Q3 2023 AGCO Corp Earnings Call

Good day and welcome to the Agco third quarter 2023 earnings call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions in consideration of time, please limit yourself to one question and one follow up too.

To ask a question you May Press Star then one on your Touchtone phone.

To withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the conference over to Greg Peterson Agco head of Investor Relations. Please go ahead.

Good morning, welcome to those of you joining us for Agco's third quarter 2023 earnings call.

This morning, we will refer to a slide presentation, that's posted to our website at www Dot Agco Cork Dot com. The non-GAAP measures used in the slide presentation are reconciled to GAAP metrics in the appendix of that presentation.

We will make forward looking statements this morning.

Excuse me, including statements about our strategic plans and initiatives as well as our financial impacts.

We will discuss demand product development and capital expenditure plans and timing of those plans and our expectations with respect to the cost and benefits of those plans and timing of those benefits.

We'll also discuss future revenue crop production and farm income production levels price levels margins earnings cash flow and other financial metrics. All of these are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks include but are not limited to adverse.

Developments in the agricultural industry, including those resulting from COVID-19.

Supply chain disruption inflation, whether commodity prices changes in product demand interruptions in supply of parts and products the possible failure to develop new and improved products on time, including premium technology in part smart farming solutions within budget and with.

Expected performance and price benefits difficulties in integrating the Trimble AG business in a manner that produces the expected financial results.

Reactions by customers and competitors to the transaction, including the rate of which trimble eggs largest OEM customer reduces purchases of terminal AG equipment and the rate of replacement by the joint venture of those sales.

Introduction of new or improved products by our competitors and reductions in pricing by them.

The war in the Ukraine difficulties in integrating acquired businesses and in completing expansion and modernization plans on time in a manner that produces the expected financial results and adverse changes in financial and foreign exchange markets actual results could differ materially from those.

Suggested in these statements.

Information concerning these and other risks is included in <unk> filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2022, and subsequent Form 10-K, 10-Q filings agco disclaims any obligations to update any forward looking.

Shipments, except as required by law.

We will make a replay of this call available on our corporate website.

On the call with me. This morning is Erik <unk>, our chairman, President and Chief Executive Officer, and Damon Audia Senior Vice President and Chief Financial Officer with that Eric. Please go ahead.

Thanks, Greg and good morning, Agco has consistently delivered record results over the last two years and I am pleased to tell you that the third quarter of 2023 is no different agg.

<unk> delivered $3 $5 billion in third quarter sales.

Nearly 11% higher than the third quarter of 2022.

Operator: Good Day, and welcome to the AGCO 3rd quarter 2023 earnings call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operating margins in the quarter were 12, 3% and 12, 6% on an adjusted basis.

That's a 190 basis points better than 2022.

This marks the fifth consecutive quarter with operating margins above 10, 5%, which is evidence of how we have structurally transformed our business and further demonstrates the progress we are making towards our mid cycle.

Operator: After today's presentation, there will be an opportunity to ask questions. In consideration of time, please limit yourself to one question and one follow up. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two.

12% operating margin target.

This strong financial performance reflects the continued success of our farmer first strategy focused on growing our precision AG business Globalizing, our full line of our <unk> branded products.

Operator: Please note this event is being recorded.

Greg Peterson: I would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations. Please go ahead. Good morning.

And expanding our parts and service business.

Our north and South American fence sales are ahead of our growth targets as we expand our distribution networks in the regions to give more farmers access to the industry's best equipment.

Greg Peterson: Welcome to those of you joining us for AGCO's 3rd quarter 2023 earnings call. This morning, we'll refer to a slide presentation that's posted to our website at www.agcocorp.com. The non-gap measures used in the slide presentation are reconciled to gap metrics in the appendix of that presentation. We'll make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts. We'll discuss demand, product development, and capital expenditure plans and timing of those plans in our expectations with respect to the costs and benefits of those plans and timing of those benefits.

And we continue to have the best parts fill rates in the industry.

Our strategy is generating strong growth in each of these margin rich businesses, providing the foundation for 2023 to be another record year in sales operating margin earnings per share and free cash flow.

Our expanding tech stack is taking our products to new levels of performance and efficiency.

Putting us in a winning position as farmers most trusted partner for industry, leading smart farming solutions.

The recently announced joint venture with Trimble is truly transformational for agco and for farmers.

Greg Peterson: We'll also discuss future revenue, crop production and form income, production levels, price levels, margins, earnings, cash flow, and other financial metrics. All of these are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks include but are not limited to adverse developments in the agricultural industry, including those resulting from COVID-19, supply chain disruption, inflation, weather, commodity prices, changes in product demand, interruptions in supply of parts and products, the possible failure to develop new and improved products on time, including premium technology and smart farming solutions within budget.

It also aligns perfectly with our strategy of focusing on a greater percentage of our business and the high margin high growth precision AG segment of our industry.

We will talk more about the planned JV in a few minutes.

Slide four details industry unit retail sales by region for the first nine months of 2023.

As harvest draws towards completion in the northern hemisphere higher production is driving up grain inventories weighing on prices.

Im income is still relatively strong and with positive cash flow for most growers demand for our equipment is at a relatively high level what is retreating from the highs seen in 2022 and earlier this year.

While still supportive lower commodity prices and a fleet age trending younger are causing farmers to become more selective about the equipment and technology investments.

Greg Peterson: And with expected performance and price benefits, difficulties in integrating the Trimble Ag business in a manner that produces the expected financial results, reactions by customers and competitors to the transaction, including the rate at which Trimble Ag's largest OEM customer reduces purchases of Trimble Ag equipment and the rate of replacement by the joint venture of those sales. Introduction of new or improved products by our competitors and reductions in pricing by them. The war in the Ukraine difficulties in integrating acquired businesses and in completing expansion and modernization plans on time in a manner that produces the expected financial results and adverse changes in financial and foreign exchange markets.

North American industry retail tractor sales were down approximately 2% through September year to date versus 2022.

Smaller tractor sales continued to decline from higher levels in 2022 is higher interest rates and overall economic conditions have slowed demand.

Strong demand for greater than 200 horsepower and four wheel drive units helped partially offset the decline.

Industry retail tractor sales in Western Europe decreased approximately 2% through September compared to 2022.

Farmer sentiment continues to be negatively influenced by the ongoing war in Ukraine, as well as input cost inflation. However.

Greg Peterson: Actual results could differ materially from those suggested in these statements. For their information concerning these and other risks is included in Actus filings with the Securities and Exchange Committee. Citation, including its form 10k for the year-end of December 31st, 2022, and subsequent form 10k and q-violence. AGCO Disclimbs any obligations to update any forward-looking statements except as required by law.

However forecast for healthy farm income in Western Europe are expected to support good retail demand for equipment throughout the remainder of 2023.

In South America.

Industry retail tractor sales decreased 8% through the first nine months of 2023 compared to 2022.

Retail demand in Brazil was negatively affected by the depletion of government subsidized loan program prior to the June 30 fiscal year end.

Operator: We'll make a replay of this call available on our corporate website.

But with loans now being processed we are hopeful this will help drive improved retail sales for the balance of the year.

Greg Peterson: On the call with me this morning, is Eric Hansotia, our Chairman, President and Chief Executive Officer. And Damon Audia, our Senior Vice President and Chief Financial Officer.

Although there are increasing signs of caution retail demand in Brazil, and Argentina remains at above average levels in 2023 with particular strength in the high horsepower segments.

Eric Hansotia: With that, Eric, please go ahead. Thanks, Greg, and good morning. AGCO has consistently delivered record results over the last two years. And I'm pleased to tell you that the third quarter of 2023 is no different. AGCO delivered $3.5 billion in third quarter sales nearly 11% higher than a third quarter of 2022. Operating margins in the quarter were 12.3% and 12.6% on an adjusted basis. That's 190 basis points better than 2022. This marks the fifth consecutive quarter with operating margins above 10.5%, which is evidence of how we have structurally transformed our business and further demonstrates the progress we are making towards our mid-cycle, 12% operating margin target.

However, weaker commodity prices from strong crop yields and concerns about dry weather are creating concern for some farmers.

Combine industry was up 23% in North America, and 30% in Western Europe through September versus 2022.

Due primarily to improving supply chains.

And mines in South America declined 20% in the first nine months of 2023 compared to the prior year.

Although market conditions continued to soften off the extremely strong conditions over the last couple of years, we remain positive about the underlying AG fundamentals supporting long term industry with demand for several reasons.

First stock to use levels are higher than the recent lows, but they remain supportive of profitable commodity prices versus historical levels.

Eric Hansotia: This strong financial performance reflects the continued success of our farmer-first strategy focused on growing our precision AG business, globalizing a full line of our fent branded products and expanding our parts and service business. Our North and South American fence sales are ahead of our growth targets as we expand our distribution networks in the regions to give more farmers access to the industry's best equipment. And we continue to have the best parts spill rates in the industry.

Second is the demand for clean energy grows the need for solutions like renewable aviation fuel and vegetable oil based diesel will grow strongly driving demand for our farmers that will further support commodity prices.

And third input costs, such as fuel and fertilizer are down from their peaks last year.

We expect farm income to be down modestly in 2023 from the record levels of 2022 in aggregate. We believe that it will remain at attractive levels in 2024 and be supportive for industry demand.

Eric Hansotia: Our strategy is generating strong growth in each of these margin-rich businesses, providing the foundation for 2023 to be another record year in sales, operating margin, earnings per share, and free cash flow. Our expanding tech stack is taking our products to new levels of performance and efficiency, putting us in a winning position as farmers' most trusted partner for industry leading smart farming solutions. The recently announced joint venture with Trimble is truly transformational for ag coal and for farmers. It also aligns perfectly with our strategy of focusing on a greater percentage of our business and the high margin, high growth precision AG segment of our industry.

Agco's supply chain has improved significantly over the last year.

Our suppliers on time delivery performance to Agco's factories has gotten better and our on time product delivery to our farmer customers has improved every month since March 2023.

Another benefit of this more normalized production environment is lower inventory.

We have been able to reduce our raw material and work in process inventory by 14% since September of 2022.

Agco's 2023 factory production hours are shown on slide five.

Eric Hansotia: We'll talk more about the Plan JV in a few minutes. Slide 4 details industry unit retail sales by region for the first nine months of 2023. As harvest draws towards completion in the northern hemisphere, higher production is driving up grain inventories weighing on prices. Farming income is still relatively strong and with positive cash flow for most growers, demand for our equipment is at a relatively high level. What is retreating from the highs seen in 2022 and earlier this year?

Our production decreased in quarter, three by approximately 2% versus 2022.

Recall that last year's third quarter production was exceptionally high as we were recovering from the cyber attack in the second quarter.

Given this phasing and our focus on managing 2023 inventories, we're planning for relatively flat production levels in the fourth quarter versus last year, resulting in a 5% increase in production hours for the full year.

As of the end of September 2023 demand for our farmer focused products remains strong and our order boards remained higher than historical average across all regions.

Eric Hansotia: Well still supportive lower commodity prices and the fleet age trending younger are causing farmers to become more selective about their equipment and technology investments. Investments. North American industry retail tractor sales were down approximately 2% through September year to date, versus 2022. Smaller tractor sales continue to decline from higher levels in 2022, as higher interest rates and overall economic conditions have slowed demand. Strong demand for greater than 200 horsepower in four-wheel drive units helped partially offset the decline.

In Europe tractors have six months of order coverage, taking us into the second quarter of 2024.

Dealer inventories are up approximately three quarters of a month versus versus September of 2022.

We're now at our targeted level of around four months on average with certain products like fendt high horsepower tractors still below the optimal levels in certain areas.

In South America, we have order coverage through December 2023.

Eric Hansotia: Industry retail tractor sales in Western Europe decreased to approximately 2% through September compared to 2022. Farmer sentiment continues to be negatively influenced by the ongoing war in Ukraine as well as input cost inflation. However, forecast for healthy farm income in Western Europe are expected to support good retail demand for equipment throughout the remainder of 2023. In South America, industry retail tractor sales decreased 8% to the first nine months of 2023 compared to 2022.

We continue to limit our orders to around one quarter in advance, giving ourselves more pricing flexibility.

We opened our fourth quarter order boards for all brands in South America, and they filled up within a matter of days.

In North America, our orders for track tractors planters and application equipment are fully booked for model year 2024 as demand in the Big farm market continues to be strong we continue to limit order intake and some products to improve our on time delivery rates. So other products our return.

Eric Hansotia: Retail demand in Brazil was negatively affected by the depletion of government subsidized loan program prior to the June 30th fiscal year end. But with loans now being processed, we are hopeful this will help drive improved retail sales for the bounce of the year. Although there are increasing signs of caution, retail demand in Brazil and Argentina remain at above average levels in 2023, with particular strength in the high horsepower segments. However, weaker commodity prices from strong crop yields and concerns about dry weather are creating concern for some farmers.

Going to a more normal order bank management. We currently have approximately seven months of order coverage for both large and small AG.

Moving to slide six at our Investor Day in December 2022, we discussed our three high margin growth levers that would help <unk> achieve its margin aspirations and outgrow the industry by 4% to 5%.

To reiterate those three levers are globalization and full line product rollout of our <unk> brand.

Focusing on global parts business and increasing the market share of genuine agco parts.

Eric Hansotia: The combine industry was up 23% in North America and 30% in Western Europe through September versus 2022 due primarily to improving supply chains. Combined in South America declined 20% in the first nine months of 2023 compared to the prior year.

And the third is growing our precision AG business, which supports not only factory fit technology, but also significantly focuses on the mixed fleet retrofit solutions.

These three growth engines will help <unk> achieve 12% operating margins at mid cycle by year, 2026, and will drive <unk> growth above the overall industry performance.

Eric Hansotia: Although market conditions continue to soften off the extremely strong conditions over the last couple of years, we remain positive about underlying ag fundamentals, supporting long-term industry demand for several reasons. First, stock to use levels are higher than recent lows, but the remains supportive of profitable commodity prices versus historical levels. Second, as the demand for clean energy grows, the need for solutions like renewable aviation fuel and vegetable oil-based diesel will grow strongly, driving demand for our farmers that will further support commodity prices.

Slide seven recaps the planned transformational joint venture between AG co in Trimble that we announced a few weeks ago in which <unk> will acquire an 85% interest in trimble portfolio of agricultural assets and technologies.

By layering Trimble AG on top of our already strong portfolio, we will fast track Agco's technology transformation.

The joint venture will allow AG could it be a key player in guidance by offering advanced hardware and correction services.

Eric Hansotia: And third, input costs such as fuel and fertilizer are down from their peaks last year. We expect farm income to be down modestly in 2023 from their record levels of 2022. In aggregate, we believe that it will remain at attractive levels in 2024 and be supportive for industry demand. Ag cost supply chain has improved significantly over the last year. Our suppliers on time delivery performance to ag cost factories has gotten better, and our on-time product delivery to our farmer customers has improved every month since March 2023.

It enables us to automate even more activities for the farmer through Trimble is automated steering system.

And enable farmers to connect with all of their data via Trembles Farm management software.

All of which will be controlled by <unk>.

This combination provides a full suite of advanced technologies for farmers everywhere, regardless of the brand.

With our combined solutions, we further expand our mixed fleet offerings throughout the entire crop cycle and are able to put technology on more than 10000 different models from almost any OEM.

This JV announcement combined with our existing precision planting business reinforces our commitment to brand agnostic retrofit solutions and will help position <unk> as the hub of the mixed fleet solutions.

Eric Hansotia: Another benefit of this more normalized production environment is lower inventory. We have been able to reduce our raw material and work in process inventory by 14% since September of 2022. AGCO's 2023 factory production hours are shown on slide 5. Our production decreased in quarter 3 by approximately 2% versus 2022. Recall that last year's third quarter production was exceptionally high as we were recovering from the cyber attack in the second quarter. Given this phasing and our focus on managing 2023 inventories, we are planning for relatively flat production levels in the fourth quarter versus the last year, resulting in a 5% increase in production hours for the full year.

Lastly, agco's multichannel distribution approach will drive increased adoption of Trimble as portfolio of technology across the machinery population.

Allowing farmers more locations to access next generation technology.

This multichannel access as a key lever to doubling the EBITDA in five years.

Looking at slide eight the business combination will create meaningful commercial growth opportunities for agco through access to expanded geographies and channels.

Through September Agco's precision AG sales have increased 16% on a year to date basis, putting us solidly on track to hit our long term, 15% growth target and taking agco's precision AG sales the $1 billion by 2025.

Eric Hansotia: As of the end of September 2023, demand for our former focus products remains strong and our orderboards remain higher than historical average across all regions. In Europe, tractors have six months of order coverage, taking us into the second quarter of 2024. Dealer inventories are up approximately three quarters of a month versus September of 2022. We're now at our targeted level of around four months on average, with certain products like FENT, high horse park tractors, still below the optimal levels in certain areas.

When we overlay a trimble eggs 2023 expected revenues the effective pro forma sales would be approximately $1 $3 billion already in 2023.

With the combination of revenues from Agco is precision AG and Trimble AG JV, we expect to deliver over $2 billion in combined precision AG revenues by 2028.

Eric Hansotia: In South America, we have order coverage through December 2023, where we continue to limit our orders to around one quarter in advance, giving ourselves more pricing flexibility. We open our fourth quarter orderboards for all brands in South America, and they filled up within a matter of days. In North America, our orders for tractors, planters, and application equipment are fully booked for model year 2024, as demand in the big farm market continues to be strong.

To conclude we.

We would likely expect this deal to close in the first half of 2024 subject to regulatory approval and customary closing conditions with that I'll hand, it over to Damon.

Thank you Eric and good morning, everyone I will start on slide nine with an overview of regional net sales performance for the third quarter.

Net sales were up approximately 7% in the quarter compared to the third quarter of 2022, when excluding the positive effects of currency translation.

Eric Hansotia: We continue to limit order intake on some products to improve our on-time delivery rates, though other products are returning to a more normal order bank management. We currently have approximately seven months of order coverage for both large and small ag.

Pricing in the quarter, which was in the high single digit range with Frank.

Was the primary contributor to higher sales.

As you May recall, the third quarter of 2022 was a very strong quarter.

Partially due to a catch up in sales related to the cyber event in the second quarter, which had a bigger effect on our European and North American operations.

Eric Hansotia: Moving to slide six, at our investor day and December 2022, we discussed our three high margin growth levers that would help Agco achieve its margin aspirations and outgrow the industry by four to five percent. To reiterate, those three levers are globalization and full line product rollout of our FENT brand. Focusing on global parts business and increasing the market share of genuine agco parts. And the third is growing our precision ag business, which supports not only factory fit technology, but also significantly focuses on the mix fleet retrofit solutions. These three growth engines will help Agco achieve 12 percent operating margins at mid-cycle by year 2026, and will drive Agco's growth above the overall industry performance.

By region, the Europe Middle East segment reported an increase in third quarter net sales of approximately 9% <unk>.

Excluding the positive effects of currency translation compared to the prior year.

The improvement was driven by increased sales of mid and high horsepower tractors strong part sales along with favorable pricing.

In South America net sales in the third quarter grew approximately 19% year over year, excluding the positive effect of currency translation driven by the continued strong sales growth in Brazil and Argentina.

Sales of tractors and momentum planters as well as favorable pricing drove most of the increase.

Net sales in North America increased approximately 3% in the quarter, excluding the favorable impact of currency translation compared to the third quarter of 2020 to the.

Eric Hansotia: Slide seven recaps to plan the transformational joint venture between Agco and Trimble that we announced a few weeks ago, in which Agco will acquire an 85 percent interest in Trimble's portfolio of agricultural assets and technologies. By layering Trimble Ag on top of our already strong portfolio, we will fast track Agco's technology trends. Information. The joint venture will allow AGCO to be a key player in guidance by offering advanced hardware and correction services.

The growth resulted primarily from increased sales of high horsepower tractors, sprayers and hay tools, along with the positive effects of pricing that more than offset inflationary cost pressures.

On a constant currency basis net sales in our Asia Pacific Africa segment decreased approximately 15%. The most significant declines occurred in Australia, Japan, and China, driven by lower farmer competence and dry weather.

Eric Hansotia: It enables us to automate even more activities for the farmer, through Trimble's automated steering system, and enable farmers to connect with all of their data via Trimble's farm management software, all of which will be controlled by AGCO. This combination provides a full suite of advanced technologies for farmers everywhere, regardless of the brand. With our combined solutions, we further expand our mixed fleet offerings throughout the entire crop cycle and are able to put technology on more than 10,000 different models from almost any OEM.

Finally consolidated replacement part sales were approximately $468 million for the third quarter up 10% year over year or 5%, excluding the effects of positive currency translation.

Turning to slide 10.

The third quarter adjusted operating margin improved by 190 basis points versus 2022.

Margins in the quarter benefited from higher sales due to a richer mix and positive net pricing compared to the third quarter of 2022 significantly offsetting high input costs and approximately $35 million of increased engineering expense year over year.

Eric Hansotia: This JV announcement combined with our existing precision planting business reinforces our commitment to brand agnostic retrofit solutions and will help position AGCO as the hub of the mixed fleet solutions. Lastly, AGCO's multi-channel distribution approach will drive increased adoption of Trimble's portfolio of technology across the machinery population, allowing farmers more locations to access next generation technology. This multi-channel access is a key lever to doubling the EBITDA in five years.

Price increases in the quarter more than offset material and freight cost inflation on a dollar basis and contributed to the improvement in margins.

For the full year, we are still projecting approximately 8% pricing.

By region, the Europe Middle East segment reported an increase of approximately $57 million in operating income compared to the third quarter of 2022 and margins improved 230 basis points.

Eric Hansotia: Looking at slide eight, the business combination will create meaningful commercial growth opportunities for AGCO through access to expanded geographies and channels. Through September, AGCO's precision ag sales have increased 16% on a year-to-date basis, putting us solidly on track to hit our long-term 15% growth target and taking AGCO's precision ag sales to $1 billion by 2025. When we overlay Trimble Ag's 2023 expected revenues, the effective pro forma sales would be approximately $1.3 billion, already in 2023.

Higher sales due to strong net pricing and a healthy product mix contributed to the improvement.

North American operating income for the quarter increased approximately $27 million year over year, while margin improved by approximately 250 basis points.

Operating income benefited benefited from higher sales due to positive net pricing and a favorable mix based on significant growth in defense products year over year.

Operating margins in South America exceeded our expectations again, this quarter and were over 20% a 200 basis point increase over the same period in 2022.

Eric Hansotia: With the combination of revenues from AGCO's precision ag and Trimble Ag JV, we expect to deliver over $2 billion in combined precision ag revenues by 2028. To conclude, we would likely expect this deal to close in the first half of 2024, subject to regulatory approval and customary closing conditions.

Operating income improved almost $42 million versus the third quarter last year, the improved South American results reflect the benefit of a favorable sales mix.

Finally in our Asia Pacific Africa segment.

Operating income declined approximately $14 million in the quarter due to lower sales, reflecting much weaker market conditions year over year, as well as well as lower product mix.

Damon Audia: With that, we'll hand it over to Damon. Thank you, Eric.

Damon Audia: In good morning, everyone, I will start on slide nine with an overview of regional net sales performance for the third quarter. Net sales were approximately 7% in the quarter compared to the third quarter of 2022 when excluding the positive effects of currency translation. Pricing in the quarter, which was in the high single-digit range, was the primary contributor to higher sales. As you may recall, the third quarter of 2022 was a very strong quarter, partially due to a catch up in sales related to the cyber event in the second quarter, which had a bigger effect on our European and North American operations.

With the margin expansion in the last two years in our North American and South American regions from our strategy execution and disciplined pricing, we expect <unk> margin profile that would be more balanced across the globe in the years ahead.

Slide 11 details our year to date free cash flow for 2022 and 2023.

As a reminder, free cash flow represents cash used in or provided by operating activities less purchases of property plant and equipment and free cash flow conversion is defined as free cash flow divided by adjusted net income.

Through September year to date, we have used $155 million of cash approximately $411 million or 73% less than 2022, despite increasing capital expenditures by almost $90 million year over year.

Damon Audia: By region, the Europe Middle East segment reported an increase in third quarter net sales of approximately 9%. Excluding the positive effects of currency translation compared to the prior year. The improvement was driven by increased sales of mid and high horse power tractors, strong part sales, along with favorable pricing. In South America, net sales in the third quarter grew approximately 19% year over year, excluding the positive effect of currency translation, driven by the continued strong sales growth in Brazil and Argentina.

This is a result of higher earnings and improved supply chain that enabled us to improve our manufacturing flow in gift products into the hands of our farmers more quickly.

We typically sell down our inventory over the back half of the year and anticipate a strong fourth quarter to hit our targeted free cash flow range of $900 million to $1 $2 billion for 2023.

Damon Audia: Higher sales of tractors and momentum planters as well as favorable pricing drove most of the increase. Net sales in North America increased approximately 3% in the quarter, excluding the favorable impact of currency translation compared to the third quarter of 2022. The growth resulted primarily from increased sales of high horse power tractors, sprayers, and hay tools, along with the positive effects of pricing that more than offset inflationary cost pressures. On a constant currency basis, net sales in our Asia Pacific African segment decreased approximately 15%.

For 2023, although things continue to improve we still expect our raw material and work in process inventory to remain somewhat elevated given supply chain challenges earlier in the year, but we still expect it to be a modest source of cash versus a use in 2022.

We expect our free cash flow conversion to continue to range from 75% to 100% of adjusted net income a significant increase from 2022 consistent with our improved financial outlook.

Damon Audia: The most significant declines occurred in Australia, Japan, and China, driven by lower farmer confidence and dry weather. Finally, consolidated replacement part sales were approximately 468 million for the third quarter, up 10% year over year, or 5% excluding the effects of positive currency translation.

We remain focused on direct returns to investors during 2023 with a regular quarterly dividend that we increased last quarter by 21% to 29 per share and the payment of a special variable dividend of $5 per share in the second quarter.

Slide 12 highlights our 2023 retail market forecast for our three major regions.

While still at supportive levels. The recent reductions in commodity prices are resulting in slightly softer demand across all regions in 2023 relative to 2022.

Damon Audia: Turning to slide 10, the third quarter adjusted operating margin improved by 190 basis points versus 2022. Margins in the quarter benefit are from higher sales due to a richer mix and positive net pricing compared to the third quarter of 2022, significantly offsetting high input costs and approximately 35 million dollars of increased engineering expense year over year. Price increases in the quarter more than offset material and freight cost inflation on a dollar basis and contributed to the improvement in margins.

For North America, we now expect demand to be 2% to 3% lower compared to the healthy levels in 2022 to.

The high horsepower row crop equipment segment continues to be strong, but it's offset by softer demand for smaller equipment. After several years of robust growth.

Current interest rates are expected to continue to slow the smaller equipment segment of the market.

In South America, we expect industry sales to now be down 2% to 3%. In 2023. This is a result of softening demand and higher dealer inventories. We have seen emerged last quarter. However, this region remains one of the stronger end markets, especially in Brazil, where the farm footprint is increasing.

Damon Audia: For the full year, we are still projecting approximately 8% pricing. By region, the Europe Middle East segment reported an increase of approximately 57 million in operating income compared to the third quarter of 2022 and margins improved 230 basis points. Higher sales due to strong net pricing and a healthy product mix contributed to the improvement. North American operating income for the quarter increased to approximately 27 million year over year while margined to improve by approximately 250 basis points.

Although down from 2022 high we expect healthy farmer profitability in the region, which should continue to drive demand for large AG equipment.

For Western Europe, we now expect the industry to also be down 2% to 3% compared to 2022.

Foreign <unk> fundamentals in the region are still generally healthy, but sentiment has weakened a bit in the region and order flow has slowed.

Damon Audia: Operating income benefited from higher sales due to positive net pricing and a favorable mix based on significant growth in FENT products year over year. Operating margins in South America exceeded our expectations again in this quarter and were over 20%, a 200 basis point increase over the same period in 2022. Operating income improved almost 42 million versus the third quarter last year. The increased South American results reflect the benefit of a favorable sales mix. Finally, in our Asia Pacific Africa segment, operating income declined approximately 14 million in the quarter due to lower sales reflecting much weaker market conditions year over year as well as lower product mix.

Slide 13 highlights a few assumptions underlying our 2023 outlook.

In addition to focus on meeting the robust end market demand. We will also make significant investments in the development of new solutions to support our farmer <unk> strategy. Our sales plan includes market share gains along with price increases of approximately 8% aimed at more than offsetting material cost inflation.

With the weakening of the Euro last quarter, we do not expect currency translation to have effect on sales year over year.

Engineering expenses are expected to increase by approximately 20% were approximately $100 million compared to 2022. This increase was targeted investment in smart farming in precision AG products.

Damon Audia: With the margin expansion in the last two years in our North American and South American regions from our strategy execution and discipline pricing, we expect AGCO's margin profile to be more balanced across the globe in the years ahead.

Given our strong performance through September we are raising our full year operating margin to around 12% versus our prior outlook of 11, 7% driven by the sales mix favorable pricing net of material cost and improved factory productivity, partially offset by increased investments in our engineering and digital initiatives.

Damon Audia: Slide 11 details are year-to-date free cash flow for 2022 and 2023. As a reminder, free cash flow represents cash used in or provided by operating activities less purchases of property, plant and equipment, and free cash flow conversion is defined as free cash flow divided by adjusted net income. Through September, year-to-date, we have used 155 million of cash, approximately 411 million or 73% less than 2022, despite increasing capital expenditures by almost $90 million a year over year.

<unk> as well as inflationary cost pressures.

Other expenses are expected to increase approximately $105 million year over year, most of which has been incurred year to date.

Half of this increase is tied to the sales and receivables to Agco finance, where we're being affected by higher sales volume and higher interest rates compared to 2022.

The other half is related to increased volatility in the Turkish lira, and Argentine peso, where we saw additional FX losses in Q3.

Damon Audia: This is a result of higher earnings and improved supply chain that enable us to improve our manufacturing flow and get products into the hands of our farmers more quickly. We typically sell down our inventory over the back half of the year and anticipate a strong fourth quarter to hit our targeted free cash flow range of 900 million to $1.2 billion for 2023. For 2023, although things continue to improve, we still expect our raw material and work in process inventory to remain somewhat elevated given supply chain challenges earlier in the year.

With more clarity on our full year Youre now updating our effective tax rate to 27% for 2023, which is the low end of our prior estimate of 27% to 28%.

Turning to slide 14.

Despite the slightly weaker currency outlook versus last quarter, we have maintained our full year net sales outlook of approximately $14 $7 billion.

We are increasing our earnings per share estimate, which should now be approximately $15 eight or on an adjusted basis $15 75 in 2023 versus our prior target of $15 25, given the strong year to date performance and our confidence in the fourth quarter, we will.

Damon Audia: But we still expect it to be a modest source of cash versus a use in 2022. We expect our free cash flow conversion to continue to range from 75% to 100% of adjusted net income, a significant increase from 2022 consistent with our improved financial outlook.

Also increased our capex targets to around $450 million to include additional investments in our CVT capacity and to further enable precision AG growth.

Damon Audia: We remain focused on direct returns to investors during 2023 with a regular quarterly dividend that we increased last quarter by 21% to 29 cents per share and the payment of a special variable dividend of $5 per share in the second quarter.

As I mentioned earlier, even with the increased capital expenditure target free cash flow conversion should be in the range of 75% to 100% of adjusted net income consistent with our long term target, which based on our improved outlook should deliver an additional 60 million to $80 million in free cash flow from our prior outlook.

Damon Audia: Like 12 highlights our 2023 retail market forecast for our three major regions. While still at supportive levels, the recent reductions in commodity prices are resulting in slightly softer demand across all regions in 2023 relative to 2022. For North America, we now expect demand to be 2% to 3% lower compared to the healthy levels in 2022. The high horsepower road crop equipment segment continues to be strong, but it's offset by softer demand for smaller equipment after several years of robust growth.

With that I'll turn the call back to Greg for our Q&A.

We will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

We're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two please.

Please limit yourself to one question and a single follow up.

Damon Audia: Current interest rates are expected to continue to slow the smaller equipment segment of the market. In South America, we expect industry sales to now be down 2% to 3% in 2023. This is a result of softening demand in higher dealer inventories we have seen emerge last quarter. However, this region remains one of the stronger end markets, especially in Brazil where the farm footprint is increasing. All the vote down from 2022 high, we expect healthy farmer profitability in the region which should continue to drive demand for large ag equipment.

Our first question.

Is from Seth Weber with Wells Fargo Securities. Please go ahead.

Hey, Thanks, good morning, guys.

Eric in your I think it was Eric in your prepared remarks, you talked about a potential.

RASK are trying to have to navigate around the loss of a potential.

Customer from the Trimble JV.

I'm wondering if you could just give us a little bit more detail on how you expect to.

To offset that that loss that's likely coming.

Damon Audia: Department. For Western Europe, we now expect the industry to also be down 2% to 3% compared to 2022. Farm fundamentals in the region are still generally healthy, but sentiment is weakened a bit in the region and order flow has slowed.

On the on that side of the JV.

Yes, we've got a really solid plan here that is largely in our control in that today Agco offers two suppliers are two choices on our navigation systems. One is trimble and one is another supplier.

Damon Audia: Flight 13 highlights a few assumptions underlying our 2023 outlook. In addition to focus on meeting the robust and market demand, we will also make significant investments in the development of new solutions to support our farmer-first strategy. Our sales plan includes market share gains along with price increases of approximately 8% and that more than offsetting material cost inflation. With the weakening of the euro last quarter, we do not expect currency translation to have effect on sales year-over-year.

A majority of the customer sales actually go to the other supplier and so as we migrate into the once the JV is official and we migrate into that chapter of existence. We're working together, we can influence sales to move significantly towards a predominantly trimble offering.

Out of the factory.

On our new products.

And then also we can continue in the marketplace to help those that have bought Trimble <unk>.

Damon Audia: Engineering expenses are expected to increase by approximately 20%, where approximately $100 million compared to 2022. This increases target-ed investment in smart farming and precision-agged products. Given our strong performance through September, we are raising our full-year operating margin to around 12%, versus our prior outlook of 11.7%. Driven by the sales mix, favorable pricing net on material costs, and improved factory productivity partially offset by increase investments in our engineering and digital initiatives as well as inflationary cost pressures.

Systems in the past regardless of brand to continue to have confidence.

There is over 100 Oems that are already partnered with Trimble, we've talked to many of them already and the feedback has been consistently strong that they said that under the new arrangement. They still feel very comfortable and want to continue to grow the business.

And then there is the retrofit business retrofit portion of the market that we intend to focus on as well so.

Retrofit OEM from the factory working on all three of those paths to make sure that.

Plenty of customers can get access to this great technology.

Damon Audia: Other expenses are expected to increase approximately $105 million year-over-year, most of which has been incurred year-to-date. Half of this increase is tied to the sales and receiveables to ag co-finance when we are being affected by higher sales volume and higher interest rates compared to 2022. The other half is related to increased volatility in the Turkish lira and Argentine pay cell, where we saw additional effects losses in Q3. With more clarity on our full year, you are now updating our effective tax rate to 27% for 2023, which is the low end of our prior estimate of 27 to 28%.

That's helpful. Thanks, and then maybe just.

Yeah.

I appreciate the color on the order board for next year can you just give us any details on how youre handling pricing for 2024 at this point.

Yes, I think Seth.

Haven't given any sort of official outlook for our 2020 for pricing yet.

I think if you think about our outlook here for the 2023 performance, where we've said were around 8% and you look at our year to date, we're starting to lap some of those big price increases that we put in place last year, and so we see pricing, becoming what I'll call more normalized here in the fourth quarter and again, we're probably seeing that.

Damon Audia: Turning to slide 14, despite the slightly weaker currency outlook versus last quarter, we have maintained our full-year net sales outlook of approximately $14.7 billion. We are increasing our earnings for share estimate, which should now be approximately $15.8 or on an adjusted basis, $15.75 in 2023, versus our prior target of $15.25, given the strong year-to-date performance and our confidence in the fourth quarter. We have also increased our CAPEX targets to around $450 million to include additional investments in our CBT capacity and the further-enabled precision ag growth.

To be a more reasonable assumption as we move into 2024.

The next question is from Nicole <unk> with Deutsche Bank. Please go ahead.

Yes, thanks, good morning, guys.

Good morning.

Can you maybe talk a little bit about what youre seeing in South America with respect to recovery in retail sales your inventory levels.

Also any thoughts on margins for <unk>, given the very extreme strength that persisted again and thank you.

Damon Audia: As I mentioned earlier, even with the increased capital expenditure target, free cash flow conversion should be in the range of 75% to 100% of a just net income consistent with our long-term target, which based on our improved outlook should deliver an additional $60 million to $80 million in free cash flow from our prior outlook.

Nicole.

So I think if we look at the at the fourth quarter. We're definitely we've seen at the start of the third quarter. As you may recall, the the government subsidized funding plans were a little bit delayed in ramp up to the small and medium size horsepower type farmers, we saw that improve in the back half of the quarter.

As we think about that what we're seeing is a continued.

Slowdown in that market, especially on the lower end side of the market as we look at the dealer inventories. They definitely have moved to what I'll call a more normalized level here in the fourth quarter or at the end of the third quarter and we expect that to stay here into the fourth quarter.

Greg Peterson: With that, I'll turn the call back to Greg for our Q&A.

Operator: We will now begin the question and answer session, to ask a question you may press star then one on your touchtone phone. If you are using your speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourself to one question and a single follow-up.

And as we think about and we've been talking about this for the past couple of quarters as the dealer inventories level out in the farmers' confidence in their available they get products start to stabilize we're expecting to see more of those traditional retail incentives that we would provide to our dealers and our farmers to start to materialize here in the.

Fourth quarter, and and what I would tell you as we looked at the third quarter, we started to see that at the back end of the third quarter and so as we extrapolate that into the run rate for the fourth quarter, we definitely see the south American margins coming down versus the third quarter I would probably put them more into the high teens as we look at the fourth quarter and that sort of embedded.

Seth Weber: Our first question is from Seth Weber with Wells Fargo Securities. Please go ahead. Eric, I think it was Eric and your prepared remarks. She talked about a potential risk or trying to have to navigate around the loss of an OEM customer from the Trimble JV. I'm wondering if you could just give us a little bit more detail on how you expect to offset that loss that's likely coming on that side of the JV.

<unk> in our Q4 outlook as we gave you that 12% full year versus where we are year to date.

Okay got it that's really helpful. And then just a higher level question on the implied outlook for <unk>. I think you guys are kind of embedding like EPS kind of flattish sequentially, but you usually see a pretty material Q on Q step up so what are the big drivers of that divergence from normal seasonality. Thank you.

Seth Weber: Thanks. Yeah, we've got a really solid plan here that is largely in our control in that today, AGCO offers two suppliers or two choices on our navigation systems. One is Trimble and one is another supplier. A majority of the customer sales actually go to the other supplier. Once the JV is official and we migrate into that chapter of existence and we're working together, we can influence sales to move significantly towards a predominantly Trimble offering out of the factory on our new products.

Yes, so a couple of things driving the fourth quarter. Nicole one is if you look at my the currency outlook that we gave you this quarter versus the prior quarter last quarter. We said it was going to be a 2% positive now we're saying it's going to be relatively flat that influences sales by about.

$200 million. So the fact that we've kept our number at $14 seven as a positive of our Q3 performance and our outlook for Q4 that also translates to around 20 cents of earnings per share and so when you look at our outlook of <unk> 75, that's been diluted by about 20 of lost FX versus our <unk>.

Seth Weber: And then also we can continue in the marketplace to help those that have bought Trimble systems in the past, regardless of brand, to continue to have confidence. There's over 100 OEMs that are already partnered with Trimble. We've talked to many of them already and the feedback has been consistently strong that they said that under the new arrangement, they still feel very comfortable and want to continue to grow the business. And then there's the retrofit business, retrofit portion of the market that we intend to focus on as well. So retrofit OEM from the factory, working on all three of those paths to make sure that plenty of customers can get access to this great technology.

Third quarter outlook, but more importantly, when I think about the year over year Q4, if you remember last year, we had an exceptionally strong fourth quarter as we were recovering from the cyber attack in the second quarter and the supply chain disruptions that we were dealing with and just to put that in perspective, specifically in Europe, we had that.

Seth Weber: That's helpful. Thanks.

<unk> strong fourth quarter because of the supply chain. If you remember we were talking about the semi finished inventories at the end of the third quarter last year. This year, they're down about 70% almost 70% versus where they were a year ago, because we've been through the supply chain because we have been able to get these tractors and combines.

Seth Weber: And then maybe just appreciate the color and the order boards for next year. Can you just give us any details on how you're handling pricing for 2024 at this point? Yeah, I think that we haven't given any sort of official outlook for our 2024 pricing yet. But I think if you think about our outlook here for the 2023 performance where we said we're around 8% and you look at our year to date, we're starting to lap some of those big price increases that we put in place last year. And so we see pricing becoming what I'll call more normalized here in the fourth quarter. And again, we're probably seeing that to be a more reasonable assumption as we move into 2024.

Out of the factories and off to the farmers much more effectively through the course of the year. So we don't expect that big fourth quarter that massive fourth quarter. We saw last year, specifically in Europe, and thats going to create a year over year challenge for us, bringing those numbers down a little bit relative to what you would've saw last year.

Okay.

Okay.

Our next question is from Mig <unk> with R. W. Baird. Please go ahead.

Thank you and good morning.

Yes.

Hopefully I understood this correctly, but I mean, what <unk> commented that inventory dealer inventory.

Nicole DeBlase: The next question is from the call to blaze the Deutsche Bank. Please go ahead. Yeah, thanks.

Largely normalized at this point and it sounds that demand.

Nicole DeBlase: Good morning, guys. Good morning. Can you maybe talk a little bit about what you're seeing in South America with respect to recovery and retail sales, your inventory levels, and also any stuff on margins for 4Q given the very extreme strength that persisted again. 3Q. Yeah, Nicole, so I think if we look at the at the 4th quarter, we're definitely we've seen at the start of the 3rd quarter, as you may recall, the the government subsidized funding plans were a little bit delayed in ramp up to the small and medium sized horsepower type farmers.

Maybe it's starting to soften a little bit so.

Curious as to how you're thinking about managing that.

The channel is you're looking at 2024.

Are you thinking.

Downward adjustment in production if thats the case is there.

Some context that we should have about the first half versus second half as we think about next year.

Yes, so I think you're right the inventory levels at the dealers generally speaking have have normalized over the last quarter I would say with a couple of caveats to that North America. For example, we do know that the dealer inventory is just around six months or so the third quarter is usually the <unk>.

Nicole DeBlase: We saw that improve in the back half of the quarter. You know, as we think about that, you know, what we're seeing is a continued slowdown in that market, especially on the lower and side of the market, as we look at the dealer inventories, they definitely have moved to what I'll call more normalized level here in the 4th quarter or in at the end of the 3rd quarter, and we expect that to stay here into the 4th quarter.

Highest level, if I strip out the low at the small AG portion of that the dealer inventories actually run about five months. So it's still a little bit low. So there is still some opportunity there if I look at Europe, and Eric and his pre in his opening remarks talked about the inventory levels being about four months again, that's an overall statement, but there are still a.

Nicole DeBlase: And as we think about and we've been talking about this for the past couple quarters, as the dealer inventories level out and the farmers confidence in their availability, get products start to stabilize. We're expecting to see more of those traditional retail incentives that we would provide to our dealers and our farmers to start to materialize here in the 4th quarter. And what I would tell you is we looked at the 3rd quarter, we started to see that at the back end of the 3rd quarter, and so as we extrapolate that into the run rate for the 4th quarter, we definitely see the South American margins coming down versus that 3rd quarter.

A lot of areas, where the high horsepower tractor inventory at the dealers are below the optimal level for us. So we still see some opportunities for some dealer Phil there, but generally speaking I would say inventory levels are normal as we think about 2024 as we go through our budget planning process. The question is going to be about our <unk>.

<unk> share initiatives on what we think we can gain relative to where we were in 23, given some of the supply chain constraints and thats going to influence our production, especially as we see these markets potentially continuing to soften. So we don't know how the production is going to shape out just yet we'll give you that update but I would tell you you should be thinking more about production.

Nicole DeBlase: I would probably put a more into the high teams as we look at the 4th quarter, and that sort of embedded in our Q4 outlook as we give you that 12% full, year versus where we are year to date. Okay, got it. That's really helpful.

Aligned with overall demand as we think about 2024.

Alright, that's helpful.

Nicole DeBlase: And then just a higher level question on the implied outlook for 4Q. I think you guys are kind of embedding like EPS kind of flatish sequentially, but you usually see a pretty material Q on Q step up. So what are the big drivers of that divergence from normal seasonality? Thank you. Yeah, so a couple things driving the 4th quarter, Nicole, one, if you look at my currency outlook that we gave you this quarter versus the prior quarter, you know, last quarter, we said it was going to be a 2% positive.

And I guess my follow up.

Your North American margins.

You talked about already had been had been quite good.

I'm sort of wondering about the sustainability.

That going forward.

Especially as you talk about continuing to sort of build momentum. Thank you.

Yes, again, I think Mig for US North America has been a really good.

Margin performance for us and a lot of that is predicated on that sense market share expansion as we've talked about induced reducing to North America, and South America, adding expense dealers and really focusing on that experience, we've talked about being very selective on how fast we roll things out into the dealer networks, who is able to.

Nicole DeBlase: Now we're saying it's going to be relatively flat. You know, that influences sales by about 200 million dollars. So the fact that we've kept our number at 14.7 is a positive of our Q3 performance and our outlook for Q4. That also translates to around 20 cents of earnings per share. And so when you look at our outlook, the 1575, you know, that's been diluted by about 20 cents of lost effects versus our 3rd quarter outlook.

<unk> because they need to deliver on that overall experience, which includes the goldstar warranty the replacement tractors. So we've seen great growth great share growth in North America, and again, if I think about that performance year over year, a lot of that or the majority of that is coming from the market share growth that we're seeing where the fendt performed.

Nicole DeBlase: But more importantly, when I think about the year over year Q4, if you remember last year, we had an exceptionally strong 4th quarter as we were recovering from the cyber attack in the 2nd quarter and the supply chain disruptions that we were dealing with. And just to put that in perspective, specifically in Europe, we had that really strong 4th quarter because of supply chain. And if you remember, we were talking about the semi finished inventories at the end of the 3rd quarter last year.

In North America, and as we've said in the past, we still see opportunities to remember at our December Investor Day, We said that we are going to outpace the industry, regardless of where we were in the cycle by 4% to 5% one of those three growth vectors, we're going to be the defense market share mainly in North America, and South America, we remain convinced that that is.

Nicole DeBlase: This year, they're down about 70% almost 70% versus where they were a year ago because we've been through the supply chain because we've been able to get these tractors and combines out of the factories and off to the farmers much more effectively through the course of year. So we don't expect that big 4th quarter, that massive 4th quarter we saw last year, specifically in Europe. And that's going to create a year over year challenge for us, bringing those numbers down a little bit relative to what you would have saw last year.

Still an opportunity as we move forward into 2020 for precision AG growth, which we've said it's going to grow at around 15% per annum on average and then our parts growth. So those three are going to help us outpace the industry by 4% to 5% and I think North America is sort of showing that this quarter and we remain confident in its potential going into next year.

Sure.

Yeah, just one more comment on that we've grown the fendt market participation in North America from about 40% market coverage to 70%, 75% market coverage with a step by step dealer.

Spansion that Damon talked about.

We expect to grow that from <unk> 75 up to 1990, 5% over the next couple of years steadily only when the dealer earns it but much like we've been doing all of last few years. So there is more market potential there to be able to experience the full <unk>.

Mick Dobry: Our next question is from Mick Dobry with R.W. Baird. Please go ahead. Thank you and good morning. You know, hopefully I understood this correctly, but I mean what I heard from the comments is that inventories, you are inventories of largely normalized at this point and it sounds that demand, maybe starting to soften a little bit. So I'm kind of curious as to how you're thinking about managing the channel as you look into 2024.

Mick Dobry: Are you thinking of downward adjustment in production, if that's the case, is there some context that we should have about the first half or the second half as we think about next year? Yeah, so I think you're right. The inventory level that the dealers generally speaking have normalized over the last quarter, I would say with a couple caveats to that. North America, for example, we do know that the dealer inventory is just around six months or so.

Overall brand promise.

Same thing in South America.

The next question is from Steve Volkmann with Jefferies. Please go ahead.

Great. Good morning, everybody, Eric I think you talked about farmers, becoming more selective in their capital spending what does that mean exactly are you seeing sort of a mix shift in the types of equipment that they're buying.

I don't know if I would say a mixed shift, but I would say that some of the applications new applications for financing as our cooling off.

Coming back to more of a normal market.

<unk> had such a hot market. These last couple of years, but.

The mix is still oriented towards large AG. The growth is still very much in the precision AG retrofit business to make our existing machine more capable and more intelligent.

Mick Dobry: The third quarter is usually the highest level. If I strip out the low at the small ag portion of that, the dealer inventory is actually around about five months. So it's still a little bit low, so there's still some opportunity there. If I look at Europe and Eric and his pre and his opening remarks talked about the inventory levels, being about a month. Again, that's an overall statement, but there are still a lot of areas where the Fent High Force power tractor inventory at the dealers are below the optimal level for us.

Small AG is still.

On a relative basis weaker than large AG. So I don't think its much more much of a mix shift is just.

A general a little bit more caution on the farmers part.

Okay. Thanks, and then.

It sounds like everywhere, we turn people are talking about sort of normalization does it make sense to think about 'twenty four and just really big picture terms as kind of a.

Mick Dobry: So we still see some opportunities for some dealer fill there, but generally speaking, I would say inventory levels are normal. As we think about 2024, as we go through our budget planning process, the question is going to be about our market share and issues and what we think we can gain relative to where we were in 23, given some of the supply chain constraints. And that's going to influence our production, especially as we see these markets potentially continuing to soften.

Mid cycle year for the industry and you guys may do what you do if you have outgrowth targets, but as mid cycle. The right way to think about 'twenty four for now.

Yes, we're not giving exact numbers, but.

I think that we don't see any dramatic moves in 2000 and for let's say it that way and so it's a general slight movement.

Mick Dobry: So we don't know how the production is going to shape out just yet. We'll give you that update, but I would tell you you should be thinking more about production aligned with overall demand as we think about 2024.

In the 'twenty four but we haven't.

We haven't committed to any industry numbers, but.

Wouldnt be shocked.

With your kind of predictions.

Mick Dobry: All right, that's helpful. Then I guess my follow-up, your North American margins, as you talk about already, have been quite good. I'm sort of wondering about the sustainability of that going forward, especially as you talk about Fent continuing to sort of build momentum. Thank you. Yeah, you know, again, I think for us North America has been a really good margin performance for us and a lot of that is predicated on that Fent's market share expansion.

Okay.

The next question is from Kristen Owen with Oppenheimer. Please go ahead.

Hi, Thank you for taking the question I'm also going to asking normalization type of question and and in particular on the pricing front as we think about pricing normalizing Kim can we just double click on what pricing normalization for for Agco means today arguably you've got it.

Much richer technology mix much higher contribution from <unk>. So.

Mick Dobry: As we talked about inducing Fent to North American South America, adding these Fent dealers and really focusing on that Fent experience, we've talked about being very selective on how fast we roll Fent out into the dealer networks who's able to offer it because they need to deliver on an overall Fent's experience, which includes the Gold Star warranty, the replacement tractors. So we've seen great growth, great share growth in North America. And again, if I think about that performance year over year, a lot of that or the majority of that is coming from the Fent market share growth that we're seeing with a Fent performance in North America.

How do we think about what normal pricing means on a go forward basis.

Yeah.

Yes, I think Christian.

Directionally, when we think about pricing.

Sorry to tell you, it's 2% to 3% has been the historical again when you think about the pricing and you referenced that is driving more of the margin enhancement again, if we're raising prices on a fendt tractor it may not be different than what we do with the math here of bolts retract when we think about that 2% to 3% and.

And to your point, when we think about the precision AG the retrofit.

It does operate a slightly different price point and so the pricing there may be slightly different but in aggregate youre, probably looking at us being in that more 2% to 3% based on our historical rates.

Mick Dobry: And as we've said in the past, we still see opportunities remember at our December investor day, we said that we are going to outpace the industry regardless of where we were in the cycle by four to five percent. One of those three growth vectors were going to be the Fent's market share mainly in North American South America. We remain convinced that that is still an opportunity to move forward into 2024 precision ag growth, which we've said is going to grow it around 15 percent per annum on average and then our parts grow.

Maybe just another comment both euro and Steve's question touched on this normalization.

At which time, we believe it works on both sides of the equation, so although pricing won't be going up as much as in years past. We also expect that theres going be a lot more opportunity for farmer cost to come down and <unk> costs to come down.

So pharma costs in terms of fertilizer and some of their other inputs and then and interest rates, we feel like they are probably near peak.

Mick Dobry: So those three are going to help us outpace the industry by four to five percent. And I think Fent North America is sort of showing that this quarter when we remain confident it's potential going into next year. Yeah, just one more comment on that. You know, we've grown the scent market participation in North America from about 40% market coverage to 70, 75% market coverage with a step-by-step dealer expansion that Damon talked about.

Or close to it.

So that has the potential to go more down than up.

And then AG co costs Similarly, both at our factories and our supplier factories we've.

Mick Dobry: We expect to grow it out from 75 up to 90, 95% over the next couple of years. Steadily, only when the dealer earns it, but much like we've been doing our last few years. So there's, you know, more market potential there. To be able to experience the full spent overall brand promise. Same thing in South America.

We've had a lot of inefficiencies over these last two or three years.

We've not gotten all of that out yet.

So although we've had.

Much better performance this year, our plant shortages are down 54% year to date, there is still cost in our system that we intend to take out in 2024, so thats the other half of the normalization discussion.

Okay.

I appreciate those puts and takes for for next year and beyond but.

Steve Volkmann: The next question is from Steve Volkmann with Jeffries. Please go ahead. Great.

So then my follow up question is related to the Trimble JV.

You talked about the.

Steve Volkmann: Good morning, everybody. Eric, I think you talked about farmers becoming more selective in their capital spending. What does that mean exactly? Are you seeing a sort of a mixed shift in the types of equipment that they're buying? I don't know if I'd say a mixed shift, but I would say that some of the applications, new applications for financing are cooling off. It's coming back to more of a normal market. We've had such a hot market these last couple of years, but the mix is still oriented towards large ag.

Steve Volkmann: The growth is still very much in the precision ag retrofit business to make an existing machine more capable and more intelligent. Small ag is still on a relative basis weaker than large ag. So I don't think it's much more much of a mixed shift. It's just a general a little bit more caution on the farmer's part.

Phil that needs to occur in order to replace the existing OEM relationship but in.

And $2 billion in precision revenue implied by 2028, it's about a 15% CAGR off of a much higher base I'm just help us dimensionalize. The sources of growth in terms of technology solutions and how to think about the cadence to that $2 billion revenue. Thank you.

Yeah, Kristen I think for US again that 15% CAGR I think what youre going to see here over the first couple of years is actually a decline in some of the OEM revenues coming out of the system, which we knew about as we were looking at the partnership with Trimble as Eric alluded to in his comments our plan is to.

Replace that with our OEM fitments opportunities here, and we expect to sort of recover that but again from an absolute level over the first couple of years, you won't see much growth there, but see more of a transformation of the mix of that revenue and then as we introduce new products, we start to leverage more of the combined channels. So again, bringing the <unk>.

Steve Volkmann: OK, thanks. And then it sounds like everywhere we turn people are talking about sort of normalization. Does it make sense to think about 24 and just really big picture terms as kind of a mid cycle year for the industry and you guys may do what you do if you have outgrowth targets, but it is mid cycle the right way to think about 24 for now. Yeah, we're not giving exact numbers, but, you know, I think that we don't see any dramatic moves in 24. Let's say it that way. And so it's a general slight movement into 24, but we haven't we haven't committed any industry numbers, but wouldn't be shocked with your kind of predictions.

Simple type products into precision planting some of our OEM channels looking at accessing the vantage channel with precision planting we see significant revenue growth coming there plus some of the new product introductions that they have in the pipeline that we're excited to bring to all of those different channels and those are the two sort of the primary drivers that will help <unk>.

<unk> growth over the next several years.

The next question is from Larry de Maria with William Blair. Please go ahead.

Hi, Thanks, Good morning, everybody I just wanted to follow up on this.

<unk> discussion.

The $170 million and pro forma EBITDA.

Kristen Owen: The next question is from Kristen Owen with Oppenheimer, please go ahead. Hi, thank you for taking the question. I'm also going to ask a normalization type of question and an in particular on the pricing front as we think about pricing normalizing.

Obviously, a big portion that you've referenced you have seen agency niche dealer sales and EBITDA.

Can you maybe give us some color on specific numbers on what 'twenty for that 170, it looks like in 'twenty four given all the dynamics, let's say, it's a flat market for what they sell and you're going to lose some sales and EBITDA, but also gain some so how would that 170 translate on a full year basis, given those dynamics.

Kristen Owen: Can we just double click on what pricing normalization for for agco means today. Arguably you've got a much richer technology mix, a much higher contribution from fendt. How we think about what normal pricing means on a go-forward basis? Yeah, I think Kristen, you know, the direction we think about pricing, you know, I would sort of play it two to three percent has been the historical. Again, when you think about the pricing and you reference fendt, fendt is driving more of the margin enhancement.

I think Larry would probably be a little premature for us given that we're still in the midst of closing.

The transaction right now I think we're going to defer any comments on 2024 on the JV portion of 2024 until we actually get to closing I Havent getting what I would tell you as Eric has alluded to once we're able to we're going to start to work with the team there and shifting the receivers and our base offerings.

Kristen Owen: Again, if we're raising prices on a fendt tractor, it may not be on different than what we do with a massier of ultra tractor. And we think about that two to three percent. And to your point, when we think about the precision ag, the retrofit, that does operate a slightly different price point. And so the pricing there may be slightly different, but in aggregate, you know, you're probably looking us being in that more two to three percent based on our historical rates.

To trimble, but we have to work through the process here to ultimately close the transaction, but once we're able to what we'll give you guys more clarity on how we envision and what we see for the joint venture for 2024.

Okay. Thank you and then maybe switching gears you said I think in your comments the track tractors planters application equipment in North America are sold out for 'twenty four or for model year 'twenty four.

Kristen Owen: James. Maybe just another comment, both your and Steve's question touched on this normalization. We believe it works on both sides of the equation. So although pricing won't be going up as much as in the years past, we also expect that there's going to be a lot more opportunity for farmer cost to come down and AGCO cost to come down. So farmer cost in terms of fertilizer and some of their other inputs.

Can you put some context into that what percentage of North America is covered by that and is it are those sold out levels higher than the 23 levels. Just what does that Directionally mean for for North America.

I think that's sort of Directionally speaking, it's about 20% of the North American revenue.

And it's I would say relatively flat volumes year over year in those particular products.

Kristen Owen: And then an interest rates, we feel like they're probably near peak or close to it. So that has a potential to go more down than up. And then AGCO costs similarly, both in our factories and our supplier factories, we've had a lot of inefficiencies over these last two or three years. And we've not gotten all that out yet. So although we've had much better performance this year, our plant shortages are down 54% year to date. There's still cost in the system that we intend to take out in 2024. So that's the other half of the normalization discussion. I appreciate this puts in take for next year and beyond.

Since supply chain has improved Larry probably means we will produce.

A small amount more than we did the year before but relatively similar.

The next question is from Tami Zakaria with Jpmorgan. Please go ahead.

Hi, good morning. Thank you so much so most of my questions have been asked so just two quick ones. The first one is on fleet age I think you mentioned, it's trending younger.

Is it for both tractors and combines that you feel like it's trending younger and any any quantification like what is the age now versus let's say two three years ago.

Makes sense.

Kristen Owen: But so then my follow up question is related to the Trimble JV talked about the fill that needs to occur in order to replace the existing OEM relationship. But $2 billion in precision revenue implied by 2028 to about a 15% keger off of a much higher base. I'm just helpless to mention the sources of growth in terms of technology solutions and how to think about the cadence to that $2 billion revenue.

So Tammy I would say, yes, both categories tractors and combines and we've moved down probably from the beginning of the year.

To where we are at the end of the third quarter to somewhere between a half a year and a year closer to normal. So I think we were.

Probably a full year ahead of kind of a 10 or 15 year average of seven 5% or 75 half years versus this more normal six and a half we're probably about halfway back to that six five so probably closer to seven.

In terms of.

Kristen Owen: Thank you. Yeah, Kristen, I think for us, again, that 15% keger, I think what you're going to see here over the first couple years is actually a decline in some of the OEM revenues coming out of the system, which we knew about as we were looking at the partnership with Trimble. And they're alluded to in his comments, you know, our plan is to replace that with our OEM fitment opportunities here. And we expect to sort of recover that.

Page of the fleet.

Got it that's helpful and then I think.

Getting going into the third quarter, you were expecting flattish production hours, but it seems like it was down 2% what drove that disconnect and and also related to that in the fourth quarter now. It seems like you expect production hours up a little bit year over year.

Again, which regions are driving this.

Kristen Owen: But again, from an absolute level over the first couple years, you won't see much growth there. But see more of a transformation of the mix of that revenue. And then as we introduce new products, we start to leverage more of the combined channels. So again, bringing the Trimble type products into precision planting some of our OEM channels, looking at accessing the Vantage channel with precision planting. We see significant revenue growth coming there, plus some of the new product introductions that they have in the pipeline that we're excited to bring to all those different channels. And those are the two sort of the primary drivers that will help drive back growth over the next several years.

<unk> expectation.

Tammy most of that that change in fluctuation.

Related to what happened with the financing program in Brazil. So that program ran out of money as we've talked about.

The loans began to be processed again.

So that led to us cutting production in the third quarter in Brazil, and then as.

As those loans now are being processed some of that production got shifted into the fourth quarter. So net net most of that change related to South America.

And just one other thing to think about when you're thinking about the age of the fleet. The other indicators to watch as used inventories and so for example in North America. The tractors 175 horsepower to 300 horsepower, which is kind of right in the middle of the Bell curve.

Larry DiMaria: The next question is from Larry Damaria with William Blair. Please go ahead. Hi, thanks. Good morning, everybody. Just want to follow up on this Trimble discussion. And the 170 million pro form EBITDA. There's obviously a big portion that you've referenced of CNH and CNH dealer sales in EBITDA. Can you give us some color on specific numbers on what 24, that 170 looks like in 24? Given all the dynamics, let's say it's a flat market for what they sell. And you're going to lose some sales in EBITDA, but also gain some. So how would that 170 translate on a full-year basis, given those data?

We've got like 300 units in the industry now versus 6500 units pre COVID-19.

So inventory is still low maintaining good strong pricing inventory, that's a good health barometer for the industry.

The next question is from Jerry Revich with Goldman Sachs. Please go ahead.

Yes, hi, good morning, everyone.

I'm wondering if we could.

You could just expand the discussion on the Trimble JV integration. So one of the compelling points about the acquisition is just how quickly you can transition the receivers.

Larry DiMaria: Yeah, I think Larry would probably be a little premature for us given that we're still in the midst of closing the transaction right now. I think we're going to defer any comments on 2024 on the JB portion of 2024 until we actually get the closing. I even get what I would tell you as Eric is alluded to, you know, once we're able to we're going to start to work with the team there and shifting the receivers in our base offering to Trimble, but we have to work through the process here to ultimately close the transaction. But once we're able to, what will give you guys more clarity on how we envision and what we see for the for the joint venture for 2024.

And drive that additional upside for the joint venture so.

Larry DiMaria: Okay, thank you.

As we think about the mix.

Receivers that are going to be trimble JV over.

Over the course of.

Fourth quarter first quarter can you give us a sense.

Is it possible for us to be at a healthier run rate from a mixed standpoint.

Exiting the first half of the year than what the run rate of the joint venture is now or are we really waiting until we close too.

Pull that lever Eric that you spoke about earlier in the conversation today.

Larry DiMaria: And then maybe switching gears. You said, I think in your comments, the attract tractors, planners, application equipment in North America are sold out for 24 or for model year 24. Can you put some context into that? You know, what percentage of North America is covered by that? And is it, are those sold out levels higher than the 23 levels? Just in order that directly mean for North America? Yeah, I think that's a directionally speaking.

Well so there's two elements to that one is is there a technical design work to be done in the <unk>.

Second one is how big is the order bank and so on the positive side. There is no technical redesign work to switch over because we are already offering that trimble receiver and our products. It's just to we offer two versions and we actually have the other brand in base as the base offering we would switch that have trimble and base.

Larry DiMaria: It's about 20% of the North American in revenue. And it's I'd say relatively flat volumes year over year. Yeah, in those particular products. Yeah, since supply chain has improved Larry, it probably means we'll produce some, you know, a small amount more than we did here before, but relatively similar.

And Orient the customer towards Trimble, So theres no.

Technical work to be done, but there is an order bank.

And so whatever the order bank had been ordered over the last several months is what it is.

And we just need to work through that but we expect the deal to close in the first half of 2024.

Tami Zakaria: The next question is from Tammy Zakaria with JP Morgan. Please go ahead. Hi, good morning. Thank you so much. So most of my questions have been asked. So just two quick ones. The first one is on fleet age. I think you mentioned it's trending younger. Is it for both tractors and combines that you feel like it's trending here younger and any any quantification like what is the age now versus let's say two, three years ago?

With regulatory approval happens to go at the pace.

We anticipate.

That's about the same time, that's about the same size as our order bank. So.

We're trying to.

Organize it such that we could get a running start early into the new joint venture with a much stronger rates of Trimble take rates.

That's great and can I ask you and then unrelated question in Brazil, the industry year to date retail for 180, plus horsepower tractors down 8%.

Tami Zakaria: Yeah, so Tammy, I would say yeah, both categories, tractors and combines. And we've moved down probably from the beginning of the year to where we are at the end of the third quarter to somewhere between a half a year and a year closer to normal. So I think we were, you know, probably a full year ahead of kind of a 10 or 15 year average seven and a half or seven and a half years versus this more normal six and a half.

Your shipments are up over 20% is that how much share you're gaining or can you just flesh that out a little bit in terms of your market position now and can you touch on where do you expect the margin rate to be in that region relative to your other regions on your normalized framework.

Tami Zakaria: We're probably about halfway back to that six and a half so probably closer to seven in terms of age of the fleet. Got it. That's helpful.

Considering the 20% that you're running at now.

Hey, Jerry some of that.

<unk> in terms of our sales was shipments to our dealers and we talked about our dealer inventories kind of normalizing. So some of it related to kind of restocking, but youre right in terms of especially when it comes to.

Tami Zakaria: And then I think getting going into the third quarter, you were expecting slatish production hours, but it seems like it was down to present. What drove that disconnect and and also related to that in the fourth quarter now, it seems like you expect production hours up a little bit year over year. Again, which regions are driving this up expectation? Right. Tammy, most of that that change in fluctuation related to what happened with the financing program in Brazil.

The higher horsepower categories for tractors spray.

Sprayers.

And clients are as I would add in there too in terms of market share gains for <unk>, Brian has done really well in Brazil, as we've launched it and we have aggressive growth targets and to be honest, we're actually ahead of those growth targets.

A good bit of that is share gain a little bit of it is also restocking of of our channel down there and Jerry in regard to your margin question again, South America has done exceptionally well and again, you've followed us long enough that we were in a money losing position there years ago, we've taken that business as part of this strategy mixing up to generate these 20 plus <unk>.

Tami Zakaria: So that program ran out of money as we've talked about as the loans began to be processed again. Well, so that led to us cutting production in the third quarter in Brazil. And then as as those loans now are being processed, some of that production got shifted into the fourth quarter. So so net net most of that change related to South America.

<unk> margins again, a little bit of that is ahead of themselves because they've been very good and pricing ahead of material cost and we had them to give me those dealer incentives as I said on the fourth quarter, we expect that to come down more entitled Guesstimate at 17%, 18% margin range I think over the long term, we will see in a more normalized environment, we would expect.

Tami Zakaria: I'm just one other thing to think about when you think about the age of the fleet. The other indicator to watch is used inventories. And so for example, in North America, the tractor is 175 horsepower, 300 horsepower, which is kind of right in the middle of the bell curve. We've got like 300 units in the industry now, versus 6,500 units pre-COVID. So inventories still low, maintaining good strong price and inventory. That's a good health barometer for the industry.

The margins in South America to be more in that mid teens sort of range over the longer term when we get into what I'll call more of a normal run rate, but for the balance of this year, we still expect it to be above that here as we as we enter the fourth quarter.

The next question is from Chad Dillard with Bernstein. Please go ahead.

Jerry Revich: [inaudible] We're going to have a lot of things to do. The higher horsepower categories for tractors, sprayers, and planters I would add in there too, in terms of market share gains. The fed brains done really well in Brazil. We've launched it and we have aggressive growth targets. And to be honest, we're actually ahead of those growth targets. So some good bit of that share gain a little bit of it is also restocking of our channel down there.

Hi, good morning, guys good.

Morning, Chad.

So a couple of questions for you.

First on pricing so if I look at your year to date price and 8% guide.

It looks like for <unk>.

Q implied it's flat so just want to confirm that.

Second.

<unk> would like to get some early color on 24 farmer profits for the U S and Europe.

And then finally.

I just wanted to get a better sense of where you are.

First is mid cycle exiting 2023 on a volumetric basis.

Yeah sure.

For Q4 pricing, Chad I think directionally, you're in the ballpark.

That to mid to low single digits with sort of the range that we would we would expect to see in the fourth quarter.

I'll, let Greg handle the 'twenty four properly, but as I think about where we are mid cycle.

I'd say, we'd see as the markets have weakened here in the back half of the year Directionally I would expect that as total company, we would be exiting the year at around 105% of mid cycle would sort of be our current estimates and.

And we started the year, a little bit stronger than that but given the weakness we saw in Asia Pacific Some of the weakness, we're seeing especially in the low horsepower South America, probably about 105 as we finished the year and I'll, let Greg touch on the 2020 for farmer profit outlook right. So we've talked a good bit in our prepared remarks about commodity prices.

Coming down.

But still remaining at attractive levels kind of well above if you look at 10 year averages and stuff that being said, we've also seen input costs come back.

Diesel fertilizer or some of the other input cost so the outlook.

But kind of at a high level would be to see a modest decrease in 2024 in terms of farm income, but certainly still in a very supportive range as we think about farmers' ability to continue to refresh their fleet and invest in new technology.

Great that's helpful.

Question, just on R&D intensity.

With the integration of Trimble any change in terms of how you're thinking about that line item.

No I mean, we've raised.

Our R&D or engineering spend 60% since we launched our new strategy with <unk>.

<unk> six tech companies that including Trimble JV.

All of this is to accelerate our progress in developing industry, leading smart farming solutions.

We have a very minimal overlap between the trimble teams projects and the precision planting or agco teams projects, where there are a little bit of overlap we will redeploy those on more projects you've got like 150 projects lined up that are not been worked out yet to automate more features on the machines all the way around the crop cycle, so plenty of work.

To be done.

Lots of great people to work on them and we want to help find Max velocity.

The overall portfolio.

We think theres, probably going to be some synergies as just like when we bought the six tech companies, even though the product isn't redundant if you develop a sensor in one place you don't have to develop it and the other you can just reuse it.

Jerry Revich: And Jerry, in regard to your margin, question again, South America's done exceptionally well. Again, you follow as long as we were in a money losing position there years ago, you know, we've taken that business as part of the strategy, mixing up to generate these 20 plus percent margins. Again, a little bit of that is ahead of themselves because they've been very good in pricing and ahead of material cost. And we have the beginning of dealer incentives.

And things like that so we're looking forward to.

Additional.

Traction and velocity by having all of these teams work together.

And the final question today will be from Tim Thein with Citigroup. Please go ahead.

Alrighty.

Combined these maybe just I guess part a is just on that.

Sent in in.

Jerry Revich: As I said, you know, in the fourth quarter, we expect that to come down more entirely, guessing that 17, 18 percent margin range. I think over the long term, I'll say in a more normalized environment, you know, we would have expected the margins in South America to be more on that mid-teens sort of range over the longer term when we get into what I'll call more of a normal run rate. But for the balance of this year, we still expect it to be above that here as we enter the fourth quarter.

Northern Europe, rather in an environment, where.

Let's just.

Let's call the market flat to down.

Market, what kind of off to the extent.

In a flat market getting inventories back to normal in any way to think about.

Obviously, the net carry and richer mix, so any way to think about kind of a margin.

Range to the extent there are some channel sale in that category in that product line and then.

Chad Dillard: The next question is from Chad Dillard with Barron Stain. Please go ahead. Hi, good morning, guys. Morning, Chad. So a couple of questions for you. First on pricing. So if I look at your your-to-date price and your 8 percent guide, it looks like 4Q implies it's flat. So just want to confirm that. Second, just would like to get some early color on 24 farmer profits for the U.S, in Europe. And then finally, just want to get a better sense of where you are versus mid-cycle XZ2023 on a volumetric basis.

Just on South America, and Brazil, specifically I, just want to make sure I.

Chad Dillard: Yeah, sure. So for Q4 pricing, Chad, I think directionally you're in the ballpark, you know, flat to mid to low single digits is sort of the range that we would expect to see in the fourth quarter.

Again and get the over the message with respect.

On the small side, but just on the high horsepower market.

We've seen some and when the crop chemical companies had put out some pretty big.

Declines in terms of crop chemicals and other inputs.

What if anything does that kind of signaled to you in terms of.

Demand profile as we head into 'twenty not on the smaller stuff, but just on your high horsepower market in Brazil.

So I think Tim if we think about Europe again.

Using the commentary about the dealer inventories to be at a relatively normal level as I alluded to in my remarks.

The fendt high horsepower inventory levels are still below in many areas. So again and you know this is a richer mix product for us and so to the extent using your analogy things staying normal is that sort of part of the inventory buildup that would be margin enhancing for us all else being equal.

Chad Dillard: I'll let Greg handle the 24 property. But if I think about where we are mid-cycle, you know, I'd say we see as the markets have weakened here in the back half of the year. You know, directly I would expect that as total company, you know, we would be exiting the year at around a 105 percent of mid-cycle would sort of be our current estimates. And we started the year a little bit stronger than that, but you know, given the weakness we saw in Asia Pacific, some of the weakness we're seeing, especially in the low horsepower South America, probably about 105 as we finished the year.

Later on top of that some of the new products the market share initiatives that we have also precision planting looking to expand in Europe, we definitely see opportunities I go back to our December Investor Day, where we said, we're going to outpace the industry by 4% to 5% regardless of where we are in the cycle and thats between <unk> Chris.

Chad Dillard: And I'll have the right touch on the other 2024 farmer profit outlook. Right. So we've talked a good bit in our prepared remarks about commodity prices coming down, but still remaining at attractive levels kind of well above if you look at tenure averages and stuff. That being said, we've also seen input costs come back diesel fertilizers, some of the other input costs. So the outlook kind of at a high level would be to see a modest decrease in 2024 in terms of farm income, but certainly still in a very supportive range as we think about farmers ability to continue to refresh their fleet and invest in new technology.

<unk> AG and parts Europe had an exceptionally strong group parts business in the third quarter. So team is doing quite well as they look to continue to maximize those three growth vectors for us and again I think we'll see what the overall markets are in 2024, but again those three items, we expect to continue to help us outpace that.

In South America.

Again, the team has done exceptionally well on the high horsepower segment of the market the fendt product portfolio with even the high horsepower of ultra products high horsepower Massey products have done exceptionally well.

And in gaining share there. So again, we see significant white space opportunities in the Mato Grosso region. You may recall, we have about we've covered about 70% to 75% of the white space. There there are still opportunities to gain share there as we open up incremental dealers our existing dealers continue to penetrate that.

Chad Dillard: Great, that's helpful. The second question, just on R&D intensity, with the integration of a tremble, any change in terms of how are you thinking about that line item? No, I mean, we've raised our R&D or engineering spend 60% since we launched our new strategy. We've invested in six tech companies including Trimble, JV. All of this is to accelerate our progress. I'm developing industry leading smart farming solutions and we have very minimal overlap between the tremble teams projects and the precision planting or AGCO teams projects where there are a little bit overlap.

Farm I would tell you I was in the Mato Grosso region, just a couple of weeks ago met with multiple farmers in the region and they are ecstatic with what they're seeing with the momentum planter defend and Walter products in the region are performing exceptionally well and they were very excited about what they saw as there are opportunities for growth as that region continues.

Sand in arable land as they continue to becoming more of a global exporter. They were very excited about the long term process in Mato Grosso and what the fendt product line was offering them in their overall profitability. So I think over the long term, we feel very good about what we see in that part of Brazil, specifically.

Chad Dillard: We'll redeploy those on more projects. We've got like 150 projects lined up that are not being worked on yet to automate more features on the machines all the way around the crop cycle. So plenty of work left to be done. Lots of great people to work on them. And we want to help find max velocity on the overall portfolio. We think there's probably going to be some synergies as just like when we bought the six tech companies, even though the project isn't redundant, if you develop a sensor in one place, you don't have to develop it in the other, you can just reuse it and things like that. So we're looking forward to additional traction and velocity by having all these teams work together.

Okay.

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

Very good. Thank you very much ill close today by saying Thank you very much for your participation and your support of Agco. We are really proud of our performance throughout 2023 is a great third quarter in many ways and is setting us up for a trajectory deliver even another record year big time.

Tim Syne: And the final question today will be from Tim Syne with Citigroup. Please go ahead. All righty. Those combined.

To give you. Some examples are smart planters, we're expecting those to be up 20% in 2023 versus 22.

Tim Syne: Maybe just as part A is just on that the set in Europe rather in an environment where let's just, you know, let's call the market flat to down as a market. What kind of off it, you know, to the extent. In a flat market, getting inventories back to normal anyway to think about obviously that carry a richer mix. So anyway to think about kind of a margin of range to the extent there's some channel fill in that category and that product line.

Ideal combines forecast those sales be up 65% versus 22 at 118% versus 2021.

On sprayers are smart nozzles be up 75% versus 2022 those.

Those are all just indicators of the value, we're generating for farmers through smarter and smarter machines that add not only more productivity, but more sustainability of their operations.

Our key to success overall as the continued execution of our farmer first strategy. Our focus is on growing our margin rich businesses like fendt.

And service and our precision AG business that we mentioned several times, we are investing heavily in all of these are we continue to do that.

Tim Syne: And then just on South America and Brazil, specifically, I just want to make sure I'm going to get the over the message with respect. Not in a small size, but just on the high horsepower market, you know, we've seen some of the crop chemical companies have put out some pretty big declines in terms of crop chemicals and other inputs. What is what if I didn't do that kind of signal to you in terms of, you know, demand profiles we have in the 24 not on the smaller step, but just on your high horsepower market in Brazil.

The announcement of the ACO Trimble joint venture is.

This past quarter represents the biggest AG tech deal in history.

Will enable exit or further develop farmer focused solutions that are solving critical problems many of them with very short paybacks.

The large AG markets continue to be higher than historical averages globally and farm fundamentals are supporting farmers investments.

Over last few quarters, we've touched on many factors supporting our markets, including growing populations changing diets low stock to use levels increased demand for biofuels and relatively healthy commodity prices.

Tim Syne: Thanks. So I think Tim, if we think about Europe, and again, you know, using the commentary about the dealer inventories, be at a relatively normal level as I alluded to in my mark remarks on, you know, the fence high horsepower inventory levels are still below in many areas. So again, and you know, this fence is a richer mix product for us. And so to the extent using your your analogy, things staying normal.

All of these trends give us confidence in the long term health of our industry in.

In fact, when you take a look at just renewable diesel we're.

We're seeing that in the U S by 2028.

Our 125, sorry, renewable diesel demand will grow too.

<unk> to consume about 40% of the current U S. Soybean acres, that's very similar to what's happened with ethanol consumption of the corn acres. So there's a big demand growth driver.

Tim Syne: As that sort of part of the inventory fills up, that would be margin enhancing for us all else being equal. You layer on top of that some of the new products, the market share initiatives that we have also precision planting, you know, looking to expand in Europe. You know, we definitely see opportunities. I go back to our December investor day where we said we're going to outpace the industry by 4 to 5% regardless of where we are in the cycle.

On the horizon here.

We look forward to seeing many of you at our AGR technical meeting on November 14th in Hanover. Thank you very much for your participation today and have a great day.

Thank you for joining the Agco's third quarter 2023 earnings call. The call has concluded have a nice day.

Tim Syne: And that's between fence, precision, ag, and parts, you know, Europe had an exceptionally strong parts business in the third quarter. So teams doing quite well as they look to continue to maximize those three growth vectors for us. And again, I think we'll see where the overall markets are in 2024.

Okay.

Tim Syne: But again, those three items we expect to continue to help us outpace that on South America. Again, the team has done exceptionally well on the high horse power segment of the market, you know, the fence product portfolio. But even the high horse power of ultra products, high horse power, massive products have done exceptionally well in gaining share there. So again, we see significant white space opportunities in the Madagrosa region. You again, may recall we have about we've covered about 70 to 75% of the white space there.

Yes.

Okay.

Tim Syne: There are still opportunities to gain share there as we open up incremental dealers are existing dealers continue to penetrate that farm. I would tell you I was in the Madagrosa region just a couple weeks ago, met with multiple farmers in the region and they are ecstatic with what they're seeing with the momentum planter, the fence, and vulture products in the region are performing exceptionally well. And they were very excited about what they saw as their opportunities for growth as that region continues to expand in arable land as they continue to be coming more of a global exporter.

Okay.

Okay.

Yes.

Okay.

Tim Syne: They were very excited about the long term process in Madagrosa and what the fence product line, what was offering them in their overall profitability. So I think over the long term, you know, we feel very good about what we see in that part of Brazil specifically.

[music].

Okay.

Yeah.

[music].

Yeah.

[music].

Eric Hansotia: This concludes our question and answer session.

Yes.

Eric Hansotia: I would like to turn the conference back over to Eric Hansotia for any closing remarks. Very good. Thank you very much.

Yes.

Okay.

Eric Hansotia: I'll close today by saying thank you very much for your participation in your support of AGCO. We're really proud of our performance throughout 2023. It was a great third quarter in many ways and it's setting us up for a trajectory delivery even another record year, big time. Just to give you some examples, our smart planters were expecting the list to be up 20% in 2023 versus 22. Ideal combines forecast those sales as be up 65% versus 22 and 18% versus 2021.

Okay.

[music].

Eric Hansotia: Sprayers are smart novels be up 75% versus 2022. Those are all just indicators of the value we're generating for farmers through smarter and smarter machines that add not only more productivity but more sustainability to their operations. Our key to success overall is the continued execution of our farmer first strategy. Our focuses on growing our margin rich businesses like FENT, Parts and Service and our precision egg business that we mentioned several times.

Eric Hansotia: We invest in heavily in all of these and we continue to do that. The announcement of the AGCO Trimble joint venture is this past quarter represents the biggest AG tech deal in history and will enable AGCO to further develop farmer focused solutions that are solving critical problems many of them with very short paybacks. The large AG markets continue to be higher than historical averages globally and farm fundamentals are supporting farmers investments.

Eric Hansotia: In the last few quarters we've touched on many factors supporting our markets including growing populations, changing diets, low stock to use levels, increased demand for biofuels and relatively healthy commodity prices. All of these trends give us confidence in the long-term health of our industry. In fact when you take a look at just renewable diesel we're seeing that in the US by 2025 sorry renewable diesel demand we'll grow to consume about 40% of the current US soybean acres. That's very similar to what's happened with ethanol consumption of the corn acres. So there's a big demand growth driver right on the horizon here.

Operator: We look forward to seeing many of you at our agri-technic meeting in November 14th and Hanover. Thank you very much for your participation today and have a morning's call.

Operator: The call has concluded have a nice day. [inaudible] I don't know. I don't know. [inaudible] I don't know. I don't know. .

[music].

Good day and welcome to the Agco third quarter 2023 earnings call.

All participants will be in listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions in consideration of time, please limit yourself to one question and one follow up.

To ask a question you May Press Star then one on your Touchtone phone.

To withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the conference over to Greg Peterson Agco head of Investor Relations. Please go ahead.

Morning, welcome to those of you joining us for Agco's third quarter 2023 earnings call.

This morning, we will refer to a slide presentation, that's posted to our website at www Dot Agco Cork Dot com. The non-GAAP measures used in the slide presentation are reconciled to GAAP metrics in the appendix of that presentation.

We will make forward looking statements this morning.

Excuse me, including statements about our strategic plans and initiatives as well as our financial impacts.

We'll discuss demand product development and capital expenditure plans and timing of those plans and our expectations with respect to the costs and benefits of those plans and timing of those benefits.

We'll also discuss future revenue crop production and farm income production levels price levels margins earnings cash flow and other financial metrics. All of these are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks include but are not limited to adverse.

Developments in the agricultural industry.

Clothing knows resulting from COVID-19 supply chain disruption inflation, whether commodity prices changes in product demand interruptions in supply of parts and products the possible failure to develop new and improved products on time, including premium technology in part smart farming salute.

<unk> within budget and with expected performance and price benefits difficulties in integrating the <unk> business in a manner that produces the expected financial results.

Reactions by customers and competitors to the transaction, including the rate at which Trimble eggs largest OEM customer reduces purchases of terminal AG equipment and the rate of replacement by the joint venture of those sales.

Introduction of new or improved products by our competitors and reductions in pricing by them.

The war in the Ukraine difficulties in integrating acquired businesses and in completing expansion and modernization plans on time and in a manner that produces the expected financial results.

And adverse changes in financial and foreign exchange markets.

Actual results could differ materially from those.

Suggested in these statements further information concerning these and other risks is included in <unk> filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2022, and subsequent Form 10-K, 10-Q filings Agco disclaims any.

Options to update any forward looking statements, except as required by law.

We will make a replay of this call available on our corporate website.

On the call with me. This morning is Erik <unk>, our chairman President and Chief Executive Officer.

And Damon Audia, Senior Vice President and Chief Financial Officer.

With that Erik Please go ahead. Thanks.

Thanks, Greg and good morning, Agco has consistently delivered record results over the last two years and I am pleased to tell you that the third quarter of 2023 is no different AG.

Operator: [inaudible] Good day and welcome to the AGCO 3rd quarter 2023 earnings call.

<unk> delivered $3 $5 billion in third quarter sales.

Nearly 11% higher than the third quarter of 2022.

Operating margins in the quarter were 12, 3% and 12, 6% on an adjusted basis.

Operator: All participants will be in listen-only mode. Should you need assistance, please think of a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

190 basis points better than 2022.

This marks the fifth consecutive quarter with operating margins above 10, 5%, which is evidence of how we have structurally transformed our business and further demonstrates the progress we are making towards our mid cycle 12.

Greg Peterson: In consideration of time, please limit yourself to one question and one follow-up. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations. Please go ahead. Good morning. Welcome to those of you joining us for AGCO's 3rd quarter 2023 earnings call.

12% operating margin target.

This strong financial performance reflects the continued success of our farmer first strategy focused on growing our precision AG business Globalizing, our full line of our branded products.

And expanding our parts and service business.

Our north and South American fence sales are ahead of our growth targets as we expand our distribution networks in the regions to give more farmers access to the industry's best equipment.

Greg Peterson: This morning we'll refer to a slide presentation that's posted to our website at www.agcocorp.com. The non-gap measures used in the slide presentation are reconciled to gap metrics in the appendix of that presentation. We'll make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts. We'll discuss demand, product development and capital expenditure plans, and timing of those plans in our expectations with respect to the costs and benefits of those plans, and timing of those benefits.

And we continue to have the best parts fill rates in the industry.

Our strategy is generating strong growth in each of these margin rich businesses, providing the foundation for 2023 to be another record year in sales operating margin earnings per share and free cash flow.

Greg Peterson: We'll also discuss future revenue, crop production, and form income, production levels, price levels, margins, earnings, cash flow, and other financial metrics. All of these are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks include but are not limited to adverse developments in the agricultural industry, including those resulting from COVID-19, supply chain disruption, inflation, weather, commodity prices, changes in product demand, interruptions in supply of parts and products, the possible failure to develop new and improved products on time, including premium technology and smart farming solutions within budget and with expected performance and price benefits.

Our expanding tech stack is taking our products to new levels of performance and efficiency, putting us in a winning position as farmers most trusted partner for industry, leading smart farming solutions.

The recently announced joint venture with Trimble is truly transformational for agco and for farmers.

It also aligns perfectly with our strategy of focusing on a greater percentage of our business and the high margin high growth precision AG segment of our industry.

We will talk more about the planned JV in a few minutes.

Slide four details industry unit retail sales by region for the first nine months of 2023.

As harvest draws towards completion in the northern hemisphere higher production is driving up grain inventories weighing on prices.

Im income is still relatively strong and with positive cash flow for most growers demand for our equipment is at a relatively high level what is retreating from the highs seen in 2022 and earlier this year.

While still supportive lower commodity prices and a fleet age trending younger are causing farmers to become more selective about the equipment and technology investments.

Greg Peterson: Difficulties in integrating the Trimbo lag business in a manner that produces the expected financial results, reactions by customers and competitors to the transaction, including the rate at which Trimbo lag's largest OEM customer reduces purchases of Trimbo lag equipment and the rate of replacement by the joint venture of those sales. Introduction of new or improved products by our competitors and reductions in pricing by them. The war in the Ukraine difficulties in integrating acquired businesses and in completing expansion and modernization plans on time in a manner that produces the expected financial results and adverse changes in financial and foreign of Change Markets.

North American industry retail tractor sales were down approximately 2% through September year to date versus 2022 <unk>.

Smaller tractor sales continued to decline from higher levels in 2022 is higher interest rates and overall economic conditions have slowed demand.

Strong demand for greater than 200 horsepower and four wheel drive units helped partially offset the decline.

Industry retail tractor sales in Western Europe decreased approximately 2% through September compared to 2022.

Farmer sentiment continues to be negatively influenced by the ongoing war in Ukraine, as well as input cost inflation.

Greg Peterson: Actual results could differ materially from those suggested in these statements. For their information concerning these and other risks is included in AGCO's filings with the Securities and Exchange Commission, including its form 10K for the year-ended December 31st, 2008-22, and subsequent form 10K and Q filings. AGCO disclaims any obligations to update any forward-looking statements except is required by law. We'll make a replay of this call available on our corporate website. On the call with me this morning is Eric Hansotia, our Chairman, President and Chief Executive Officer, and Damon Audia, our Senior Vice President and Chief Financial Officer.

However forecast for healthy farm income in Western Europe are expected to support good retail demand for equipment throughout the remainder of 2023.

In South America <unk>.

Industry retail tractor sales decreased 8% through the first nine months of 2023 compared to 2022.

Retail demand in Brazil was negatively affected by the depletion of government subsidized loan program prior to the June 30 fiscal year end.

But with loans now being processed we are hopeful this will help drive improved retail sales for the balance of the year.

Although there are increasing signs of caution retail demand in Brazil, and Argentina remains at above average levels in 2023 with particular strength in the high horsepower segments.

Greg Peterson: With that, Eric, please go ahead. Thanks, Greg, and good morning. AGCO has consistently delivered record results over the last two years, and I'm pleased to tell you that the third quarter of 2023 is no different. AGCO delivered three-and-a-half billion dollars in third quarter sales, nearly 11% higher than the third quarter of 2022. Operating margins in the quarter were 12.3% and 12.6% on an adjusted basis. That's 190 basis points better than 2022.

However, weaker commodity prices from strong crop yields and concerns about dry weather are creating concern for some farmers.

Combine industry was up 23% in North America, and 30% in Western Europe through September versus 2022.

Due primarily to improving supply chains.

Our mines in South America declined 20% in the first nine months of 2023 compared to the prior year.

Although market conditions continued to soften off the extremely strong conditions over the last couple of years, we remain positive about the underlying AG fundamentals supporting long term industry with demand for several reasons.

Greg Peterson: This marks the fifth consecutive quarter with operating margins above 10.5%, which is evidence of how we have structurally transformed our business and further demonstrates the progress we are making towards our mid-cycle, 12% operating margin target. This strong financial performance reflects the continued success of our farmer-first strategy, focused on growing our precision AG business, globalizing a full line of our offent branded products, and expanding our parts and service business. Our North and South American fence sales are ahead of our growth targets as we expand our distribution networks in the regions to give more farmers access to the industry's best equipment.

First stock to use levels are higher than recent lows, but they remain supportive of profitable commodity prices versus historical levels.

Second as the demand for clean energy grows the need for solutions like renewable aviation fuel and vegetable oil based diesel will grow strongly driving demand for our farmers that will further support commodity prices.

And third input costs, such as fuel and fertilizer are down from their peaks last year.

Greg Peterson: And we continue to have the best parts fill rates in the industry. Our strategy is generating strong growth in each of these margin-rich businesses, providing the foundation for 2023 to be another record year in sales, operating margin, earnings per share, and free cash flow. Our expanding tech stack is taking our products to new levels of performance and efficiency, putting us in a winning position as farmers' most trusted partner for industry leading smart farming solutions.

We expect farm income to be down modestly in 2023 from the record levels of 2022 in aggregate. We believe that it will remain at attractive levels in 2024 and be supportive for industry demand.

Agco supply chain has improved significantly over the last year.

Our suppliers on time delivery performance to Agco's factories has gotten better and our on time product delivery to our farmer customers has improved every month since March 2023.

Another benefit of this more normalized production environment is lower inventory.

Greg Peterson: The recently announced joint venture with Trimble is truly transformational for Agco and for farmers. It also lines perfectly with our strategy of focusing on a greater percentage of our business and the high margin, high growth precision AG segment of our industry. We'll talk more about the PlanJV in a few minutes. Slide 4 details industry unit retail sales by region for the distribution in the northern hemisphere. Higher production is driving up grain inventories, weighing on prices.

We have been able to reduce our raw material and work in process inventory by 14% since September of 2022.

Agco's 2023 factory production hours are shown on slide five.

Our production decreased in quarter, three by approximately 2% versus 2022.

Recall that last year's third quarter production was exceptionally high as we were recovering from the cyber attack in the second quarter.

Given this phasing and our focus on managing 2023 inventories, we're planning for relatively flat production levels in the fourth quarter versus last year, resulting in a 5% increase in production hours for the full year.

Greg Peterson: Farming income is still relatively strong and with positive cash flow for most growers, the man for our equipment is at a relatively high level. What is retreating from the high scene in 2022? In earlier this of the year. Well still supportive, lower commodity prices and a fleet age trending younger are causing farmers to become more selective about their equipment and technology investments. North American industry retail tractor sales were down approximately 2% through September year to date versus 2022.

As of the end of September 2023 demand for our farmer focused products remains strong and our order boards remained higher than historical average across all regions.

In Europe tractors have six months of order coverage, taking us into the second quarter of 2024.

Dealer inventories are up approximately three quarters of a month versus versus September of 2022.

Greg Peterson: Smaller tractor sales continue to decline from higher levels in 2022 as higher interest rates and overall economic conditions have slowed demand. Strong demand for greater than 200 horsepower in four-wheel drive units helped partially offset the decline. Industry retail tractor sales in Western Europe decreased approximately 2% through September compared to 2022. Farmer sentiment continues to be negatively influenced by the ongoing worn Ukraine as well as input cost inflation. However, forecast for healthy farm income in Western Europe are expected to support good retail demand for equipment throughout the remainder of 2023.

We're now at our targeted level of around four months on average with certain products like fendt high horsepower tractors still below the optimal levels in certain areas.

In South America, we have order coverage through December 2023.

We continue to limit our orders to around one quarter in advance, giving ourselves more pricing flexibility.

We opened our fourth quarter order boards for all brands in South America, and they filled up within a matter of days.

In North America, our orders for track tractors planters and application equipment are fully booked for model year 2024, as the demand in the Big farm market continues to be strong.

Greg Peterson: In South America, industry retail tractor sales decreased 8% to the first nine months of 2023 compared to 2022. Retail demand in Brazil was negatively affected by the depletion of government subsidized loan program prior to the June 30 fiscal year end. But with loans now being processed, we are hopeful this will help drive improved retail sales for the bounce of the year. Although there are increasing signs of caution, retail demand in Brazil and Argentina remained at above average levels in 2023 with particular strength in the high horsepower segments.

We continue to limit order intake and some products to improve our on time delivery rates. So other products are returning to a more normal order bank management.

We currently have approximately seven months of order coverage for both large and small AG.

Moving to slide six at our Investor Day in December 2022, we discussed our three high margin growth levers that would help <unk> achieve its margin aspirations and outgrow the industry by 4% to 5%.

To reiterate.

Those three levers are globalization and full line product rollout of our fendt brand <unk>.

Greg Peterson: However, weaker commodity prices from strong crop yields and concerns about dry weather are creating concern for some farmers. The combine industry was up 23% in North America and 30% in Western Europe through September versus 2022 due primarily to improving supply chains. Combines in South America declined 20% in the first nine months of 2023 compared to the prior year. Although market conditions continue to soften off the extremely strong conditions over the last couple of years, we remain positive about the underlying ag fundamentals supporting long-term industry demand for several reasons.

Focusing on global parts business and increasing the market share of genuine echo parts.

And the third is growing our precision AG business, which supports not only factory fit technology, but also significantly focuses on the mixed fleet retrofit solutions.

These three growth engines will help <unk> achieve 12% operating margins at mid cycle by year, 2026, and will drive <unk> growth above the overall industry performance.

Slide seven recaps the planned transformational joint venture between AG co in Trimble that we announced a few weeks ago in which <unk> will acquire an 85% interest in trimble as portfolio of agricultural assets and technologies.

Greg Peterson: First, stock to use levels are higher than recent lows, but the remains supportive of profitable commodity prices versus historical levels. Second, as the demand for clean energy grows, the need for solutions like renewable aviation fuel and vegetable oil-based diesel will grow strongly, driving demand for our farmers that will further support commodity prices. And third, input costs such as fuel and fertilizer are down from their peaks last year. We expect farm income to be down modestly in 2023 from their record levels of 2022.

By layering Trimble AG on top of our already strong portfolio, we will fast track Agco's technology transformation.

The joint venture will allow AG could it be a key player in guidance by offering advanced hardware and correction services.

Enables us to automate even more activities for the farmer to Trimble automated steering system and enable farmers to connect with all of their data via Trembles Farm management software.

Greg Peterson: In aggregate, we believe that it will remain at attractive levels in 2024 and be supportive for industry demand. Agco-supply chain has improved significantly over the last year. Our suppliers on-time delivery performance to Agco's factories has gotten better, and our on-time product delivery to our farmer customers has improved every month since March 2020. 3. Another benefit of this more normalized production environment is lower inventory. We have been able to reduce our raw material and work in process inventory by 14% since September of 2022.

All of which will be controlled by agco.

This combination provides a full suite of advanced technologies for farmers everywhere, regardless of the brand.

With our combined solutions, we further expand our mixed fleet offerings throughout the entire crop cycle and are able to put technology on more than 10000 different models from almost any OEM.

This JV announcement combined with our existing precision planting business reinforces our commitment to brand agnostic retrofit solutions and will help position <unk> as the hub of the mixed fleet solutions.

Lastly, agco's multichannel distribution approach will drive increased adoption of Trimble as portfolio of technology across the machinery population.

Greg Peterson: AGCO's 2023 factory production hours are shown on slide five. Our production decreased in quarter three by approximately 2% versus 2022. We called it last year's third quarter production was a exceptionally high as we were recovering from the cyber attack in the second quarter. Given this phasing and our focus on managing 2023 inventories, we are planning for relatively flat production levels in the fourth quarter versus last year, resulting in a 5% increase in production hours for the full year.

Allowing farmers more locations to access next generation technology.

This multichannel access as a key lever to doubling the EBITDA in five years.

Looking at slide eight the business combination will create meaningful commercial growth opportunities for agco through access to expanded geographies and channels.

Through September Agco's precision AG sales have increased 16% on a year to date basis, putting us solidly on track to hit our long term, 15% growth target and taking agco's precision AG sales the $1 billion by 2025.

Greg Peterson: As of the end of September 2023, demand for our farmer focus products remains strong and our order boards remained higher than historical average across all regions. In Europe, tractors have six months of order coverage, taking us into the second quarter of 2024. Dealer inventories are up approximately three quarters of a month versus September of 2022. We're now at our target level of around four months on average with certain products like Fent, high horse bar tractors, still below the optimal levels in certain areas.

When we overlay a trimble AG 2020 expected revenues the effective pro forma sales would be approximately $1 $3 billion already in 2023.

With the combination of revenues from Agco is precision AG and Trimble AG JV, we expect to deliver over $2 billion in combined precision AG revenues by 2028.

Greg Peterson: In South America, we have order coverage through December 2023, where we continue to limit our orders to around one quarter in advance, giving ourselves more pricing flexibility. We open our fourth quarter order boards for all brands in South America and they filled up within a matter of days. In North America, our orders for tractors, planters, and application equipment are fully booked for model year 2024. As a demand in the big farm market continues to be strong, we continue to limit order intake on some products to improve our on time delivery rates.

To conclude we.

We would likely expect this deal to close in the first half of 2024 subject to regulatory approval and customary closing conditions with that I'll hand, it over to Damon.

Thank you Eric and good morning, everyone I will start on slide nine with an overview of regional net sales performance for the third quarter.

Net sales were up approximately 7% in the quarter compared to the third quarter of 2022, when excluding the positive effects of currency translation.

Pricing in the quarter, which was in the high single digit range, which was the primary contributor to higher sales.

Greg Peterson: Though other products are returning to a more normal order bank management, we currently have approximately seven months of order coverage for both large and small ag. Moving to slide six, at our investor day in December 2022, we discussed our three high margin growth levers that would help ag co achieve its margin aspirations and outgrow the industry by four to five percent. To reiterate, those three levers are globalization and full line product rollout of our Fent brand, focusing on global parts business and increasing the market share of genuine ag co parts.

As you May recall, the third quarter of 2022 was a very strong quarter, partially due to a catch up in sales related to the cyber event in the second quarter, which had a bigger effect on our European and North American operations.

Greg Peterson: And the third is growing our precision ag business, which supports not only factory fit technology, but also significantly focuses on the mixed fleet retrofit solutions. These three growth engines will help ag co achieve 12 percent operating margins at mid cycle by year 2026 and will drive ag co's growth above the overall industry performance. Slide seven recaps the planned transformational joint venture between ag co and Trimble that we announced a few weeks ago in which ag co require an 85 percent interest in Trimble's portfolio of agricultural assets and technology.

By region, the Europe Middle East segment reported an increase in third quarter net sales of approximately 9%, excluding the positive effects of currency translation compared to the prior year.

The improvement was driven by increased sales of mid and high horsepower tractors strong part sales along with favorable pricing.

In South America net sales in the third quarter grew approximately 19% year over year, excluding the positive effect of currency translation driven by the continued strong sales growth in Brazil and Argentina.

Higher sales of tractors and momentum planters as well as favorable pricing drove most of the increase.

Net sales in North America increased approximately 3% in the quarter, excluding the favorable impact of currency translation compared to the third quarter of 2022.

Greg Peterson: Technologies. By layering Trimble Ag on top of our already strong portfolio, we will fast track AGCO's technology transformation. The joint venture will allow AGCO to be a key player in guidance by offering advanced hardware and correction services. It enables us to automate even more activities for the farmer through Trimble's automated steering system and enable farmers to connect with all of their data via Trimble's farm management software, all of which will be controlled by AGCO.

The growth resulted primarily from increased sales of high horsepower tractors, sprayers and hay tools, along with the positive effects of pricing that more than offset inflationary cost pressures.

On a constant currency basis net sales in our Asia Pacific Africa segment decreased approximately 15%. The most significant declines occurred in Australia, Japan, and China, driven by lower farmer competence and dry weather.

Finally consolidated replacement part sales were approximately $468 million for the third quarter up 10% year over year or 5%, excluding the effects of positive currency translation.

Greg Peterson: This combination provides a full suite of advanced technologies for farmers everywhere regardless of the brand. With our combined solutions, we further expand our mixed fleet offerings throughout the entire crop cycle and are able to put technology in more than 10,000 different models from almost any OEM. This JV announcement combined with our existing precision planting business reinforces our commitment to brand agnostic retrofit solutions and will help position AGCO as the hub of the mixed fleet solutions.

Turning to slide 10.

The third quarter adjusted operating margin improved by 190 basis points versus 2022.

Margins in the quarter benefited from higher sales due to a richer mix and positive net pricing compared to the third quarter of 2022 significantly offsetting high input costs and approximately $35 million of increased engineering expense year over year.

Price increases in the quarter more than offset material and freight cost inflation on a dollar basis and contributed to the improvement in margins.

Greg Peterson: Lastly, AGCO's multi-channel distribution approach will drive increased adoption of Trimble's portfolio of technology across the machinery population, allowing farmers more locations to access next generation technology. This multi-channel access is a key lever to doubling the EBITDA in five years. Looking at slide 8, the business combination will create meaningful commercial growth opportunities for AGCO through access to expanded geographies and channels. Through September, AGCO's precision ag sales have increased 16% on a year-to-day basis, putting us solidly on track to hit our long-term 15% growth target and taking AGCO's precision ag sales to $1 billion by 2025.

For the full year, we are still projecting approximately 8% pricing.

By region, the Europe Middle East segment reported an increase of approximately $57 million in operating income compared to the third quarter of 2022 and margins improved 230 basis points.

Higher sales due to strong net pricing and a healthy product mix contributed to the improvement.

North American operating income for the quarter increased approximately $27 million year over year, while margins improved by approximately 250 basis points.

Operating income benefited benefited from higher sales due to positive net pricing and a favorable mix based on significant growth in defense products year over year.

Greg Peterson: When we overlay Trimble Ag's 2020 expected revenues, the effective pro forma sales would be approximately $1.3 billion already in 2023. With the combination of revenues from AGCO's precision ag and Trimble Ag JB, we expect to deliver over $2 billion in combined precision ag revenues by 2028. To conclude, we would likely expect this deal to close in the first half of 2024, subject to regulatory approval and customary closing conditions. With that, we'll hand it over to Damon.

Operating margins in South America exceeded our expectations again, this quarter and were over 20% a 200 basis point increase over the same period in 2022.

Operating income improved almost $42 million versus the third quarter last year, the improved South American results reflect the benefit of a favorable sales mix.

Finally in our Asia Pacific Africa segment operating income declined approximately $14 million in the quarter due to lower sales, reflecting much weaker market conditions year over year, as well as well as lower product mix.

Greg Peterson: Thank you, Eric, and good morning, everyone. I will start on slide 9 with an overview of regional net sales performance for the third quarter. Net sales were approximately 7% in the quarter, compared to the third quarter of 2022 when excluding the positive effects of currency translation. Pricing in the quarter, which was in the high single-digit range, was the primary contributor to higher sales. As you may recall, the third quarter of 2022 was a very strong quarter, partially due to a catch-up in sales related to the cyber event in the second quarter, which had a bigger effect on our European and North American operations.

With the margin expansion in the last two years in our North American and South American regions from our strategy execution and disciplined pricing, we expect agco's margin profile to be more balanced across the globe in the years ahead.

Slide 11 details our year to date free cash flow for 2022 and 2023.

As a reminder, free cash flow represents cash used in or provided by operating activities less purchases of property plant and equipment and free cash flow conversion is defined as free cash flow divided by adjusted net income.

Greg Peterson: By region, the Europe Middle East segment reported an increase in third quarter net sales of approximately 9%. Excluding the positive effects of currency translation compared to the prior year. The improvement was driven by increased sales of mid and high horsepower tractors, strong part sales, along with favorable pricing. In South America, net sales in the third quarter grew approximately 19% year-over-year, excluding the positive effect of currency translation, driven by the continued strong sales growth in Brazil and Argentina.

Through September year to date, we have used $155 million of cash approximately $411 million or 73% less than 2022, despite increasing capital expenditures by almost $90 million year over year.

This was a result of higher earnings and improved supply chain that enabled us to improve our manufacturing flow and get products into the hands of our farmers more quickly.

We typically sell down our inventory over the back half of the year and anticipate a strong fourth quarter to hit our targeted free cash flow range of $900 million to $1 2 billion for 2023.

Greg Peterson: Higher sales of tractors and momentum planters, as well as favorable pricing, drove most of the increase. Net sales in North America increased approximately 3% in the quarter, excluding the favorable impact of currency translation compared to the third quarter of 2022. The growth resulted primarily from increased sales of high horsepower tractors, sprayers, and hay tools, along with the positive effects of pricing that more than offset inflationary cost pressures. On a constant currency basis, net sales in our Asia-Pacific Africa segment decreased approximately 15%, the most significant declines occurred in Australia, Japan, and China, driven by lower farmer competence and dry weather.

For 2023, although things continue to improve we still expect our raw material and work in process inventory to remain somewhat elevated given supply chain challenges earlier in the year, but we still expect it to be a modest source of cash versus a use in 2022.

We expect our free cash flow conversion to continue to range from 75% to 100% of adjusted net income a significant increase from 2022 consistent with our improved financial outlook.

We remain focused on direct returns to investors during 2023 with a regular quarterly dividend that we increased last quarter by 21% to <unk> 29 per share and the payment of a special variable dividend of $5 per share in the second quarter.

Greg Peterson: Finally, consolidated replacement part sales were approximately 468 million for the third quarter of 10% year-over-year or 5% excluding the effects of positive currency translation. Turning to slide 10, the third quarter adjusted operating margin improved by 190 basis points versus 2022. Margin's in the quarter benefit are from higher sales due to a richer mix and positive net pricing compared to the third quarter of 2022, significantly offsetting high input costs and approximately $35 million of increased engineering expense year-over-year.

Slide 12 highlights our 2023 retail market forecast for our three major regions.

While still at supportive levels. The recent reductions in commodity prices are resulting in slightly softer demand across all regions in 2023 relative to 2022.

For North America, we now expect demand to be 2% to 3% lower compared to the healthy levels in 2022 to.

The high horsepower row crop equipment segment continues to be strong, but it's offset by softer demand for smaller equipment. After several years of robust growth.

Greg Peterson: Price increases in the quarter more than offset material and freight cost inflation on a dollar basis and contributed to the improvement in margins. For the full year, we are still projecting approximately 8% pricing. By region, the Europe Middle East segment reported an increase of approximately 57 million in operating income compared to the third quarter of 2022 and margins improved 230 basis points. Higher sales due to strong net pricing and a healthy product mix contributed to the improvement.

Current interest rates are expected to continue to slow the smaller equipment segment of the market.

In South America, we expect industry sales to now be down 2% to 3%. In 2023. This is a result of softening demand and higher dealer inventories. We have seen emerged last quarter. However, this region remains one of the stronger end markets, especially in Brazil, where the farm footprint is increasing.

To go down from 2022 high we expect healthy farmer profitability in the region, which should continue to drive demand for large AG equipment.

Greg Peterson: North American operating income for the quarter increased approximately 27 million year-over-year while margined improved by approximately 250 basis points. Operating income benefited from higher sales due to positive net pricing and a favorable mix based on significant growth in FENT products year-over-year. Operating margins in South America exceeded our expectations again in this quarter and were over 20%, a 200 basis point increase over the period in 2022. Operating income improved almost 42 million versus the third quarter last year.

For Western Europe, we now expect the industry to also be down 2% to 3% compared to 2022.

Foreign <unk> fundamentals in the region are still generally healthy, but sentiment has weakened a bit in the region and order flow has slowed.

Slide 13 highlights a few assumptions underlying our 2023 outlook.

In addition to focus on meeting the robust end market demand. We will also make significant investments in the development of new solutions to support our farmer first strategy.

Our sales plan includes market share gains along with price increases of approximately 8% aimed at more than offsetting material cost inflation.

Greg Peterson: The increased South American results reflect the benefit of a favorable sales mix. Finally, in our Asia Pacific Africa segment, operating income declined approximately 14 million in the quarter due to lower sales, reflecting much weaker market conditions year-over-year as well as lower product mix, with the margin expansion in the last two years in our North American and South American regions from our strategy execution and discipline pricing, we expect AGCO's margin profile to be more balanced across the globe in the years ahead.

With the weakening of the Euro last quarter, we do not expect currency translation to have effect on sales year over year.

Engineering expenses are expected to increase by approximately 20% were approximately $100 million compared to 2022. This increase was targeted investment in smart farming in precision AG products.

Given our strong performance through September we are raising our full year operating margin to around 12% versus our prior outlook of 11, 7% driven by the sales mix favorable pricing net of material cost and improved factory productivity, partially offset by increased investments in our engineering and digital initiatives.

Greg Peterson: Slide 11 details are year-to-date free cash flow for 2022 and 2023. As a reminder, free cash flow represents cash used in or provided by operating activities less purchases of property, plant and equipment, and free cash flow conversion is defined as free cash flow divided by adjusted net income. Through September year-to-date, we have used 155 million of cash, approximately 411 million for 73% less than 2022 despite increasing capital expenditures by almost $90 million a year over year.

<unk> as well as inflationary cost pressures.

Other expenses are expected to increase approximately $105 million year over year, most of which has been incurred year to date.

Half of this increase is tied to the sales and receivables to Agco finance, where we're being affected by higher sales volume and higher interest rates compared to 2022.

The other half is related to increased volatility in the Turkish lira, and Argentine peso, where we saw additional FX losses in Q3.

Greg Peterson: This is a result of higher earnings and improved supply chain that enabled us to improve our manufacturing flow and get products into the hands of our farmers more quickly. We typically sell down our inventory over the back half of the year and anticipate a strong fourth quarter to hit our targeted free cash flow range of $900 million to $1.2 billion for 2023. For 2023, although things continue to improve, we still expect our raw material and work in process inventory to remain somewhat elevated given supply chain challenges earlier in the year.

With more clarity on our full year Youre now updating our effective tax rate to 27% for 2023, which is the low end of our prior estimate of 27% to 28%.

Turning to slide 14.

Despite the slightly weaker currency outlook versus last quarter, we have maintained our full year net sales outlook of approximately $14 $7 billion.

We are increasing our earnings per share estimate, which should now be approximately $15 eight or on an adjusted basis $15 75 in 2023 versus our prior target of $15 25, given the strong year to date performance and our confidence in the fourth quarter, we bought.

Greg Peterson: But we still expect it to be a modest source of cash versus a use in 2022. We expect our free cash flow conversion to continue to range from 75% to 100% of adjusted net income, a significant increase from 2022 consistent with our improved financial outlook. We remain focused on direct returns to investors during 2023 with a regular quarterly dividend that we increased last quarter by 21% to $0.29 per share and the payment of a special variable dividend of $5 per share in the second quarter.

Also increased our capex targets to around $450 million to include additional investments in our CVT capacity and to further enable precision AG growth.

As I mentioned earlier, even with the increased capital expenditure target free cash flow conversion should be in the range of 75% to 100% of adjusted net income consistent with our long term target, which based on our improved outlook should deliver an additional 60 million to $80 million in free cash flow from our prior outlook.

Greg Peterson: Like 12 highlights our 2023 retail market forecast for our three major regions. While still at supportive levels, the recent reductions in commodity prices are resulting in slightly softer demand across all regions in 2023 relative to 2022. For North America, we now expect demand to be 2% to 3% lower compared to the healthy levels in 2022. The high horsepower road crop equipment segment continues to be strong, but it's offset by softer demand for smaller equipment after several years of robust growth.

With that I'll turn the call back to Greg for our Q&A.

We will now begin.

Begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If you were using your speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Please limit yourself to one question and a single follow up.

Greg Peterson: Current interest rates are expected to continue to slow the smaller equipment segment of the market. In South America, we expect industry sales to now be down 2% to 3% in 2023. This is a result of softening demand in higher dealer inventories we have seen emerge last quarter. However, this region remains one of the stronger end markets, especially in Brazil, where the farm footprint is increasing. All the vote down from 2022 high, we expect healthy farmer profitability in the region which should continue to drive demand for large ag equipment.

Our first question.

Is from Seth Weber with Wells Fargo Securities. Please go ahead.

Hey, Thanks, good morning, guys.

Eric in your I think it was Eric in your prepared remarks, you talked about a potential.

RASK are trying to have to navigate around the loss of a potential.

Customer from the Trimble JV I'm wondering if you could just give us a little bit more detail on how you expect to.

To offset that that loss that's likely coming.

Greg Peterson: Corp. For Western Europe, we now expect the industry to also be down 2-3% compared to 2022. Farm fundamentals in the region are still generally healthy, but sentiment is weakened a bit in the region and order flow has slowed. Flight 13 highlights a few assumptions underlying our 2023 outlook. In addition to focus on meeting the robust and market demand, we will also make significant investments in the development of new solutions for our farmer-first strategy.

On the on that side of the JV.

Yes, we've got a really solid plan here that is largely in our control in that today Agco offers two suppliers are two choices on our navigation systems. One is trimble and one is another supplier.

A majority of the customer sales actually go to the other supplier and so as we migrate into the once the JV is official and we migrate into that chapter of existence. We're working together, we can influence sales to move significantly towards a predominantly trimble offering.

Greg Peterson: Our sales plan includes market share gains, along with price increases of approximately 8% and that more than offsetting material cost inflation. With the weakening of the year-old last quarter, we do not expect currency translation to have effect on sales year-over-year. Engineering expenses are expected to increase by approximately 20% worth approximately $100 million compared to 2022. This increases target-ed investment in smart farming and precision ag products. Given our strong performance through September, we are raising our full-year operating margin to around 12% versus our prior outlook of 11.7% driven by the sales mix, favorable pricing that a material costs and improved factory productivity partially offset by increasing investments in our engineering and digital initiatives as well as inflationary cost pressures.

The factory.

On our new products.

And then also we can continue in the marketplace.

To help those that have bought trimble.

Systems in the past regardless of brand to continue to have confidence.

Over 100 Oems that are already partnered with Trimble, we've talked to many of them already and the feedback has been consistently strong that they said that under the new arrangement. They still feel very comfortable and want to continue to grow the business.

And then there is the retrofit business retrofit portion of the market that we intend to focus on as well so.

Retrofit OEM from the factory working on all three of those paths to make sure that.

Plenty of customers can get access to this great technology.

Greg Peterson: Other expenses are expected to increase approximately $105 million year-over-year, most of which has been incurred year-to-date. Half of this increase is tied to the sales and receivables to ag co-finance when we are being affected by higher sales volume and higher interest rates compared to 2022. The other half is related to increased volatility in the Turkish Lira and Argentine pay sell, where we saw additional FX losses in Q3. With more clarity on our full-year, you are now updating our effective tax rate to 27% for 2023, which is the low end of our prior estimate of 27 to 28%.

That's helpful. Thanks, and then maybe just.

I appreciate the color on the order board for next year can you just give us any details on how you're handling pricing for 2024 at this point.

Yes, I think Seth.

Haven't given any sort of official outlook for our 2020 for pricing yet.

But I think if you think about our outlook here for the 2023 performance, where we've said were around 8% and you look at our year to date, we're starting to lap some of those big price increases that we put in place last year, and so we see pricing, becoming what I'll call more normalized here in the fourth quarter and again, we're probably seeing that.

Greg Peterson: Turning to slide 14, despite the slightly weaker currency outlook versus last quarter, we have maintained our full-year net sales outlook of approximately $14.7 billion. We are increasing our earnings for share estimate, which should now be approximately $15.8 or on an adjusted basis, $15.75 in 2023 versus our prior target of $15.25, given the strong year-to-date performance and our confidence in the fourth quarter. We have also increased our CAPEX targets to around $450 million to include additional investments in our CBT capacity and the further-enabled precision ag growth.

To be a more reasonable assumption as we move into 2024.

The next question is from Nicole <unk> with Deutsche Bank. Please go ahead.

Yes, thanks, good morning, guys.

Good morning.

Can you maybe talk a little bit about what youre seeing in South America with respect to recovery in retail sales your inventory levels.

And also any thoughts on margins for <unk>, given the very extreme strength that persisted again and thank you.

Yeah Nicole.

So I think if we look at the at the fourth quarter. We're definitely we've seen at the start of the third quarter. As you may recall, the the government subsidized funding plans were a little bit delayed in ramp up to the small and medium size horsepower type farmers, we saw that improve in the back half of the quarter.

Greg Peterson: As I mentioned earlier, even with the increased capital expenditure target, free cash flow conversion should be in the range of 75% to 100% of a just net income consistent with our long-term target, which based on our improved outlook should deliver an additional $60 million to 80 million free cash flow from our prior outlook. With that, I'll turn the call back to Greg for our Q&A. We will now begin the question and answer session.

We think about that what we're seeing is a continued.

Slowdown in that market, especially on the lower end side of the market as we look at the dealer inventories. They definitely have moved to what I'll call a more normalized level here in the fourth quarter or at the end of the third quarter and we expect that to stay here into the fourth quarter.

Greg Peterson: To ask a question, you may press star then one on your touch-tone phone. If you are using your speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourself to one question and a single follow-up. Our first question is from Seth Weber with Wells Fargo Securities. Please go ahead. All right. Thanks, good morning, guys. Eric, I think it was Eric and your prepared remarks.

And as we think about and we've been talking about this for the past couple of quarters as the dealer inventories level out in the farmers' confidence and their availability gift products start to stabilize we're expecting to see more of those traditional retail incentives that we would provide to our dealers and our farmers to start to materialize here in the.

<unk> fourth quarter, and what I would tell you as we looked at the third quarter, we started to see that at the back end of the third quarter and so as we extrapolate that into the run rate for the fourth quarter, we definitely see the south American margins coming down versus the third quarter I would probably put them more into the high teens as we look at the fourth quarter and that sort of embedded.

Greg Peterson: She talked about a potential risk or trying to have to navigate around the loss of an OEM customer from the Trimble JV. I'm wondering if you could just give us a little bit more detail on how you expect to offset that loss that's likely coming on that side of the JV. Thanks. Yeah, we've got a really solid plan here that is largely in our control in that today, AGCO offers two suppliers or two choices on our navigation systems.

<unk> in our Q4 outlook as we gave you that 12% full year versus where we are year to date.

Okay.

Okay got it that's really helpful. And then just a higher level question on the implied outlook for <unk>. I think you guys are kind of embedding like EPS kind of flattish sequentially, but you usually see a pretty material Q on Q step up so what are the big drivers of that divergence from normal seasonality. Thank you.

Greg Peterson: One is Trimble and one is another supplier. A majority of the customer sales actually go to the other supplier. And so as we migrate into the, you know, once the JV is official and we migrate into that chapter of existence and we're working together, we can influence sales to move significantly towards a predominantly Trimble offering out of the factory on our new products. And then also we can continue in the marketplace to help those that have bought Trimble systems in the past, regardless of brand to continue to have confidence.

Yes, so a couple of things driving the fourth quarter. Nicole one is if you look at my the currency outlook that we gave you this quarter versus the prior quarter last quarter. We said it was going to be a 2% positive now we're saying it's going to be relatively flat that influences sales by about.

$200 million. So the fact that we've kept our number at $14 seven as a positive of our Q3 performance and our outlook for Q4 that also translates to around 20 cents of earnings per share and so when you look at our outlook of <unk> 75, that's been diluted by about 20 of lost FX versus our <unk>.

Third quarter outlook, but more importantly, when I think about the year over year Q4, if you remember last year, we had an exceptionally strong fourth quarter as we were recovering from the cyber attack in the second quarter and the supply chain disruptions that we were dealing with and just to put that in perspective, specifically in Europe, we had that.

Greg Peterson: There's over 100 OEMs that are already partnered with Trimble. We've talked to many of them already. And the feedback has been consistently strong that they said that under the new arrangement, they still feel very comfortable and want to continue to grow the business. And then there's the retrofit business, retrofit portion of the market that we intend to focus on as well. So retrofit OEM from the factory, working on all three of those paths to make sure that plenty of customers can get access to this.

<unk> strong fourth quarter because of the supply chain and if you remember we were talking about the semi finished inventories at the end of the third quarter last year. This year, they're down about 70% almost 70% versus where they were a year ago, because we've improved the supply chain because we have been able to get these tractors and combines.

Greg Peterson: That's great technology. That's helpful. Thanks. And then maybe just, you know, appreciate the color and the order boards for next year. Can you just give us any details on how you're handling pricing for 2024 at this point? Yeah, I think that we haven't given any sort of official outlook for our 2024 pricing yet. But I think if you think about our outlook here for the 2023 performance where we said we're around 8% and you look at our year-to-date, we're starting to lap some of those big price increases that we put in place last year.

Out of the factories and off to the farmers much more effectively through the course of the year. So we don't expect that big fourth quarter that massive fourth quarter. We saw last year, specifically in Europe, and that's going to create a year over year challenge for us, bringing those numbers down a little bit relative to what you would've saw last year.

Okay.

Our next question is from Mig <unk> with R. W. Baird. Please go ahead.

Greg Peterson: And so we see pricing becoming what I'll call more normalized here in the fourth quarter. And again, we're probably seeing that to be a more reasonable assumption as we move in 2024. The next question is from the call to blaze the Deutsche Bank. Please go ahead. Yeah, thanks. Good morning, guys. Good morning. Can you maybe talk a little bit about what you're seeing in South America with respect to recovery and retail sales, your inventory levels, and also any thoughts on margins for 4Q given the very extreme strength that persisted again.

Thank you and good morning.

Yes.

Hopefully I understood this correctly, but I mean, what <unk> commented that inventory dealer inventory.

<unk> normalized at this point and it sounds that demand.

Maybe starting to soften a little bit so.

Curious as to how you're thinking about managing that.

The channel is you're looking at 2024.

Are you thinking.

Onward adjustment in production if that's the case is there.

Greg Peterson: Thank you. Yeah Nicole, so I think if we look at the at the four quarter we're definitely we've seen at the start of the third quarter as you may recall the the government subsidized funding plans were a little bit delayed in ramp up to the small and medium sized horsepower type farmers. You know we saw that improve in the back half of the quarter. You know as we think about that you know what we're seeing is a continued slowdown in that market, especially on the lower end side of the market as we look at the dealer inventories they definitely have moved to what I'll call more normalized level here in the fourth quarter or in at the end of the third quarter and we expect that to stay here into the fourth quarter.

Some context that we should have about the first half versus second half as we think about next year.

Yes, so I think you're right the inventory levels at the dealers generally speaking have have normalized over the last quarter I would say with a couple of caveats to that North America. For example, we do know that the dealer inventory is just around six months or so the third quarter is usually the <unk>.

Highest level, if I strip out the low at the small AG portion of that the dealer inventories actually run about five months. So it's still a little bit low so theres still some opportunity there if I look at Europe, and Eric and his pre in his opening remarks talked about the inventory levels being at about four months again, that's an overall statement, but there are still a.

Greg Peterson: And as we think about and we've been talking about this for the past couple of quarters as the dealer inventories level out and the farmers confidence and their availability gift products start to stabilize we're expecting to see more of those traditional retail incentives that we would provide to our dealers and our farmers to start to materialize here in the fourth quarter. And what I would tell you is we looked at the third quarter we started to see that at the back end of the third quarter.

A lot of areas, where the high horsepower tractor inventory at the dealers are below the optimal level for us. So we still see some opportunities for some dealer Phil there, but generally speaking I would say inventory levels are normal as we think about 2024 as we go through our budget planning process. The question is going to be about our <unk>.

<unk> share initiatives on what we think we can gain relative to where we were in 23, given some of the supply chain constraints and thats going to influence our production, especially as we see these markets potentially continuing to soften. So we don't know how the production is going to shape out just yet we'll give you that update but I would tell you you should be thinking more about production.

Greg Peterson: And so as we extrapolate that into the run rate for the fourth quarter we definitely see the South American margins coming down versus that third quarter. I would probably put a more into the high teams as we look at the fourth quarter and that sort of embedded in our queue for outlook as we give you that 12% full, year versus where we are year to date. Okay got it that's really helpful and then just a higher level question on the implied outlook for 4Q I think you guys are kind of embedding like EPS kind of flatish sequentially but you usually see a pretty material queue on queue step up so what are the big drivers of that divergence from normal seasonality thank you.

Aligned with overall demand as we think about 2024.

Alright, that's helpful.

I guess my follow up.

Your North American margins.

You talked about already had been had been quite good.

I'm sort of wondering about the sustainability.

That going forward.

Especially as you talk about <unk>, continuing to sort of build momentum. Thank you.

Greg Peterson: Yeah so a couple things driving the fourth quarter that Nicole one if you look at my the currency outlook that we gave you this quarter versus the prior quarter you know last quarter we said it was going to be a 2% positive. Now we're saying it's going to be relatively flat you know that influences fails by about 200 million dollars so the fact that we kept our number at 14.7 is a positive of our Q3 performance and our outlook for Q4.

Yes, again, I think Mig for US North America has been a really good.

Margin performance for us and a lot of that is predicated on that sense market share expansion as we've talked about induced reducing to north American South America, adding the spent dealers and really focusing on that fendt experience, we've talked about being very selective on how fast we roll things out into the dealer networks, who is able to <unk>.

Greg Peterson: That also translates to around 20 cents of earnings per share and so when you look at our outlook of 15.75 you know that's been diluted by about 20 cents of lost affects versus our third quarter outlook. But more importantly when I think about the year over year Q4 if you remember last year we had an exceptionally strong fourth quarter as we were recovering from the cyber attack in the second quarter and the supply chain disruptions that we were dealing with.

<unk> because they need to deliver on that overall sense experience, which includes the goldstar warranty the replacement tractors. So we've seen great growth great share growth in North America, and again, if I think about that performance year over year, a lot of that or the majority of that is coming from the market share growth that we're seeing where the fendt performed.

In North America, and as we've said in the past, we still see opportunities to remember at our December Investor Day, We said that we are going to outpace the industry, regardless of where we were in the cycle by 4% to 5% wanted in those three growth vectors, we're going to be the defense market share mainly in North America, and South America, we remain convinced that that is.

Greg Peterson: And just to put that in perspective specifically in Europe we had that really strong fourth quarter because the supply chain you remember we were talking about the semi finished inventories at the end of the third quarter last year. This year they're down about 70% almost 70% versus where they were a year ago because we've been through the supply chain because we've been able to get these tractors and combines out of the factories and off to the farmers much more effectively through the course of the year.

Still an opportunity as we move forward into 2020 for precision AG growth, which we've said it's going to grow at around 15% per annum on average and then our parts growth. So those three are going to help us outpace the industry by 4% to 5% and I think North America is sort of showing that this quarter and we remain confident in its potential going into next year.

Greg Peterson: So we don't expect that big fourth quarter that massive fourth quarter we saw last year specifically in Europe and that's going to create a year over year challenge for us you know bringing those numbers down a little bit relative to what you would have saw last year. Our next question is from Mick Dobry with R.W. Baird. Please go ahead. Thank you and good morning. You know, hopefully understood this correctly, but I mean what I heard from the comments is that inventories, you are inventories of largely normalized at this point and it sounds that the man maybe is starting to soften a little bit.

Sure.

Yes, just one more comment on that we've grown the fendt market participation in North America from about 40% market coverage to 70%, 75% market coverage with a step by step dealer.

Spansion that Damon talked about.

We expect to grow that from 75 up to 1990, 5% over the next couple of years steadily only when the dealer earns it but much like we've been doing over the last few years, so theres more market potential there to be able to experience the full fendt.

Overall brand promise.

Same thing in South America.

The next question is from Steve Volkmann with Jefferies. Please go ahead.

Greg Peterson: So I'm kind of curious as to how you're thinking about managing the channel as you look into 2024. Or are you thinking downward adjustment in production, if that's the case, is there some context that we should have about the first half or the second half as we think about next year. Yeah, so I think you're right. The inventory level that the dealers generally speaking have have normalized over the last quarter, I would say with a couple caveats to that.

Great. Good morning, everybody, Eric I think you talked about farmers, becoming more selective in their capital spending what does that mean exactly are you seeing sort of a mix shift in the types of equipment that they're buying.

I don't know if I would say a mixed shift, but I would say that yes. Some of the applications new applications for financing as our cooling off.

Coming back to more of a normal market.

<unk> had such a.

Hot market. These last couple of years, but.

Greg Peterson: North America, for example, you know, we do know that the dealer inventory is just around six months or so, the third quarter is usually the highest level. If I strip out the low at the small AG portion of that, the dealer inventory has actually run about five months, so it's still a little bit low. So there's still some opportunity there. If I look at Europe and Eric and his pre in his opening remarks talked about the inventory levels, being about a month, again, that's an overall statement.

The mix is still oriented towards large AG.

The growth is still very much in the precision AG retrofit business to make our existing machine more capable and more intelligent.

Small AG is still.

On a relative basis weaker than large AG. So I don't think its much more much of a mix shift is just a.

In general a little bit more caution on the farmers part.

Okay. Thanks, and then on that.

Greg Peterson: But there are still a lot of areas where the vent high horse power tractor inventory at the dealers are below the optimal level for us. So we still see some opportunities for some dealer fill there. But generally speaking, I would say inventory levels are normal. As we think about 2024, as we go through our budget planning process, the question is going to be about our market sharing issues and what we think we can gain relative to where we were in 23 given some supply chain constraints.

It sounds like everywhere, we turn people are talking about sort of normalization does it makes sense to think about 'twenty four and just really big picture terms as kind of mid.

Mid cycle year for the industry and you guys may do what you do if you have outgrowth targets, but as mid cycle. The right way to think about 'twenty four for now.

Yes, we're not giving exact numbers, but.

I think that we don't see any dramatic moves in 'twenty for let's say it that way and so it's a general slight movement.

Greg Peterson: And that's going to influence our production, especially as we see these markets potentially continuing to soften. So we don't know how the production is going to shape out just yet. We'll give you that update. But I would tell you you should be thinking more about production aligned with overall demand, as we think about 2024. All right, that's helpful. Then I guess my follow up your North American margins as you talked about already have been quite good.

In the 'twenty four but we haven't.

We haven't committed to any industry numbers, but.

Wouldnt be shocked.

With your kind of predictions.

Okay.

The next question is from Kristen Owen with Oppenheimer. Please go ahead.

Hi, Thank you for taking the question I'm also going to asking normalization type of question and and in particular on the pricing front as we think about pricing normalizing Kim can we just double click on what pricing normalization for agco means today arguably you have.

Greg Peterson: I'm sort of wondering about the sustainability of that going forward, especially as you talk about FEN continuing to sort of build momentum. Thank you. Yeah, you know, again, I think for us North America has been a really good margin performance for us. And a lot of that is predicated on that fence market share expansions. We talked about induced reducing to North American South America, adding these vent dealers and really focusing on that fence experience.

Got it.

Much richer technology mix much higher contribution from <unk>. So how do we think about what normal pricing needs on a go forward basis.

Yes, I think Christian.

Directionally, when we think about pricing.

Greg Peterson: We've talked about being very selective on how fast we roll fence out into the dealer networks who's able to offer it because they need to deliver on an overall fence experience, which includes the gold star warranty, the replacement tractors. So we've seen great growth, great share growth in North America. And again, if I think about that performance year over year, a lot of that or the majority of that is coming from the FENT market share growth that we're seeing or the FENT performance in North America.

Sorry to tell you, it's 2% to 3% has been the historical again when you think about the pricing and you referenced that is driving more of the margin enhancement again, if we're raising prices on a fendt tractor it may not be different than what we do with the math here of bolts retract when we think about that 2% to 3%.

And to your point, when we think about the precision AG the retrofit.

Does operate a slightly different price point and so the pricing there may be slightly different but in aggregate youre, probably looking at us being in that more 2% to 3% based on our historical rates.

Greg Peterson: And as we've said in the past, we still see opportunities remember at our December investor day, we said that we are going to outpace the industry regardless of where we were in the cycle by four to five percent. One of those three growth vectors were going to be the FENT market share mainly in North American South America. We remain convinced that that is still an opportunity. We move forward into 2024 precision ag growth, which we've said is going to grow it around 15 percent per annum on average and then our parts grow.

Maybe just another comment both euro and Steve's question touched on this normalization, which then we believe it works on both sides of the equation, so although pricing won't be going up as much as in years past. We also expect that theres going to be a lot more opportunity for farmer cost to come down and agco cost to come down.

So pharma costs in terms of fertilizer and some of their other inputs and then and interest rates, we feel like they are probably near peak.

Greg Peterson: So those three are going to help us outpace the industry by four to five percent. And I think FENT North America is sort of showing that this quarter and we remain confident it's potential going into next year. Yeah, just one more comment on that. You know, we've grown the spent market participation in North America from about 40% market coverage to 70, 75% market coverage with a step-by-step dealer expansion that Damon talked about.

Or close to it.

So that has a potential to go more down than up.

And then agco costs similarly, both at our factories and our supplier factories.

<unk> had a lot of inefficiencies over these last two or three years.

And we've not gotten all that out yet so although we've had.

Greg Peterson: We expect to grow that from 75 up to 90, 95% over the next couple years. Steadily, only when the dealer earns it, but much like we've been doing our little past few years. So there's, you know, more market potential there. To be able to experience the full spent overall brand promise. Same thing in South America. The next question is from Steve Volkmann with Jeffries. Please go ahead. Great. Good morning, everybody. Eric, I think you talked about farmers becoming more selective in their capital spending.

Much better performance this year, our plant shortages are down 54% year to date, there is still cost in our system that we intend to take out in 2024, so thats the other half of the normalization discussion.

I appreciate there's puts and takes for for next year and beyond but.

So then my follow up question is related to the Trimble JV talks.

About the.

Yes.

Greg Peterson: What does that mean exactly? Are you seeing a sort of a mixed shift in the types of equipment that they're buying? I don't know if I'd say a mixed shift, but I would say that some of the applications, new applications for financing are cooling off. It's coming back to more of a normal market. We've had such a hot market these last couple years, but the mix is still oriented towards large ag.

Phil that needs to occur in order to replace the existing OEM relationship, but and.

Greg Peterson: The growth is still very much in the precision ag retrofit business to make an existing machine more capable and more intelligent. Small ag is still on a relative basis weaker than large ag. So I don't think it's much more much of a mixed shift. It's just a general a little bit more caution on the farmer's part. Okay, thanks. And then it sounds like everywhere we turn people are talking about sort of normalization.

And $2 billion in precision revenue implied by 2028, it's about a 15% CAGR off of a much higher base I'm just help us dimensionalize. The sources of growth in terms of technology solutions and how to think about the cadence to that $2 billion revenue. Thank you.

Yeah, Kristen I think for US again that 15% CAGR I think what youre going to see here over the first couple of years is actually a decline in some of the OEM revenues coming out of the system, which we knew about as we were looking at the partnership with Trimble as Eric alluded to in his comments our plan is to.

Replace that with our OEM fitments opportunities here, and we expect to sort of recover that but again from an absolute level over the first couple of years, you won't see much growth there, but see more of a transformation of the mix of that revenue and then as we introduce new products, we start to leverage more of the combined channels. So again, bringing the <unk>.

Greg Peterson: Does it make sense to think about 24 and just really big picture terms as kind of a mid cycle year for the industry and you guys may do what you do if you have outgrowth targets, but it is mid cycle the right way to think about 24 for now. Yeah, we're not giving exact numbers, but you know, I think that we don't see any dramatic moves in 24. Let's say it that way.

Simple type products into precision planting some of our OEM channels looking at accessing the vantage channel with precision planting we see significant revenue growth coming there plus some of the new product introductions that they have in the pipeline that we're excited to bring to all of those different channels and those are the two sort of the primary drivers that will help <unk>.

Greg Peterson: And so it's a general slight movement into 24, but we haven't we haven't committed any industry numbers, but wouldn't be shocked with your kind of prediction. The next question is from Kristen Owen with Oppenheimer. Please go ahead. Hi, thank you for taking the question. I'm also going to ask a normalization type of question and in particular on the pricing front as we think about pricing normalizing. Can we just double click on what pricing normalization for for agco means today.

<unk> growth over the next several years.

The next question is from Larry de Maria with William Blair. Please go ahead.

Hi, Thanks, Good morning, everybody I just wanted to follow up on this.

<unk> discussion and the $170 million and pro forma EBITDA.

Greg Peterson: Arguably you've got a much richer technology mix, a much higher contribution from fendt. How we think about what normal pricing means on a go forward basis. Yeah, I think Kristen, you know, the direction we think about pricing, you know, I would sort of tell you it's two to three percent has been the historical. Again, when you think about the pricing and you reference Fendt, Fendt is driving more of the margin enhancement.

Obviously, a big portion that you've referenced <unk> dealer sales and EBITDA.

Can you maybe give us some color on specific numbers on what 'twenty for that 170, it looks like in 'twenty four given all the dynamics, let's say flat market for what they sell and you lose some sales and EBITDA, but also gain some so how would that 170 translate on a full year basis, given those dynamics.

Yes, I think Larry would probably be a little premature for us given that we're still in the midst of closing.

The transaction right now I think we're going to defer any comments on 2024.

On the JV portion of 2024 until we actually get the closing I haven't got what I would tell you as Eric has alluded to once we're able to we're going to start to work with the team there and shifting the receivers and our base offerings to trimble, but we have to work through the process here to ultimately close the transaction, but once we're able to what we will give.

Greg Peterson: Again, if we're raising prices on a Fendt tractor, it may not be on different than what we do with a mass year of ultra tractor. We think about that two to three percent into your point when we think about the precision ag, the retro fit that does operate a slightly different price point. And so the pricing there may be slightly different, but in aggregate, you know, you're probably looking at us being in that more two to three percent based on our historical rate.

You guys more clarity on how we envision and what we see for the joint venture for 2024.

Okay. Thank you and then maybe switching gears you said I think in your comments and your track tractors planters application equipment in North America are sold out for 'twenty four or for model year 'twenty four.

Greg Peterson: Holmes, maybe just another comment, both your and Steve's question touched on this normalization. The work's done, we believe it works on both sides of the equation. So although pricing won't be going up as much as in years past, we also expect that there's going to be a lot more opportunity for farmer cost to come down and AGCO cost to come down. So farmer cost in terms of fertilizer and some of their other inputs.

Can you put some context into that what percentage of North America is covered by that and is it are those sold out levels higher than the 23 levels. Just what does that directionally being four for North America, Yes, I think that's sort of Directionally speaking, it's about 20% of the North American revenue.

And it's I would say relatively flat volumes year over year in those particular products.

Greg Peterson: And then an interest rates, we feel like they're probably near peak or close to it. So that has a potential to go more down than up. And then AGCO costs similarly, both in our factories and our supplier factories, we've had a lot of inefficiencies over these last two or three years. And we've not gotten all that out yet. So although we've had much better performance this year, our plant shortages are down 54% year to date.

Since supply chain has improved malaria, probably means we will produce.

A small amount more than we did the year before but relatively similar.

The next question is from Tami Zakaria with Jpmorgan. Please go ahead.

Hi, good morning. Thank you so much Jim most of my questions have been asked so just two quick ones. The first one is on fleet age I think you mentioned, it's trending younger.

Greg Peterson: There's still cost in the system that we intend to take out in 2024. So that's the other half of the normalization discussion. Appreciate this puts in take for next year and beyond. But so then my follow-up question is related to the Trimble JV, talked about the fill that needs to occur in order to replace the existing OEM relationship. But $2 billion in precision revenue implied by 2028, it's about a 15% keg or off of a much higher base.

Is it for both tractors and combines that you feel like it's trending younger and any any quantification like what is the age now versus let's say two three years ago.

Makes sense.

Yes, so Tammy I would say, yes, both categories tractors and combines and we've moved down probably from the beginning of the year.

To where we are at the end of the third quarter to somewhere between a half a year and a year closer to normal. So I think we were.

Probably a full year ahead of kind of a 10 or 15 year average of seven 5% or 75 half years versus this more normal six and a half we're probably about halfway back to that six five so probably closer to seven.

Greg Peterson: I'm just helpless to mention the sources of growth in terms of technology solutions and how to think about the cadence to that $2 billion revenue. Thank you. Yeah, Kristen, I think for us, again, that 15% keg or I think what you're going to see here over the first couple years is actually a decline in some of the OEM revenues coming out of the system, which we knew about as we were looking at the partnership with Trimble as Eric alluded to in his comments, our plan is to replace that with our OEM fitment opportunities here.

In terms of.

Page of the fleet.

Got it that's helpful and then I think.

Going into the third quarter, you were expecting flattish production hours, but it seems like it was down 2% what drove that disconnect and and also related to that in the fourth quarter now. It seems like you expect production hours up a little bit year over year.

Again, which regions are driving this.

Greg Peterson: And we expect to sort of recover that. But again, from an absolute level over the first couple of years, you won't see much growth there, but see more of a transformation of the mix of that revenue. And then as we introduce new products, we start to leverage more of the combined channels. So again, bringing the Trimble type products into precision planting some of our OEM channels looking at accessing the Vantage channel with precision planting.

Our expectation.

Most of that change in fluctuation.

Related to what happened with the financing program in Brazil. So that program ran out of money as we've talked about.

There's still loans began to be processed again.

So that led to us cutting production in the third quarter in Brazil, and then as I.

Greg Peterson: We see significant revenue growth coming there, plus some of the new product introductions that they have in the pipeline that we're excited to bring to all those different channels. And those are the two of the primary drivers that will help drive back growth over the next several years. Next question is from Larry DiMaria with William Blair. Please go ahead. Hi, thanks. Good morning, everybody. I just want to follow up on this Trimble discussion.

Those loans now are being processed some of that production got shifted into the fourth quarter. So net net most of that change related to South America.

And just one other thing to think about when you're thinking about the age of the fleet. The other indicators to watch as used inventories and so for example in North America. The tractors 175 horsepower to 300 horsepower, which is kind of right in the middle of the Bell curve.

Got like 300 units in the industry now versus 6500 units pre COVID-19.

Greg Peterson: The 170 million pro-form EBITDA is obviously a big portion that you've referenced of C&H and C&H dealer sales in EBITDA. Can you give us some color on specific numbers on what 24, that 170 looks like in 24, given all the dynamics. Let's say it's a flat market for what they sell. And you're going to lose some sales in EBITDA, but also gain some. So how would that 170 translate on a full-year basis, given those dynamics?

So inventory is still low maintaining good strong pricing inventory, that's a good health barometer for the industry.

The next question is from Jerry Revich with Goldman Sachs. Please go ahead.

Yes, hi, good morning, everyone.

I'm wondering if we could.

Can you just expand the discussion on the Trimble JV integration. So one of the compelling points about the acquisition is just how quickly you can transition the receivers.

Greg Peterson: I think Larry would probably be a little premature for us given that we're still in the midst of closing the transaction right now. I think we're going to defer any comments on 2024 on the JB portion of 2024 until we actually get the closing. I'm again, what I would tell you is Eric is alluded to once we're able to we're going to start to work with the team there and shifting the receivers in our base offering to Trimble, but we have to work through the process here to ultimately close the transaction.

And drive that additional upside for the joint venture so.

As we think about the mix.

Receivers that are going to be a trimble JV over.

Over the course of.

Fourth quarter first quarter can you give us a sense.

Is it possible for us to be at a healthier run rate from a mix standpoint.

So exiting the first half of the year than what the run rate of the joint venture is now or are we really waiting until we close too.

Greg Peterson: But once we're able to, what will give you guys more clarity on how we envision and what we see for the for the joint venture for 2024? Okay. Thank you. And then maybe switching gears. You said, I think in your comments, the track tractors, planners, application equipment in North America are sold out for 24 or for model year 24. Can you put some context into that? You know, what percentage of North America is covered by that?

Pull that lever Eric that you spoke about earlier in the conversation today.

Well so there's two elements to that one is is there a technical design work to be done and the second one is how big is the order bank and so on the positive side. There is no technical redesign work to switch over because we are already offering that timber receiver on our products. It's just to we offer two versions and we actually.

Greg Peterson: And is it those sold out levels higher than the 23 levels? Just in order that directly mean for North America? Yeah, I think that's a directionally speaking. It's about 20% of the North American revenue. And it's I'd say relatively flat volumes year over year in those particular products. Yeah, since supply chain has improved Larry, it probably means we'll produce some, you know, a small amount more than we did here before, but relatively similar.

You have the other brand in base.

As the base offering we would switch that have trimble in basin.

Orient the customer towards Trimble, So there is no.

Technical work to be done, but there is an order bank.

And so whatever the order bank had been ordered over the last several months is what it is.

And we just need to work through that but we expect the deal to close in the first half of 2024.

Greg Peterson: The next question is from Tammy Zakaria with JP Morgan. Please go ahead. Hi. Good morning. Thank you so much. So most of my questions have been asked. So there's two quick ones. The first one is on fleet age. I think you mentioned it's trending younger. Is it for both tractors and combines that you feel like it's trending here younger and any any quantification? Like what is the age now versus let's say two, three years ago?

If regulatory approval happens to go at the pace we.

Anticipate.

That's about the same time thats about the same size as our order bank. So.

We're trying to.

Organize it such that we could get a running start early into the new joint venture with a much stronger rates of Trimble take rates.

That's great and can I ask you and then unrelated question in Brazil.

Brazil.

Industry year to date retail for 180, plus horsepower tractors down 8%.

Greg Peterson: Yeah, so Tammy, I would say yeah, both categories, tractors and combines. And we've moved down probably from the beginning of the year. To where we are at the end of the third quarter to somewhere between a half a year, any year closer to normal. So I think we were, you know, probably a full year ahead of kind of a 10 or 15 year average. Seven and a half or seven and a half years versus this more normal six and a half.

Your shipments are up.

20% is that how much share you're gaining or can you just flesh that out a little bit in terms of your market position now and can you touch on where do you expect the margin rate to be in that region relative to your other regions on your normalized framework considering the 20%.

You are running at now.

Greg Peterson: We're probably about halfway back to that six and a half. So probably closer to seven. In terms of age of the fleet. Got it. That's helpful. And then I think getting going into the third quarter, you were expecting slatish production hours, but it seems like it was down to percent. And what drove that disconnect and and also related to that in the fourth quarter now, I it seemed that you said production hours up a little bit year over year.

Yes, Jerry some of that increase in terms of our sales was shipments to our dealers and we talked about our dealer inventories kind of normalizing. So some of it related to kind of restocking, but youre right in terms of especially when it comes to us.

The higher horsepower categories for tractors.

Sprayers.

And <unk> I would add in there too in terms of market share gains. So fendt branch done really well in Brazil, as we launched it and we have aggressive growth targets and to be honest, we're actually ahead of those growth targets.

Greg Peterson: Again, which regions are driving this up expectation? Right. Tammy, most of that that change in fluctuation related to what happened with the financing program in Brazil. So that program ran out of money as we've talked about. As the loans began to be processed again. Well, so that led to us cutting production in the third quarter in Brazil. And then as as those loans now are being processed, some of that production got shifted into the fourth quarter.

A good bit of that is share gain a little bit of it is also restocking of of our channel down there and Jerry in regard to your margin question again, South America has done exceptionally well and again, you've followed us long enough. We were in a money losing position there years ago, we've taken that business as part of this strategy mixing up to generate these 20 plus.

Greg Peterson: So net net most of that change related to South America. Just one other thing to think about when you think about the age of the fleet, the other indicator to watch is used inventories. And so, for example, in North America, the tractor is 175 horse bar to 300 horse bar, which is kind of right in the middle of the bell curve. We've got like 300 units in the industry now versus 6,500 units pre-COVID.

<unk> margins again, a little bit of that is ahead of themselves because they've been very good and pricing and ahead of material cost and we had them to give me those dealer incentives as I said the fourth quarter, we expect that to come down more into we got some of that 17%, 18% margin range I think over the long term I will say in a more normalized environment, we would expect.

The margins in South America to be more in that mid teens sort of range over the longer term when we get into what I'll call more of a normal run rate, but for the balance of this year, we still expect it to be above that here as we as we enter the fourth quarter.

Greg Peterson: So inventories still low, maintaining good, strong price and inventory. That's a good health barometer for the industry. The next question is from Jerry Revich, with Goldman Sachs. Please go ahead. Yes, hi. Good morning, everyone. I'm wondering if we could, if we just expand the discussion on the Trimble JV integration. So, you know, one of the compelling points about the acquisition is it just how quickly you can transition the receivers and drive that additional upside for the joint venture.

The next question is from Chad Dillard with Bernstein. Please go ahead.

Hi, good morning, guys.

Good morning, Jeff.

So a couple of questions for you.

First on pricing so if I look at your year to date price and 8% guide.

Greg Peterson: So, you know, as we think about the mix of receivers that are going to be Trimble JV, you know, over the course of fourth quarter, first quarter. Can you give us a sense? Is it possible for us to be at a healthier run rate, to probably make standpoint, you know, exiting the first half of a year than what the run rate of the joint venture is? Now are we really waiting until we close to, you know, pull that lever error that you spoke about earlier in the conversation today?

It looks like for Q, implying it's flat so just want to confirm that.

Second.

<unk> would like to get some early color on 24 farmer profits for the U S and Europe.

And then finally.

I just wanted to get a better sense of where you are.

Versus mid cycle exiting 2023 on a volumetric basis.

Yes sure.

For Q4 pricing, Chad I think directionally, you're in the ballpark.

Lat submit to low single digits is sort of the range that we would we would expect to see in the fourth quarter.

I'll, let Greg handle the 'twenty four properly, but as I think about where we are mid cycle.

Greg Peterson: Well, so there's two elements to that. One is, is there a technical design work to be done? And the second one is how big is the order bank? And so, on the positive side, there's no technical redesign work to switch over because we're already offering that Trimble receiver on our product. It's just a, we offer two versions and we actually have the other brand in base as the base offering. We would switch that, have Trimble in base and orient the customer toward Trimble.

I would say, we'd see as the markets have weakened here in the back half of the year Directionally I would expect that as total company, we would be exiting the year at around 105% of mid cycle would sort of be our current estimates.

And we started the year, a little bit stronger than that but given the weakness we saw in Asia Pacific Some of the weakness, we're seeing especially in the low horsepower South America, probably about 105 as we finished the year and I'll, let Greg touch on the 2020 for farmer profit outlook right. So we've talked a good bit in our prepared remarks about commodity prices.

Greg Peterson: So there's no technical work to be done, but there is an order bank. And so, whatever the order bank had been ordered over the last several months is what it is. And we just need to work through that. But we expect to deal the close in the first half of 2024 if regulatory approval happens to go at the pace we anticipate. And that's about the same time, that's about the same size as our order bank.

Coming down.

But still remaining at attractive levels kind of well above if you look at 10 year averages and stuff that being said, we've also seen input costs come back.

Diesel fertilizer some of the other input costs so the outlook.

Greg Peterson: So, we're trying to organize it such that we could get a running start early into the new joint venture with much stronger rates of Trimble take rates. That's great. And can I ask an unrelated question in Brazil, you know, the industry, your debate, retail for 180 plus horsepower tractors, down 8%, you know, your shipments are up, you know, over 20%. Is that how much share you're gaining or can you just flesh that out a little bit in terms of your market position now and can you touch on where do you expect the margin rate to be in that region relative to your other regions on your normalized framework considering, you know, the 20% that you're running at now.

Kind of at a high level would be to see a modest decrease in 2024 in terms of farm income, but certainly still in a very supportive range as we think about farmers' ability to continue to refresh their fleet and invest in new technology.

Great that's helpful.

Second question just on R&D intensity.

With the integration of Trimble any change in terms of how you're thinking about that line item.

No I mean, we've raised.

Our R&D or engineering spend 60% since we launched our new strategy.

Invested in six tech companies that including Trimble JV.

All of this is to accelerate our progress in developing industry, leading smart farming solutions.

Greg Peterson: Jerry, some of that increase in terms of our sales was shipments to our dealers and we talked about our dealer inventories kind of normalizing. So, some of it related to kind of restocking, but you're right in terms of especially when it comes to The higher horsepower categories for tractors, sprayers, and planters I would add in there, too, in terms of market share gains. The Fintbrains done really well in Brazil, as we've launched it, and we have aggressive growth targets, and to be honest, we're actually ahead of those growth targets.

We have a very minimal overlap between the trimble teams projects and the precision planting or agco teams projects, where there are a little bit of overlap we will redeploy those on more projects you've got like a 150 projects lined up.

Not been worked out yet to automate more features on the machines all the way around the crop cycle. So plenty of work left to be done.

Lots of great people to work on them and we want to help find Max velocity.

The overall portfolio.

We think theres, probably going to be some synergies as just like when we bought the six tech companies, even though the product isn't redundant if you develop a sensor in one place you don't have to develop it and the other you can just reuse it and.

Greg Peterson: So, a good bit of that share gain a little bit of it is also restocking of our channel down there. And Jerry, in regard to your margin question, again, South America's done exceptionally well, and again, you follow as well. We were in a money losing position there years ago, we've taken that business as part of the strategy, mixing up to generate these 20 plus percent margins. Again, a little bit of that is ahead of themselves because they've been very good in pricing and ahead of material cost, and we have them to give me those dealer incentives.

And things like that so we're looking forward to.

Additional.

Traction and velocity by having all of these teams work together.

And the final question today will be from Tim Thein with Citigroup. Please go ahead.

Alrighty.

Combined these maybe just I guess part a is just on the.

Sent in.

Greg Peterson: As I said, on the fourth quarter, we expect that to come down more entirely. We've got from that 17, 18 percent margin range, I think over the long term, I'll say in a more normalized environment, we would expect the margins in South America to be more on that mid-teens range over the longer term when we get into what I'll call more of a normal run rate. But for the balance of this year, we still expect it to be above that here as we enter the fourth quarter.

Northern Europe rather.

Environment, where.

Let's just.

Let's call the market flat to down.

Market, what kind of off to the extent.

In a flat market getting inventories back to normal in any way to think about.

Obviously, the net carrying a richer mix so any way to think about kind of a margin.

Range to the extent there are some channel sale in that category in that product line and then.

Greg Peterson: The next question is from Chad Dillard with Barenstein. Please go ahead. Hi, good morning, guys. Morning, Chad. So, a couple questions for you. First on pricing, so if I look at your year-to-date price and your 8 percent guide, it looks like 4Q implies it's flat, so just want to confirm that. Second, just would like to get some early color on 24 farmer profits for the US and Europe. And then finally, just want to get a better sense of where you are versus mid-cycle, exiting 2023 on a volumetric basis.

Just on South America, and Brazil, specifically I, just want to make sure I.

Again again, the overall the message with respect.

Greg Peterson: Yeah, sure. So for Q4 pricing, Chad, I think, directionally you're in the ballpark, flat to mid to low single digits is sort of the range that we would expect to see in the fourth quarter. I'll let Greg handle the 24 properly, but as I think about where we are mid-cycle, I'd say we see as the markets have weakened here in the back half of the year. You know, directly, I would expect that as total company, you know, we would be exiting the year at around a 105 percent of mid-cycle would sort of be our current estimates.

In the small side, but just on the high horsepower market.

We've seen some some of the crop chemical companies had put out some pretty big.

Declines in terms of crop chemicals and other inputs.

What if anything does that kind of signaled to you in terms of.

Demand profile as we head into 'twenty, four and not on the smaller stuff, but just on your high horsepower market in Brazil.

So I think Tim if we think about Europe again.

Using the commentary about the dealer inventories at a relatively normal levels I alluded to in my remarks.

The high horsepower inventory levels are still below in many areas. So again and you know this is a richer mix product for us and so to the extent using your analogy things staying normal is that sort of part of the inventory buildup that would be margin enhancing for us all else being equal.

Later on top of that some of the new products the market share initiatives that we have also precision planting looking to expand in Europe, we definitely see opportunities I go back to our December Investor Day, where we said, we're going to outpace the industry by 4% to 5% regardless of where we are in the cycle and thats between <unk> Chris.

Greg Peterson: And we started the year a little bit stronger than that, but you know, given the weakness we saw in Asia Pacific, some of the weakness we're seeing, especially in the low horsepower South America, probably about 105 as we finished the year. And I'll have Greg touch on the other 2024 farmer profit outlook. Right. So we've talked a good bit in our prepared remarks about commodity prices coming down, but still remaining at attractive levels, kind of well above if you look at tenure averages and stuff.

<unk> AG and parts of Europe had an exceptionally strong group parts business in the third quarter. So team is doing quite well as they look to continue to maximize those three growth vectors for us and again I think we'll see what the overall markets are in 2024, but again those three items, we expect to continue to help us outpace that.

Greg Peterson: That being said, we've also seen input costs come back diesel fertilizers, some of the other input costs. So the outlook, kind of at a high level would be to see a modest decrease in 2024 in terms of farm income, but certainly still in a very supportive range as we think about farmers ability to continue to refresh their fleet and invest in new technology. Great, that's helpful. Then second question, just on R&D intensity, with the integration of a tremble, any change in terms of how are you thinking about that line item?

In South America.

Again, the team has done exceptionally well on the high horsepower segment of the market the fendt product portfolio with even the high horsepower bolter products high horsepower Massey products have done exceptionally well.

In gaining share there. So again, we see significant white space opportunities in the Mato Grosso region. You may recall, we have about we've covered about 70% to 75% of the white space. There there are still opportunities to gain share there as we open up incremental dealers our existing dealers continue to penetrate that.

Greg Peterson: No, I mean, we've raised our R&D or engineering spend 60% since we launched our new strategy. We've invested in six tech companies, including Trimble, JV. All of this is to accelerate our progress, on developing industry leading smart farming solutions. We have very minimal overlap between the Trimble teams projects and the precision planting or AGCO teams projects, where there are a little bit overlap. We'll redeploy those on more projects. We've got like 150 projects lined up that are not being worked on yet to automate more features on the machines all the way around the crop cycle.

Farm I would tell you I was in the Mato Grosso region, just a couple of weeks ago met with multiple farmers in the region and they are ecstatic with what they're seeing with the momentum planter defense and bolster products in the region are performing exceptionally well and they were very excited about what they saw as there are opportunities for growth as that region continues.

To expand in arable land as they continued to becoming more of a global ex quarter. They were very excited about the long term prospects in Mato Grosso and what the fendt product line was offering them in their overall profitability. So I think over the long term, we feel very good about what we see in that part of Brazil, specifically.

Greg Peterson: So plenty of work left to be done. Lots of great people to work on them and we want to help find max velocity on the overall portfolio. We think there's probably going to be some synergies as just like we bought the six tech companies, even though the project isn't redundant. If you develop a sensor in one place, you don't have to develop it in the other. You can just reuse it and things like that.

Okay.

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

Very good. Thank you very much ill close today by saying Thank you very much for your participation and your support of Agco.

Greg Peterson: So we're looking forward to additional traction and velocity by having all these teams work together. And the final question today will be from Tim Syne with Citigroup. Please go ahead. All righty, those combined these maybe just I guess part A is just on that the cent in Europe rather in an environment where let's just, you know, let's call the market flat to down as a market. What kind of off to the extent?

We're really proud of our performance throughout 2023 is a great third quarter in many ways and is setting us up for a trajectory deliver even another record year big time.

To give you. Some examples are smart planters, we're expecting those to be up 20% from 2023 versus 22.

Greg Peterson: In a flat market, getting inventories back to normal anyway to think about obviously that carry a richer mix. So anyway to think about kind of a margin range to the extent there's some channel fill in that category and that product line. And then just on South America and Brazil, specifically, I just want to make sure I'm going to get the over the message with respect not in the small side, but just on the high horsepower market.

Deal combines forecast those sales will be up 65% versus 22 and 118% versus 2021.

Sprayers are smart novels, we up 75% versus 2022.

Those are all just indicators of the value, we're generating for farmers through smarter and smarter machines that add not only more productivity, but more sustainability of their operations.

Our key to success overall as the continued execution of our farmer first strategy. Our focus is on growing our margin rich businesses like fendt parts and service and our precision AG business that we mentioned several times, we are investing heavily in all of these will continue to do that.

The announcement of the ACO Trimble joint venture is.

And this past quarter represents the biggest AG tech deal in history.

Greg Peterson: We've seen some of the crop chemical companies have put out some pretty big declines in terms of crop chemicals and other inputs. What is, what if anything does that kind of signal to you in terms of, you know, demand profiles we have in the 24 not not on the smaller step, but just on your high horsepower market in Brazil. Thanks. So I think Tim, we think about Europe. And again, you know, using the commentary about the dealer inventories.

It will enable <unk> to further develop farmer focused solutions that are solving critical problems many of them with very short paybacks.

The large AG markets continue to be higher than historical averages globally and farm fundamentals are supporting farmers investments.

The last few quarters, we've touched on many factors supporting our markets, including growing populations changing diets low stock to use levels increased demand for biofuels and relatively healthy commodity prices all of these trends give us confidence in the long term health of our industry.

Greg Peterson: At a relatively normal level as I alluded to in my mark remarks on, you know, the fence high horsepower inventory levels are still below in many areas. So again, and you know this fence is a richer mix product for us. And so to the extent using your your analogy, things staying normal as that sort of part of the inventory fills up, that would be margin enhancing for us all else being equal.

In fact, when you take a look at just renewable diesel we're.

We're seeing that in the U S by 2028.

Our 225, sorry, renewable diesel demand will grow too.

<unk> to consume about 40% of the current U S. Soybean acres, that's very similar to what's happened with ethanol consumption of the corn acres. So there's a big demand growth driver right on the horizon here.

Greg Peterson: You layer on top of that some of the new products, the market share initiatives that we have also precision planting, you know, looking to expand in Europe. You know, we definitely see opportunities. I go back to our December investor day where we said we're going to outpace the industry by 4 to 5% regardless of where we are in the cycle. And that's between fence precision ag and parts, you know, Europe had an exceptionally strong parts business in the third quarter.

We look forward to seeing many of you at our AGR technical meeting on November 14th in Hanover. Thank you very much for your participation today and have a great day.

Thank you for joining the Agco's third quarter 2023 earnings call. The call has concluded have a nice day.

Greg Peterson: So teams doing quite well as they look to continue to maximize those three growth vectors for us. And again, I think we'll see where the overall markets are in 2024. But again, those three items we expect to continue to help us outpace that on South America. Again, the team has done exceptionally well on the high horse power segment of the market, you know, the fence product portfolio, but even the high horse power of ultra products, high horse power, massive products have done exceptionally well in gaining share there.

Greg Peterson: So again, we see significant white space opportunities in the Madagroso region. You again, may recall we have about we've covered about 70 to 75% of the white space there. There are still opportunities to gain share there as we open up incremental dealers are existing dealers continue to penetrate that farm. I would tell you I was in the Madagroso region just a couple weeks ago, met with multiple farmers in the region, and they are ecstatic with what they're seeing with the momentum planter, the fence and vulture products in the region are performing exceptionally well.

Greg Peterson: And they were very excited about what they saw as their opportunities for growth as that region continues to expand in arable land as they continue to becoming more of a global exporter. They were very excited about the long term process in Madagroso and what the fence product line, what was offering them in their overall profitability. So I think over the long term, you know, we feel very good about what we see in that part of Brazil specifically.

Greg Peterson: This is our question and answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks. Very good. Thank you very much. I'll close today by saying thank you very much for your participation in your supportive AGCO. We're really proud of our performance throughout 2023. It was a great third quarter in many ways and it's setting us up for a trajectory delivery, even another record year, big time.

Greg Peterson: Just to give you some examples, our smart planters were expecting those to be up 20 percent in 2023 versus 22. Ideal combines forecast those sales as be up 65 percent versus 22 and 18 percent versus 2021. Sprayers are smart novels, be up 75 percent versus 2022. Those are all just indicators of the value we're generating for farmers through smarter and smarter machines that add not only more productivity but more sustainability to their operations.

Greg Peterson: Our key to success overall is the continued execution of our farmer for strategy. Our focus is on growing our margin rich businesses like FENT, parts and service and our precision ag business that we mentioned several times. We invest in heavily in all of these and we continue to do that. The announcement of the past quarter represents the biggest ag tech deal in history and will enable agitar further develop farmer focus solutions that are solving critical problems.

Greg Peterson: Many of them with very short paybacks. The large ag markets continue to be higher than historical averages globally and farm fundamentals are supporting farmers investments. In the last few quarters we've touched on many factors supporting our markets including growing populations, changing diets, low stock to use levels, increased demand for biofuels and relatively healthy commodity prices. All of these trends give us confidence in the long-term health of our industry. In fact when you take a look at just renewable diesel we're seeing that in the US by 2025 sorry renewable diesel demand will grow to about to consume about 40 percent of the current US soybean makers.

Greg Peterson: That's very similar to what's happened with ethanol consumption of the coordinators. So there's a big demand growth driver right on the horizon here. We look forward to seeing many of you at our agitar technical meeting on November 14th and Hanover. Thank you very much for your participation today and have a great day. Thank you for joining the agco third quarter 2023 earnings call. The call has concluded have a nice day.