Q4 2023 AGCO Corp Earnings Call

February 6, 2024

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After todays presentation, there will be an opportunity to ask questions.

Please note this event is being recorded.

And now I would like to turn the conference over to Gregory Peterson head of Investor Relations.

Please go ahead.

Thanks, and good morning, welcome to those of you joining us for Agco's fourth quarter 2023 earnings call. We will refer to a slide presentation. This morning, that's posted on our website at www Dot <unk> dot com. The non-GAAP measures used in the slide presentation are reconciled to GAAP.

Metrics in the appendix of that presentation. We will also make forward looking statements. This morning, including statements about our strategic plans and initiatives as well as our financial impacts will discuss demand product development and capital expenditure plans and timing of those plans and our expectations with respect to the costs and benefits.

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.

<unk> include but are not limited to adverse developments in the agricultural industry 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 <unk>.

[music].

Farming solutions within budget and with the 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 <unk> largest <unk>.

Customer reduces purchases of Trimble AG equipment in 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.

We're in the Ukraine difficulties in integrating acquired businesses and in completing expansion and modernization plans on time and in a manner that produces the expected financial results and adverse changes in the financial plan and foreign exchange markets.

Actual results could differ materially from those suggested in the 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-Q filings.

<unk> disclaims any obligation to update any forward looking statements, except as required by law.

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

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

Okay.

Greg and good morning, I'd like to start by taking a moment to thank the <unk> team around the world for their tremendous work in 2023.

Good morning.

Speaker Change: And welcome to the Arco's fourth quarter 2023 earnings conference call.

<unk> record results are an outcome of the team's laser focus on executing our farmer first strategy.

Speaker Change: Participants will be in listen only mode.

We aim to provide the farmer and exceptional customer experience.

<unk> finished 2023 with record full year net sales of $14 4 billion.

Which was up nearly 14% from last year due to strong pricing as well as outperforming the global market that was actually down in 2023.

Record operating margins reached 11, 8% of net sales on a reported basis and 12% on an adjusted basis.

As impressive as these margins are I think it's even more impressive to recognize that 2020 to 22 adjusted operating margins were just over 10%, which was a major milestone for us at that time and another data point reinforcing the strength of our strategy.

We delivered those record results, while also increasing our technology development efforts with engineering expenses up over 20% in 2023 compared to 2022.

Over the last three years, our R&D spend is up over 60%.

Those investments are producing and an increased technology patent group for agco.

Award winning products for our farmer customers and record financial results for our shareholders.

Turning specifically to the fourth quarter, our results reflect the strength of our increased global diversification.

Strong performance in Europe, and North America helped mitigate generally slowing market demand, particularly in South America region.

<unk> net sales were down two 5% and operating margins were down 160 basis points year over year.

Significantly increased competitive retail activity in Brazil, with a rapid deceleration of demand in the quarter as well as significant retail incentives put pressure on our results day.

And we'll touch on competitive environment in Brazil in more detail.

More challenging global market conditions are expected in 2024 due to reduced commodity prices and modestly lower farmer income expectations.

As a result, agco is forecasting lower sales in 2024, we remain focused on growing our precision AG business.

Globalizing, our full line of <unk> branded products and expanding our parts and service business to mitigate some of the softening industry demand.

We have also sharpened our focus on manufacturing cost reduction opportunities SG&A expense efficiencies and lowering company and dealer inventory.

As a result of this focus coupled with the structural changes we have made to our business. We expect that our operating margins will be more resilient than in past cycles and.

In fact, our outlook of 11% operating margin for 2024 would be significantly higher versus the last time, we experienced those projected industry levels in 2019 and 2020.

Finally, we will continue our investments in premium technology, smart farming solutions and enhanced digital capabilities to support our farmer first strategy, while helping to sustainably feed the world.

Slide four details industry unit retail sales by region for full year 2023.

Farm income was down modestly across the major regions in 2023, and another modest decline is projected for 2024.

Much of the industry fleet has been refreshed over these last three years and dealer inventories had been restocked full.

Full year global industry retail sales of farm equipment in 2023 were lower and Agco's key markets.

North America full year industry retail sales declined approximately 3% compared to the previous year.

Lower sales of smaller equipment more closely tied to the general economy were partially offset by strong growth of high horsepower tractors and combines.

Lower projected farm income and a refreshed fleet is expected to pressure industry demand in 2024.

Resulting in weaker North America industry sales compared to 2023.

Industry retail tractor sales in Western Europe decreased 4% for the full year of 2023 compared to the high levels in 2022.

Further declines in industry demand are expected in 2024 as lower income levels pressured demand from arable farmers, while healthy demand from dairy and livestock producers is expected to dampen some of the decline.

South American industry retail tractor sales decreased 8% during 2023, which is a steep drop from our 2% to 3% decline that we had expected.

Retail demand in Brazil was negatively affected by funding shortfalls of the government subsidized loan program.

Especially for smaller equipment.

In addition, adverse weather conditions in certain parts of Brazil, and lower commodity prices, especially soybeans further constrained retail demand in the quarter.

Following three strong years retail demand in South America is expected to further soften in 2024 as a result of lower commodity prices and farm income.

The cabinet industry was up modestly in North America, and Western Europe in 2023 versus 2022, due primarily to improving supply chains.

Combines in South America declined 17% in 2023 compared to the prior year.

Although market conditions continue to soften from the extremely strong conditions over the last couple of years, we remain positive about the underlying AG fundamentals supporting long term industry growth.

We're down 160 basis points year over year.

Significantly increased competitive retail activity in Brazil, with a rapid deceleration of demand in the quarter as well as significant retail incentives put pressure on our results demon.

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

Stephen will touch on competitive environment in Brazil in more detail.

More challenging global market conditions are expected in 2024 due to reduced commodity prices and modestly lower farmer income expectations.

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

As a result, agco is forecasting lower sales in 2024, we remain focused on growing our precision AG business.

When you look at just renewable diesel we're seeing that in the U S. By 2025 renewable diesel demand could grow to consume about 40% of the current U S soybean crop.

Globalizing, our full line of fendt branded products and expanding our parts and service business to mitigate some of the softening industry demand.

That's very similar to what has happened with ethanol consumption of the corn acres. So there's a big demand growth driver right on the horizon here.

We have also sharpened our focus on manufacturing cost reduction opportunities SG&A expense efficiencies and lowering company and dealer inventory.

Also input costs, such as fuel and fertilizer are down from their peaks in 2022.

As a result of this focus coupled with the structural changes we have made to our business. We expect that our operating margins will be more resilient than in past cycles.

We expect farm income to be down modestly in 2024 relative to 2023.

But above long term averages and still highly supportive of industry demand.

In fact, our outlook of 11% operating margin for 2024 would be significantly higher versus the last time, we experienced those projected industry levels in 2019 and 2020.

Agco's 2023 factory production hours are shown on slide five our production decreased in the fourth quarter by approximately 10% versus 2022.

Recall that 2020 twos fourth quarter production was exceptionally high as we are recovering from the cyber attack and reflect the actions taken during the quarter to better align production with the current demand outlook.

Slide four details industry unit retail sales by region for full year 2023.

Even with this change the full year production was up 4% versus 2022.

Farm income was down modestly across the major regions in 2023, and another modest decline is projected for 2024.

Looking to 2024, we are aggressively managing our company and dealer inventory to match the softening retail demand.

Much of the industry fleet has been refreshed over these last three years and dealer inventories had been restocked.

Our dealer inventory levels are at or above targeted levels. So some reductions will be required in 2024.

Full year global industry retail sales of farm equipment in 2023 were lower and Agco's key markets.

Currently we are expecting around 10% lower production in 2024 versus 2023.

With America full year industry retail sales declined approximately 3% compared to the previous year.

This reduction reflects our 2024 market forecasts market share growth assumptions as well as targeted reductions to dealer inventory.

Lower sales of smaller equipment more closely tied to the general economy were partially offset by strong growth of high horsepower tractors and combines.

As of the end of December 2023 demand for our products remains strong.

Lower projected farm income and a refreshed fleet is expected to pressure industry demand in 2024, resulting in weaker North America industry sales compared to 2023.

In Europe tractors had between five and six months of order coverage. Now. This is approximately 40% below December 2022 levels, but still roughly double our historical average.

Industry retail tractor sales in Western Europe decreased 4% for the full year of 2023 compared to the high levels in 2022.

Dealer inventories are slightly above our targeted level of four months in the region with certain products like fendt high horsepower tractors still below the optimal levels in certain areas.

In South America, and we have order coverage through March of 2024, where we continue to limit our orders to around one quarter in advance.

With the competitive price pressure in the region, particularly in quarter four of 2023, we now have higher dealer inventories than desired, which is slowing agco's sales into the dealer channel.

South American industry retail tractor sales decreased 8% during 2023, which is the steep drop from our 2% to 3% decline that we had expected.

We were just over four months of dealer inventory on tractors and six five months of dealer inventory of combines.

Retail demand in Brazil was negatively affected by funding shortfalls of the government subsidized loan program.

While our target level is around three months.

Especially for smaller equipment.

In response, we have reduced production in the region and plan to continue managing production levels to match demand.

In addition, adverse weather conditions in certain parts of Brazil, and lower commodity prices, especially soybeans further constrained retail demand in the quarter.

In North America, our orders for track tractors planters and application equipment are fully booked for all of model year 2020 for.

Following three strong years retail demand in South America is expected to further soften in 2024 as a result of lower commodity prices and farm income.

That takes us to around the mid to late summer period, we.

We have returned to a continuous order writing program and all other tractors as dealer channels have begun to stabilize.

The cabinet industry was up modestly in North America, and Western Europe in 2023 versus 2022, due primarily to improving supply chains.

We currently have approximately five months of order coverage for both large and small AG and six months of supply in the dealer inventory in the region.

Combines in South America declined 17% in 2023 compared to the prior year.

Our target for dealer inventory remains four month on large AG in six month on small lag.

Although market conditions continued to soften from the extremely strong conditions over the last couple of years, we remain positive about the underlying AG fundamentals supporting long term industry growth.

Moving to slide six where youll see our three high margin growth levers aimed at improving our mid cycle operating margins of 12% and outgrowing the industry by 4% to 5% annually.

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

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

Focusing on accelerating our 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.

When you look at just renewable diesel we're seeing that in the U S. By 2025 renewable diesel demand could grow to consume about 40% of the current U S soybean crop.

But also significantly focuses on mixed fleet retrofit solutions for farmers and Oems.

That's very similar to what has happened with ethanol consumption of the corn acres. So there's a big demand growth driver right on the horizon here.

2023 marked an important milestone for each of these three growth levers all three of them respectively recorded the highest sales in the company's history.

Also input costs, such as fuel and fertilizer are down from their peaks in 2022.

In addition, we also announced the largest AG tech deal in our industry with the transformative joint venture with Trimble, which will further our efforts and precision AG.

We expect farm income to be down modestly in 2024 relative to the 2023.

But above long term averages and still highly supportive of industry demand.

The Trimble AG joint venture is still pending regulatory approval and we hope to close the transaction in the first half of 2024.

Agco's 2023 factory production hours are shown on slide five our production decreased in the fourth quarter by approximately 10% versus 2022.

Slide seven recaps, the 2020 for precision planting Winter conference, which was the 20 <unk> consecutive year of the conference and it's absolutely one of my favorite events of the year.

This year the team announced some incredible new products to help deliver improved farmer productivity.

We are pleased that some of you were able to join us for this premier event.

The conference brought together over 5600 farmers across 21 locations in the U S and Canada, but farmers are from all around the world.

Even with this change the full year production was up 4% versus 2022.

Looking to 2024, we are aggressively managing our company and dealer inventory to match the softening retail demand.

We demonstrated customizable retrofit solutions for the operational challenges farmer face every day.

Our dealer inventory levels are at or above targeted levels. So some reductions will be required in 2024.

The theme this year with solutions for every season illustrating to our farmers that precision planting has successfully expanded across the crop cycle and beyond just the industry, leading planters in the products and technologies that spanned the crop cycle. This year, we introduced the cornerstone planting system, which is a complete.

Currently we are expecting around 10% lower production in 2024 versus 2023.

This reduction reflects our 2024 market forecasts market share growth assumptions as well as targeted reductions to dealer inventory.

As of the end of December 2023 demand for our products remains strong.

Row unit equipped with the latest precision planting technology.

Over half the value of a plant or is in the steel and chassis components that don't necessarily wear off.

In Europe tractors had between five and six months of order coverage. Now. This is approximately 40% below December 2022 levels, but still roughly double our historical average.

Cornerstone allows farmers to have the most advanced planter at a lower price point than a new OEM planter.

Dealer inventories are slightly above our targeted level of four months in the region with certain products like Fendt high horsepower tractor is still below the optimal levels in certain areas.

While offering the feel of an OEM finish and integration. This is a tremendous opportunity for farmers to drive increased productivity as we estimate that around 50% of farmers in the U S will likely never buy a new planter.

In South America, and we have order coverage through March of 2024, where we continue to limit our orders to around one quarter in advance.

We also launched clarity, which is a solution for small dreams that provides high definition detail at a row by row level shows variation and reduction in flow through the air seater or drill <unk>.

With the competitive price pressure in the region, particularly in quarter four of 2023, we now have higher dealer inventories than desired, which is slowing agco's sales into the dealer channel.

And displays that information on our precision planting 'twenty 'twenty monitor so the information is right at the farmers fingertips.

We are just over four months of dealer inventory on tractors and six five months of dealer inventory of combines.

Our Symphony vision system will be commercialized later in 2024 and as a retrofit targeted spring solution.

While our target level is around three months.

In response, we have reduced production in the region and plan to continue managing production levels to match demand.

Symphony Vision helps farmers significantly reduce herbicide applied to a field by spot spring only the weeds rather than covering the entire field.

Speaker Change: In North America, our orders for track tractors planters and application equipment are fully booked for all of model year 2020 for.

Not only does this save on costs for the farmer, but the environmental benefit from the reduced chemical usage is also significant.

Speaker Change: That takes us to around the mid to late summer period, we.

Speaker Change: We have returned to a continuous order writing program on all other tractors as dealer channels have begun to stabilize.

Finally, some of you toured our new 510000 square foot facility in Morton, Illinois, where we have consolidated several sites into one modern facility.

Speaker Change: We currently have approximately five months of order coverage for both large and small AG and six months of supply in the dealer inventory in the region.

This expansion will position us well for the future as we look to grow this high margin business and be the best partner to our precision planting dealer network.

Speaker Change: Our target for dealer inventory remains four month on large AG in six month on small lag.

This dealer network gives <unk> a competitive advantage when it comes to on farm expertise and provides customers with the brand agnostic retrofit solutions significantly increasing our total addressable market.

Speaker Change: Moving to slide six where youll see our three high margin growth levers aimed at improving our mid cycle operating margins of 12% and outgrowing the industry by 4% to 5% annually.

Speaker Change: To reiterate these three growth levers are the globalization and full line product rollout of our <unk> brand.

I am proud of what our team was able to accomplish as we closed out 2023 and slide eight lists some of the major highlights.

Speaker Change: Focusing on accelerating our global parts business and increasing the market share of genuine agco parts.

As I touched on earlier, we've raised our R&D spending by over 60% since I became CEO in 2021.

Speaker Change: And the third is growing our precision AG business, which supports not only factory fit technology.

We're seeing the results of increased spend.

And a number of awards, where we continue to win each year.

Speaker Change: But also significantly focuses on mixed fleet retrofit solutions for farmers and Oems.

We took him six <unk> 50 awards in 2023 alone.

And our brands have earned 24, <unk> 50 awards over last three years.

Speaker Change: 2023 marked an important milestone for each of these three growth levers.

We also won six awards at anchor Technical Farm show the largest AG trade fair in the world.

All three of them respectively recorded the highest sales in the company's history.

These outstanding achievements helped solidify our position as an industry leader in innovation and engineering excellence that advances farmers capabilities improves their operations.

Speaker Change: In addition, we also announced the largest AG tech deal in our industry with the transformative joint venture with Trimble, which will further our efforts and precision AG that.

Speaker Change: The Trimble AG joint venture is still pending regulatory approval and we hope to close the transaction in the first half of 2024.

And helps them feed the world.

Our technology stack took a big leap forward in late 2023 with several important developments, we announced the pending joint venture with Trimble AG, which will make <unk> a leader in brand agnostic retrofit solutions.

Speaker Change: Slide seven recaps, the 2020 for precision planting Winter conference, which is the 20 <unk> consecutive year of the conference and it's absolutely one of my favorite events of the year.

We opened our Scottsdale acceleration center to attract talent in the areas of autonomy precision AG artificial intelligence and digital products.

Speaker Change: This year the team announced some incredible new products to help deliver improved farmer productivity.

Speaker Change: We are pleased that some of you were able to join us for this premier event.

And we announced the acquisition of digital assets from farm facts, a tool that will help farmers improve productivity and efficiency by better managing firm data.

Speaker Change: The conference brought together over 5600 farmers across 21 locations in the U S and Canada, but farmers are from all around the world.

We launched <unk> ventures, which formalizes, our approach to sourcing and funding new and early stage technologies to deliver on the company's strategic priorities. This allows us to drive innovation by investing in startup companies venture funds incubators accelerators higher education and research institutions.

Speaker Change: We demonstrated customizable retrofit solutions for the operational challenges farmer face every day.

Speaker Change: The theme this year with solutions for every season illustrating to our farmers that precision planting has successfully expanded across the crop cycle and beyond just the industry, leading planters in the products and technologies that spanned the crop cycle. This year, we introduced the cornerstone planting system, which is a.

<unk>.

We're also making bold moves with our distribution model.

Just last week, we launched farmer core Agco's Global initiative to revolutionize sales and service distribution by combining digital and physical elements to serve farmers, how and where they want to be served.

Speaker Change: <unk> ROE unit equipped with the latest precision planting technology.

Speaker Change: Over half the value of a plant or is in the steel and chassis components that don't necessarily wear off.

Speaker Change: Cornerstone allows farmers to have the most advanced planter at a lower price point than a new OEM planter, while offering the feel of an OEM finish and integration. This is a tremendous opportunity for farmers to drive increased productivity as we estimate that around 50% of farmers in the U S will likely never buy a new plant.

Onsite and online.

Farmer quarters built on three pillars.

The on farm mindset.

Smart network coverage.

And digital engagement.

On farm mindset positions dealers to meet their customers' needs at every stage of the ownership journey.

Mobile sales support provides on farm convenience, while a distributed team of highly skilled technicians with mobile service vehicles safe farmers time, and money by maintaining and repairing equipment on site.

Speaker Change: Sure.

We also launched clarity, which is a solution for small green that provides high definition detail at a robot roll level shows variation and reduction in flow through the <unk> or drill.

Smart network coverage includes late retail outlets service centers and parts only locations by matching the retail outlet type two the market dealers can maximize ROI and physical locations, while optimizing service coverage and increasing operational efficiencies.

Speaker Change: And displays that information on our precision planting 2020 monitor so the information is right at the farmers fingertips.

Speaker Change: Our Symphony vision system will be commercialized later in 2024 and as our retrofit targeted spring solution.

Symphony Vision helps farmers significantly reduce herbicide applied to a field by spot spring only the weeds rather than covering the entire field.

We strongly believe farmer core will help transform our industry and truly put farmers at the center of what we do.

With all of these exciting developments in the future is bright at Agco Theres never been a more exciting time to be in the AG business and our investments will continue to drive innovative solutions that are focused on helping improve farmers' productivity.

Speaker Change: Not only does this save on costs for the farmer, but the environmental benefit from the reduced chemical usage is also significant.

Speaker Change: Finally, some of you toured our new 510000 square foot facility in Morton, Illinois, where we have consolidated several sites into one modern facility.

With that I'll hand, it over to Damon.

Thank you Eric and good morning, everyone before I cover the financial results I wanted to take a moment to reflect upon the continued success of our framework for strategy.

Speaker Change: This expansion will position us well for the future as we look to grow this high margin business and be the best partner to our precision planting dealer network there.

Slide nine is an update to the value creation slide that I presented at our December 2022 Investor day.

Speaker Change: Its dealer network gives <unk> a competitive advantage when it comes to on farm expertise and provides customers with the brand agnostic retrofit solutions significantly increasing our total addressable market.

The slide does a nice job of illustrating the progress <unk> made with our operating margins through the cycle over the last several years as we've continued to leverage our three growth drivers and continued to make operational improvements in the other areas of our business.

Speaker Change: I am proud of what our team was able to accomplish as we closed out 2023 and slide eight lists some of the major highlights.

We've raised the mid cycle equivalent margins every year since 2018 in 2023 was no different.

Speaker Change: As I touched on earlier, we've raised our R&D spending by over 60% since I became CEO in 2021.

The teams around the world did an exceptional job delivering a record adjusted operating margin of 12% raising the bar again versus our prior record in 2022.

Speaker Change: We're seeing the results of increased spend.

Speaker Change: And a number of awards, where we continue to win each year.

Speaker Change: We took him six <unk> 50 awards in 2023 alone.

Using our value creation line helps us provide us a guide to ensure we are delivering the right incremental margins as our market strengthens and flexing our cost down when our markets weakened which will likely be more relevant in 2024.

Speaker Change: And our brands have earned 24, <unk> 50 awards over last three years.

Speaker Change: We also won six awards at anchor Technical Farm show the largest AG trade fair in the world.

Speaker Change: These outstanding achievements helped solidify our position as an industry leader in innovation and engineering excellence that advances farmers capabilities improves their operations.

As we look through the cycle back to 2012. This chart demonstrates the benefits of the disciplined execution of our strategy. It's clear that we have structurally improved the adjusted operating margin of our company by over 500 basis points when compared to the average from 2013 to 2018 at mid cycle.

Speaker Change: It helps them feed the world.

Speaker Change: Our technology stack took a big leap forward in late 2023 with several important developments, we announced the pending joint venture with Trimble AG, which will make <unk> a leader in brand agnostic retrofit solutions.

Slide 10 provides an overview of regional net sales performance for the fourth quarter.

Speaker Change: We opened our Scottsdale acceleration center to attract talent in the areas of autonomy precision AG artificial intelligence and digital products.

Net sales were down approximately 4% in the quarter compared to the fourth quarter of 2022, when excluding the positive effect of currency translation.

Speaker Change: And we announced the acquisition of digital assets from farm facts, a tool that will help farmers improve productivity and efficiency by better managing firm data.

In the quarter, which was in the high single digit range contributed to higher sales.

Speaker Change: We launched <unk> ventures, which formalizes, our approach to sourcing and funding new and early stage technologies to deliver on the company's strategic priorities. This allows us to drive innovation by investing in startup companies venture funds incubators accelerators higher education and research institutions.

By region Europe Middle East segment reported an increase in fourth quarter net sales of approximately 1%, excluding the positive effect of currency translation compared to the prior year.

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

Speaker Change: <unk>.

Speaker Change: We're also making bold moves with our distribution model.

In South America net sales in the fourth quarter declined approximately 42% year over year, excluding the positive effect of currency translation, driven by significant pricing pressure and lower sales volumes in the region.

Speaker Change: Just last week, we launched farmer core Agco's Global initiative to revolutionize sales and service distribution by combining digital and physical elements to serve farmers, how and where they want to be served onsite and online.

All products were down year over year, except for parts.

Net sales in North America increased approximately 7% in the quarter, excluding the favorable impacts of currency translation compared to the fourth quarter of 2020 to the.

Speaker Change: <unk> is built on three pillars.

Speaker Change: <unk> farm mindset.

Speaker Change: Art network coverage.

Speaker Change: And digital engagement, the ifr mindset positions dealers to meet their customers' needs at every stage of the ownership journey.

The growth resulted primarily from increased sales of high horsepower tractors, sprayers and hay tools, along with the positive effects of net pricing.

Speaker Change: Mobile sales support provides on farm convenience, while a distributed team of highly skilled technicians with mobile service vehicles safe farmers time, and money by maintaining and repairing equipment on site.

On a constant currency basis fourth quarter 2023, net sales in our Asia Pacific Africa segment increased about 12% driven by large AG equipment in our grain and protein business.

Speaker Change: Smart network coverage includes light retail outlets service centers and parts only locations by.

Finally consolidated replacement part sales were approximately $401 million for the fourth quarter up approximately 9% year over year or 7%, excluding the effects of positive currency translation.

Speaker Change: By matching the retail outlet type two the market dealers can maximize ROI and physical locations, while optimizing service coverage and increasing operational efficiencies.

Turning to slide 11.

Speaker Change: We strongly believe farmer core will help transform our industry and truly put farmers at the center of what we do.

The fourth quarter adjusted operating margin declined by 130 basis points versus a very strong fourth quarter of 2022.

Speaker Change: With all of these exciting developments the future is bright at Agco Theres never been a more exciting time to be in the AG business and our investments will continue to drive innovative solutions that are focused on helping improve farmers' productivity.

Margins in the quarter were mainly affected by higher discounting in the South American region higher engineering expenses and higher SG&A. These items were partially offset by positive net pricing.

Speaker Change: With that I'll hand, it over to David.

For the full year, we realized approximately 10% pricing.

David: Thank you Eric and good morning, everyone before I cover the financial results I wanted to take a moment to reflect upon the continued success of our firm reverse strategy.

By region, the Europe Middle East segment reported an increase of approximately $48 million.

David: Slide nine is an update to the value creation slides that I presented at our December 2022 Investor day.

In operating income compared to the fourth quarter of 2022 and margins improved 160 basis points.

David: The slide does a nice job of illustrating the progress <unk> made with our operating margins through the cycle over the last several years as we've continued to leverage our three growth drivers and continued to make operational improvements in the other areas of our business.

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

North American operating income for the quarter increased approximately $20 million year over year, while margins improved approximately 160 basis points Apo.

David: We've raised the mid cycle equivalent margins every year since 2018, and 2023 was no different.

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

David: The teams around the world did an exceptional job delivering a record adjusted operating margin of 12% raising the bar again versus our prior record in 2022.

Greener protein margins also improved in the quarter despite lower sales.

Operating margins in South America significantly underperformed, our expectations in the fourth quarter.

David: Using our value creation line helps us provide us a guide to ensure we are delivering the right incremental margins as our market strengthens and flexing our cost down when our markets weakened which will likely be more relevant in 2024.

Operating income eroded by approximately $119 million versus the fourth quarter last year.

South American results reflect several factors that not only affected sales, but also had a disproportionate effect on operating margins.

David: As we look through the cycle back to 2012. This chart demonstrates the benefits of the disciplined execution of our strategy. It's clear that we have structurally improved the adjusted operating margin of our company by over 500 basis points when compared to the average from 2013 to 2018 at mid cycle.

Given the materially lower industry retail demand in the quarter, we experienced aggressive competitor pricing, which required us to significantly increase our retail campaigns.

With the dealer inventory levels, achieving optimal levels in the third quarter, we elected to limit dealer channel selling and correspondingly reduced production in our facilities.

David: Slide 10 provides an overview of regional net sales performance for the fourth quarter.

Although the margins on the dealer sell and sales remained strong with significantly lower volumes versus what we had anticipated resulted in outsized compression in operating margins when taking into consideration the retail campaigns and the lower factory production levels.

David: Net sales were down approximately 4% in the quarter compared to the fourth quarter of 2022, when excluding the positive effect of currency translation.

David: In the quarter, which was in the high single digit range contributed to higher sales.

Finally, we also recognized a large dealer termination fee in the quarter of approximately $13 million, which adversely affected the adjusted operating margin by around 3%.

David: By region Europe Middle East segment reported an increase in fourth quarter net sales of approximately 1%, excluding the positive effect of currency translation compared to the prior year.

Although the results this quarter were unexpected and disappointing the south American team has demonstrated significant skill delivering exceptional returns several quarters in a row and we are confident in the margin recovery as market conditions improve.

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

David: In South America net sales in the fourth quarter declined approximately 42% year over year, excluding the positive effect of currency translation, driven by significant pricing pressure and lower sales volumes in the region.

Finally in our Asia Pacific Africa segment fourth quarter operating income was equal to 2022 levels, though margins contracted approximately 100 basis points. The lower margins are a result of lower factory production higher warranty expense and higher SG&A.

David: Products were down year over year, except for parts.

David: Net sales in North America increased approximately 7% in the quarter, excluding the favorable impacts of currency translation compared to the fourth quarter of 2022.

Okay.

Slide 12 summarizes our precision AG business.

As we highlighted before we are focused on expanding our addressable markets from just traditional agricultural machinery spend which today is in the low to mid teens as a percentage of total farm spend with our precision AG portfolio, our sights are set to impact around 70% or effectively all non land areas.

David: The growth resulted primarily from increased sales of high horsepower tractors, sprayers and hay tools, along with the positive effects of net pricing.

David: On a constant currency basis fourth quarter 2023, net sales in our Asia Pacific Africa segment increased about 12% driven by large AG equipment in our grain and protein business.

We believe that the investments in precision AG positions, both agco and our customers well as we will play a major role in achieving our global sustainability targets currently being established while simultaneously, helping our farmers improve their profitability for.

David: Finally consolidated replacement part sales were approximately $401 million for the fourth quarter up approximately 9% year over year or 7%, excluding the effects of positive currency translation.

For the full year 2023, agco recorded $750 million in precision AG revenue and approximately 7% increase from 2022.

David: Turning to slide 11.

David: The fourth quarter adjusted operating margin declined by 130 basis points versus a very strong fourth quarter of 2022.

This was below our target of 800 $850 million due to a combination of three factors a return to more traditional seasonal sales patterns as we've moved past supply chain shortages.

David: Margins in the quarter were mainly affected by higher discounting in the South American region higher engineering expenses and higher SG&A. These items were partially offset by positive net pricing.

The OEM portion of the business slowing.

And startup delays at our new Morton Light Assembly and distribution facility, we view the return to seasonality and the startup delays as temporary and we anticipate continued growth in our precision AG business in 2024.

David: For the full year, we realized approximately 10% pricing.

David: By region, the Europe Middle East segment reported an increase of approximately $48 million in operating income compared to the fourth quarter of 2022 and margins improved 160 basis points higher.

Including the proposed joint venture with Trimble, which is pending regulatory approval, we expect to hit $2 billion in precision AG sales by 2028.

David: Higher sales from strong net pricing and a healthy product mix contributed to the improvement.

Slide 13 details our year to date free cash flow for 2022 and 2023.

David: North American operating income for the quarter increased approximately $20 million year over year, while margins improved approximately 160 basis points Apo.

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 we.

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

We generated $585 million of cash approximately $135 million or 30% more than 2022, despite increasing capital expenditures by almost $130 million year over year.

David: Grain and protein margins also improved in the quarter despite lower sales.

David: Operating margins in South America significantly underperformed, our expectations in the fourth quarter.

Our cash flow fell short of our long term, 75% to 100% of net income target due to a couple of factors first the timing of year end the collections of $150 million to $200 million of accounts receivable was recognized in early January versus December.

David: Operating income eroded by approximately $119 million versus the fourth quarter last year.

David: South American results reflect several factors that not only affected sales, but also had a disproportionate effect on operating margins.

David: Even the materially lower industry retail demand in the quarter, we experienced aggressive competitive pricing, which required us to significantly increase our retail campaigns.

Second the weaker results in South America region also contributed to the shortfall relative to our expectations. We remain focused on direct returns to investors. During 2023. In addition to the regular quarterly dividends that we've increased by 21% to 29 per share in the payment of the special variable dividend of $5.

David: With the dealer inventory levels, achieving optimal levels in the third quarter, we elected to limit dealer channel selling and correspondingly reduced production in our facilities.

Sure in the second quarter, we also repurchased around $50 million of shares in the quarter to maintain our average shares outstanding.

David: Although the margins on the dealer sell and sales remained strong with significantly lower volumes versus what we had anticipated resulted in an outsized compression in operating margins when taking into consideration the retail campaigns and the lower factory production levels.

Slide 14 highlights our 2024 retail market forecast for our three major regions.

Increased grain inventories and related decline in commodity prices are expected to result in softer demand across all regions in 2024 compared to 2023.

David: Finally, we also recognized a large dealer termination fee in the quarter of approximately $13 million, which adversely affected the adjusted operating margin by around 3%.

For North America, we now expect demand to be 10% lower compared to the levels in 2023.

David: Although the results this quarter were unexpected and disappointing the south American team has demonstrated significant skill delivering exceptional returns several quarters in a row and we are confident in the margin recovery as market conditions improve.

The high horsepower row crop equipment segment is expected to decrease after several years of strong growth that was fueled by high levels of apartment income.

The small tractor segment is also expected to decrease in 2024, although the rate of decline is slowing compared to the prior years.

David: Finally in our Asia Pacific Africa segment fourth quarter operating income was equal to 2022 levels, though margins contracted approximately 100 basis points. The lower margins are a result of lower factory production higher warranty expense and higher SG&A.

For Western Europe, we expected the industry to be down 5% to 10% compared to 2023.

Farm income is nearing the long term average for the region due to reduced commodity prices and higher input costs.

David: Slide 12 summarizes our precision AG business.

In South America, we expect industry sales to be down about 10% in 2024 higher dealer inventories that began to emerge in the third quarter and weather patterns in the cerrado region in southern part of Brazil are making farmers more hesitant.

David: As we highlighted before we are focused on expanding our addressable markets from just traditional agricultural machinery spend which today is in the low to mid teens as a percentage of total farm spend with our precision AG portfolio, our sights are set to impact around 70% or effectively all non land areas.

Though this may affect demand in the short term from a long term perspective. This region remains one of the most attractive end markets, especially in Brazil, where the footprint is increasing.

David: We believe that the investments in precision AG positions, both agco and our customer as well as will play a major role in achieving our global sustainability targets currently being established while simultaneously, helping our farmers improve their profitability for.

While farm income is expected to decline from elevated levels. In 2023, we expect farmers to remain profitable in 2024, and Agco's brand agnostic retrofit approach to precision AG and strong parts business should help dampen the cycle, making our margins less volatile.

David: For the full year 2023, agco recorded $750 million in precision AG revenue and approximately 7% increase from 2022.

Slide 15 highlights a few key assumptions underlying our 2024 outlook, which does not include the impact of the pending joint venture with Trimble at this time, we see markets further softening in 2024, our sales plan includes market share gains along with pricing reverting back to a more traditional led.

David: This was below our target of 800 $850 million due to a combination of three factors a return to more traditional seasonal sales patterns as we've moved past supply chain shortages.

David: The OEM portion of the business slowing.

David: And startup delays at our new Morton Light Assembly and distribution facility, we view the return to seasonality and the startup delays as temporary and we anticipate continued growth in our precision AG business in 2024.

<unk> of approximately one 5% as our raw material cost has stabilized and we pursue cost savings actions. We expect this level of pricing will more than offset inflationary cost increases.

We do not expect currency translation to have a significant effect on sales year over year.

David: Including the proposed joint venture with Trimble, which is pending regulatory approval, we expect to hit $2 billion in precision AG sales by 2028.

Engineering expenses are expected to remain relatively flat in 2024 compared to 2023.

David: Slide 13 details our year to date free cash flow for 2022 and 2023.

With the expectation of our industry declining around 10% from approximately 105% of mid cycle in 2023 to around 95% in 2024, we would expect our operating margins to come down from the record 12% in 2023 to around 11% in 2024 in line with.

David: 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 we.

David: We generated $585 million of cash approximately $135 million or 30% more than 2022, despite increasing capital expenditures by almost $130 million year over year.

The value creation line.

Delivering an operating margin of 11% at this projected industry level would be several percent higher than what we achieved back in 2019 and 2020 at similar industry levels, which is another testament to the transformation of the business we've executed over the last several years.

Our effective tax rate is anticipated to be 27% for 2024.

Turning to.

David: Second the weaker results in South America region also contributed to the shortfall relative to our expectations. We remain focused on direct returns to investors. During 2023. In addition to the regular quarterly dividends that we've increased by 21% to 29 per share in the payment of the special variable dividend of $5.

Slide 16, our full year net sales outlook for 2024 is $13 6 billion.

Down from the record levels seen in 2023, our earnings per share forecast is approximately $13 15.

We've also set a capex target of around $475 million slightly lower than what we spent in 2023.

Sure in the second quarter, we also repurchased around $50 million of shares in the quarter to maintain our average shares outstanding.

Our free cash flow conversion should be in the range of 75% to 100% of adjusted net income consistent with our long term target.

David: Slide 14 highlights our 2024 retail market forecast for our three major regions.

For the first quarter of 2024, we are targeting sales of approximately $3 billion and earnings per share of approximately $2 30.

David: Increased screening inventories and related decline in commodity prices are expected to result in softer demand across all regions in 2024 compared to 2023.

Both are significantly lower than the first quarter of 2023 due to lower production in many factories and further inventory reductions in the South American region.

David: For North America, we now expect demand to be 10% lower compared to the levels in 2023.

David: The high horsepower row crop equipment segment is expected to decrease after several years of strong growth that was fueled by high levels of apartment income.

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

Thanks Damon.

David: The small tractor segment is also expected to decrease in 2024, although the rate of decline is slowing compared to the prior years.

Okay.

Hey.

Okay, well, we will now begin the question and answer session.

David: For Western Europe, we expected the industry to be down 5% to 10% compared to 2023.

Reminding you that to ask a question you May Press Star then one on your Touchtone phone and if you are using a speaker phone. Please pick up your handset before pressing the keys.

David: Farm income is nearing the long term average for the region due to reduced commodity prices and higher input costs.

David: In South America, we expect industry sales to be down about 10% in 2024 higher dealer inventories that began to emerge in the third quarter and weather patterns in the cerrado region in southern part of Brazil are making farmers more hesitant.

To withdraw your question if need be please press star then two.

At this time, we will pause momentarily to assemble our roster and again its star one to ask a question.

David: Though this may affect demand in the short term from a long term perspective. This region remains one of the most attractive end markets, especially in Brazil, where the footprint is increasing.

Okay.

Yeah.

Okay.

David: While farm income is expected to decline from elevated levels. In 2023, we expect farmers to remain profitable in 2024, and Agco's brand agnostic retrofit approach to precision AG and strong parts business should help dampen the cycle, making our margins less volatile.

First question.

It is coming from Larry de Maria from William Blair.

Please proceed.

Okay. Thank you. Thanks for all the detail. This morning, just two questions can you give us can you help us understand the 'twenty four growth assumption.

David: Slide 15 highlights a few key assumptions underlying our 2024 outlook, which does not include the impact of the pending joint venture with Trimble at this time, we see markets further softening in 2024, our sales plan includes market share gains along with pricing reverting back to a more traditional leather.

<unk> growth area precision parts.

Obviously outperformed the market.

Secondly, any update on the grain and potent storage, maybe you can help with marketing by by the two businesses that are in there and if you did.

Considering only selling the whole thing keeping putting up any color there. Thank you.

David: <unk> of approximately one 5% as our raw material costs have stabilized and we pursue cost savings actions. We expect this level of pricing will more than offset inflationary cost increases.

Yes, Larry.

Thanks for the questions here, so if I think about the 2024 outlook and our three growth drivers if I think about <unk> as we've said in the past we do continue to expect to see further market share expansion as we rollout fendt here in North America, and in South America, and if I, just break that down a little bit more.

David: We do not expect currency translation to have a significant effect on sales year over year.

David: Engineering expenses are expected to remain relatively flat in 2024 compared to 2023.

So our confidence in 2024, we have the new <unk> 600 coming out. This year you may have saw that we announced the next generation 700, a year ago, we announced the new 200, which is more for the vineyards. So we have several new tractors that are coming into the market. This year, we have our sprayer, which we announced last year.

David: With the expectation of our industry declining around 10% from approximately 105% of mid cycle in 2023 to around 95% in 2024, we would expect our operating margins to come down from the record 12% in 2023 to around 11% in 2024 in line with.

That has full momentum coming into 2024. So overall when we look at <unk>, we're really excited about the different product offerings that we're offering globally and we have a lot of confidence with the team executing with this new products. The second part is our parts business parts did exceptionally well this year revenues.

David: Value creation line.

David: Delivering an operating margin of 11% at this projected industry level would be several percent higher than what we achieved back in 2019 and 2020 at similar industry levels, which is another testament to the transformation of the business we've executed over the last several years.

We're just over $1 8 billion.

As I think you've heard us talk before we have the industry, leading parts fill rates in North America, and Europe, and we believe we have it in South America as well, it's been a concerted effort of our team to really make sure that our dealers and our farmers have those parts when they need them as we think about next year again, we continue to see the parts business likes.

David: Our effective tax rate is anticipated to be 27% for 2024.

David: Turning to slide 16.

David: Our full year net sales outlook for 2024 is $13 $6 billion down.

David: Down from the record levels seen in 2023, our earnings per share forecast is approximately $13 15.

Growing in that mid single digit range and again I think that's probably more important next year as far as the industry slows down and farmers are likely to replace a lot of their equipment with parts. So again, we still see that growing in the mid single digit range.

David: We've also set a capex target of around $475 million slightly lower than what we spent in 2023.

David: Our free cash flow conversion should be in the range of 75% to 100% of adjusted net income consistent with our long term target.

Third lever is precision AG.

I touched in my comments about the performance of the business this year or in 2023 excuse me, we still see growth in 2024, and the way I would frame. It is given the combination of the retrofit and the OEM focused fuse business, so that OEM business coming down next year and despite that.

David: For the first quarter of 2024, we are targeting sales of approximately $3 billion and earnings per share of approximately $2 30.

Both are significantly lower than the first quarter of 2023 due to lower production in many factories and further inventory reductions in the South American region.

And despite the industry coming down we're still look we're looking at the precision AG in total to grow in that mid single digit range in 2024, so a little bit below the long term targets, but again, a little bit more influenced by the OEM portion of the business.

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

Greg: Thanks Damon.

Greg: Okay.

And this is Eric I'll, just build on that a little bit Damon spot on we still see more runway in front of us so the fendt.

Greg: Hey.

Greg: Okay, well, we will now begin the question and answer session.

Greg: Reminding you that to ask a question you May Press Star then one on your Touchtone phone.

Great products as Damon talked about the other half of that is distribution network. We have grown our in North America grown our distribution network from about 40% coverage to now 80% coverage last time, we updated it was at 75, we grew that another five points in 2023, our target is to get it over 90 in North America in <unk>.

Greg: If you're using a speaker phone please pick up your handset before pressing the keys.

Greg: To withdraw your question is maybe please press Star then two.

Greg: At this time, we will pause momentarily to assemble our roster and again its star one to ask a question.

With America, we've grown that from zero two.

A year ago was 70% now we're at 74% again that target is 90, so we still have we.

Greg: Yes.

We have new products coming to market through our innovation engine, we've got distribution expansion opportunities still in front of us for fendt and precision AG still a lot of growth opportunities around the world.

Greg: Okay.

Speaker Change: First question is coming from Larry de Maria from William Blair.

In the last several years, we've grown in North America from 350 dealers to 500 outside North America from 50 dealers to 120, and we saw a lot of headroom ahead.

Speaker Change: Larry Please proceed.

Speaker Change: Okay. Thank you why do you think for all the detail. This morning, just two questions.

Ahead of us in terms of our distribution buildout for the precision AG business and we continue to grow our innovation around the crop cycle. This year's theme was as I mentioned.

Speaker Change: Can you give us and help us understand the 24 growth assumption and the three growth areas precision parts.

Speaker Change: Obviously outperformed the market secondly, any update on the grain and protein storage, maybe you can help with margins by <unk>.

Solutions for conclusion.

So although we are growing this year, we still see much more in front of us.

Speaker Change: In there and if you're considering.

Speaker Change: Considering only selling the whole thing keeping putting up any color there. Thank you.

And then Larry excuse me to your second question on grain and protein again, the grain and protein business overall did fairly well in 2023, a little bit more challenge in the Asia Pacific region, mainly in China, but profit margins or the operating margins in that business grew.

Speaker Change: Yes, Larry.

Larry: Thanks for the questions here, so if I think about the 2024 outlook and our three growth drivers if I think about <unk> as.

Larry: As we've said in the past we do continue to expect to see further market share expansion as we rollout fendt here in North America, and in South America, and if I, just break that down a little bit more as to our confidence in 2024, we have the new <unk> 600 coming out. This year you may have saw that we announced the next generation.

Into the mid high single digits here in 2023, as we saw significant improvements mainly in the U S and the South American region as for the strategic review I would say that we're still underway with that we understand the value of what that means to us as a business. We're looking at that externally to see whether someone else can.

Larry: <unk> 700, a year ago, we announced the new 200, which is more for the vineyards. So we have several new tractors that are coming into the market. This year, we have our sprayer, which we announced last year that has full momentum coming into 2024. So overall when we look at <unk>, we're really excited about the different product offering.

Ever even more value, which will allow us to generate the capital back into the company.

Your question about pieces and parts.

For us we look at the total value of the grain and protein business between grain and protein being somewhat counter cyclical and then whether that complements the traditional agco business I don't see us mainly looking at pieces and retaining a portion I think for us it would be we find the value in the entire business and we will retain it and we'll grow it as.

Larry: <unk> that we're offering globally and we have a lot of confidence with the team executing with this new products. The second part is our parts business parts did exceptionally well. This year revenues were just over $1 8 billion.

We have a plan to do that and if we feel there is value more or more value in monetizing that I think you'd likely see us removing the entire part of the business, but no final decisions will likely make a decision on that probably in the middle of 2024 right now.

Larry: As I think you've heard us talk before we have the industry, leading parts fill rates in North America, and Europe, and we believe we have it in South America as well, it's been a concerted effort of our team to really make sure that our dealers and our farmers have those parts when they need them as we think about next year again, we continue to see the parts business like.

Okay. Thank you good luck.

Thank you thanks, Larry.

And our next question will come from Stanley Elliott from Stifel Stanley.

Larry: Growing in that mid single digit range and again, I think thats, probably more important next year as far as the industry slows down and farmers are likely to replace a lot of their equipment with parts. So again, we still see that growing in the mid single digit range.

Stanley. Please go ahead.

Hey, guys. This is Andrew on for Stanley. Thank you for taking my question I'm wondering if you could provide some color on how youre thinking about your sales outlook.

For next year by segment I. Appreciate the color you gave on the industry expectations, but I was wondering if you could provide some commentary on the inventory levels by region pricing expectations et cetera. Thank you.

Larry: Third lever is precision AG.

Larry: I touched in my comments about the performance of the business this year or in 2023 excuse me, we still see growth in 2024, and the way I would frame. It is given the combination of the retrofit and the OEM focused fuse business, so that OEM business coming down next year and despite that.

Yes, I think Andrew on the pricing or sorry on the dealer inventory levels.

I think what we saw here in the fourth quarter was an increase in dealer inventory levels pretty much around the world different degrees and if I look at North America, I think I said or Erik said in the scripted comments, we were probably around six months and our target there is to try to get that closer to the four month.

Larry: And despite the industry coming down we are still likely looking at the precision AG in total to grow in that mid single digit range in 2024, so a little bit below the long term targets, but again, a little bit more influenced by the OEM portion of the business.

Larry: And this is Eric I'll, just build on that a little bit David is spot on and we still see more runway in front of us so the fendt.

The four month, Mark and so again, we likely will see some dealer invent some inventory coming out of the channel and Thats reflected in our outlook of reducing production by about 10%. If I look at Europe, We did increase a little bit here from the third quarter, the fourth quarter, so light around four months or little bit above four months.

Eric: Great products as Damon talked about the other half of that is distribution network. We have grown our in North America growing our distribution network from about 40% coverage to now 80% coverage last time, we updated it was at 75, we grew that another five points in 2023, our target is to get it over 90 in North America in <unk>.

Our ideal number is in that three to four month range. So again, we feel like there's a little bit of room, there I would caveat that that in some segments of the market. Our fendt high horsepower tractors. There is still dealers who are below the optimal level. So again I'm using broad comments when I give you. These numbers, but there are still pockets of opportunities.

Eric: Both America, we've grown that from zero two.

Eric: A year ago was 70% now we're at 74% again that target is 90, so we still have.

Eric: We have new products coming to the market through our innovation engine, we've got distribution expansion opportunities still in front of us for fendt and precision AG still a lot of growth opportunities around the world.

For us in areas with fence and then in South Americas, which we saw the most significant change as I had mentioned on the third quarter call dealer inventories at the optimal level with the significant slowdown we saw there mainly on the retail sales it resulted in us limiting the sell into the dealers.

Eric: In the last several years, we've grown in North America from 350 dealers to 500 outside North America from $50 to 120, and we saw a lot of headroom ahead.

Eric: Ahead of us in terms of our distribution buildout for the precision AG business and we continue to grow our innovation around the crop cycle. This year's theme was as I mentioned.

It's still dealer inventory levels still were a little bit over four months on tractors and a little bit over six months on combines and for US ideally we want to get those inventory levels in the two to three month range. So again as we talked about the production cuts those will likely be more outsized in South America in 2024 versus other parts of the world.

Eric: Solutions.

Eric: So although we're growing this year, we still see much more in front of us.

Eric: And then Larry excuse me to your second question on grain and protein against the grain and protein business overall did fairly well in 2023, a little bit more challenged in the Asia Pacific region, mainly in China, but profit margins or the operating margins in that business grew.

As we look to right size that inventory level.

Pricing as I said in my comments, we do expect things to become much more normalized.

As we go into 2024 here with pricing at right around one, 5% and it's hard to break that down by geography or product type.

Larry: Into the mid high single digits here in 2023, as we saw significant improvements mainly in the U S and the South American region as for the strategic review I would say that we're still underway with that we understand the value of what that means to us as a business. We're looking at that externally to see whether someone else can.

Given new product launches and things of that nature, but directionally, we're looking for a more traditional level of pricing as we go into 2024, and I think rather than tie up the time going region by region on this call I know theres, usually follow up calls, we'll have what Stanley will sort of give you a little bit more clarity on that.

Larry: Liver, even more value, which will allow us to generate the capital back into the company.

At that point in time.

That's all for me thank you.

Larry: Your question about pieces and parts.

Yeah.

Larry: For us we look at the total value of the grain and protein business between grain and protein being somewhat counter cyclical and then whether that complements the traditional agco business I don't see us mainly looking at pieces and retaining a portion I think for us it would be we find the value in the entire business and we will retain it and we will grow it.

And our next question comes from Kristen Owen from Oppenheimer.

Please go ahead.

Great. Thank you for taking the questions. This morning.

Follow up on some of the regional dynamics, obviously that.

Very acute margin in South America excellent Q.

Larry: We have a plan to do that and if we feel there is value more or more value in monetizing that I think you'd likely see us removing the entire part of the business, but no final decisions will likely make a decision on that probably in the middle of 2024 right now.

I'm just wondering if you can talk to some of your assumptions from margin by region. In 2024, that's obviously been such a strong contributor to the overall profitability of the company, it's still very strong and in 24 hours.

Speaker Change: Okay. Thank you good luck.

Speaker Change: Thank you thanks, Larry.

Hoping you can provide some color on the regional margin outlook.

Speaker Change: And our next question will come from Stanley Elliott from Stifel Stanley.

Yeah. So Kristen if I just look at maybe South America.

And then if we want we can go into maybe a little bit more detail on other regions. If you wanted to follow up on that but South America again had a very challenging fourth quarter given some of the comments that I made in the market, we still see that inventory levels being adjusted likely in the first quarter. So the factories are going to be down significantly year.

Stanley Stoker Elliott: Stanley. Please go ahead.

Speaker Change: Hey, guys. This is Andrew on for Stanley. Thank you for taking my question I'm wondering if you could provide some color on how youre thinking about your sales outlook.

Andrew: For next year by segment I. Appreciate the color you gave on the industry expectations, but I was wondering if you could provide some commentary on inventory levels by region pricing expectations et cetera. Thank you.

Over a year that with mobile likely some slow ramp up of the retail sales. So we're sort of expecting to see the south American margins in that what I'll call that mid mid single digits.

Speaker Change: Yes, I think Andrew on the pricing or sorry on the dealer inventory levels.

Speaker Change: I think what we saw here in the fourth quarter was an increase in dealer inventory levels pretty much around the world different degrees and if I look at North America, I think I said or Erik said in the scripted comments, we were probably around six months and our target there is to try to get that closer to the four months.

In the first quarter, and then is that dealer inventory improves our production levels hopefully more normalized we will start to see that pick up in the second quarter and then as the new financing plans for the crop plants kicked in in the third quarter and the fourth quarter and the industry hopefully becomes more stabilized we see that getting back to those mid teen margins, which is what we.

Been planning for South America to be at and again I think you remember the margins. The last couple of quarters have been exceptionally strong given the strength of that market, but we sort of see South America is a mid teens market and we expect that to be sort of a second half outlook for South America.

Speaker Change: The four month, Mark and so again, we likely will see some dealer invent some inventory coming out of the channel and Thats reflected in our outlook of reducing production by about 10%. If I look at Europe, We did increase a little bit here from the third quarter, the fourth quarter, so light around four months or little bit above four months.

Great and then.

Speaker Change: Our ideal number is in that three to four month range. So again, we feel like there's a little bit of room, there I would caveat that that in some segments of the market. Our fendt high horsepower tractors. There is still dealers who are below the optimal level. So again I'm using broad comments when I give you. These numbers, but there are still pockets of opportunities.

Follow up to Larry's question earlier on some of the growth assumptions in those growth pillars. These and parts revenues just over $1 8 billion I mean, that's approaching nearly 15% of your sales and you're calling out growth in that business for next year.

Just wondering if you can help us sort of do the math Erin or at least understand how that is helping support. This this through cycle margin target that you've got out there. Thank you.

Speaker Change: For us in areas with fence and then in South Americas, which we saw the most significant change as I had mentioned on the third quarter call dealer inventories hit the optimal level with the significant slowdown we saw there mainly on the retail sales it resulted in us limiting the cell into the dealers.

Yes, I think the key is again. This is we've talked about parts is one of our three high margin growth businesses and again credit to the team as a concerted effort and really focusing on fill rates they've done a lot of work to improve the fill rates. We've put some inventory in different parts of the world to ensure that we have better fill rates in places like <unk>.

Speaker Change: It's still dealer inventory levels still were a little bit over four months on tractors and a little bit over six months on combines and for US ideally we want to get those inventory levels in the two to three month range. So again as we talked about the production cuts those will likely be more outsized in South America in 2024 versus other parts of the world.

South America, and as we're leveraging more digital tools with our farmers leveraging more of the connected machines.

Starting with our dealers and leveraging more of the connected machines with the farmers were getting a lot more visibility better predictability better engagement with the farmers and the dealers to service that equipment, that's driving the traction that we've seen the last couple of years, we've seen good growth in our parts business. The last several years and as the team looks forward with that.

Speaker Change: As we look to right size that inventory level.

Speaker Change: Pricing as I said in my comments, we do expect things to become much more normalized.

Speaker Change: As we go into 2024 here with pricing at right around one, 5% and it's hard to break that down by geography or product type.

Focus we again, we still expect to see sort of this mid single digit margin is mid single digit revenue growth in 2024 with parts as well. So we're still feeling good about that and again I think the market dynamics, probably lend itself to in areas for farmers are more likely to look to replace maybe rather than buy new and that sort of reflect.

Speaker Change: Given new product launches and things of that nature, but directionally, we're looking for a more traditional level of pricing as we go into 2024, and I think rather than tie up the time going region by region on this call I know theres, usually follow up calls, we'll have what Stanley will sort of give you a little bit more clarity on that.

But our overall industry decline so we feel really good about this business and the team that we have driving it in 2024.

Stanley Stoker Elliott: At that point in time.

Stanley Stoker Elliott: That's all for me thank you.

Stanley Stoker Elliott: Yeah.

Thanks, so much.

Stanley Stoker Elliott: And our next question comes from Christian <unk> from Oppenheimer.

We now have a question from Timothy Thein from Citigroup.

Christian: Please go ahead.

Christian: Great. Thank you for taking my questions. This morning.

Please proceed.

Yes. Thank you good morning apologies in advance I message has gone back and forth that caused it.

Christian: Follow up on some of the regional dynamics, obviously that.

Christian: Very acute margin in South America excellent Q.

But maybe just going back I did hear your comments on.

Christian: I'm just wondering if you can talk to some of your assumptions from margins by region. In 2024, that's obviously been a strong contributor to the overall profitability of the company.

Kind of getting too.

Ideally getting back to kind of a mid teens margin in the second half in South America.

And I'm just curious from the standpoint of.

The.

Christian: All very strong in in 24 hours.

Not a lot but in some of the benefit in recent years has been in.

Christian: I'm, hoping you can provide some color on the regional margin outlook.

And Cohen and others have been benefiting from that.

Speaker Change: Yeah. So Kristen if I just look at maybe South America.

Significant pricing tailwind.

As that normalizes and given given all the issues that you and others and in South America from an inventory perspective does that.

Speaker Change: And then if we want we can go into maybe a little bit more detail on other regions. If you wanted to follow up on that but South America again had a very challenging fourth quarter given some of the comments that I made in the market, we still see that inventory levels being adjusted likely in the first quarter. So the factories are going to be down significantly year.

I understand you want to be ultimately.

Descriptive on that from a competitive standpoint, but does that <unk> need.

Need.

No.

Speaker Change: Over a year that with mobile likely some slow ramp up of the retail sales. So we're sort of expecting to see the south American margins in that what I'll call that mid mid single digits.

Price cost and I guess, how would price cost play into that.

In terms of getting back from a low single digit.

Mid to high teens do you.

We need to be on the plus side, there or can you get there just from from.

Speaker Change: In the first quarter, and then is that dealer inventory improves our production levels hopefully more normalized we will start to see that pick up in the second quarter and then as the new financing plans for the crop plants kicked in in the third quarter and the fourth quarter and the industry hopefully becomes more stabilized we see that getting back to those mid teen margins, which is what we.

Operating leverage in volumes.

Okay. Good question Nate.

Yes, it's similar but the answer is a little bit of both we do need the operating leverage obviously is we need to generate the absorption through the factory to get the leverage.

Our expectations are that we will be price cost positive in 2024, even with that more traditional one 5% pricing as I alluded to and Eric would attest to this we are laser focused in our operations.

Speaker Change: Been planning for South America to be at and again I think you remember the margins. The last couple of quarters have been exceptionally strong given the strength of that market. When we sort of see South America is a mid teens market and we expect that to be sort of a second half outlook for South America.

To do two things one is as supply chains have improved driving better productivity through our factories and better scheduling reducing the amount of rework really trying to drive efficiency in the factories based on the supply chain. So that's number one and that will that will happen around the world with <unk>.

Speaker Change: Great and then.

Speaker Change: Follow up to Larry's question earlier on some of the growth assumptions on those growth pillars and parts revenues just over $1 8 billion. I mean, that's that's approaching nearly 15% of your sales and youre, calling out growth in that business for next year.

<unk> two again, given the constraints that we were working in the last couple of years.

Speaker Change: Just wondering if you can help us sort of do the math, Eric or at least understand how that is helping support the through cycle margin target that you've got out there. Thank you.

I would say trying to get the products.

Times at any cost to deliver to the farmers as these have normal as supply chains at normalized it's giving our team an ability to really go back and challenge the supply base and understanding what is the real cost and where are we able to drive productivity and cost savings and so we have initiatives within our factories in the built into our assumptions that we are.

Eric: Yes, I think the key is again. This is we've talked about parts is one of our three high margin growth businesses and again credit to the team as a concerted effort and really focusing on fill rates they've done a lot of work to improve the fill rates. We've put some inventory in different parts of the world to ensure that we have better fill rates in places like <unk>.

Going to drive cost improvements through productivity and price downs in our operations to help bolster the margins are stabilized the margins at 11% that were telling you about through those initiatives on top of some of the other things that you know, we're doing with market share gains parts growth precision AG growth things of that nature. So the answer is a little bit of both but.

Eric: South America, and as we're leveraging more digital tools with our farmers leveraging more of the connected machines.

Eric: Starting with our dealers and leveraging more of the connected machines with the farmers were getting a lot more visibility better predictability better engagement with the farmers and the dealers to service that equipment, that's driving the traction that we've seen the last couple of years, we've seen good growth in our parts business. The last several years and as the team looks forward with that.

I would tell you. This team is obviously very focused on the cost side in South America, where the markets are most volatile, but also in Europe, South in Europe, North America, and Asia as well.

Eric: Focus again, we still expect to see sort of this mid single digit margins is mid single digit revenue growth in 2024 with parts as well. So we're still feeling good about that and again I think the market dynamics, probably lend itself to in areas for farmers were more likely to look to replace maybe rather than buy new and that sort of reflect.

Maybe just to build on that too from a top down perspective. I think you are inherent question is Ken South America would be a profitable region.

Since we had a low profit one quarter three quarters before that where all 20 plus margins.

And from a top down perspective, if you look at it.

Is the farmer in South America going to be profitable, we think strongly yes.

Eric: <unk> on our overall industry decline. So we feel really good about this business and the team that we have driving it in 2024.

That's the market we're in much of the region you can plant two crops, sometimes more you right behind the combined comes the planter and so youre, taking off soybeans and planting corn right behind it.

Speaker Change: Thanks, so much.

Speaker Change: We now have a question from Timothy Thein from Citigroup.

Tropical climate, it's the area, where more land can be put into production highly intensively.

Timothy Thein: Please proceed.

Timothy Thein: Yes. Thank you good morning apologies in advance I missed the size has gone back and forth that caused it.

And harvested so over the next 20 years, we've talked about for a long time and the world needs more green, Brazil is going to be a big part of supplying the world.

Timothy Thein: But maybe just going back I did hear your comments on.

Timothy Thein: Kind of getting too.

And that means that the and the infrastructure keeps getting better to make the Brazilian farmer more effect efficient.

Timothy Thein: Ideally getting back to kind of a mid teens margin in the second half in South America.

So we're bullish on Brazil as a market, we think the farmer is going to be adding a lot of value.

Timothy Thein: And I'm just curious from the standpoint of.

Timothy Thein: Lot of the.

Timothy Thein: Not a lot but in some of the benefit in recent years has been in.

And profitable and so then we're doing all the things that David talked about to make sure that we can support that farmer in an efficient way with our supply chain.

Timothy Thein: And Cohen and others have been benefiting from.

Timothy Thein: Significant pricing tailwind.

Got it okay very good thank you Eric and just on the.

Timothy Thein: As that normalizes and given given all the issues that you and others.

For Europe.

Maybe just one or two in terms of the margin outlook in.

Timothy Thein: In South America from an inventory perspective does that.

In 'twenty, four and you know I'm curious from.

Timothy Thein: I understand you want to be ultimately.

Basically how product mix plays into that going back to your comments about.

Timothy Thein: Descriptive on that from a competitive standpoint, but does that <unk> need.

In the dealer inventories being maybe a hair on the low side and obviously that can have a pretty powerful impact to margins and maybe you can speak to.

Timothy Thein: No.

Timothy Thein: Price cost I guess, how would price cost play into that.

Timothy Thein: In terms of getting back from a low single digit to mid to high teens do you.

As you did with South America, and the expectations for <unk> not yet from a profit so yes, Tim So I don't think.

Timothy Thein: We need to be on the plus side, there or can you get margins from.

Timothy Thein: Operating leverage in volumes.

We finished Europe overall I think just the ROE just over 14 514, 6%. So just tremendous performance by the team in Europe again, you saw our industry outlook. There, we have that industry coming down and so we would expect the margins to contract based on industry and lower and lower overall unit.

Speaker Change: Okay. Good question Nate.

Speaker Change: Yes.

Speaker Change: But the answer is a little bit of both we do need the operating leverage obviously is we need to generate the absorption through the factory to get the leverage.

Speaker Change: Our expectations are that we will be price cost positive in 2024, even with that more traditional one 5% pricing as I alluded to and Eric would attest to this we are.

But given some of the strength, we're seeing as I think I mentioned to Larry some of the new product introductions that we have coming out with <unk> and given the strong presence. We have there I would say, we probably should see the margins relatively flat on the full year again, it may fluctuate quarter to quarter, but for the full year given that mix of new products that <unk> has coming out.

Speaker Change: Laser focused on our operations.

Speaker Change: To do two things one is as supply chains have improved driving better productivity through our factories and better scheduling reducing the amount of rework really trying to drive efficiency in the factories based on the supply chain. So that's number one and that will that will happen around the world with <unk>.

We think that we should be able to keep the margins relatively flat.

And then to build on that mix like you said Theres a channel element for our new products are coming into the market in Europe. We've got E 100, coming in the first electric tractor for fendt.

Speaker Change: <unk> two again, given the constraints that we were working in the last couple of years.

And on the low end, Turkey, we think is going to contract as a market or at least not nearly not growing nearly as much as it's Bob.

Speaker Change: I would say trying to get the products at sometimes at any cost to deliver to the farmers as these have normal as supply chains that normalized it's giving our team an ability to really go back and challenge the supply base and understanding what is the real cost and where are we able to drive productivity and cost savings and so we have initial.

Our low horsepower lower lower margin market in general so there's although the overall market is cooling theres a lot of positive mix elements embedded in Europe.

Thank you.

Speaker Change: It is within our factories and that built into our assumptions that we are going to drive cost improvements through productivity and price downs in our operations to help bolster the margins are or stabilize the margins at 11% that were telling you about through those initiatives on top of some of the other things that we're doing with market share gains parts growth precision AG growth.

Okay.

Have a question from Tami Zakaria from Jpmorgan, Jamie you May go ahead.

Hi, good morning. Thank you so much. So I'm just wondering can you update us on the jumbo JV do you expect it still.

Speaker Change: Things of that nature. So the answer is a little bit of both but.

Mid this year and do you expect.

Speaker Change: I would tell you. This team is obviously very focused on the cost side in South America, where the markets are most volatile, but also in Europe, and Europe, North America, and Asia as well.

The JV to be accretive in year one.

Yes, so JV is going right on track.

Speaker Change: Maybe just to build on that too from a top down perspective. I think you are inherent question is Ken South America would be a profitable region.

We've hired an outside partner to help us with integration planning, that's going extremely well, we've got a lot of good cooperation and teamwork culture building planned generation happening on every element of the business to make sure that were ready on day, one and that we can capture the synergies of bringing these two great businesses, together and serving farmers better than any.

Speaker Change: Since we had a low profit one quarter three quarters before that where all 20 plus margins.

Speaker Change: From a top down perspective, if you look at it.

Is the farmer in South America going to be profitable, we think strongly yes.

Body else in the industry regulatory approval is tracking according to plan, we've already gotten approval from several of the regions still have a few that are in process, but that is proceeding as planned and according to the timeline that we outlaid, we think it'll be in the first half of this year.

That's the market where much of the region you can plant two crops, sometimes more you right behind the combined comes the planter and so youre, taking off soybeans and planting corn right behind it. It's a tropical climate, it's the area where more land can be put into production highly intensively.

And then we still are on track.

Our standing behind our commitments of short term accretion and longer term growth to a $2 billion precision AG business being the industry leader in serving mixed fleet precision AG farmers all around the world, whether it's through retrofit or serving over 100, other Oems and a very confidential and unique.

Speaker Change: Planted and harvested.

Speaker Change: So over the next 20 years, we've talked about for a long time and the world needs more green, Brazil is going to be a big part of <unk>.

Speaker Change: Supplying the world.

Speaker Change: And that means that the and the infrastructure keeps getting better to make the Brazilian farmer more effect efficient.

Spoke way or through Echo machine enhancements.

Speaker Change: So we're bullish on Brazil as a market, we think the farmer is going to be adding a lot of value.

We're very excited about that.

Speaker Change: And profitable and so then we're doing all the things that David talked about to make sure that we can support that farmer in an efficient way with our supply chain.

Super helpful. Thank you and then one quick question to clarify something here production hours, they're expected down 10%.

Speaker Change: Got it okay very good thank Eric and just on the.

Sales you expect down 6% this year and pricing up one and a half I think you said.

Speaker Change: For Europe.

Speaker Change: Maybe just a word or two and in terms of the margin outlook.

Help me understand what's what's the bridge like from sales down only six.

Speaker Change: In 'twenty, four and you know them.

Speaker Change: I'm curious from.

Speaker Change: Basically on how product mix plays into that going back to your comments about.

This is production downturn.

So I think Tammy youre looking at some parts growth Youre looking at precision AG growth looking out some grain and protein growth in there.

Speaker Change: In the dealer inventories being maybe a hair on the low side and obviously that can have that.

Speaker Change: Im pretty powerful impact to margins and maybe you can speak to.

And then obviously mix as I alluded to for specifically in Europe with some of the new <unk> products.

Speaker Change: As you did with South America, and the expectations for <unk> not yet from a profit so yes, Tim So I don't think.

So directionally thats whats driving the differences.

Got it okay, great. Thank you.

Tim: We finished Europe overall I think just the ROE just over 14 514, 6%. So just tremendous performance by the team in Europe again, you saw our industry outlook. There, we have that industry coming down and so we would expect the margins to contract based on industry and lower and lower overall unit.

Our next question comes from Seth Weber from Wells Fargo.

Please go ahead.

Hey, guys good morning.

I wanted to just think about.

North American margins for 'twenty, four and specifically on the precision AG business.

Tim: But given some of the strength, we're seeing as I think I've mentioned to Larry some of the new product introductions that we have coming out with <unk> and given the strong presence. We have there I would say, we probably should see the margins relatively flat on the full year again, it may fluctuate quarter to quarter, but for the full year given that mix of new products that <unk> has coming out.

No. You are you are kind of moderating our growth rate there, but there were a lot of disruptions with the supply chain and stops over the last couple of years. So is there any reason why your precision AG margins.

Shouldnt be up.

In 2024 versus 23.

Tim: We think that we should be able to keep the margins relatively flat.

Even with more moderate growth.

This year.

Tim: And then to build on that mix like you said Theres a channel element for our new products are coming into the market in Europe. We've got the E 100 coming in the first electric tractor for Fendt.

Thanks Seth.

So that they don't precision AG margins have been relatively.

The gross margins again, when I think about the products have been relatively consistent.

Tim: And on the low end, Turkey, we think is going to contract as a market or at least not nearly not growing nearly as much as it's about <unk>.

We are seeing the revenues fluctuating, but the pricing and the margins. We're getting have been relatively stable. So I don't see any real significant changes in overall margin related to that business as we go into 2024.

Our low horsepower lower lower margin market in general so there is although the overall market is cooling theres a lot of positive mix elements embedded in the Europe.

Okay and then just.

Speaker Change: Thank you.

In your prepared remarks, David I think you were talking about efficiencies cost cost measures and stuff like that.

Speaker Change: We have a question from Tami Zakaria from Jpmorgan, Jamie you May go ahead.

Actually planning any more proactive cost actions or is this all just sort of.

Tami Zakaria: Hi, good morning, and thank you so much. So I'm just wondering can you update us on the Trimble JV do you expect it still.

Normal course of business.

Your normal sort of efficiency measures that you usually do or is there are there more kind of structural actions that you guys are contemplating in this softer environment.

Tami Zakaria: Mid this year and do you expect.

Tami Zakaria: The JV to be accretive in year one.

Yeah, the way I would look at it is that this win as we look to engage with our supply base.

Speaker Change: Yes, so JV is going right on track.

I'd say there is a heightened level of focus.

Incremental to what you would probably see in a normal year.

Speaker Change: We've hired an outside partner to help us with integration planning, that's going extremely well we've got a lot of good cooperation team were to culture building planned generation happening on every element of the business to make sure that were ready on day, one and that we can capture the synergies of bringing these two great businesses, together and serving farmers better than any.

So I would layer that on as that's increments. That's additional to the day to day operations is driving cost down in the supply base versus where we were in the last couple of quarters over the last couple of years.

As I think about the larger scale, if you're referring to like an <unk> restructuring things of that nature again right now we're not announcing anything like that we're watching the markets were.

Speaker Change: Body else in the industry regulatory approval is tracking according to plan, we've already gotten approval from several of the regions still have a few that are in process, but that's proceeding as planned and according to the timeline that we outlaid, we think it'll be in the first half of this year.

Go back to that value creation line that we've showed you guys I showed in the slides today, we're going to measure ourselves relative to that line understanding where the market is what the team is able to deliver in productivity and that's on the <unk> side as well and to the extent, we're not meeting that or the markets are weakening more we're going to look at all alternatives.

Speaker Change: And then we still are on track.

Speaker Change: Our standing behind our commitments of short term accretion and longer term growth to a $2 billion precision AG business being the industry leader in serving mixed fleet precision AG farmers all around the world, whether it's through retrofit or serving over 100, other Oems and a very confidential and unique.

I would also tell you that the team is being very aggressive as we moved into these global businesses Global brands as we talk more about fendt as a global brand trying to look for back office consolidations again, you don't hear us do anything in a broad brush announcements, but we are looking to create commonality in a common skeleton within parts of agco that.

Speaker Change: Spoke way or through Echo machine enhancements.

Speaker Change: We're excited about that.

Speaker Change: Super helpful. Thank you and then one quick question to clarify something production hours are expected down 10%.

Create efficiencies for us longer term, so I would say, we're doing that in 2024 as well, but again nothing massive that youre I think if youre alluding to a large restructuring we're not announcing anything like that obviously.

Sales you expect down 6% this year and pricing up one and a half I think you said.

Got it okay. Thanks, guys I appreciate it.

Speaker Change: Help me understand what's what's the bridge like from sales down only six.

Okay.

And this concludes our question and answer session.

Production downturn.

Speaker Change: So I think Tammy youre looking at some parts growth Youre looking at precision AG growth looking out some grain and protein growth in there.

I would like to turn the conference back over to Eric <unk> for any closing remarks. Please go ahead.

Speaker Change: And then obviously mix as I alluded to for specifically in Europe with some of the new <unk> products.

Yeah, just briefly I'll close today by saying Thank you very much for your participation and your support of our <unk>. We're really proud of our performance through 2023. It was an absolute record year in so many ways for our customers for our employees for our investors. It sets us on a trajectory path for our results to be much more resilient through the cycle.

Speaker Change: So directionally, that's what's driving the differences.

Speaker Change: Got it okay, great. Thank you.

Speaker Change: Our next question comes from Seth Weber from Wells Fargo.

And we've been talking about that for a couple of years now and it's all coming home to roost.

Seth Weber: Please go ahead.

Seth Weber: Hey, guys good morning.

Hope that you are as excited about that as we are.

Seth Weber: I wanted to just think about.

The key to our success is the continued execution of our pharma first strategy. Our focus is on growing our margin rich businesses like fendt parts and service and our precision AG business, which we've been investing in heavily over the last few years.

Seth Weber: North American margins for 'twenty, four and specifically on the precision AG business.

Seth Weber: Youre kind of moderating our growth rate there, but there were a lot of disruptions with the supply chain and stops over the last couple of years. So is there any reason why your precision AG margins.

The announcement of the pending AG co Trimble joint venture represents the biggest <unk> deal in history and will enable agco to become the global industry leader and mixed fleet precision AG solutions with a unique focus on retrofit solutions.

Seth Weber: Shouldnt be up.

Seth Weber: In 2024 versus 23.

Seth Weber: Even with more moderate growth.

Seth Weber: This year.

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

Speaker Change: Thanks Seth.

Speaker Change: So that they don't come precision AG margins have been relatively.

Speaker Change: The gross margins again, when I think about the products have been relatively consistent.

Speaker Change: We are seeing the revenue has been fluctuating, but the pricing and the margins. We're getting have been relatively stable. So I don't see any real significant changes in overall margin related to that business as we go into 2024.

All of these trends give us confidence in the long term health of our industry. We're excited.

We look forward to seeing many of you in the coming weeks and months. Thank you and have a great day.

Okay.

Speaker Change: Okay and then just.

Thank you very much the conference has concluded.

Speaker Change: In your prepared remarks, David I think you were talking about efficiencies cost.

And you May now disconnect have a great day.

Speaker Change: Cost measures and stuff like that.

Speaker Change: Actually planning any more proactive cost actions or is this all just sort of.

Speaker Change: Normal course of business.

Your normal sort of efficiency measures that you usually do or is there are there more kind of structural actions that you guys are contemplating in this softer environment.

Speaker Change: The way I would look at it is that this win as we look to engage with our supply base.

Speaker Change: Say there is a heightened level of focus.

Speaker Change: Incremental to what you would probably see in a normal year.

Speaker Change: So I would layer that on as that's increments. That's additional to the day to day operations is driving costs down in the supply base versus where we were in the last couple of quarters or last couple of years.

Speaker Change: I think about the larger scale, if you're referring to like an <unk> restructuring things of that nature again right now we're not announcing anything like that we're watching the markets were.

Speaker Change: I'll go back to that value creation line that we've showed you guys I showed in the slides today, we're going to measure ourselves relative to that line understanding where the market is what the team is able to deliver in productivity and that's on the <unk> side as well and to the extent, we're not meeting that or the markets are weakening more we're going to look at all alternatives.

Speaker Change: I would also tell you that the team is being very aggressive as we moved into these global businesses Global brands as we talk more about fendt as a global brand trying to look for back office consolidations again, you don't hear us do anything in a broad brush announcements, but we are looking to create commonality in a common skeleton within parts of agco that.

Speaker Change: Create efficiencies for us longer term, so I would say, we're doing that in 2024 as well, but again nothing massive that youre I think if youre alluding to a large restructuring we're not announcing anything like that obviously.

Speaker Change: Got it okay. Thanks, guys I appreciate it.

Speaker Change: Okay.

Speaker Change: And this concludes our question and answer session.

Speaker Change: I would like to turn the conference back over to Eric <unk> for any closing remarks. Please go ahead.

Eric: Yeah, just briefly I'll close today by saying Thank you very much for your participation and your support of our <unk>. We're really proud of our performance through 2023. It was an absolute record year in so many ways for our customers for our employees for our investors. It sets us on a trajectory path for our results to be much more resilient through the cycle.

Eric: And we've been talking about that for a couple of years now and it's all coming home to roost.

Eric: Hope that you are as excited about that as we are.

Eric: The key to our success is 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, which we've been investing in heavily over the last few years.

Eric: The announcement of the pending AG co Trimble joint venture represents the biggest <unk> deal in history and will enable agco to become the global industry leader and mixed fleet precision AG solutions with our unique focus on retrofit solutions.

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

Eric: All of these trends give us confidence in the long term health of our industry. We're excited.

Speaker Change: We look forward to seeing many of you in the coming weeks and months. Thank you and have a great day.

Speaker Change: Okay.

Speaker Change: Thank you very much the conference has concluded.

Speaker Change: And you May now disconnect have a great day.

Q4 2023 AGCO Corp Earnings Call

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