Q4 2024 AGCO Corp Earnings Call

February 6, 2025

Good day and welcome to the AG co fourth quarter 2024 earnings call all participants will be in listen only mode.

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

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

Consideration of time, please limit yourself to one question and one follow up.

Ask me a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Greg Peterson Agco head of Investor Relations.

Greg Peterson: Thanks, and good morning, welcome to those of you joining us right because fourth quarter and full year 2024 earnings call.

Greg Peterson: We will refer to a slide presentation. This morning, that's posted to our website at www Dot dot.

Greg Peterson: Dot com.

Greg Peterson: non-GAAP measures used in the slide presentation are reconciled to GAAP metrics in the appendix of the presentation.

Greg Peterson: We will make forward looking statements this morning, including statements about our strategic plans and initiatives as well as the financial impacts will discuss demand product development and capital expenditure plans.

Greg Peterson: Timing of those plans and our expectations.

Greg Peterson: Concerning the costs and benefits of those plans and timing of those benefits. We'll also cover future revenue crop production farm income production levels.

Greg Peterson: Its levels margins earnings operating income cash flow engineering expense tax rates and other financial metrics.

Greg Peterson: All of these are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks include but are not limited to adverse developments in the agricultural industry supply chain disruption inflation tariffs, whether commodity prices changes in product.

Greg Peterson: Man.

Greg Peterson: Festival failure to develop new and improved products on time, including premium technology and parts smart farming solutions within budget and with the expected performance and price benefits.

Greg Peterson: Difficulties in integrating the P. T X trimble business in a manner that produces the expected financial results introduction of new or improved products by our competitors.

Greg Peterson: And reductions in pricing by them the war in the Ukraine difficulties in integrating acquired businesses and in completing expansion and modernization plans on time and in a manner that produces expected financial results.

Greg Peterson: And adverse changes in the financial and foreign exchange markets.

Greg Peterson: Actual results could differ materially from those suggested in these statements further information concerning these and other risks is included in that because filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2023, and subsequent Form 10-Q filings Agco disclaims.

Greg Peterson: Any obligation to update any forward looking statements, except as required by law.

Greg Peterson: Later today, we will make a replay of this call available on our corporate website.

Greg Peterson: On the call with me. This morning is Erik and soda, our chairman President and Chief Executive Officer, and Damon Audia, Senior Vice President and Chief Financial Officer.

Greg Peterson: Eric Please go ahead.

Greg Peterson: Thanks, Greg and good morning earlier today Agco reported fourth quarter results for 2024, where we delivered a strong nine 9% adjusted operating margin and $1 97, and adjusted earnings per share and sales that were down 24% from quarter four last year.

Greg Peterson: On a full year basis, we achieved an eight 9% adjusted operating margin and $7 50, and adjusted earnings per share and sales that were down 19% from 2023.

Greg Peterson: Adjusted operating margin performance is by far our best performance in an industry downturn.

Greg Peterson: It makes it more impressive is that the north American industry decline in 2024 was the worst single year decline since the downturn in 2019 associated with the financial crisis.

Greg Peterson: Our margin resiliency in this challenging environment is clear evidence that we are structurally improve the company through our ongoing transformation efforts over these past years.

Greg Peterson: I want to take a moment to thank the <unk> team around the world for delivering such strong results for the year, despite a challenging and dynamic macro environment and at the same time with significant portfolio shifts that occurred in our business.

Greg Peterson: The organization teamed up and put farmers first reinforcing ankle as the most trusted partner for industry, leading smart farming solutions.

Greg Peterson: 2024 was a transformative year for Agco, we closed the largest AG tech deal in our industry's history with PT X Trimble joint venture.

Greg Peterson: And we also exited a non core part of our business by divesting the majority of the grain and protein business.

Greg Peterson: These portfolio changes helped us and enhance our strategic ambitions and allow agco to focus on agriculture machinery and precision AG technology.

Greg Peterson: These strategic changes will also provide margin tailwind for us over the long term as we outlined in our analyst day in December.

Greg Peterson: On the precision technology side of our business, we combined all our brands under the newly launched Gtx brand.

Greg Peterson: We can swiftly unlock synergies across the enterprise and grow precision AG sales to $2 billion by 2029.

Greg Peterson: We have already demonstrated tremendous progress in 2024, where we now have over 1000, Pts dealers, all while continuing to foster relationships with over 100 Oems looking.

Greg Peterson: Looking to the future. We know are independent retrofit dealer network is an absolute key differentiator for us that provides unmatched product expertise and support to farmers, regardless of the equipment brands they prefer.

Greg Peterson: Autonomy targeted spring, an awkward technologies will become more mainstream in the coming years.

<unk> poised to partner with farmers at any point in their technology journey.

Greg Peterson: The depth of our product portfolio and unique consultative go to market approach allows us to offer a wide variety of products for any brand and vintage of machinery and this is a very difficult thing to replicate.

Greg Peterson: In addition, given our pharmacy first focus we also rolled out our farmer core initiative in 2024, and further streamlined our distribution network by partnering with some of the greatest dealers. So that we can best serve farmers and farm online or onsite at the dealership.

Greg Peterson: The way they want to be best served.

Greg Peterson: The fed portfolio in North America comes with an industry, leading uptime commitment and our farmer core strategy is designed to help deliver that uptime.

Greg Peterson: We expect rent coverage in North and South America to continue its growth trajectory and reached approximately 82% in 2025 through these continued efforts.

Greg Peterson: The quarter wasn't without challenges, however, dealer inventories remain higher than target going into 2025.

Greg Peterson: On a weighted average basis, we have between one and one five months of excess dealer inventory to work through.

Greg Peterson: To address this we are planning to significantly under produced retail demand again in 2025.

Greg Peterson: Although we anticipate further declines in large AG machinery volumes in 2025 recent sentiment surveys and many of our recent interactions with farmers show a sense of cautious optimism that is an improvement from where we were just six months ago.

Greg Peterson: Recent positive news around the stocks to use ratios and commodity price rallies.

Greg Peterson: Farmers expectations about future profitability.

Greg Peterson: The byproduct of this is a back half weighted outlook for agco.

Greg Peterson: Best position ourselves in this environment, we anticipate more significant production cuts in the first half of the year offset by modest growth in production hours in the back half as we lap easier comparables.

Greg Peterson: Finally.

Greg Peterson: We will see cost savings begin to materialize in earnest around mid 2025, as our right sizing transformation initiatives begin to manifest in the P&L.

Greg Peterson: We expect these efforts to mitigate some of the weak industry demand.

Greg Peterson: Despite a lower sales forecast and significant underproduction, we expect higher and more resilient margins compared to past cycles due to the structural improvements in our business.

Greg Peterson: Slide four details industry unit retail sales by region for 2024.

Greg Peterson: Global industry retail sales of farm equipment continued to be weak and all of <unk> key markets. We expect the bottom of the cycle to occur in 2025.

Greg Peterson: North American industry retail tractor sales decreased 13% during 2024 compared to the previous year.

Greg Peterson: Sales declines were relatively consistent across the horsepower categories with higher horsepower categories declining more in recent months.

Greg Peterson: Combined unit sales were down 22% in 2024 compared to 2023.

Greg Peterson: Lower projected farm income and a refreshed fleet is expected to pressure industry demand even more in 2025.

Greg Peterson: <unk> and weaker North American industry sales compared to 2024.

Greg Peterson: Particularly in larger equipment.

Brazil industry retail tractor sales decreased 4% and combine sales decreased 33% during 2024 compared to the previous year.

Greg Peterson: Farm acreage in Brazil increased only modestly in 2024 after five years of more significant growth.

Greg Peterson: Lower commodity prices rising farmer debt and reduced demand from China accretive caution among Brazilian apartments.

Greg Peterson: Industry demand is expected to remain effectively flat in 2025 due to mixed market dynamics.

Greg Peterson: As with other cycles industry demand will recover.

Greg Peterson: It's a matter of when not if.

Greg Peterson: <unk> will benefit from our long term growth of the agricultural equipment segment. Thanks to a growing population and a middle class with diets that consist of greater amounts of protein.

Greg Peterson: With the actions we took in 2024 are consistent farmer first focus we have positioned ourselves.

Greg Peterson: Very well to capitalize on the growth of precision AG that is needed to raise yields and meet the world's growing agricultural needs.

Greg Peterson: Agco's factory production hours is shown on slide five we.

Greg Peterson: We have eliminated green protein production hours from 2024.

Greg Peterson: Significant production cuts were made in all regions in quarter, four 2024, with the biggest reductions occurring in South America and North America.

Greg Peterson: Given the continued weakening industry conditions, we reduced production hours, even more than we planned as sales in the quarter were below our expectations are.

Greg Peterson: Our production hours were down approximately 33%.

Greg Peterson: In quarter, four 2024 versus low levels in the quarter four of 2023.

Greg Peterson: And down approximately 28% on a full year basis versus the year of 2023 at a global level.

Greg Peterson: We remain laser focused on reducing dealer inventories as quickly as possible in 2025, given the current soft demand environment and elevated dealer inventory levels.

Greg Peterson: Sequentially from quarter three to quarter four 2024, we saw modest reductions in dealer inventory, but we still have work to do primarily in North America and South America.

Greg Peterson: We're projecting 2025 production hours between 15, and 20% lower than 2024 with the North America region, showing the biggest decline.

We expect quarter, one 2025 production hours to be down between 35, and 40% versus quarter one of 2024.

Greg Peterson: Our plan is frontloaded and aggressive to get inventory right sized quickly.

Greg Peterson: Our current outlook for 2025 assumes North America, and South America will result in production less than retail demand at least through the first half of 2025.

Greg Peterson: Diving into the regional breakdown in Europe. We ended 2024 with your inventories at just over four months of supply effectively in line with where we'd like.

Greg Peterson: Ventas under this average and Massey Ferguson, Walter or slightly above.

Greg Peterson: The near target dealer inventory level in Europe is a real positive for agco, given the significant exposure to the region.

Greg Peterson: In South America, we reduced the number of units on hand at the dealers I over 8% from quarter three level.

Greg Peterson: However, given the forward outlook dealers are still holding around five months of supply versus our targeted level of three months.

Greg Peterson: We anticipate under producing retail demand at least through the first half of 2025 to further reduce dealer inventory levels.

Greg Peterson: Similar in North America, we reduced the units on hand at the dealers by approximately 7% from quarter three levels.

Greg Peterson: However, given the challenging outlook in 2025, we are still approximately nine months of supply versus our six months target.

Greg Peterson: The current environment resulted in a significantly lower production levels at least for the first half of 2025.

Greg Peterson: Moving to slide six where youll see our three high margin growth levers aimed at improving our mid cycle operating margins to our new target of 14% to 15% by 2029 and outgrowing the industry by 4% to 5% annually.

Greg Peterson: This demonstrates that we are a much stronger company that is less variability throughout the business cycle.

Greg Peterson: Higher to mid cycle, but also higher lows and higher highs.

Greg Peterson: To reiterate these three growth levers are number one the globalization and full line product rollout of our brand, where we now expect north and South America Fendt revenues to reach $1 $7 billion by 2029.

Greg Peterson: Number two growing our precision AG sales to $2 billion globally by 2029 and.

Greg Peterson: And number three focusing on accelerating our global parts business and increasing the market share of genuine acre parts to achieve approximately $2 3 billion in global sales by 2029.

Greg Peterson: We rolled out these new targets at our recent analyst meeting in December.

Greg Peterson: And we appreciate those who are in attendance.

Greg Peterson: Moving to slide seven you'll see a recap of precision planting in 2025 Renner conference.

Greg Peterson: One of my favorite events every year I just never Miss it.

Greg Peterson: This premier event attracted over 4000 farmer attendees from across the globe.

Greg Peterson: The objective is to help farmers learn strategies and technologies that will help them efficiently.

Greg Peterson: Productively improve their operations and they can all be implemented immediately on their farms.

Greg Peterson: The conference also gives them opportunities to connect with other farmers and experts to share knowledge.

Greg Peterson: One of the highlights from the event included an update on our Symphony vision targeted spray system.

Greg Peterson: Which will begin deliveries in quarter one of 2025.

Greg Peterson: As you would expect from us and our pharmacy strategy. This technology can be retrofitted on all sprayers sold in North America over the last 10 years.

Greg Peterson: We're going to market with two tier of offerings.

Greg Peterson: First is symphony vision rate.

Greg Peterson: Which allows farmers to leverage pulse width modulation technology with live vision variable rate control.

Greg Peterson: The second is symphony vision spot, which AD spot spray control of each nozzle.

Greg Peterson: Farmers can grow into the technology at the pace they prefer simply.

Greg Peterson: Simply by adding additional cameras for the full spot spree feature set.

Greg Peterson: Farmers will own the technology with no per acre recurring charge, enabling them to control weeds in a cost effective manner year after year, while maximizing tax incentives in the year purchase.

Greg Peterson: Our unique independent distribution network emphasize retrofit first through a hands on approach where the dealers are seen as trusted advisers by the farmers.

Greg Peterson: Depth of the precision planting portfolio, coupled with the Pts Kimball's product lineup allows agco to offer absolutely. The most comprehensive suite of technology hardware and services, regardless of the MC four year equipment, a farmer owns.

Greg Peterson: Because objective is to be the technology hub of the mixed fleet.

Greg Peterson: This event is a testament to our unwavering commitment to innovation and.

Greg Peterson: In shaping the future of the industry alongside our pharma partners.

Greg Peterson: Couldn't be more excited about what's ahead.

On slide eight youll see a familiar slide that highlights how our precision AG products can help farmers reduce every expense, except land, where we can positively positively impact over 70% of the cost on a given fund.

Greg Peterson: The value add and return on investment is clear for farmers.

Greg Peterson: Seeing increased adoption of technologies, even in this challenged AG economy.

Greg Peterson: Let's take electric drive plantar rose and smart spray nozzle, leaving our factories as examples.

Greg Peterson: In quarter, four we had electric drive plant arose approaching 90% take rate.

Greg Peterson: Smart allows us over a 50% take rate in quarter, four and we expect that to grow significantly with precision planting simply nozzle.

Greg Peterson: 2024 marked a significant milestone for Agco's precision AG business with.

Greg Peterson: We brought together two powerful brands precision planting known for its innovation and farmer focus and PT X Trimble.

Greg Peterson: These two working.

Greg Peterson: Fully integrated way as one powerful team to deliver market, leading precision AG technology focused on the mixed fleet.

Greg Peterson: Through this integration we have already made several changes to better position the business for success, including recent leadership changes to enhance the focus on driving innovation and winning across all brands and farmers.

Greg Peterson: These improvements accelerate our ability to deliver on being the most farmer focused precision AG technology company in the industry.

Greg Peterson: We also made progress on transforming our technology stack with the Pdx Trimble joint venture.

Greg Peterson: We recently launched our outrun retrofit autonomy kit and.

Greg Peterson: And there's lots of excitement about it.

Greg Peterson: While the long term opportunity is attractive there are some near term dynamics impacting the business.

Greg Peterson: As we indicated at our analyst meeting sales and margin for <unk> Trimble has been pressured given the rapid decline in the broader industry and the ongoing distribution transition.

Greg Peterson: Related to the softness we have taken a goodwill impairment charge in quarter, four which Stephen will cover in more detail shortly.

Speaker Change: Despite this we know this was absolutely the correct strategic move.

Speaker Change: We will continue integrating innovating and growing the <unk> portfolio of products and services to hit our 2029 sales target of $2 billion.

Speaker Change: The short term market environment has no effect on the strategic value of this asset and our confidence in achieving our $2 billion sales target.

Speaker Change: Helping PT X accelerate development and deploying industry, leading solutions for farmers around the world will be one of my top priorities in 2025.

Speaker Change: I'll now hand, it over to Damon to walk you through some of the financials from the quarter.

Damon Audia: Thank you Eric good morning, everyone.

Damon Audia: Slide nine provides an overview of regional net sales performance for the fourth quarter and full year.

Damon Audia: Net sales were down approximately 24% in the fourth quarter compared to the fourth quarter of 2023, when excluding negative effect of currency translation and positive impact of acquisitions.

Damon Audia: <unk> in the quarter was roughly negative 1% compared to the fourth quarter of 2023.

Damon Audia: By region Europe, Middle East segment reported sales down roughly 17% in the quarter compared to the same period in 2023, excluding the impact of unfavorable currency translation and favorable impact of acquisitions.

Damon Audia: <unk> were down in most countries with declines in Germany, United Kingdom, and France, showing the largest reductions.

Damon Audia: Products showing the most significant declines were high horsepower tractors hay tools and combined however, heart showed modest growth even in this environment.

Damon Audia: South American net sales decreased approximately 24%, excluding the impact of unfavorable currency translation and favorable impact of acquisitions.

Damon Audia: The market continues to be challenged and we continue to under produce relative to retail demand.

Damon Audia: High horsepower tractors combines and planters showed the largest reductions by.

Damon Audia: By geography, the Brazilian market was down the most partially offset by increased sales in Argentina.

Damon Audia: Net sales in North American region decreased approximately 39%, excluding the impact of unfavorable currency translation and unfavorable impact of acquisitions.

Damon Audia: Farm income continues to pressure is firmer purchasing behavior high horsepower tractors hay tools and sprayers saw the largest declines.

Damon Audia: Net sales in Asia Pacific Africa decreased 28%, excluding favorable currency translation and the favorable impact of acquisitions due to weaker end market demand and lower production volumes.

Damon Audia: The most significant declines occurred in China and Australia.

Damon Audia: Finally, consolidated replacement parts were approximately $418 million for the fourth quarter up 4% on a reported basis and up approximately 6% year over year when excluding the effects of unfavorable currency translation, a special things so the parts team around the world to deliver it.

Damon Audia: Such strong results in 2024.

Damon Audia: Turning to slide 10.

Damon Audia: Fourth quarter adjusted operating margin was nine 9% a decline of 80 basis points compared to the strong fourth quarter of 2023.

Damon Audia: The weak industry conditions are resulting in significantly higher costs related to factory under absorption and higher discounts.

Damon Audia: By region Europe Middle East segment income from operations decreased by $95 million and operating margins decreased 180 basis points from Q4 of 2023 to Q4 of 2024.

Damon Audia: The lower margins were a result of reduced sales volume factory under absorption from reduced production and increased discounts.

Damon Audia: Although the industry was down in this segment and the results declined year over year I would note that our team in Europe did a fantastic job growing share and driving cost savings, which helped delivered the second highest level of earnings from this segment ever so congratulations to the European team and their strong execution.

Damon Audia: North American income from operations in the quarter decreased approximately $77 million year over year and operating margins decreased approximately 830 basis points lower sales from the weak market conditions, the divestiture of grain and protein lower production hours and higher expenses associated with the integration of the PT X Trimble.

Damon Audia: Business are the primary drivers for the lower operating margins.

Damon Audia: Operating income in South America increased by approximately $15 million in Q4 of 2024 versus Q4 of 2023 and operating margins were roughly 11% in the quarter.

Damon Audia: Market conditions in the region have continued to remain weak and we have reacted with significant production cuts for five consecutive quarters SG&A expenses were significantly lower in Q4 of 2024 compared to Q4 2023 due to the restructuring efforts. We also had a onetime benefit in Q4 of 2024 of roughly four.

Damon Audia: $1 million related to the mover program sponsored by the Brazilian government, which helped operating margins by around 140 basis points in the quarter.

Damon Audia: Income from operations in our Asia Pacific Africa segment decreased by approximately $14 million due to higher discounts and SG&A.

Speaker Change: As Eric mentioned, we did record an impairment charge of just over $350 million in the fourth quarter related to the North American component of our PT X Trimble joint venture.

Speaker Change: In the quarter, we performed our annual goodwill impairment assessment and concluded that projected discounted cash flows would not support the current level of goodwill.

Speaker Change: The industry conditions in 2024, and the current industry outlook for 2025 negatively affecting the JV sales and earnings. During these early years were the primary reasons for the write down.

Speaker Change: Despite this adjustment I would reiterate what Eric said with the PT X Trimble joint venture is foundational to our autonomy ambitions off-board software suite and guidance solutions for not just agco machines, but for the mixed fleet. We've made great progress in integrating the <unk> joint venture over the past 10 months and look to build on that.

Speaker Change: Momentum in 2025 and beyond we remain committed to our $2 billion precision AG sales target for 2029.

Speaker Change: Slide 11 shows our full three year cash flow for 2023, and 2024 as a reminder, free cash flow represents cash used in or provided by operating activities less purchases of property plant and equipment free.

Speaker Change: Free cash flow conversion is defined as free cash flow divided by adjusted net income.

Speaker Change: We generated $297 million in free cash flow in 2020 for approximately $288 million less in 'twenty, three and lower than our expectations.

Speaker Change: The decline relative to our forecast and corresponding lower free cash flow conversion was driven by the lower than expected sales in the fourth quarter.

Speaker Change: The decline year over year resulted primarily from lower net income.

Our capital allocation plan includes reinvesting back into the business repaying debt to maintain our investment grade credit ratings and rewarding shareholders with direct returns.

Speaker Change: In addition to the regular quarterly dividend of <unk> 29 per share as a reminder, we also paid a special variable dividend of $2 50 per share in the second quarter of 2020 for Agco has paid over $1 2 billion in special variable dividends over the last four years.

Speaker Change: We'll remain focused on deploying capital in the most effective ways for the benefit of our shareholders.

Speaker Change: Slide 12 highlights our 2025 market forecast for our three major regions, which have not changed from what we communicated during our December analyst meeting.

Speaker Change: For North America, we expect demand to be meaningfully lower in 2025 compared to 2024. Despite the recent rally in corn prices will soybean and wheat prices remain below the long term average.

Speaker Change: Farmers are delaying equipment purchases due to higher interest rates and tighter profit margins, we expect a large AG segment to be down around 25% versus 2024.

Speaker Change: The small tractor segment is expected to be down between zero to negative 5%. After several years of significant decline.

Speaker Change: For Western Europe, we expect the industry to be down somewhere in the range of zero to 5% yields for grain and oilseeds remain below historical averages due to droughts in some areas and excessive rain and others input costs for things like fertilizer and pest management remain high further straining profitability.

Speaker Change: For Brazil after this.

Speaker Change: <unk> decline we saw in 2024, we expect industry demand to be relatively flat in 2025.

Speaker Change: Farmer optimism around weather and positive progression of planting for soybeans and corn is expected to support retail demand for tractors. Brazil has also seen easing interest rates stabilizing inflation, which will help contribute to similar demand levels as 2024.

Speaker Change: Slide 13 shows the primary assumptions used to create our 2025 outlook, which excludes the grain and protein business that we sold on November one 2024.

Speaker Change: We anticipate that 2025 global industry demand to be approximately 85% of mid cycle down from just over 90% in 2024. Our sales plan include market share gains and pricing in the zero to 1% range, while foreign currency is projected to be around a 3% headwind.

Speaker Change: With the announcement earlier this week given the ongoing uncertainty on the impacts of the U S farmers retaliatory tariffs and the effect on other parts of the world. Our outlook does not reflect any financial effects from tariffs as things become clearer, we will update our outlook accordingly.

Speaker Change: Given the diverse global manufacturing footprint, the announced tariffs related to China, Mexico, and Canada would likely have a minor direct effect on our financial outlooks, However, retaliatory tariffs or U S tariffs on the EU would influence our current financial outlook.

Speaker Change: Given this dynamic environment, we will remain nimble to address the situation and we will update our outlook as things evolve.

Speaker Change: Engineering expenses are expected to be approximately flat compared to 2024.

Speaker Change: With the continued need to destock dealer inventory channel our production hours will be down between 15% to 20% in 2025 as Eric mentioned earlier. These production cuts will be primarily focused in the first half with the first quarter being down approximately 35% to 40% year over year.

Speaker Change: With the lower level of sales and production in 2025, we expect our adjusted operating margins to be somewhere between 7% and seven 5% with structural changes we made to our business coupled with the cost initiatives. We've implemented we continue to view this outlook is achievable.

Speaker Change: Lastly, our effective tax rate is anticipated to be between 35% and 38% for 2025 higher than 2020 for the reasons for the higher rate are due to lower income in lower tax jurisdictions, primarily in the U S and our Swiss legal entity.

Speaker Change: Turning to slide 14 for our 2025 outlook, which remains the same as outlined at our December analyst meeting our full year net sales outlook is $9 6 billion, which reflects the market environment. The elimination of the grain and protein sales and roughly a $300 million headwind related to FX.

Speaker Change: The lost earnings from grain and protein the adverse FX rates and the higher tax rate altogether reflect over $1 of non operational adverse impacts to our earnings.

Speaker Change: When you layer on the further industry decline, we expect our earnings per share to be in the range of $4 to $4 50.

Speaker Change: Given the weak market environment, we are modestly reducing our capital spending to approximately $375 million versus the $393 million in 2024, which keeps agco well positioned for any future demand inflections.

Speaker Change: Our free cash flow conversion target remains at 75% to 100% of adjusted net income as we look to further reduce working capital in 2025.

Speaker Change: Lastly, our Q1 2025 net sales are expected to be approximately $2 billion down approximately 32% from Q1 of 2024.

Speaker Change: If you were to exclude the grain and protein sales from Q1 of 2020, our sales will be down roughly 26% on a like for like basis, given the lower sales volumes.

Speaker Change: And significant reduction in production hours, we anticipate Q1 earnings per share to be approximately breakeven and our low point for 2025.

Speaker Change: We remain confident in executing our strategy and delivering a more resilient business through the cycle. Our adjusted operating margin outlook for 2025 would be over 300 basis points higher than the last time, our industry is around 85% of mid cycle. In 2016. This will be just another example of how we've structurally changed the business for.

Speaker Change: The long term.

With that I'll turn the call over to the operator to begin the Q&A.

Speaker Change: Yes. Thank you we will now.

Speaker Change: To begin the question and answer session.

Speaker Change: I'll ask a question you May press Star then one on your Touchtone phone.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two please limit yourself to one question and one follow up.

Speaker Change: And the first question comes from Stephen Volkmann with Jefferies.

Stephen Volkmann: Hi, Good morning, guys. Thank you Damon and I am just kind of start off with your Q1 commentary.

I guess the implication there would be North America, probably has a negative margin in the first quarter, but I don't want to put words in your mouth can you just give us a sense of how youre thinking about the profitability by region in the first quarter.

Speaker Change: Yes, Steve I think youre right with the level of under production that we're expecting to see in the first quarter.

Speaker Change: North America would likely be a negative margin Europe, we would still expect it to sort of be in that low double digit range.

Speaker Change: And then sort of South America, probably a little bit negative as well given the large under production there and then Asia Pacific sort of that low single digit some.

Speaker Change: Margin range, but again I think the key for US is the level of under production here.

Speaker Change: In the first quarter is going to be heavily weighted in North America, and South America as we look to further drive down the dealer inventories in those regions.

Speaker Change: Okay understood.

Speaker Change: And then as a follow up I'm trying to get a sense. If you could remind me of your total north American sales how much of that is basically sourced in Europe.

Speaker Change: Yes, So I think if we look at North American sales last year, Steve in total about 35% of that came in from overseas.

Speaker Change: 25% of the 35% came from the EU.

Speaker Change: Great. Okay. That's helpful I'll pass it on thanks.

Tami Zakaria: Thank you. Our next question comes from Tami Zakaria with Jpmorgan.

Tami Zakaria: Hi, good morning.

Speaker Change: Scott.

Speaker Change: My question is on the <unk>.

Speaker Change: Margin it was quite impressive on a 17% sales decline.

Speaker Change: You're saying low double digit.

Speaker Change: Operating margin in the first quarter, so given the cost savings there how should we think about the mid cycle margin for that region when volumes to inflect in the future.

Tami Zakaria: Yes, I think Tammy.

Tami Zakaria: Europe has done quite well with the market share growth the team has done quite.

Tami Zakaria: Quite well parts has been relatively strong.

Tami Zakaria: Generally speaking we would see in the most.

Tami Zakaria: Most of our regions sort of in that mid teens mid to mid teens margin at around mid cycle.

Speaker Change: Got it okay. That's all I had thank you so much.

Speaker Change: Thank you and the next question comes from Mig <unk> with Baird.

Mig <unk>: Yes. Thank you good morning.

Speaker Change: Given the way you framed Q1 for us I'm sort of curious as to how you think about deep.

Mig <unk>: Inventory progression do you think.

Mig <unk>: Issued its problem largely get solved in Q1 or is this more of a.

Mig <unk>: More of a Q2 factor what are some of the benchmarks that you are watching and determined in production for Q2.

Mig <unk>: Yes, I think Mig so if we go down by the if we look at the regions is for Europe. We're in good shape, we don't anticipate really any significant changes I think for South America.

Mig <unk>: We're working to cut production significantly there I would say, we're probably looking into the second quarter as we adjust production given some of the seasonality of the business there as well as you know Q1 is generally speaking a fairly low selling season. So Q2 was what we will see more sell out.

Mig <unk>: North America I think is the wildcard as we looked at were sitting here with around nine months of inventory. Despite the lower number of units because of the negative outlook. So youre sort of looking at two variables. There how does the industry evolve over the let's say the next six months. So if we start to see farmer sentiment improve grain prices. If you looked at corn futures.

Mig <unk>: Now I think they are slightly over $5 for may So a couple of positive data points, if that improves the sentiment and we start to see the demand pick up.

Mig <unk>: That would be an ability for us to maybe slow down, but I think in the in the near term here its going to be looking at the days on hand for the dealers to units to have on hand, and taking an aggressive approach to the inventory. So I think that's the one I would say Q2, maybe a little bit longer depending on how that second half farmer sentiment looks.

Mig <unk>: Here in North America.

Mig <unk>: Okay, and if I may one quick follow up on pricing.

Mig <unk>: Negative in Q4, but you expect it to get better at slightly positive.

Mig <unk>: In 'twenty five.

Mig <unk>: What gives you that confidence in.

Mig <unk>: Again, any any commentary by region would be helpful as well thanks.

Speaker Change: Yeah sure Mig so again, we're still with the zero to one positive if we look at it we're going to be a little bit negative here in the first quarter.

Speaker Change: Have some a couple of things here, we have some carryover pricing in Europe, you've heard me talk about the the new 700, we have the gen. Six Gen. Seven out there. So we have that year over year still affecting the European margins.

Speaker Change: We're likely going to be slightly negative in South America, not driven by I would say pricing or discounts driven more by a tax law change in Argentina, where the industry was pricing for the 17, 5% tax in Argentina that stop in December we and I believe the industry as a whole have reduced that so that.

Speaker Change: It comes shows up as negative pricing for us, but it's really more of a pass through for some taxes there.

North America, we expect to be positive for the quarter and for the full year. So it's still looking similar to what we said in December a little bit more geographic complete weighted with our exposure to Europe.

Speaker Change: Slightly negative driving us down to that zero to 1% for the full year.

Speaker Change: Thank you very much.

Speaker Change: Thank you and the next question comes from Chris <unk> with Oppenheimer.

Speaker Change: Hi, Good morning. Thank you for taking the question I wanted to follow up on Jamie's question about the margin recovery in Europe, particularly in the fourth quarter and how we think about that flowing through to 2025.

Speaker Change: Just specifically can you can you give us an update on the reorganization of <unk>.

Speaker Change: Anything else that you might call out that's helping to contribute to that recovery. Thank you.

Christian: Yes sure Christian.

Speaker Change: John.

Speaker Change: I've stated publicly as part of their restructuring efforts have made a lot of progress I think the reports from the third parties show that the business is improving we continue to have a great partnership with them. We're working very closely with them. Their AG business has been extremely strong and obviously thats helped defense business. So we.

Speaker Change: To be very close with them, obviously as our restructuring initiatives are not eager to take on a lot of the stock units and that's been part of our challenge here with Fendt and <unk> as we're doing great pass through to the retail to the farmers, but the stock units as they start to preserve cash I think we won't see that recover it.

Speaker Change: Here in the first part of 2025, but overall the market looks good there I think what you should expect to see for us and again as you know macro wise the most stable market, we still see it down.

Speaker Change: The cost actions, we've talked about a lot of those cost actions as we worked through compensations with workers counsels. If you look at the restructuring efforts, we accrued quite a bit in the fourth quarter as we've gained some clarity and confidence on that we would expect that to.

Really dropped to the bottom line more in the back half of the year as we start to execute on some of those actions here in Europe.

Speaker Change: Great. Thank you and then my follow up is related to the free cash flow outlook for 2025 you.

Speaker Change: You mentioned some of the inventory that you want to wind down in the first half of the year, but against the comments that this may be the trough in 2025, how do you think about the working capital in the back half of the year. If there is some anticipation that we could see maybe a little bit of volume recovery next year.

Speaker Change: Yes, so again, if I think about our free cash flow, we still feel fairly confident again, if I looked at where we delivered just in the 2024, we fell short of our expectations, but I think it's important to remember because of how we work with Agco finance, Eric and I, both alluded to that we missed our sales.

Speaker Change: By around $300 million versus our expectations had we made those sales that would have come out of inventory and would've dropped right into cash for us. So that would have put our conversion rate at just around 100%. So we still feel good as we look forward into 2025, knowing that there are some finished goods that we have to work through the system here because what work here.

Speaker Change: During his more than what we would want in the current environment and so even if the industry picks up it won't be sort of a one for one billed as the industry's recovery because of where we finished the year to year falling a little bit short of the of the sales target.

Speaker Change: Thank you so much.

Jamie Cook: Thank you and the next question comes from Jamie Cook with Truest.

Jamie Cook: Hi, Good morning, I guess two questions. Jamie first similar question on South America, given we start off the year negative and just the volatility in the margins how are you thinking about.

Jamie Cook: Margin for the full year and sort of the cadence.

And then I guess my second question.

Jamie Cook: Obviously, you guys announced some restructuring actions that you started I think last summer given the weakness in the market anything more that we're contemplating.

Jamie Cook: And then last finally, just what's the expectations on Pts in your in your guidance in terms of sales and profits if any thanks.

Jamie Cook: Yes, sure Jamie so.

Jamie Cook: South America I think for the full year, we would sort of today expect those margins to be similar to where we finished the full year of 2024 sort of in that mid to sort.

Jamie Cook: A higher single digit range.

Jamie Cook: As I mentioned on the prior one of the earlier questions will be negative in Q1, and then we start to pick up some profitability. In Q2 Q3 is generally the strongest seasonal quarter. There. So we will see that be the richest or the best profitability and then tampered down a little bit in the fourth quarter again, driven more by seasonality, but for the full year and sort of.

Jamie Cook: Put it close to where we finished last year.

Jamie Cook: On the second part restructuring actions. So we're on good pace to deliver the $100 million to $125 million of cost savings by the run rate by the end of this year at the December Investor Day, I did announce that as we were looking at further efficiencies better opportunities to leverage Global center.

Jamie Cook: It was of excellence, we added another $75 million of run rate savings those will not happen likely until and the run rate at the end of 2026, as we start to migrate things to international locations levers a little bit more technology.

Speaker Change: With that being said, we're as Eric alluded to we're watching this market very closely to the extent things get worse or worse than our plans, obviously theres always discretionary spend that we can control we're doing the investments as we feel appropriate for the business for the long term, but at the end of the day, we've got to make sure we're delivering a certain level of margin and earnings.

Speaker Change: As well and so we do have some discretionary cost levers that we could layer on if necessary on top of the normal restructuring.

Speaker Change: As it relates to <unk> as a whole so again as a reminder for the team here when we talk about Gtx that includes our precision planting business, our PT X Trimble business and our fuse business when we look at that as a whole.

Speaker Change: Last year's revenues were just I'll call it around mid eights and.

And I would expect that business to be relatively flat in 2025 at a similar type of sales level amongst those three groups combined.

Speaker Change: Thank you.

Speaker Change: Thank you and the next question comes from Jami Rubin with Goldman Sachs.

Jami Rubin: Yes, hi, good morning, everyone.

Eric: Hi, Eric.

Speaker Change: No.

Speaker Change: You can just expand the comments you made in the prepared remarks on the company's philosophy on upfront pricing versus subscription pricing within the context of <unk>.

Speaker Change: One of your competitors.

Speaker Change: Doing aftermarket guidance kits with heavy aftermarket pricing can you just talk about what feedback you're hearing in the market.

Speaker Change: Just your broader philosophy on upfront versus subscription.

Speaker Change: Yes.

Speaker Change: We aim to be the most farmers focused company in the industry and with farmers continually tell us is that they have.

Speaker Change: Different.

Speaker Change: <unk> appetites in different parts of the cycle.

Speaker Change: And when they want to purchase something they'd like to finance it and get it all purchased in the good years and then on the lean years come we'd like to minimize that are there ongoing costs. So they are in general not too favorable for subscription fees now there are exceptions to that rule and we have some subscription model as part of our outrun it.

Speaker Change: <unk> system, we've got some subscription aspects to a radical economic system and so there are elements, where it makes sense, especially for newer technologies and things like that.

Speaker Change: But as it relates to the technology I mentioned, which was tied to spring we feel that the feedback we're getting is that they would rather pay for one time and then be able to use it.

Speaker Change: <unk>.

Speaker Change: Have their fixed cost done and that have an ongoing variable cost because that way. They can run over the field part of the problem is right now if you have a variable cost if you run over the field a second time just to capture a few weak spots.

Speaker Change: It's actually very expensive from a variable cost standpoint, and so they don't do that pass we want them to be able to do that pass which is one of the features that is attractive with that system. So that's how we think about it trying to be very farmer focused and use the subscriptions, where it makes sense, especially in newer technologies.

Speaker Change: Super.

Speaker Change: Then in terms of the South America performance in the quarter as Pleasant.

Speaker Change: Surprise can you just talk about what the run rate you expect to be in <unk> <unk> of that of that business I appreciate it.

Speaker Change: A little bit 150 basis points benefited the fourth quarter, but.

Speaker Change: Can you talk about what the production cuts are done what's the margin trajectory that you folks expect to be on this year.

Speaker Change: Yes, I think.

Speaker Change: As I mentioned on the <unk>.

Speaker Change: Maybe just the last question, we expect to be given the heavy heavy production cuts in the first quarter, we would be negative.

Speaker Change: Operating margin in South America slightly positive in Q2, as we start to.

Speaker Change: And hopefully improve the production levels, a little bit there Q3, we should lap the challenges and we start to see the industry improving that's also the strongest one of the strongest selling quarters for them. So we should see the profitability jump up in the third quarter, and then tail back down a little bit more because of the.

Speaker Change: The timing of the of the sales here between South America, and then for the full year I would say similar to last last year's performance, maybe a little bit below just given the pricing in Argentina that I had mentioned on one of the prior one of the prior questions, but sort of that mid to high single digits.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you and the next question comes <unk> <unk> with Citigroup.

Speaker Change: Thanks, guys just wanted to ask a little ahead of I'll just anything that you guys are are we should be thinking about with upcoming elections in Germany, and just any potential impacts either pre or post election.

Speaker Change: No I think what you've seen there is two different factors one is the country elections amendments the EU Parliament and we saw the EU Parliament move too.

Speaker Change: To the right.

Speaker Change: And I think that's the one that is maybe more important for overall EU regulations relative to.

Speaker Change: Climate change policies and restrictions on farmers and things like that I think it was a bit of a friendly move to farming practices, allowing them to continue to finally.

Speaker Change: To be farming, instead of adding more restrictions as it relates to our country specific.

Speaker Change: Maybe that's more leaning toward an impact on.

How well there will be cohesion between those countries and the U S administration.

Speaker Change: But.

Speaker Change: Regardless of who is elected.

Speaker Change: See a big difference there.

Speaker Change: So we don't see much impact in our scenario planning.

Speaker Change: Country specific collections.

Speaker Change: Thanks, that's helpful. And then I just wanted to touch on the Trimble topline synergies you are thinking about it in 2025 and I think if I recall correctly I think you guys have talked about about 450, or so premier precision planting dealers in North America, but on the 50 or so selling trimble. So just.

Speaker Change: Could you help us frame the opportunity there and do you anticipate getting to four hundreds basically adding starting to sell trimble.

Speaker Change: How many do you think could be added this year, how fast do you think that can happen and what do you think is there overall willingness and ability to start carrying trimble as well.

Speaker Change: Yes.

Speaker Change: Theres been a lot of progress in the fourth quarter, especially on two fronts. One is signing up agco dealers to take on the Trimble aftermarket technology and then also to establish the understanding in the market about where we're going with what we call full line Tech dealers and these are dealers that previously could have been.

Speaker Change: Precision planting dealer or could have been a triple dealer and we want them to carry both portfolios going forward. So that they've got the full breadth of all technology.

Speaker Change: If you add them all up today, we've got over 1000 dealers in the marketplace and over 95% of the acres covered.

Speaker Change: With with.

Dealers that cover our technology <unk> technology now what we don't have fully penetrated yet is the full cross selling that's going to be the primary focus in 2025 as well as continuing to build out our AG co fleet agco dealer portfolio.

Speaker Change: We've got a little over 100 dealers in the ankle lineup signed up today will be.

Speaker Change: Between two and 300 by the end of this year, which is where we want to be.

We've got to see and each dealer sign ups about where we want it to be so our main focus is cross selling of the <unk> Tec dealers and filling out the rest of our agco dealers looking we think both of those will make big progress in 'twenty five.

Speaker Change: Got it that's helpful. Thank you.

Speaker Change: You bet. Thank you.

Speaker Change: Thank you and the next question comes around how fast you with Morgan Stanley.

Speaker Change: Good morning, and thanks. Thanks for taking my question I just wanted to go back on the PT X I think.

The discussion around the sales maybe expectation this year, but just curious if you could kind of overlay the expectations on operating income for 2025, and maybe just expand on the impairment charge. It sounds like some of the adoption rate on.

Speaker Change: Penetration of precision AG, but youre seeing is is still good. So just to what extent are you seeing any kind of deterioration.

Speaker Change: Around that.

Speaker Change: Relative to <unk> in particular.

Speaker Change: Yes, I'll talk about the strategy elements now.

Speaker Change: Damon talked about the margin projections.

Speaker Change: If you took a look at all the activities. We wanted to do in 2024 and that we're aiming for in 2025, we got them done or more so we launched the <unk> brand is well understood in the marketplace everybody understands that's the collection of all of these assets that we've gotten is now the strongest mixed fleet precision AG business in the world.

Speaker Change: We retained our key talent within the business, we retained all of our OEM partners in the business.

Speaker Change: We built up a strong channel I just talked about it.

Speaker Change: Over 1000 dealers and over 95% of the acres, Kevin we've got to fill that in and make it penetrate better but we've got a great Foundation.

Speaker Change: We are building the innovation factory, where we launched outrun technology on the automation kit.

Speaker Change: The data platform team is running at full speed. That's one of the outputs that we wanted out of this deal and we will have our first launch coming soon and we converted the technology guidance systems on our AG machines. It used to be about a 20% take rate of Trimble, it's up over 70% now and we think it will be over 85% and 25.

Speaker Change: And so the activities were.

Speaker Change: Aiming for.

Speaker Change: Are done.

The market was so depressed that.

Speaker Change: The market demand was down in addition to the last time buy for <unk>.

Continued to run longer than we had expected because it last longer.

Speaker Change: Weaker market.

Speaker Change: We also implemented significant cost synergies in 2000, and 2024 and we're going to continue that in 2025, we haven't gotten revenue synergies just because there is not much revenue in this market, but we still are aiming for that and we still are committed to delivering it as the market recovers so without.

I'll have David maybe give a little more color on margin expectations I think haynesville for for PT X Trimble, we do expect the margins to improve in 2025 versus 2024 as you've heard us talk about the integration the Cna's last time buy.

Speaker Change: It's definitely it was a challenging year in 2024, but as we start to see some of that work through the system here, we do see sales up in that part of it in that business next year, and we see the margin improving year over year as it relates to the impairments as I said in my comments.

Speaker Change: We follow a traditional discounted cash flow analysis, it's heavily weighted on the near term as you would expect then just given the industry drop in 2020 or in the industry projections for 2025, it put a lot of pressure on the sales and earnings that we had expected relative to the deal that the deal model that we had built when we.

Speaker Change: Formulated the goodwill and.

Speaker Change: And as a result of that we had to take the charge here at the end of the fourth quarter, but as Eric said and I said it doesn't change the long term plan doesn't change the technology adoption rates. The excitement, we're seeing from farmers and from our dealers. It's more of just that DCF and the timing of what we had to recognize when the cycle hits this year or last.

Speaker Change: Year versus hitting two or three years from now.

Speaker Change: That's very helpful. Thank you and then maybe I just wanted to go back to the comment I think on free cash flow just the confidence to be able to kind of reach that 75 to 100.

Speaker Change: <unk> conversion can you just unpack that a little bit more I think again, you made some comments around that.

Speaker Change: <unk>.

Speaker Change: Earlier, but just wanted to understand given the kind of 50% conversion in the last couple of years and I think we've heard from other peers, maybe timing around pro fund cash.

Speaker Change: Cash payout, just anything that might be impacting or might be at risk and then just how you think about that conference on that 75 to Andre.

Speaker Change: Yes, I can say, we feel again, if we would've delivered the sales that we were expecting in.

Speaker Change: In the fourth quarter, we would it would have been around 100% conversion in 2024.

Speaker Change: Falling short on those sales affected the conversion. This last year left me or left us with excess inventory at the end of the 2024. So when I think about 2025, we would expect to normalize that finished goods inventory sitting in agco's balance sheet getting that into the channel to the dealers and <unk>.

Speaker Change: Similar to the farmers.

Speaker Change: And so we still feel good about the conversion rate I think the one question Mark we would have is if the industry starts to recover and one of the other animals that asked that question. If we start to see a rapid acceleration of the industry moving into 2026, how much will we have to start building in anticipation so would we be adding.

Speaker Change: Incremental inventory into the system in anticipation of a strong 2026 I would tell you. That's a good problem to have if we feel that the industry is recovering right now based on our outlook.

Speaker Change: We don't see that level of extreme outlook for 'twenty, six, but I think that would be the one thing that we'll watch as we move through the year or is that farmer sentiment and how do we plan the production schedule for the back half of the year.

Speaker Change: Very helpful. Thank you.

Mike Feniger: Thank you and our next question comes from Mike Feniger with Bank of America.

Mike Feniger: Hey, guys. Thank you for squeezing me in.

Mike Feniger: Can you just help us understand with with North America I know you touched on this earlier, but if there are tariffs with Europe does it change any of your thought process or strategy, when we think of Massey and any big shifts there.

Mike Feniger: It'd be kind of flexible or how to think about that with North America. If we do start seeing more more of this tariff conversation pick back up.

Mike Feniger: Our supply chain team has looked at several different scenarios of what we might do I think a lot of this depends on what are the rules of the game going forward what constitutes a tariff.

Mike Feniger: What would be required to be local production and how long do we think it will be in place.

Mike Feniger: Any kind of major footprint change usually takes a multiyear payback.

Mike Feniger: And so.

Mike Feniger: Until we get some clarity on stability and what are the exact rules in details.

Mike Feniger: We don't expect to be making supply chain shifts.

Mike Feniger: But we've got plans on the shelf ready to go if if.

Mike Feniger: If some of those materialize, but right now we don't have anything in <unk>.

Mike Feniger: Have some effect on us and so do we shift the landing of some port certain products into Canada versus the U S. We're looking at things do we do some minor kidding here in the U S. Without large scale investments that may help us ease the short term pain. So as Eric said there are an array of scenario is being running run this company, but we won.

Mike Feniger: To make sure we have some clarity.

Mike Feniger: Before we actually execute any of those things.

Mike Feniger: Fair enough and just lastly, guys I realize the production cuts are really helping kind of make that progress on the inventory side mentioned North America, I think with nine months versus the targeted fixed.

Mike Feniger: Curious, how we think about the use side, if youre seeing progress there and how you kind of help facilitate on the used side as I know you guys are making progress on the new side with the inventory. Thank you.

Mike Feniger: Yes.

Mike Feniger: We don't have as much of a huge problem in some of our competitors do we continue to use pool funds and things like that and other financing tools, but right now used equipment values are holding up and use the treatment volumes are similar now and are back to pre COVID-19 levels, but not not a concerning level for us yet.

Mike Feniger: So we're managing that using the regular tools.

Mike Feniger: Partnership with Agco finance.

Thank you and this concludes our question and answer session I would like to turn the conference back over to Eric Hausler for any closing comments.

Mike Feniger: Yes, I'd just like to say, thank you for joining us today and the great questions on the call Agco has gone through a substantial transformation over these past years, particularly in 2024 is a big year of change, where we supercharged our precision AG portfolio with the <unk> brand.

Mike Feniger: Our team was instrumental in delivering the eight 9% adjusted operating margin results for 2024, that's a high watermark for us at this stage of the cycle and 300 basis points better than the last cycle as Damon talked about.

Mike Feniger: I want to thank each of them for their contributions it was a big year of lots of hard work.

Mike Feniger: We're focused on the farmer.

Mike Feniger: To all of our shareholders. We appreciate your support and looking forward to building value through our transformation program and executing on our pharma first strategy have a great day and thanks for your participation.

Mike Feniger: Thank you for joining the <unk> fourth quarter 2024 earnings call Conference call has now concluded have a nice day.

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Speaker Change: Good day and welcome to the AG co fourth quarter 2024 earnings call.

Mike Feniger: All participants will be in listen only mode.

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

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

The ratio of time, please limit yourself to one question and one follow up.

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

Mike Feniger: Your question. Please press Star then two please note this event is being recorded.

Mike Feniger: Now like to turn the conference over to Greg Peterson Agco head of Investor Relations.

Mike Feniger: Thanks, and good morning, welcome to those of you joining us schrag, because fourth quarter and full year 2024 earnings call.

Mike Feniger: We will refer to a slide presentation. This morning is posted to our website at www Dot <unk> Dot com.

Mike Feniger: The non-GAAP measures used in the slide presentation are reconciled to GAAP metrics in the appendix of the presentation.

Mike Feniger: We will make forward looking statements this morning, including statements about our strategic plans and initiatives as well as the financial impacts will discuss demand product development and capital expenditure plans timing of those plans and our expectations concerning the costs and benefits of those plans and timing of those Bennett.

Mike Feniger: <unk> will also cover future revenue crop production farm income production levels price levels margins earnings operating income cash flow engineering expense tax rates and other financial metrics.

Mike Feniger: All of these are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks include but are not limited to adverse developments in the agricultural industry supply chain disruption inflation tariffs, whether commodity prices changes in product.

Mike Feniger: And the possible failure to develop new and improved products on time, including premium technology and parts smart farming solutions within budget and with the expected performance and price benefits.

Mike Feniger: Difficulties in integrating the PT X Trimble business in a manner that produces the expected financial results introduction of new or improved products by our competitors.

Mike Feniger: And reductions in pricing by them toward in the Ukraine difficulties in integrating acquired businesses and in completing expansion and modernization plans on time and in a manner that produces expected financial results.

Mike Feniger: And adverse changes in the financial and foreign exchange markets.

Mike Feniger: Actual results could differ materially from those suggested in these statements further information concerning these and other risks is included in that because filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2023, and subsequent Form 10-Q filings Agco disclaims.

Mike Feniger: Any obligation to update any forward looking statements, except as required by law.

Mike Feniger: Later today, we will make a replay of this call available on our corporate website.

Speaker Change: On the call with me. This morning is Eric <unk>, Our chairman, President and Chief Executive Officer, and Damon Audia, Senior Vice President and Chief Financial Officer.

Speaker Change: Eric Please go ahead.

Speaker Change: Thanks, Greg and good morning earlier today <unk> reported fourth quarter results for 2024, where we delivered a strong nine 9% adjusted operating margin and $1 97, and adjusted earnings per share and sales that were down 24% from quarter four last year.

Speaker Change: On a full year basis, we achieved an eight 9% adjusted operating margin and $7 50, and adjusted earnings per share and sales that were down 19% from 2023.

Speaker Change: Adjusted operating margin performance is by far our best performance in an industry downturn.

Speaker Change: What makes it more impressive is that the north American industry decline in 2024 was the worst single year decline since the downturn in 2019 associated with the financial crisis.

Speaker Change: Our margin resiliency in this challenging environment is clear evidence that we are structurally improve the company through our ongoing transformation efforts over these past years.

Speaker Change: I want to take a moment to thank the agco team around the world for delivering such strong results for the year, despite a challenging and dynamic macro environment and at the same time with significant portfolio shifts that occurred in our business.

Speaker Change: The organization teamed up and put farmers first reinforcing agco as the most trusted partner for industry, leading smart farming solutions.

Speaker Change: 2024 was a transformative year for agco.

Speaker Change: We closed the largest AG tech deal in our industry's history with Pts Trimble joint venture.

Speaker Change: And we also exited a non core part of our business by divesting the majority of the grain and protein business.

Speaker Change: These portfolio changes helped us and enhance our strategic ambitions and allow <unk> to focus on agricultural machinery and precision AG technology.

Speaker Change: These strategic changes will also provide margin tailwind for us over the long term as we outlined in our analyst day in December.

Speaker Change: And the precision technology side of our business, we combined all of our brands under the newly launched Gtx brand. So that we can swiftly unlock synergies across the enterprise and grow precision AG sales to $2 billion by 2029.

Speaker Change: We have already demonstrated tremendous progress in 2024, where we now have over 1000 Pts dealers.

Speaker Change: All while continuing to foster relationships with over 100 Oems looking.

Speaker Change: Looking to the future. We know are independent retrofit dealer network is an absolute key differentiator for us that provides unmatched product expertise and support to farmers, regardless of the equipment brands they prefer.

Speaker Change: Autonomy targeted spring and off core technologies will become more mainstream in the coming years agco.

Speaker Change: <unk> poised to partner with farmers at any point in their technology journey.

Speaker Change: The depth of our product portfolio and unique consultative go to market approach allows us to offer a wide variety of products for any brand and vintage of machinery and this is a very difficult thing to replicate.

Speaker Change: In addition, given our pharmacy first focus we also rolled out our farmer core initiative in 2024, and further streamlined our distribution network by partnering with some of the greatest dealers. So that we can best serve farmers and farm online or on site at the dealership.

Speaker Change: The way they want to be best served.

Speaker Change: The fed portfolio in North America comes with an industry, leading uptime commitment and our farmer core strategy is designed to help deliver that uptime.

Speaker Change: We expect that coverage in north and South America to continue its growth trajectory and reach approximately 82% in 2025 through these continued efforts.

Speaker Change: The quarter wasn't without challenges, however, dealer inventories remained higher than target going into 2025.

Speaker Change: On a weighted average basis, we have between one and one five months of excess dealer inventory to work through.

Speaker Change: To address this we are planning to significantly underproduce retail demand again in 2025.

Speaker Change: Although we anticipate further declines in large AG machinery volumes in 2025 recent sentiment surveys and many of our recent interactions with farmers show a sense of cautious optimism that is an improvement from where we were just six months ago.

Speaker Change: Recent positive news around the stocks to use ratios and commodity price rallies.

Speaker Change: <unk> farmers expectations about future profitability.

Speaker Change: The byproduct of this is a back half weighted outlook for agco.

Speaker Change: <unk> positioned ourselves in this environment, we anticipate more significant production cuts in the first half of the year offset by modest growth in production hours in the back half as we lap easier comparables.

Speaker Change: Finally.

Speaker Change: We will see cost savings begin to materialize in earnest around mid 2025, as our right sizing transformation initiatives begin to manifest in the P&L.

Speaker Change: We expect these efforts to mitigate some of the weak industry demand.

Speaker Change: Despite a lower sales forecast and significant underproduction.

We expect higher and more resilient margins compared to past cycles due to the structural improvements in our business.

Speaker Change: Slide four details industry unit retail sales by region for 2024.

Speaker Change: Global industry retail sales of farm equipment continued to be weak and all of <unk> key markets. We expect the bottom of the cycle to occur in 2025.

Speaker Change: North American industry retail tractor sales decreased 13% during 2024 compared to the previous year.

Speaker Change: Sales declines were relatively consistent across the horsepower categories with higher horsepower categories declining more in recent months.

Speaker Change: Combined unit sales were down 22% in 2024 compared to 2023.

Speaker Change: Lower projected farm income and a refreshed fleet is expected to pressure industry demand even more in 2025.

Speaker Change: <unk> and weaker North American industry sales compared to 2024.

Speaker Change: Particularly in larger equipment.

Brazil industry retail tractor sales decreased 4% and combine sales decreased 33% during 2024 compared to the previous year.

Speaker Change: Farm acreage in Brazil increased only modestly in 2024 after five years of more significant growth.

Speaker Change: Lower commodity prices rising farmer debt and reduced demand from China accreted caution among Brazilian farmers.

Speaker Change: Industry demand is expected to remain effectively flat in 2025 due to mixed market dynamics.

Speaker Change: As with other cycles industry demand will recover.

Speaker Change: It's a matter of when not if.

Speaker Change: <unk> will benefit from the long term growth of the agricultural equipment segment. Thanks to a growing population and a middle class with diets that consist of greater amounts of protein.

Speaker Change: With the actions we took in 2024 are consistent farmer first focus we have positioned ourselves.

Speaker Change: Very well to capitalize on the growth of precision AG that is needed to raise yields and meet the world's growing agricultural needs.

Speaker Change: Agco's factory production hours is shown on slide five.

Speaker Change: We have eliminated green and protein production hours from 2024.

Speaker Change: Significant production cuts were made in all regions in quarter, four 2024, with the biggest reductions occurring in South America and North America.

Speaker Change: Given the continued weakening industry conditions, we reduced production hours, even more than we planned as sales in the quarter were below our expectations are.

Speaker Change: Our production hours were down approximately 33%.

Speaker Change: The quarter, four 2024 versus low levels in the quarter four of 2023.

Speaker Change: And down approximately 28% on a full year basis versus the year of 2023 at a global level.

Speaker Change: We remain laser focused on reducing dealer inventories as quickly as possible in 2025, given the current soft demand environment and the elevated dealer inventory levels.

Sequentially from quarter three to quarter four 2024, we saw modest reductions in dealer inventory, but we still have work to do primarily in North America and South America we.

Speaker Change: We are projecting 2025 production hours between 15, and 20% lower than 2024 with the North America region is showing the biggest decline.

Speaker Change: We expect quarter, one 2025 production hours to be down between 35, and 40% versus quarter one of 2024.

Speaker Change: Our plan is front loaded and aggressive to get inventory right sized quickly.

Speaker Change: Current outlook for 2025 assumes North America, and South America will result in production less than retail demand at least through the first half of 2025.

Speaker Change: Diving into the regional breakdown in Europe, We ended 2024 with your inventories at just over four months of supply.

Speaker Change: Secondly in line with where we'd like.

Speaker Change: Ventas under this average and Massey Ferguson, Walter or slightly above.

Speaker Change: The near target dealer inventory level in Europe is a real positive for agco, given the significant exposure to the region.

Speaker Change: In South America, we reduced the number of units on hand at the dealers I over 8% from quarter three level.

Speaker Change: However, given the forward outlook dealers are still holding around five months of supply versus our targeted level of three months, we anticipate under producing retail demand at least through the first half of 2025 to further reduced dealer inventory levels.

Speaker Change: Similar in North America, we reduced the units on hand at the dealers by approximately 7% from quarter three levels.

Speaker Change: However, given the challenging outlook in 2025, we are still approximately nine months of supply versus our six months target.

The current environment resulted in a significantly lower production levels at least for the first half of 2025.

Speaker Change: Moving to slide six where youll see our three high margin growth levers aimed at improving our mid cycle operating margins to our new target of 14% to 15% by 2029 and outgrowing the industry by 4% to 5% annually.

Speaker Change: This demonstrates that we are a much stronger company that is less variability throughout the business cycle.

Speaker Change: Higher to mid cycle, but also higher lows and higher highs.

Speaker Change: To reiterate these three growth levers are number one the globalization and full line product rollout of our Fendt brand, where we now expect north and South America Fendt revenues to reach $1 7 billion.

Speaker Change: By 2029.

Speaker Change: Number two growing our precision AG sales to $2 billion.

Speaker Change: Globally by 2029.

Speaker Change: And number three focusing on accelerating our global parts business and increasing the market share of genuine echo parts to achieve approximately $2 3 billion.

Speaker Change: In global sales by 2029.

Speaker Change: We rolled all these new targets at our recent analyst meeting in December and we appreciate those who are in attendance.

Speaker Change: Moving to slide seven you'll see a recap of precision planting in 2025 Renner conference. That's one of my favorite events every year I just never Miss it.

Speaker Change: This premier event attracted over 4000 farmer attendees from across the globe.

Speaker Change: The objective is to help farmers learn strategies and technologies that will help them efficiently and productively improve their operations and they can all be implemented immediately on their farms the.

Speaker Change: The conference also gives them opportunities to connect with other farmers and experts to share knowledge.

Speaker Change: One of the highlights from the event included an update on our Symphony vision targeted spray system.

Speaker Change: Which will begin deliveries in quarter one of 2025.

Speaker Change: As you would expect from us and our pharmacy strategy. This technology can be retrofitted on all sprayers sold in North America in the last 10 years.

Speaker Change: We're going to market with two tier of offerings.

Speaker Change: First is symphony vision rate, which allows farmers to leverage pulse width modulation technology with live vision variable rate control.

Speaker Change: The second is symphony vision spot.

Speaker Change: Which ad spot spray control of each nozzle farmer.

Speaker Change: Farmers can grow into the technology at a pace they prefer simply.

Speaker Change: Simply by adding additional cameras for the full spot spray feature set.

Speaker Change: Farmers will own the technology with no per acre recurring charge, enabling them to control weeds in a cost effective manner year after year, while maximizing tax incentives in the year purchase.

Speaker Change: Our unique independent distribution network emphasize retrofit first through a hands on approach where the dealers are seen as trusted advisers by the farmers.

Speaker Change: Depth of the precision planting portfolio, coupled with the Pts Kimball's product lineup allows agco to offer absolutely. The most comprehensive suite of technology hardware and services, regardless of the MC four year equipment, a farmer owns.

Speaker Change: Because objective is to be the technology hub of the mixed fleet.

Speaker Change: This event is a testament to our unwavering commitment to innovation and.

Speaker Change: In shaping the future of the industry alongside our pharma partners.

Speaker Change: Couldnt be more excited about what's ahead.

Speaker Change: On slide eight youll see a familiar slide that highlights how our precision AG products can help farmers reduce every expense, except land, where we can positively positively impact over 70% of the cost on a given plant.

Speaker Change: The value add and return on investment is clear for farmers.

Speaker Change: Seeing increased adoption of technologies, even in this challenged AG economy.

Speaker Change: Let's take electric drive plantar rose and smart spray nozzle, leaving our factories as examples in quarter four we had electric drive plant arose approaching 90% take rate.

Speaker Change: Smart allows us over a 50% take rate in quarter, four and we expect that to grow significantly with precision planting symphony nozzle.

Speaker Change: 2024 marked a significant milestone for Agco's precision AG business.

Speaker Change: Together, two powerful brands precision planting known for its innovation and pharma focus and PT X Trimble.

Speaker Change: These two working in a fully integrated way as one powerful team to deliver market, leading precision AG technology focused on the mixed fleet.

Speaker Change: Through this integration we have already made several changes to better position the business for success, including recent leadership changes to enhance the focus on driving innovation and winning across all brands and farmers.

Speaker Change: These improvements accelerate our ability to deliver on being the most farmer focused precision AG technology company in the industry.

Speaker Change: We also made progress on transforming our technology stack with the PT X Trimble joint venture with.

Speaker Change: We recently launched our outrun retrofit autonomy kit and.

Speaker Change: And there's lots of excitement about it.

Speaker Change: While the long term opportunity is attractive there are some near term dynamics impacting the business.

Speaker Change: As we indicated at our analyst meeting sales and margin for PT X Trimble has been pressured given the rapid decline in the broader industry and the ongoing distribution transition.

Speaker Change: Related to the softness we have taken a goodwill impairment charge in quarter, four which Stephen will cover in more detail shortly.

Speaker Change: Despite this we know this was absolutely the correct strategic move.

Speaker Change: We will continue integrating innovating and growing the <unk> portfolio of products and services to hit our 2029 sales target of $2 billion.

Speaker Change: The short term market environment has no effect on the strategic value of this asset and our confidence in achieving our $2 billion sales target.

Speaker Change: Helping PT X accelerate development and deploying industry, leading solutions for farmers around the world will be one of my top priorities in 2025.

Damon Audia: I'll now hand, it over to Damon to walk you through some of the financials from the quarter.

Damon Audia: Thank you Eric good morning, everyone.

Damon Audia: Slide nine provides an overview of regional net sales performance for the fourth quarter and full year.

Damon Audia: Pricing in the quarter was roughly negative 1% compared to the fourth quarter of 2023.

Damon Audia: <unk> were down in most countries with declines in Germany, I think kingdom, and France, showing the largest reductions.

Damon Audia: Products showing the most significant declines were high horsepower tractors hay tools and combines however heart showed modest growth even in this environment.

Damon Audia: South American net sales decreased approximately 24%, excluding the impact of unfavorable currency translation and favorable impact of acquisitions.

Damon Audia: The market continues to be challenged and we continue to under produce relative to retail demand.

Damon Audia: High horsepower tractors combines and planters showed the largest reductions by.

Damon Audia: By geography, the Brazilian market was down the most partially offset by increased sales in Argentina.

Damon Audia: Net sales in North American region decreased approximately 39%, excluding the impact of unfavorable currency translation and favorable impact of acquisitions.

Damon Audia: Farm income continues to pressures firmer purchasing behavior high horsepower tractors hay tools and sprayers saw the largest declines.

Damon Audia: The most significant declines occurred in China and Australia.

Damon Audia: Such strong results in 2024.

Damon Audia: Turning to slide 10.

Damon Audia: Fourth quarter adjusted operating margin was nine 9% a decline of 80 basis points compared to the strong fourth quarter of 2023.

Damon Audia: Weak industry conditions are resulting in significantly higher costs related to factory under absorption and higher discounts by.

Damon Audia: By region Europe Middle East segment income from operations decreased by $95 million and operating margin decreased 180 basis points from Q4 of 2023 to Q4 of 2024.

Damon Audia: The lower margins were result of reduced sales volume factory under absorption from reduced production and increased discounts.

Damon Audia: Business are the primary drivers for the lower operating margins.

Damon Audia: Operating income in South America increased by approximately $15 million in Q4 of 2024 versus Q4 of 2023 and operating margins were roughly 11% in the quarter.

Damon Audia: Related to the mover program sponsored by the Brazilian government, which helped operating margins by around 140 basis points in the quarter.

Damon Audia: Income from operations in our Asia Pacific Africa segment decreased by approximately $14 million due to higher discounts and SG&A.

Damon Audia: As Eric mentioned, we did record an impairment charge of just over $350 million in the fourth quarter related to the North American component of our PT X Trimble joint venture.

Damon Audia: In the quarter, we performed our annual goodwill impairment assessment and concluded that projected discounted cash flows would not support the current level of goodwill.

Damon Audia: The industry conditions in 2024, and the current industry outlook for 2025 negatively affecting the JV sales and earnings. During these early years were the primary reasons for the write down.

Damon Audia: Despite this adjustment I would reiterate what Eric said with the PT X Trimble joint venture is foundational to our autonomy ambitions off-board software suite and guidance solutions for not just agco machines, but for the mixed fleet. We've made great progress in integrating the pizza ex Trimble joint venture over the past 10 months and look to build on that.

Damon Audia: Momentum in 2025 and beyond we remain committed to our $2 billion precision AG sales target for 2029.

Damon Audia: Slide 11 shows our full three year cash flow for 2023, and 2024 as a reminder, free cash flow represents cash used in or provided by operating activities less purchases of property plant and equipment free.

Damon Audia: Free cash flow conversion is defined as free cash flow divided by adjusted net income.

Damon Audia: We generated $297 million in free cash flow in 2020 for approximately $288 million less in 'twenty, three and lower than our expectations.

Damon Audia: The decline relative to our forecast and corresponding lower free cash flow conversion was driven by the lower than expected sales in the fourth quarter.

Damon Audia: The decline year over year resulted primarily from lower net income.

Damon Audia: Our capital allocation plan includes reinvesting back into the business repaying debt to maintain our investment grade credit ratings and rewarding shareholders with direct returns.

Damon Audia: In addition to the regular quarterly dividend of <unk> 29 per share as a reminder, we also paid a special variable dividend of $2 50 per share in the second quarter of 2020 for Agco has paid over $1 2 billion in <unk>.

Damon Audia: Special variable dividends over the last four years.

Damon Audia: We will remain focused on deploying capital in the most effective ways for the benefit of our shareholders.

Damon Audia: Slide 12 highlights our 2025 market forecast for our three major regions, which have not changed from what we communicated during our December analyst meeting for North America, we expect demand to be meaningfully lower in 2025 compared to 2024. Despite the recent rally in corn prices will soybean.

Damon Audia: And wheat prices remain below the long term average.

Damon Audia: Farmers are delaying equipment purchases due to higher interest rates and tighter profit margins. We expect a large expect segment to be down around 25% versus 2024.

Damon Audia: The small tractor segment is expected to be down between zero to negative 5%. After several years of significant decline.

Damon Audia: For Western Europe, we expect the industry to be down somewhere in the range of zero to 5%.

Damon Audia: Yields for grain and oilseeds remain below historical averages due to droughts in some areas and excessive rain and others input costs for things like fertilizer and pest management remain high further straining profitability.

Damon Audia: For Brazil after this.

Damon Audia: Inefficient decline we saw in 2024, we expect industry demand to be relatively flat in 2025.

Damon Audia: Farmer optimism around weather and positive progression of planting for soybeans and corn is expected to support retail demand protectors, Brazil has also seen using interest rates stabilizing inflation, which will help contribute to similar demand levels as 2024.

Damon Audia: Slide 13 shows the primary assumptions used to create our 2025 outlook, which excludes the grain and protein business that we sold on November one 2024.

Damon Audia: We anticipate that 2025 global industry demand to be approximately 85% of mid cycle down from just over 90% in 2024. Our sales plan include market share gains and pricing in the zero to 1% range, while foreign currency is projected to be around a 3% headwind.

Damon Audia: With the announcement earlier this week given the ongoing uncertainty on the impacts of the U S farmers retaliatory tariffs and the effect on other parts of the world our outlook does not reflect any financial effects from Paris as things become clearer, we will update our outlook accordingly.

Damon Audia: Given the diverse global manufacturing footprint, the announced tariffs related to China, Mexico, and Canada would likely have a minor direct effect on our financial outlooks, However, retaliatory tariffs or U S tariffs on the EU would influence our current financial outlook.

Damon Audia: Given this dynamic environment, we will remain nimble to address the situation and we will update our outlook as things evolve.

Damon Audia: Engineering expenses are expected to be approximately flat compared to 2024.

Damon Audia: With the continued need to destock dealer inventory channel our production hours will be down between 15% to 20% in 2025 as Eric mentioned earlier. These production cuts will be primarily focused in the first half with the first quarter being down approximately 35% to 40% year over year.

Damon Audia: With the lower level of sales and production in 2025, we expect our adjusted operating margins to be somewhere between 7% and seven 5% with structural changes we made to our business coupled with the cost initiatives. We've implemented we continue to view this outlook is achievable.

Damon Audia: Lastly, our effective tax rate is anticipated to be between 35, and 38% for 2025 higher than 2020 for the reasons for the higher rate are due to lower income in lower tax jurisdictions, primarily in the U S and our Swiss legal entity.

Damon Audia: Turning to slide 14 for our 2025 outlook, which remains the same as outlined at our December analyst meeting our full year net sales outlook is $9 6 billion, which reflects the market environment. The elimination of the grain and protein sales and roughly a $300 million headwind related to FX.

Damon Audia: The lost earnings from grain and protein the adverse FX rates and the higher tax rate altogether reflect over $1 of non operational adverse impacts to our earnings.

Damon Audia: When you layer on the further industry decline, we expect our earnings per share to be in the range of $4 to $4 50.

Damon Audia: Given the weak market environment, we are modestly reducing our capital spending to approximately $375 million versus the $393 million in 2020, which keeps agco well positioned for any future demand inflections.

Damon Audia: Our free cash flow conversion target remains at 75% to 100% of adjusted net income as we look to further reduce working capital in 2025.

Damon Audia: Lastly, our Q1 2025 net sales are expected to be approximately $2 billion down approximately 32% from Q1 of 2024.

Were to exclude the grain and protein sales from Q1 of 2020, our sales will be down roughly 26% on a like for like basis.

Damon Audia: Given the lower sales volumes.

Damon Audia: Significant reduction in production hours, we anticipate Q1 earnings per share to be approximately breakeven and our low point for 2025.

Damon Audia: We remain confident in executing our strategy and delivering a more resilient business through the cycle. Our adjusted operating margin outlook for 2025 would be over 300 basis points higher than the last time, our industry is at around 85% of mid cycle. In 2016. This will be just another example of how we've structurally changed the business.

Damon Audia: For the long term.

Damon Audia: With that I'll turn the call over to the operator to begin the Q&A.

Damon Audia: Yes. Thank you.

Damon Audia: Now begin the question and answer session.

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

Damon Audia: Using a speaker phone please pick up your handset before pressing the keys.

Damon Audia: To withdraw your question. Please press Star then two please limit yourself to one question and one follow up.

Speaker Change: And the first question comes from Stephen Volkmann with Jefferies.

Stephen Volkmann: Hi, Good morning, guys. Thank you Damon and I am just kind of start off with your Q1 commentary.

Stephen Volkmann: I guess the implication there would be North America, probably has a negative margin in the first quarter, but I don't want to put words in your mouth can you just give us a sense of how youre thinking about the profitability by region in the first quarter.

Speaker Change: Yes, Steve I think youre right with the level of under production that we're expecting to see in the first quarter.

Speaker Change: North America would likely be a negative margin Europe, we would still expect it to sort of be in that low double digit range.

Speaker Change: And then sort of South America, probably a little bit negative as well given the large under production there and then Asia Pacific sort of that low single digit some.

Speaker Change: Margin range, but again I think the key for US is the level of under production here in the first quarter is going to be heavily weighted in North America, and South America as we look to further drive down the dealer inventories in those regions.

Speaker Change: Okay understood.

Speaker Change: And then as a follow up I'm trying to get a sense. If you could remind me of your total north American sales how much of that is basically sourced in Europe.

Speaker Change: Yes, So I think if we look at North American sales last year, Steve in total about 35% of that came in from overseas.

Speaker Change: 25% of the 35% came from the EU.

Speaker Change: Great. Okay. That's helpful I'll pass it on thanks.

Tami Zakaria: Thank you and the next question comes from Tami Zakaria with JP Morgan.

Tami Zakaria: Hi, good morning.

Tami Zakaria: So my question is on the E M E.

Tami Zakaria: Margin it was quite impressive on a 17% sales decline and you're saying low double digit.

Tami Zakaria: Operating margin in the first quarter.

Tami Zakaria: Given the cost savings there how should we think about the mid cycle margin for that region when volumes do inflect in the future.

Tammy: Yes, I think Tammy.

Tammy: Europe has done quite well with it spent the market share growth the team has done quite.

Tammy: Quite well parts has been relatively strong.

Tammy: Generally speaking we would see in the.

Tammy: Most of our regions sort of in that mid teens mid to mid teens margin at around mid cycle.

Speaker Change: Got it okay. That's all I had thank you so much.

Speaker Change: Thank you and the next question comes from Mig <unk> with Baird.

Speaker Change: Yes. Thank you good morning.

Speaker Change: Given the way you framed Q1 for us I'm sort of curious as to how you think about.

Speaker Change: Dealer inventory progression do you think that.

Speaker Change: Issued its problem largely get solved in Q1 or is this more of a.

Speaker Change: More of a Q2 <unk>.

Speaker Change: Factor what are some of the benchmarks that you are watching and determined in production for Q2.

Speaker Change: Yes, I think Mig so if we go down by the if we look at the regions is for Europe. We're in good shape, we don't anticipate really any significant changes I think for South America.

Speaker Change: We're working to cut production significantly there I would say, we're probably looking into the second quarter as we adjust production given some of the seasonality of the business there as well as you know Q1 is generally speaking a fairly low selling season. So Q2 was what we will see more sell out.

Speaker Change: North America I think is the wildcard as we looked at were sitting here with around nine months of inventory. Despite the lower number of units because of the negative outlook. So youre sort of looking at two variables. There how does the industry evolve over the let's say the next six months. So if we start to see farmer sentiment improve grain prices, if you looked at corn future.

Speaker Change: Now I think they are slightly over $5 for me. So a couple of positive data points, if that improves the sentiment and we start to see the demand pick up.

Speaker Change: That would be an ability for us to maybe slow down, but I think in the in the near term here its going to be looking at the days on hand for the dealers to units to have on hand, and taking an aggressive approach to the inventory. So I think that's the one I would say Q2, maybe a little bit longer depending on how that second half farmer sentiment looks here.

Speaker Change: In North America.

Speaker Change: Okay, and if I may one quick follow up on pricing.

Speaker Change: Negative in Q4, but you expect it to get better it's slightly positive.

Speaker Change: In 2005.

Speaker Change: What gives you that confidence in.

Speaker Change: Again, any any commentary by region would be helpful as well thanks.

Mike Feniger: Yeah sure Mig so again, we're still with the zero to one positive if we look at it we're going to be a little bit negative here in the first quarter. We have some a couple of things here, we have some carryover pricing in Europe, you've heard me talk about the new 700, we have the gen. Six Gen seven out there so we have that year over year.

Speaker Change: Year still expecting the European margins.

Speaker Change: We're likely going to be slightly negative in South America, not driven by I would say pricing or discounts driven more by a tax law change in Argentina, where the industry was pricing for the 17, 5% tax in Argentina that stopped in December we and I believe the industry as a whole have reduced that so that.

Speaker Change: <unk> shows up as negative pricing for us, but it's really more of a pass through for some taxes there.

Speaker Change: North America, we expect to be positive for the quarter and for the full year. So it's still looking similar to what we said in December a little bit more geographic complete weighted with our exposure to Europe being slightly negative driving us down to that zero to 1% for the full year.

Speaker Change: Thank you very much.

Speaker Change: Thank you and the next question comes from Chris <unk> with Oppenheimer.

Speaker Change: Specifically can you can you give us an update on the reorganization at <unk>.

Speaker Change: Anything else that you might call out that's helping to contribute to that recovery. Thank you.

Speaker Change: Yes sure Christian.

Speaker Change: As they've stated publicly as part of their restructuring efforts have made a lot of progress I think the reports from the third parties show that the business is improving we continue to have a great partnership with them. We're working very closely with them. Their AG business has been extremely strong and obviously thats.

Speaker Change: Defense business. So we continue to be very close with them, obviously as our restructuring initiatives are not eager to take on a lot of the stock units and that's been part of our challenge here with Fendt and Baila as were doing great pass through to the retail to the farmers, but the stock units as they start to preserve cash I think.

Speaker Change: We won't see that recover at least here in the first part of 2025, but overall the market looks good there I think what you should expect to see for us and again as you know macro wise the most stable market, we still see it down.

Speaker Change: But the cost actions, we've talked about a lot of those cost actions as we work through conversations with Workers' councils. If you look at the restructuring efforts, we accrued quite a bit in the fourth quarter as we gain some clarity and confidence on that we would expect that.

Speaker Change: Really dropped to the bottom line more in the back half of the year as we start to execute on some of those actions here in Europe.

Speaker Change: Great. Thank you and then my follow up is related to the free cash flow outlook for 2025.

Yes, so again, if I think about our free cash flow, we still feel fairly confident again, if I looked at where we delivered just in the 2024, we felt short of our expectations, but I think it's important to remember because of how we've worked with Agco finance, Eric and I, both alluded to that we missed our sales.

Speaker Change: During his more than what we would want in the current environment and so even if the industry picks up it won't be sort of a one for one billed as the industry's recovery because of where we finished the year here falling a little bit short of the of the sales target.

Speaker Change: Thank you so much.

Jamie Cook: Thank you and the next question comes from Jamie Cook with Truest.

Jamie Cook: Margins for the full year and sort of the cadence.

Jamie Cook: And then I guess my second question.

Jamie Cook: Obviously, you guys announced some restructuring actions that you started I think last summer given.

Jamie Cook: Given the weakness in the market anything more that we're contemplating.

Jamie Cook: And then last finally, just what's the expectations on Pts in your in your guidance in terms of sales.

Jamie Cook: Profits if any thanks.

Speaker Change: Yes, sure Jamie So South America, I think for the full year, we would sort of sit do you expect those margins to be similar to where we finished the full year of 2024 sort of in that mid to sort of higher single digit range.

Speaker Change: As I mentioned on the prior one of the earlier questions will be negative in Q1, and then we start to pick up some profitability. In Q2 Q3 is generally the strongest seasonal quarter. There. So we will see that be the richest or the best profitability and then tampered down a little bit in the fourth quarter again, driven more by seasonality, but for the full year.

Speaker Change: To put it close to.

Speaker Change: Where we finished last year.

Speaker Change: On the second part restructuring actions. So we're on good pace to deliver the $100 million to $125 million of cost savings by the run rate by the end of this year at the December Investor Day, I did announce that as we were looking at further efficiencies better opportunities to leverage global centers of X.

Speaker Change: We added another $75 million of run rate savings those will not happen likely until and the run rate at the end of 2026, as we start to migrate things to international locations levers a little bit more technology.

Speaker Change: So that being said, we're as Eric alluded to we're watching this market very closely to the extent things get worse or worse than our plans, obviously theres always discretionary spend that we can control we're doing the investments as we feel appropriate for the business for the long term, but at the end of the day, we did kind of make sure we're delivering a certain level of margin and earnings.

Speaker Change: As well and so we do have some discretionary cost levers that we could layer on if necessary on top of the normal restructuring.

Speaker Change: Last year's revenues were just I'll call it around mid eights.

Speaker Change: And I would expect that business to be relatively flat in 2025 at a similar type of sales level amongst those three groups combined.

Speaker Change: Thank you.

Jami Rubin: Thank you and the next question comes from Jami Rubin with Goldman Sachs.

Jami Rubin: Yes, hi, good morning, everyone.

Eric: Hi, Eric.

Jami Rubin: If.

Speaker Change: You can just expand the comments you made in your prepared remarks on the company's philosophy on upfront pricing versus subscription pricing within the context of <unk>.

Jami Rubin: One of your competitors.

Jami Rubin: Doing aftermarket guidance kits with heavy aftermarket pricing can you just talk about what feedback you're hearing in the market.

Jami Rubin: Just your broader philosophy on upfront versus subscription.

Jami Rubin: Yes.

Jami Rubin: We aim to be the most farmers focused company in the industry and with farmers continually tell us is that they have.

Jami Rubin: Different.

Jami Rubin: <unk> appetites in different parts of the cycle.

Jami Rubin: And when they want to purchase something they'd like to finance it and get it all purchased in the good years and then on the lean years come we'd like to minimize their ongoing costs. So they are in general not too favorable for subscription fees now there are exceptions to that rule and we have some a subscription model as part of our outrun it.

Jami Rubin: <unk> system, we've got some subscription aspects to a radical economic system and so there are elements, where it makes sense, especially for newer technologies and things like that.

Jami Rubin: But as it relates to the technology I mentioned, which was tied to spring we feel that the feedback we're getting is that they would rather pay for one time and then be able to use it on a on a.

Have their fixed cost done and that have an ongoing variable cost because that way. They can run over the field part of the problem is right now if you have a variable cost if you run over the field a second time just to capture a few weak spots.

Jami Rubin: It's actually very expensive from a variable cost standpoint, and so they don't do that pass we want them to be able to do that pass which is one of the features that is attractive with that system. So that's how we think about it trying to be very farmer focused and use the subscriptions, where it makes sense, especially in newer technologies.

Jami Rubin: Super.

Jami Rubin: Then in terms of the South America performance in the quarter.

A pleasant surprise can you just talk about what the run rate you expect to be in <unk> <unk> of that of that business I appreciate it.

A little bit of 150 basis points benefit in the fourth quarter, but.

Jami Rubin: Can you talk about what the production cuts are done what's the margin trajectory that you folks expect to be on this year.

Jami Rubin: Yes, I think.

Jami Rubin: As I mentioned on the maybe just the last question, we expect to be given the hebel heavy production cuts in the first quarter, we would be.

Jami Rubin: Negative operating margin in South America slightly positive in Q2, as we start to.

Hopefully improve the production levels, a little bit there Q3, we should lap the challenges and we start to see the industry improving that's also the strongest one of the strongest selling quarters for them. So we should see the profitability jump up in the third quarter, and then tailed back down a little bit more because of the.

Jami Rubin: The timing of the of the sales here between South America, and then for the full year I would say similar to last last year's performance, maybe a little bit below just given the pricing in Argentina that I mentioned on one of the prior one of the prior questions, but sort of that mid to high single digits.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you and the next question comes <unk> <unk> with Citigroup.

Speaker Change: Thanks, guys just wanted to ask for all of it about just anything that you guys are we should be thinking about with upcoming elections in Germany, and just any potential impacts either pre or post election.

Speaker Change: No I think what you've seen there is two different factors one is the country elections amendments the EU Parliament and we saw the EU <unk> move to the right and I think that's the one that is maybe more important for overall EU regulations.

Speaker Change: Relative to <unk>.

Speaker Change: Climate change policies and restrictions on farmers and things like that I think it was a bit of a friendly move to farming practices, allowing them to continue to find the way they wanted to be farming instead of adding more restrictions as it relates to a country specific.

Speaker Change: Thats more leaning toward an impact on.

Speaker Change: Well, there will be cohesion between those countries and the U S administration.

Speaker Change: But.

Regardless of who is elected.

Speaker Change: See a big difference there.

Speaker Change: So we don't see much impact in our scenario planning.

Speaker Change: Country specific collections.

Thanks, that's helpful. And then I just wanted to touch on the Trimble topline synergies Youre thinking about in 2025, and I think if I recall correctly. I think you guys have talked about about 450, or so premier precision planting dealers in North America, but on the 50 or so selling trimble. So just.

Speaker Change: Could you help us frame the opportunity there and do you anticipate getting to four hundreds basically adding starting to sell trimble.

Speaker Change: How many do you think could be added this year like how fast do you think that can happen and what do you think is there overall willingness and ability to start carrying trimble as well.

Speaker Change: Yes.

Speaker Change: Been a lot of progress in the fourth quarter, especially on two fronts. One is signing up agco dealers to take on the Trimble.

Trimble aftermarket technology, and then also to establish the understanding in the market about where we're going with what we call full line Tech dealers and these are dealers that previously could have been our precision planting dealer or could have been a trimble dealer.

Speaker Change: Let them to carry both portfolios going forward, so that they've got the full breadth of all technology.

Speaker Change: If you add them all up today, we've got over 1000 dealers in the marketplace and over 95% of the acres covered.

Speaker Change: With with.

Speaker Change: Dealers that cover our technology <unk> technology now what we don't have fully penetrated yet is the full cross selling that's going to be the primary focus in 2025 as well as continuing to build out our AG co fleet.

Speaker Change: Agco dealer portfolio.

Speaker Change: We've got a little over 100 dealers in the ankle lineup signed up today will be.

Speaker Change: Between two and 300 by the end of this year, which is where we want to be.

Speaker Change: We've got to see and each dealer sign ups about where we want it to be so our main focus is cross selling of the <unk> Tec dealers and filling out the rest of our agco dealers looking we think both of those will make big progress in 'twenty five.

Speaker Change: Got it that's helpful. Thank you.

Speaker Change: You bet. Thank you.

Speaker Change: Thank you and the next question comes around how fast you with Morgan Stanley.

Speaker Change: Good morning, and thanks. Thanks for taking my question I just wanted to go back on the PT X I think.

Speaker Change: Penetration of our precision AG, but youre seeing is is still good. So just to what extent are you seeing any kind of deterioration.

Speaker Change: Around that.

Speaker Change: Relative to <unk> in particular.

Speaker Change: Yes, I'll talk about the strategy elements now.

Speaker Change: Damon talked about the margin projections.

Speaker Change: Our key talent within the business, we retained all of our OEM partners in the business we.

Speaker Change: We built up a strong channel I just talked about it was.

Speaker Change: Over 1000 dealers and over 95% of the acres, Kevin we've got to fill that in and make it penetrate better but.

Speaker Change: We've got a great Foundation.

Speaker Change: We're building the innovation factory, where we launched outrun technology on the automation kit.

Speaker Change: The data platform team is running at full speed. That's one of the outputs that we wanted out of this deal.

Speaker Change: And we will have our first launch coming soon.

Speaker Change: And we converted the technology guidance systems on our AG machines. It used to be about a 20% take rate of Trimble, it's up over 70% now and we think it will be over 85% and 25.

Speaker Change: So the activities were.

Speaker Change: Aiming for our.

Speaker Change: Done it's just that the market was so depressed that.

Speaker Change: The market demand was down in addition to the last time buy for <unk>.

Speaker Change: <unk> continued to run longer than we had expected because it last longer in a weaker market.

Speaker Change: David maybe give a little more color on margin expectations, Yes, I think haynesville for for PT X Trimble, we do expect the margins to improve in 2025 versus 2024 as you've heard us talk about the integration of Cna's last time buy.

Speaker Change: Cash flow analysis that is heavily weighted on the near term as you would expect just given the industry drop in 2020 or an industry projections for 2025. It put a lot of pressure on the sales and earnings that we had expected relative to the deal. The deal model that we had built when we formulated the goodwill.

Speaker Change: Year versus hitting two or three years from now.

Speaker Change: That's very helpful. Thank you and then maybe I just wanted to go back to the comment I think on free cash flow just the confidence to be able to kind of reach that 75% to 100% conversion can you just unpack that a little bit more I think again, you made some comments around that.

Speaker Change: <unk>.

Speaker Change: Earlier, but just wanted to understand given the kind of 50% conversion in the last couple of years and I think we've heard from other peers, maybe timing around pool fund cash.

Speaker Change: Cash payout, just anything that might be impacting or might be at risk and then just how you think about that conference on that 75 to Andre.

Speaker Change: Yes, I can say, we feel again, if we would've delivered the sales that we were expecting in.

Speaker Change: In the fourth quarter, we would it would have been around 100% conversion in 2024.

Speaker Change: Falling short on those sales affected the conversion. This last year left me or left us with excess inventory at the end of the 2024. So when I think about 2025, we would expect to normalize that finished goods inventory seeing agco's balance sheet getting that into the channel to the dealers and <unk>.

Speaker Change: Similar to the farmers.

Speaker Change: And so we still feel good about the conversion rate I think the one question Mark we would have is if the industry starts to recover and one of the other analyst had asked that question. If we start to see a rapid acceleration of the industry moving into 2026, how much will we have to start building in anticipation so would we be adding.

Speaker Change: We don't see that level of extreme outlook for 'twenty, six, but I think that would be the one thing that we'll watch as we move through the year is that farmer sentiment and how do we plan the production schedule for the back half of the year.

Speaker Change: Very helpful. Thank you.

Michael Feniger: Thank you and our next question comes from Michael Feniger with Bank of America.

Michael Feniger: Hey, guys. Thank you for squeezing me in can.

Can you just help us understand with North America I may touch on this earlier, but if there are tariffs with Europe does it change any of your thought process or strategy, when we think of Massey and any shifts there.

Michael Feniger: It'd be kind of flexible or how to think about that with North America. If we do start seeing more more of the tariff conversation pick back up.

Michael Feniger: Our supply chain team has looked at several different scenarios of what we might do I think a lot of this depends on what are the rules of the game going forward what constitutes a tariff.

Michael Feniger: What would be required to be local production and how long do we think it'll be in place.

Michael Feniger: Any kind of major footprint change usually takes a multiyear payback.

Michael Feniger: And so.

Until we get some clarity on stability and what are the exact rules in details.

Michael Feniger: We don't expect to be making supply chain shifts.

Michael Feniger: But we've got plans on the shelf ready to go if if.

Michael Feniger: If some of those materialize, but right now we don't have anything in <unk>.

Mike Feniger: <unk> mode, and I think Mike just to add on to give a little bit more color. The team has got an array of scenarios. You know again as I mentioned, the Canadian and U S to Canadian tariffs would be would have some effect on us and so do we shift the landing up some port certain products into Canada versus the U S. We're looking at things that we do some.

Speaker Change: Mine are kidding here in the U S without large scale investments that may help us ease the short term pain. So as Eric said there are an array of scenario is being running run this company, but we want to make sure we have some clarity.

Mike Feniger: Before we actually execute any of those things.

Mike Feniger: Fair enough and just lastly, guys I realize the production cuts are really helping kind of make that progress on the inventory side, you mentioned North America, I think with nine months versus the targeted six.

Mike Feniger: Yes.

Mike Feniger: We don't have as much of a huge problem in some of our competitors do we continue to use pool funds and things like that and other financing tools, but right now used equipment values are holding up and used to treatment volumes are similar now and are back to pre COVID-19 levels, but not not a concerning level for us yet.

Mike Feniger: So we're managing that using the regular tools.

Mike Feniger: Partnership with Agco finance.

Mike Feniger: Thank you and this concludes our question and answer session I would like to turn the conference back over to Eric Castillo CEO for any closing comments.

Mike Feniger: Yes, I'd just like to say, thank you for joining us today and the great questions on the call Agco has gone through a substantial transformation of these past years, particularly in 2024. It was a big year of change, where we supercharged our precision AG portfolio with the <unk> brand.

Mike Feniger: Our team was instrumental in delivering the eight 9% adjusted operating margin result for 2024, Thats a high watermark for us at this stage of the cycle into 300 basis points better than the last cycle as Damon talked about.

Mike Feniger: I want to thank each of them for their contributions it was a big year of lots of hard work.

Mike Feniger: All focused on the farmer.

Thank you for joining the <unk> fourth quarter 2024 earnings call Conference call has now concluded have a nice day.

Q4 2024 AGCO Corp Earnings Call

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