million. During the first quarter 2020, compared to 8.7 million in the same period of 2019.
Going to the next slide as we focus on returns for our shareholders. We expect cash distributions to continue as an important component of our long term capital allocation plan. During the first quarter Agco completed share repurchases of approximately $55 million. During this period of uncertainty company is this.
Spend it any further share repurchases. In addition, the company's currently is planning to maintain that payment of its quarterly dividend.
Moving to the final slide as you know we withdrew our guidance in late March two to the uncertainty caused by the pandemic.
On our wrap up our prepared remarks with slide 14 that highlights the factors, which will drive our 2020 results and details our major focus areas.
As we stated earlier farmers are continuing to run their operations and in and are using their equipment intensively their near normal activities will drive replacement demand for parts and equipment farmer sentiment and demand will continue to be influence on the on going pandemic as well as more normal factors like low.
Local yields and commodity prices as well as government support our ability to meet their demand will be impacted by our success navigating a difficult supply chain environment and the availability of our workforce.
Our second quarter results are being significantly impacted by production interruptions that have already occurred and our results for the balance of the year will be impacted by our ability to keep our manufacturing operations up and running.
Going forward, our focus will be on supporting a safe working environment for our employees, serving aftermarket demand and providing proactive support for our customers and dealers will continue monitoring local conditions to facilitate quick and decisive actions to changing conditions will concentrate on efficient and effective operation.
As our business given the uncertain conditions finally, we'll aggressively manage our cost and conserve cash in order to preserve our liquidity as well as facilitate important long term investments like our digital and product and operational strategies.
With that operator that concludes our remarks, we're ready to take questions and we'd like to limit our participants to one question and one follow up please.
Hi.
Ladies and gentlemen, I would like to ask your question. Please go ahead.
And the number one on your telephone.
Okay.
Your first question comes from the line even.
With Jefferies.
Please proceed with your question.
Great well good morning, guys.
Forms to England Icesave open hope everybody is doing well and Im wondering if we can disaggregate a little bit you talked quite a bit about supplier options closing you down and limiting for Doug you didn't talk too much about.
What you're seeing from the demand side and I know.
One of you said the G.S. I would would be down to the port situation, but.
In terms of farming.
I guess, what I'm trying to get at is do you think you can basically kind to sell as much as you can make.
As we go forward here or do you are you worried that there will actually be some decline in end market demand due to these lower commodity prices.
I think we hopefully we'll be in a position to settle lumpy make.
Our them is not so much demand the problem is more the various.
Decisions off administrations globally, we try not core audience native and in some countries.
Is it even varies by state.
So and that makes it difficult to be the understand or to predict exactly.
What we are in a position to produce.
But I think it looks I guess, if there is no problem to adjust.
Other demand I think is good enough tool basically being a position to sell lumpy make.
Okay, Great and then maybe a quick follow up for Andy you guys talked about all sorts of cost cuts is there a specific kind of decremental margin that you would counsel us think about as we go through the second quarter.
Sure the.
In the decremental margins when you look at it obviously are going to be dependent on what products and what regions those sales declines come out of.
Typically as you know our margins are stronger in Europe, and also we have a higher.
Fixed cost there higher and investment levels, because as amount of vertical integration, we do in Europe. So the decremental margins are going to be the highest out of Europe, and then be lower in other regions in a general statement I would I would say a as we look at as it and the second quarter, it's going to be somewhere in that 30 to low 30%.
That range is what I would advise you to focus on.
I would also share one observation with you I think basically.
Isn't that position and was into position to motivate our teams and everybody is highly aligned and committed and of course, the outstanding Echo College I help see us. So we are really in a position to do what is needed.
Great well well done Eric Thanks.
[laughter].
Yes.
Team sport I missed PR Guy you know.
Yes.
Yes.
Your next question.
Next question.
Hi, Stephen Your line is open.
Hi, good morning.
You know margins were really exceptional in North America and.
Just wanted to see if you might be able to dig into.
How much of that was no precision planting versus you mentioned.
Retail.
Strong for some of the new products I believe this kind of hoping you could dig into sort of the strength in North America.
And then what drove it.
So I think what I wanted to say before the questions and side is that these margin. Some bought help you to understand our potential so now assume that markets come back to normal they were not normal last year end the year before and they certainly will not be normal this yet but.
Lets assume markets come back.
Margins will go through the oil I think.
So that dance your specific question about the North American margins the up as we mentioned that the key factor there was really a strong.
Sales improvement from precision planting their business sales were up over 30% in the quarter. That's a high margin business kind of aftermarket tight margins on precision planting and then our actual parts aftermarket business was up over 10% as well in.
Almost 15% in parts in North America, So again, helping the overall margin profile and then even within our machinery business, we had and a stronger mix selling high horsepower equipment, that's where a lot of the growth came from so you know the precision planting business is a very seasonal business.
The first quarter is the basically they're a big big part of the year and they had a great performance in that first quarter and then we'll obviously just slight normalcy see their sales taper off for the balance of the year.
Okay, Great just following up on that and so.
So I.
I mean that strengthened precision planting now are we are we at the early stages still have that did the the winter conference and everything that's the big driver of the step change in performance and what would be described is pretty weak environment.
Yes, I think theres, a micro and macro answer to that for the year. It's like Andy said Thats very seasonal and much of their products are still tied to the planting solutions and so farmers want to buy those before planting and so first quarter is they're big quarter within any given year and we expect that to be the same case this year on the macro.
Seen some of the solutions that you saw winter conference are really still in that pilot phase we call is alpha and beta testing phases, and so the you'll see the full release of those products in the full volumes of those over the next few years, where our strategy for precision planting is to grow them from planting business to a full crop cycle business.
And from a North America focused business to a global one and we believe that Theres significant growth in both of those two vectors that has yet to play out over the coming years.
Thanks, So much good luck guys.
Thank you. Thank you.
Your next question comes from the line of.
RBC capital markets.
Ladies and gentlemen.
Hey, guys good morning.
Everybody's while.
Just wanted to ask a couple of questions on South America I guess.
You know the outperformance versus the industry overall industry sales your sales were up versus industry down.
Anything you'd you'd kind of highlight there and then just to follow up is.
Andy I think you said you know tier three cost you're still kind of.
Running above target you know kind of whats the trajectory to getting that.
FICC.
When can we expect.
The supply chain or whatever you know other initiatives you have going on there to really.
To really start showing up in the model. Thanks.
Very good question next question please.
So Seth as you say South America, we had a a better quarter than we expected our revenue in retail sales were good. So we're pleased with the revenue side.
And our margins are actually better than we had expected, but still you can see that we're in a loss position.
Normally the first and second quarters are kind of the weaker seasonal quarters. The revenue picks up in the second half. So we hope to see some of that as we move forward.
You know, but obviously, we're going to watch what happens with the demand of the industry. We had some comments about some of the factors there the in terms of improving overall profitability in South America, that's going to be a gradual process theres not a one quarter fix of this where.
We're working very carefully on.
On our supply chain with our supply chain partners in terms of Resourcing components localizing or the components in order to reduce the cost also focusing on the value of these products looking at a pricing strategies in order to impact the topline the one.
One thing in South America that we've got also.
Recognizes that the currency moved significantly here in the first quarter the real moved from.
End of low fours to five and a half and we still are in a net importer of components into Brazil, and that's even gotten worse because some of the markets, where we export our product into as has declined a little bit of as a result.
As a result of some of the market weakness. So we're working on accelerating localization of components as well in order to mitigate that that impact as well, let's look at pricing opportunity.
In in a normal demand environment would you expect South America turned profitable by the end of the year.
Yes.
Yeah, Yeah, we're not in a normal environment, we had anticipated that we need to we would be show some profitability in the back half.
Okay, Great I appreciate it guys. Thank you.
Your next question.
Yeah.
Morgan Your line.
Hi, Good morning, and Martin good to hear you haven't lost their sense of humor in this environment. So we appreciate that.
I guess my question, maybe and first on South America again is it.
The notion that if you're not making money at Lionel and the fundamentals in Brazil are my does that is that could have again.
Can you really make money if demand rolls over in the fundamentals.
We reiterate some here just done safely cost standpoint, do you need volume as well.
The answer is definitely yes.
Yeah, and I think.
It's a function of demand and volumes typically are they Brazilian market is stronger than where it is today. So we think theres a lot of potential there.
Farms are growing there, they're going to add about 2% to the amount of farmland farmed this year and so there's a lot of reasons why we should see growth in that market going forward again. This is that maybe a difficult a period of time because of what's happening with the general.
On a me into political situation in Brazil, but there's still huge potential for that market and are going to be a very important market for us in the future. Maybe just one other comment this is Eric.
Although there are tractor business, we've talked about a fair bit with this transition to tier three we've had a.
Challenge and profitability, we're growing our planter business for growing our sprayer business for growing our combined business growing century on large AG portfolio, we've established fendt as a Brandon in South America put US company owned store rate in Surrey. So in the heart of medical so those are all.
Businesses that should be supportive of a higher margin profile in the future and they're on the right track.
Good. Thank you for the color I appreciate that and then just turning to North America.
Good morning fundamentals are there both from the strong dollar, but also the ethanol demand.
I'm curious to hear why you wouldn't expect to and grain storage to improve at all and is there any risk Martin that the grain storage business in north Atlantic has to be permanently impaired from here.
No when it comes through a permanent or is it kind of structural change I don't think so because bon as there's a certain tendency that big up almost one could be more independent and therefore invest install rich and then second we also have a lot off.
Okay. Thank all of installations out. So therefore, I don't think that we will see that.
Okay I leave it there in the interest of time. Thank you. Appreciate the then keep kicked up what's your sense of the unlikely.
Stay healthy and save you are in New York argue yeah I'm in Midtown, Yes, it's a little weird.
So be careful.
Thank you hi loud.
And don't doing too much of the death infection things.
So that book, maybe that's a long advice somebody gave.
[laughter] noden. Thank you.
Irish whiskey might be okay.
No that would keep those viruses away all right.
Okay.
Thank you.
Thank you bye.
Your next question comes from the line it Gary.
I'm sorry.
Your line.
Hi, good morning, everyone I'm glad to hear your old in wealth.
If you could just expand Eric on the comments you made about April can you talk about what holds cadence of demand was light for the month and then you mentioned, obviously with facilities being shot backlog expanded in April but can you talk about a year over year order performance for the month since these gibbons context on.
The one way to demand thanks.
Sure, Yes, I think and just started off and then I'll add some color to this as well.
Okay in terms of Jerry in terms of the order board as we mentioned up for tractors. They were up in North America, Europe, and South America, North America was up around five or 6%.
At the end of March.
That position stayed about the same at the end of April and Europe. Our order board was up about 12% at the end of March and because we didn't produce many tractors or sell many tractors in April and we continue to get orders now our order boards up over 20%.
As the end of April South America is really a is up significantly we really had low order board last year and we change some of the ways, we take orders and giving more incentives to give us a more visibility into in terms of orders. So that's not really a fair comparison, but that order board is.
As much stronger than a year ago, only order board that down as our Asia Pacific Africa, and that's down or.
At the end of April about 15%.
If you look at a or North America overall, all products, including grain storage and sprayers and all of that Mark our orders are slightly down at the end of April, but still getting relatively reasonable order intake.
And retail activity still still a ongoing.
Eric you want to expand on that.
No I think essentially as you probably are clearly aware that agriculture has been deemed a critical industry and so our dealer organization through almost the entire world had been able to be remaining open sometimes it had to modify their operations and so the company has been stepping in and providing a lot more.
Handholding through digital tools directly to the dealers and many times directly to customers. Those are both in the supporting of machines, but also in generating retail demand.
And our supporting with digital walk around and those types of things Theres been a lot of innovation across the whole company and leveraging existing tools differently or or creating new tools to help them markets stay vibrant and so with this opportunity for this innovation. It's generated this this strong demand that we.
We're realizing today.
Okay. Thank you Andy just a clarification obviously the backlog is up in April as you mentioned, but I'm wondering can you talk about the order intake levels year over year.
20, This April 19.
They were they were.
Down.
In all the markets, except for Europe, where that the order intake was actually higher in.
April 20 versus.
2019.
Okay.
And.
On the discussion around.
Making sure orders are for retail demand versus inventories can you just expand on how you're managing that process than what proportion of incoming order board or food retail customers versus dealer stocking. Thanks.
[noise] essentially we watch the order bank and look at when the order has a customer name on it destined for retail versus a stock quarter and what we're trying to understand is where there may be small pockets, where dealers, putting and demand in with a concern about our like say our factor being shutdown.
Alan or something like that.
And we're monitoring any of those stock orders that come in and seeing how fast they convert to retail we do this through what we call. It control tower is one for each one of our regions around the World Europe, North America, South American So on and then those happen every single day and enroll up to a global control tower, we have dashboards that we use.
To drive those control towers that we monitor things like order board and quality of the order Board factory status industry health and those types of things and so we're managing that in the short term that way and then the on alternating days the global Controltower looks at more mid term indicators for.
Where the industry health will be coming out of the of the coal that situation more like this quarter three quarter foreign into 2021.
Yes, I appreciate discussion thanks.
Your next question comes from the line Courtney Alcobra <unk> with Morgan.
Your line is open.
Hi, Thanks for the question I'm, just going back to some of the comments on North America.
You mentioned that parts demand was up 15% in the corner.
It seems to be pretty big acceleration from last year.
Can you just comment on why you think we're seeing that is that yes delay of replacement schedule and more maintenance you know given the uncertainty right now.
And then.
And can you also just clarify what parts of the entire company, we're up as well.
And then secondly, just on comments.
On Asia, when we look at that.
Production slide it doesn't look like there's been a very noticeable improvement in April versus.
The first quarter bison keep talking about China being back at normal production level. If you can just help square that maybe part of its explained by lower orders. Thanks.
Sure in terms of overall parts sales they were up about a 6% for the company again. They were there were stronger in North America than that.
Eric you might want to add add to this but oh I don't I think our first concern was having our warehouses still be operational having enough capabilities to get parts out to customers as the work is continuing out on the field we've been very successful.
With that and really I would say, we're operating our parts facilities normally now the ordering patterns of our dealers I don't know, we're noticing anything to different than the normal but the warehouses are operating quite well.
Yeah, our fill rates are our head at all time highs in many of our locations and then one thing that's a little early to call yet, but could be happening is some of these digital tools that were utilizing could be spurring some additional parts retail activity with that.
The digital use of walk around that the dealership and at the customer site and pre season planter inspections things like that could be generating a little bit extra retail demand to its still early to call. It yet.
I think you had a question about Asia Pacific Africa that that's a number of different markets there.
You know again, we're back up and running in our China factory, but also that market gets served by almost all of our factories around the world. So.
If we are down in Europe, there's going to be a lot of product availability stability issues for that that region as well. So that's something to keep in mind in general that one of the key markets is Australia, New Zealand that market seems to be relatively solid right now worse.
Being recovery as we noted in our remarks in China.
The one market that we're very worried about and expect to remain really weak. This year is the Africa market.
And he plans to sell.
In fact as in China, though.
How much do we leave.
Moving from you up to China.
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Great. Thanks.
Your next question.
With Wells Fargo.
Mhm.
Hi, Good morning, obviously, Patrick will standing in for Andy Thanks for taking my questions.
Gone just going through your slides.
As we look.
We look through the production shutdowns that you guys experience through April and now with them being having resumed production can operating profit in the second quarter be positive now that things have come back online will at least a lot of it has come back online.
Sure obviously, we opt for the second quarter off to a difficult start because we didnt have our production up and running in April.
So it's a matter of can we catch up here and them and then last a two months of of the quarter. So our target would be to be able to get back past breakeven here for the quarter. So the answer is a very nice Tom maybe [laughter] alright and.
In the quarter here I, just want to get a sense of what the contribution is from pricing I mean that the sales numbers are actually pretty decent considering the industry volume declines so wanted to get a from a different angle what the pricing contribution is during the quarter and also maybe.
Any discussions regarding market share commentary.
Coming in and out of favor by by regions.
During the during the quarter would be.
He actually pretty helpful.
Right Patrick the as you are aware that demand situation across much of the markets was was okay, but not exceptionally strong so our pricing was a little bit on the on the softer side. It was positive about 50 basis points globally higher in some areas a little bit lower and others. The good news was the material inflation was.
Actually a benefit it was a tailwind so in terms of net pricing, we're closer to probably 75 or 100 basis points of net pricing for the quarter. So that helped our margins you saw for the full for the full quarter. So that's kind of where we were and then in terms of market share.
We've talked.
The last few quarters about some important new products, we talked about precision planting earlier, our fendt globalization and of course, our combined rollouts seasonally combines will be more important.
And the next couple of quarters, but in terms of precision planting that's that's done very well from a market your standpoint, and our fendt rollout, especially in North America has benefited our our market share to here too. So yes that definitely contributed in the quarter.
Alright, thank you.
Yes.
Good morning.
Yeah.
Thanks. Good morning, just curious for your guys used on commodity prices and equipment demand.
Because you know you called out the order books that are above last year and no real demand concerns.
So whatever you produce but the green prices are lower and it seems like certainly in some cases, the the farmers stress might be higher so just curious how you're thinking about the year and the impact to commodity prices do you think we normalize here what's the reconciliation there. Thanks.
I think overall, what you will lead is that there's a huge demand for food and that we also have.
Various bottlenecks all over the World of course, the old thing is logistics and how to including the full to the people who need it.
And therefore manifold production varies a little bit and prices valley. So overall in the long line on I'm, a little optimistic that prices.
I will stabilize we have.
I think Oh, I don't see that prices would go down.
Substantially from he the ethanol decision off the American administration is very important and what you can see right now.
People the high flats and use that cost less huge off costs also means this less fuel consumption. So when you talk to the.
Our guys you will hear that or when you talk to people on the automotive indices I mean on the bought off VPG so paint.
Demand in.
And we finished so in heat payer is down because cars are not used as often which means also they are less accidents ensco on so we just good news, but on the other end auto not so good when it comes to.
Calling in for ethanol.
Okay, and then just wanted to ask about combines versus tractors and curious why you think combined sales or are so much weaker than trackers, how much of that is driven by inventory levels combines it just needs to be adjusted.
Versus product cycles, or technology, or something else and what would it take to balance out that combined demand versus tractor demand.
Well I think but one thing I would point out as this is just not a seasonally important quarter for combines.
You know it's off a small small base. So those percentages can get skewed a little bit I would expect the combined sales to be similar to what we're going to see with the rest of the row crop market over over the course of a year.
Seasonal so I think it's more of a seasonal issue I wouldn't.
I don't think theres anything specific to combine.
Got it thanks a lot.
Yes.
This morning.
James Your line is open.
Hi, guys. Good morning, hope barrel doing well.
Wanted to follow up on the the North America sales discussion new talk through the you know the positive impact from precision planting, but you also mentioned no high horsepower tractors are doing well what sense I guess could you just help us understand how much of this sales traction is.
Dealer inventory stocking versus retail demand and then maybe just go through what the medium term planets with that business.
Sure. If you look at a always were at all first quarters were always building some dealer inventory. So you always see that our whole sales will exceed or retails in the first quarter, because you're getting the dealer inventory levels up to at that level you want before you. This spring selling season, so that's a normal.
Occurrence, if I look at dealer inventory year over year, and our North American markets, it's relatively the same.
March versus March last year, so no change relating to that as it relates to.
What we saw in the quarter again, our retail sales activity were solid in the quarter and we feel good about that.
Maybe the second half your question is on the longer term perspective.
We've got a big focus on filling out the portfolio, which we've done on on that professional producer for high horsepower in terms or machinery business.
Well, we've got a strong offering now on on high horsepower tractors planters, we've always had good sprayers and commercial hay and the ideal combine. So that's you know the intention is to continue to strengthen our dealer network and and achieve full potential out of the professional producers segment.
Second area of machinery is the rural lifestyle every for small AG, then, adding somewhere between 20 to 25 dealers a year.
In North America to cater to that segment of the market, it's going to be down in the short term because it usually tracks with GDP, but more of your the long term side of your question is we're continuing to fill that and we've got the gold mysteries tractor and some good products there as well precision planting already commented on our intention is to grow that twofold and you'll see some.
Of that technology growth into other areas show up in North America, and then a green and protein business. We've got a strong green business already and we think with low commodity prices in a short term.
Some of the rebounds, and Martin talked about with fuel prices farmers will see these low commodity prices as a potential too.
Do some margin capture by Green storage.
And finally protein we believe that's a long term strong business, but in the short term like Andy mentioned earlier in the call with many of the prop pork processing plants down our pork producers, especially in to some extent I'm also poultry producers.
Our in a bind right now they can't go anywhere with their end product. So the price they get has gone down even though the price in the grocery store has gone up but we believe that's a transient issue and that a more mid term that will stabilize and long term we feel good about the protein business.
Great. Thanks very much.
Ill now turn the Hopper Japan.
Right.
We appreciate your interest and ACA. This morning, and remind you that I'll be around this afternoon to handle your follow up questions and we.
Encourage everyone to stay safe and thank you again for your participation.
Oh.
Well thank you.
You mean.
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