Q1 2025 AGCO Corp Earnings Call
Good day and welcome to the AG co first quarter 2025 earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity.
G to ask questions in consideration of time, please limit yourself to one question and one follow up to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Greg Peterson Agco head of Investor Relations. Please go ahead.
Greg Peterson: Thanks, and good morning, welcome to those of you joining us for Agco's first quarter 2825 earnings call.
Greg Peterson: We will refer to a slide presentation. This morning, that's posted to our website at www Dot <unk>.
Greg Peterson: Dot com.
Greg Peterson: non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of that presentation.
Greg Peterson: We will make forward looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts will discuss demand product development and capital expenditure plans and timing of those plans and our expectations concerning the costs and benefits.
Greg Peterson: Those plans and the timing of those benefits. We'll also cover revenue crop production and farm income production levels price levels margins earnings operating income cash flow engineering expense tax rates and other financial metrics. All of these are subject to risks that could cause actual results to differ materially.
Greg Peterson: And 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 demand.
Greg Peterson: The possible failure to develop new and improved products on time, including premium technology.
Greg Peterson: Mark farming solutions within budget and with the expected performance and price benefits difficulties in integrating the <unk> business in a manner that would produce the expected financial results.
Greg Peterson: Production of new or improved products by our competitors and reductions in pricing by that the war in the Ukraine difficulties in integrating acquired businesses and in completing expansion and modernization plans.
Greg Peterson: On time and in a manner that produces the expected financial results.
Greg Peterson: And adverse changes in the financial and foreign exchange markets.
Greg Peterson: Results could differ materially from those suggested in these statements further information concerning these and other risks is included in <unk> filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31 2024.
Greg Peterson: <unk> disclaims any obligations to update any forward looking statements except as required.
Greg Peterson: We will make a replay of this call available on our corporate website later today.
Speaker Change: 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 with that Eric. Please go ahead.
Erik: Thanks, Greg and good morning to everyone on the call I'm pleased to announce that could delivered solid results in the first quarter in the midst of a very challenging industry and an uncertain and evolving trade environment, we achieved over $2 billion in net sales down approximately 30% compared to quarter one 2024.
Erik: Lower net sales are a result of continued soft demand in the AG market, coupled with our efforts to destock dealer inventories as well as the impact of the divestiture of the grain and protein business.
Erik: Excluding last year's Green and protein results sales declined by about 25%.
Erik: Consolidated operating margins were two 4% on a reported basis and four 1% on an adjusted basis, reflecting decremental margins in the low to mid 20% range.
Erik: This reflects the strong performance from our teams around the world. They are executing on our sales plans as well as on the restructuring actions. We achieved these decremental margins. Despite a 33% reduction in production hours versus quarter. One 2024, as we look to better align dealer inventories.
Erik: We've made headway in lowering both working capital and dealer inventories, which were down across all regions. Our working capital progress showed up in our cash usage for the quarter, which was significantly improved compared to the first quarter of 2024.
Erik: Sentiment in Europe as measured by the Sima Index is on an upward trend.
Erik: Europe currently represents the majority of Agco sales and should help mitigate the adverse impact of the U S trade policy on our financials.
Erik: Geopolitical uncertainties in trade friction have dampened U S farmer sentiment recently.
Erik: And as a result demand for machinery was lower in the quarter than we had expected.
Erik: Fight higher net farm income forecast related to government aid margins for U S. Farmers remain tight due to high input costs and reduced export demand on the flip side South American farmers are expected to expand global share in key commodities over the next year due to trade policies.
Erik: Our top priority during the geopolitical uncertainty is it take care of our farmers, we want to be there to help them be more productive and more profitable by leveraging our industry leading solutions.
Erik: We will continue to monitor the rapidly changing tariff policies and implement pricing actions or supply chain adjustments, where it makes sense and is feasible.
Erik: <unk> continues to focus on its three high margin growth levers by investing in key strategic markets and products, including smart farming solutions and enhanced digital capabilities to help deliver more resilient and higher earnings across the AG cycle.
Erik: Our financials continue to be weighted towards the second half of the year as we expect the market to find bottom and start recovering along with optimizing dealer inventories.
Erik: Slide four details industry unit retail sales by region for quarter, one 2025.
Erik: Global industry retail sales of farm equipment remained challenged in North America, and Europe with some early signs of recovery in Brazil.
Erik: In Western Europe industry retail tractor sales decreased 17% during the first three months of 2025 compared to the first three months of 2024.
Erik: You'll recall that last year at this time, we were still seeing relatively strong demand.
Erik: Industry demand is expected to remain soft in 2025 as lower income levels pressured demand from arable farmers well healthy demand from dairy and livestock producers is expected to mitigate some of the decline.
Erik: North America industry retail sales decreased 14% during the first three months compared to the first three months of 2024.
Erik: Sales declines were relatively consistent across the horsepower categories with higher horsepower categories declining more in recent months.
Erik: Combined unit sales were down 46% compared to the same period in 2024.
Erik: Uncertain demand for grain exports and higher input costs are expected to pressure industry demand in 2025, leading to weaker north American sales compared to 2024.
Erik: Particularly in large equipment.
Erik: Brazil industry retail sales increased 11% during the first three months of 2025 compared to the first three months of 2024, primarily in the smaller tractor categories.
Erik: While the U S Mi faced reduced market access for key exports, Brazil is likely to ship more to China, which should help the industry recover faster.
Erik: <unk> record soybean harvest and potential trade benefits, we haven't seen meaningful improved demand for larger equipment yet.
Erik: Increased trade benefits farm economics, we could see improved demand later this year.
Erik: For now we expect industry demand in Brazil to improve modestly in 2025.
Erik: Regardless of the near term trade environment Agco will benefit from the long term growth of the agricultural equipment segment. Thanks to market expansion stemming from population growth and a middle class with diets that consist of greater amounts of protein.
Erik: Our tech stack has been evolving significantly over the past few years and allows us to provide farmers with a differentiated precision AG solutions needed to raise yields and meet the world's growing agricultural needs.
Erik: Agco's factory production hours are shown on slide five.
Erik: To improve comparability, we have eliminated green and protein production hours from the 2024 hours shown here.
Erik: Significant production cuts were made in all regions in quarter, one 2025, with the biggest reductions occurring in north and South America.
Erik: Our production hours were down approximately 33% in quarter, one 2025 versus quarter one 2024.
Erik: 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.
Erik: As I mentioned earlier, we have made progress and destocking in the dealer channel in the first quarter, but still have work to do primarily in North America and South America.
Erik: We are projecting 2025 production hours between 15% and 20% lower than 2024 with the North America region, showing the biggest decline.
Erik: Land remains frontloaded and aggressive to get inventory right sized quickly.
Erik: Our current outlook for 2025 assumes production in North America, and South America will be less in retail demand.
Erik: Diving into regional breakdown.
In Europe dealer inventory reduced modestly to just under four months, which is in line with our target.
Speaker Change: Ventas still below this average Massey Ferguson Walter is slightly above.
Erik: Our near target dealer inventory level in Europe remains a positive for AG, because given significant exposure to this region.
Erik: In South America, we reduced the number of units on hand at dealers by 7%.
Erik: From the quarter for 2024 level.
Erik: Reducing the months of supply from around five months to approximately four.
Erik: Given the forward outlook. This is still above our targeted level of three months.
Erik: We still anticipate to underproduce relative to retail demand in the second quarter to further reduce dealer inventory levels.
Erik: Similarly in North America, we further reduced the units on hand at dealers by approximately 1% in total from quarter four 2024 levels.
Erik: This is still approximately eight and a half months of supply versus our six month target.
Erik: However, this modest change is reflective of good momentum in large AG, we reduced inventory by around two months.
Erik: And around 7% on a unit basis.
Erik: This solid progress was offset by the normal seasonal positioned for small AG equipment entering the peak selling season for dealers.
Erik: Given the continued challenging outlook in 2025, we currently expect to Underproduce retail demand into the third quarter.
Erik: 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.
Erik: This demonstrates we are a much stronger company that is less variability throughout the business cycle.
Erik: Higher mid cycle, but also higher highs and higher lows.
Erik: To reiterate our 2029 gross levered targets, we discussed at our analyst meeting last December.
Erik: 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.
Erik: Number two growing our precision AG sales to $2 billion globally.
Erik: And number three focusing on accelerating our global parts business and increasing the market share of genuine agco parts to achieve approximately $2 $3 billion in global sales.
Erik: Agco's continued strong investment in R&D has been recognized by numerous global organizations with awards and illustrates how we innovate to put farmers.
Erik: On slide seven Youll see a few of the products that have won prestigious awards recently.
Erik: <unk> aimed to help farmers improve their profitability through lower costs or increased yields while also focusing on the ease of use and operator comfort.
Erik: The first is our Pts Trimble outrun retrofit autonomy kit.
Erik: Which was awarded the esteemed Davidson a price for the absolute most innovative products of the year.
Erik: Outrun is the first commercially available autonomous retrofit green card solution on the market.
Erik: And is recognized for its ability to help farmers maximize yield.
Erik: And combat the labor shortage, many farmers are facing around the world.
Erik: Is it just the first of several retrofit autonomous solutions being developed by the <unk> team.
Erik: The Walter S series, which was the brand's flagship product is one three major design awards in just a few months since launch.
Erik: A good design award and I F Design Award and now the prestigious Red Dot Award for product designed.
Erik: This hat trick has never before been achieved by any tractor brand <unk>.
Erik: Read that judges were so impressed with the S series design and attention to user experience that they awarded the tractor the Red Dot best of the Best Award this.
Erik: This special recognition is the highest distinction in the competition and is only awarded to the truly pioneering designs.
Erik: <unk> the Massey Ferguson five M series tractor was awarded with its own Red Dot Award for product design.
Erik: This affordable and versatile tractor was recognized by judges for its straightforward and accessible features high performance and efficiency with the best value for price.
Speaker Change: I want to take a moment to thank the teams that earn these awards, helping AG could deliver on our vision of being farmers trusted partner for industry, leading smart farming solutions.
Speaker Change: Now I'll hand, it over to Damon to walk you through some of the financials for the quarter.
Damon: Thank you Eric and good morning, everyone Slide eight provides an overview of regional net sales performance for the first quarter.
Damon: Net sales were down approximately 25% in the first quarter compared to the first quarter of 2024, when excluding the negative effect of currency translation and the positive impact of acquisitions for.
Damon: For comparison purposes, the impact of the divestiture of the grain and protein business, which was approximately $200 million in Q1 of 2024 has also been excluded.
Damon: Pricing in the quarter was roughly flat compared to the first quarter of 2024 positive pricing in North America, mostly offset negative pricing in South America and in Europe.
Damon: By region Europe, Middle East segment reported sales down roughly 23% in the quarter compared to the strong results in the same period in 2024, excluding the impact of unfavorable currency translation and favorable impact of acquisitions.
Damon: Sales were lower across most of the western European markets, partially offset by growth in Spain and eastern Europe.
Damon: The products showing the most significant declines were high horsepower in mid range factors as well as hay equipment.
Damon: South American net sales decreased approximately 6%, excluding the impact of unfavorable currency translation and the favorable impact of acquisitions. The market for larger equipment continues to be challenged and we continue to under produce relative to retail demand lower sales of high horsepower tractors and planters accounted.
Damon: For most of the decline.
Damon: Net sales in the North American region decreased approximately 34%, excluding the impact of unfavorable currency translation and the favorable impacts of acquisitions.
Damon: Softer industry sales in underproduction relative to end market demand contributed to lower sales high horsepower tractors sprayers and combines saw the largest declines.
Damon: Net sales in Asia Pacific Africa decreased 38%, excluding the favorable currency translation impacts and the favorable impact of acquisitions due to weaker end market demand and lower production volumes. The most significant declines occurred in Australia, Japan and China.
Damon: Finally consolidated replacement part sales were approximately $433 million for the first quarter flat year over year on a reported basis and up approximately 3% year over year, when excluding the effect of unfavorable currency translation.
Damon: Turning to slide nine.
Damon: First quarter adjusted operating margin was four 1% a decline of 550 basis points compared to the first quarter of 2024.
Damon: The weak industry conditions are resulting in significantly higher costs related to factory under absorption and higher discounts.
Damon: By region, So Europe Middle East segment income from operations decreased by $141 million and operating margins decreased to just over 11%. The lower margins resulted from reduced sales volume factory under absorption and increased discounts.
Damon: North American income from operations in the quarter decreased approximately $48 million year over year and operating margins were negative in the first quarter lower sales from weak market conditions and lower production hours were the primary drivers for the lower operating margins year over year.
Damon: Operating income in South America decreased by approximately $10 million in Q1 of 2025 versus Q1 of 2024 and operating margins remained positive in the quarter at roughly 1%.
Damon: Market conditions in the region have continued to remain weak and we have reacted with significant production cuts now for six consecutive quarters.
Damon: Income from operations in our Asia Pacific Africa segment decreased by approximately $12 million due to the lower sales volumes.
Damon: Slide 10 shows our year over year free cash flow as a reminder, free cash flow represents cash used in or provided by operating activities less purchases of property plant and equipment.
Free cash flow conversion is defined as free cash flow divided by adjusted net income.
Damon: We used $260 million of cash in the first quarter of 2025, approximately $205 million or 44% less than the first quarter of 2024, primarily related to improved working capital and lower capital expenditures for the full year, we anticipate our free cash flow to be in the targeted range of 75.
Damon: Sent to a 100% of adjusted net income.
Damon: Our capital allocation plan includes reinvesting back into our business repaying debt to maintain our investment grade credit ratings and rewarding investors with direct returns with our regular quarterly dividend of <unk> 29 per share.
Damon: We remain focused on deploying capital in the most effective ways for the benefit of our shareholders.
Damon: Slide 11 highlights our current 2025 market forecast for our three major regions.
Damon: All three regions have changed modestly from what we communicated on our fourth quarter call.
Damon: For North America, we expect demand to be meaningfully lower in 2025 compared to 2024. Despite net farm income forecast revising higher related to government aid farmers are delaying equipment purchases due to still elevated input costs in uncertain export demand, causing tighter profit margins we now.
Damon: Expect the large AG segment to be down around 25% to 30% versus 2024, which is a marginal deterioration from our prior forecast.
Damon: The small tractor segment is expected to be down between zero to 5% after several years of significant decline for.
Damon: For Western Europe, we expect the industry to be down approximately 5% compared to our prior forecast of down zero to 5% wheat production has been negatively impacted by persistent rain and poor growing conditions decreased commodity prices and elevated input costs are also pressuring farm income.
Damon: For Brazil after the significant decline we saw in 2024, we now expect the market to be up zero to 5% versus our prior forecast of the industry being flat year over year.
Damon: Farmer optimism around healthy soybean yields in the Midwest and the expectation for farmers to expand global share in key commodities due to trade policies is expected to support retail demand for tractors.
Damon: Slide 12 shows our primary assumptions used in our current 2025 outlook.
Damon: We continue to anticipate the 2025 global industry demand to be approximately 85% of mid cycle. Our sales plan include market share gains and pricing in the 1% range, which is up from the flat to 1% range communicated on our fourth quarter call. Additionally, based on the weakening of the U S dollar.
Damon: Our expectation now is for no foreign currency impact in 2025 versus 2024, which has been revised up from the 3% foreign currency headwind, we had communicated previously.
Damon: Tariffs are creating significant demand uncertainty and increased cost for us.
Damon: Our current full year guidance takes into consideration only the tariffs currently in effect across the company's global markets and our anticipated plans to mitigate them through potential pricing actions or cost mitigation actions that said the potential for retaliatory measures or additional U S tariffs.
Damon: Particularly targeting EU could influence our current outlook. We are closely monitoring these developments and remain nimble in our approach we will update our outlook if necessary as the situation evolves.
Damon: Engineering expenses are expected to be approximately flat compared to 2024 with the continued need to destock the dealer inventory channel our production hours will be down 15% to 20% in 2025 as Eric mentioned earlier. These production cuts will be primarily focused in the first half of 2025 with the second quarter.
Damon: Down 15% to 20%.
Damon: With this lower level of sales and production in 2025, and despite geopolitical trade conflicts, we still expect our adjusted operating margin to be between 7% and seven 5% with the structural changes we've made to our business coupled with the cost initiatives. We've implemented we continue to view this outlook is.
Damon: <unk>, we are still projecting 2025 to be the bottom of the trough.
Damon: Our current adjusted operating margins projections is approximately 300 to 350 basis points above Agco's performance at the last trough in 2016 due to the structural transformation that has been implemented across the company.
Damon: Lastly, our effective tax rate is now anticipated to be approximately 35% for 2025, which is at the lower end of the 30% to 35% range previously communicated.
Damon: Turning to slide 13 for our 2025 outlook, our projected net sales capital spending and free cash flow targets remain unchanged from those communicated at the start of the year. Our full year net sales outlook is $9 6 billion, which reflects the market environment for weaker U S dollar elimination.
Damon: Of the grain and protein sales in the softer demand, resulting from the announced tariffs across the company's global markets net of our planned mitigation actions.
Damon: Our 2025 earnings per share remain in the $4 to $4 50 range. These full year estimates reflect the projected impact of tariffs in place as of May one 2025, along with our planned mitigation actions changes to the tariffs or other actions in response to them could result in a change to these estimates.
Damon: Given the weaker market environment, our estimated capex spending continues to be approximately $375 million versus the $393 million in 2024, which keeps agco well positioned for any future demand inflections.
Damon: Our free cash flow conversion target remains 75% to 100% of adjusted net income as we look to further reduce working capital in 2025.
Damon: Lastly, our Q2 2025 net sales are expected to be approximately $2 5 billion. If you were to exclude grain and protein sales from the Q2 2024, our sales will be down roughly 17% on a like for like basis.
Damon: Given the lower sales volumes and significant reduction in production hours again, we anticipate Q2 earnings per share to be in the $1 to $1 10 range.
On Slide 14, you can see the details of our 2025 Tech days in October with Germany, where we will provide a fendt factory tour and product experience on September 30th followed by field demonstrations on October one we.
Damon: We hope you will join us and we look forward to seeing you there.
Speaker Change: With that I will turn the call over to the operator to begin the Q&A.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question.
Speaker Change: Please press Star then two.
Speaker Change: Please limit yourself to one question and one follow up.
Jamie Cook: The first question comes from Jamie Cook with Truest. Please go ahead.
Jamie Cook: Hi, Good morning, I guess my first question. The first quarter came in better than you guys had expected I think you were guiding to breakeven on an adjusted basis came in at 41, Damian just any color on where you performed better versus what you would've thought and then I guess my second question.
Speaker Change: Just a little more color on tariffs and the actions you are taking to mitigate tariffs I guess one.
Can you talk to your order book is there any risk in order book in your order book associated with tariffs sort of the price increases that youre talking about and.
Speaker Change: Actions Youre, taking I don't know if you can put a dollar amount on that because its impressive you are still maintaining your guide. Thank you.
Jamie Cook: Sure Jami so.
Jamie Cook: Right, we did do better in our in the first quarter than what we had originally expected.
Jamie Cook: Theres, probably two items are two different categories, but I think at the operational side of the house. The teams did a little bit better in pricing and mix was stronger, especially in our European operations and then as you heard US talk last year about our cost control actions, we're starting to see those were a little bit of hubs schedule and what we drop to the bottomline.
Jamie Cook: I think price mix and cost were all a little bit better we did cut production a little bit more in the quarter than what we had originally guided to establish a little bit net negative or a headwind. So when I look at those categories operationally I would say it was about 25.
Jamie Cook: A positive versus our outlook and then we did better below the line. So if we look at the foreign currency gain and losses, we had some lower discounting of receivables. So those other below the line items were about <unk> <unk>, that's what brought us to the 41 for the quarter.
Jamie Cook: As we think about your question on tariffs as we've said we are looking at what is in effect today, we have assumed.
Jamie Cook: Some modest price increases we have already have some in effect for our parts operations or parts products excuse me those have already been in effect, we are contemplating things on equipment.
Jamie Cook: In that though we've also assumed that to the extent, we do take pricing actions there would be an incremental slowdown to the north American business, we have not factored that into our industry outlook is we're not sure whether that would be unique to agco or whether that would affect the industry and when we looked at those two things together, we see the price net of.
Jamie Cook: The lower North American volume as a net negative on sales I would say its about less than 1% of total company revenues and it's a negative to earnings per share and if I look at that that's about a <unk> 30 headwind.
Jamie Cook: <unk> to the to our business here in our in our current outlook that we have embedded in our outlook.
Jamie Cook: Order boards as you know order boards have been coming down as we came out of the supply chain challenges.
Jamie Cook: Right now as we sit here in North America were somewhere in the range of four to five months of orders depending on the product. So again, the any actions will likely have an effect on pricing later on in the year given the current order board that we see.
Jamie Cook: Other actions, we're taking on tariffs again, we talk about potentially implementing some prices for equipment, we already have prices in effect for.
Jamie Cook: For parts as I've mentioned on other calls we are looking to mitigate some of these costs where possible some of the products that we brought in from Europe. We're looking at things like bonded warehouses now to minimize the price effects of what would happen in Canada, and obviously, we're having active discussions with our suppliers.
Jamie Cook: As to how do we help mitigate the costs, we have to absorb and actions that they can take to try to dampen the overall impact to agco. So I think like most large industrials. We're pulling every lever out there. We're working with advisors is what they may be hearing and seeing others doing to make sure that we're looking at all of these different options to.
Jamie Cook: Mitigate the cost.
Jamie Cook: Given the dynamic situation, we're in right now.
Speaker Change: Thank you.
Kyle: The next question comes from Kyle <unk> with Citigroup. Please go ahead.
Speaker Change: Thank you. So I know David you called out just the EMEA margins are particularly strong in the quarter at least partly driven by mix. So I guess the question is really just around the sustainability of of the EBIT margins and just how do we think about the risks of potential mix.
Kyle: Shifts from fans to maybe the other brands.
Kyle: And just how to think about mix impacts on EMEA margins, how to think about that for the rest of the year and then maybe kind of medium term.
Kyle: Yes, I think overall Kyle to the European market again, reminding for the group as the most stable of all of our three major markets given the level of subsidies in that market.
Kyle: Historically been the most stable and predictable and so that that part of the world at least thus far has been relatively solid for us. If you think about what we've been seeing here.
Kyle: There is somewhat of a sense of a flight to quality.
Kyle: As farmers are on the fringes, who are less profitable think about them likely buying more of our volume oriented brands.
Kyle: And so <unk> has continued to do well in gaining significant market share over the last one year fence has done exceptionally well in gaining share.
Kyle: Whether thats through some of the new product introductions or some of the next generation products in the portfolio of new products coming out for <unk> is still pretty rich as we look over the next couple of years and so again, you've heard us say this before but incentives the best of the best which is driving the latest innovation the best fuel efficiency out there and so as farmer.
These are really challenged on their profitability, they're looking for ways to minimize their input costs maximize their output and their yield and fendt delivers on that in the products that they're offering so I don't see necessarily.
Kyle: <unk> and exchange for another product or another brand, but what you may see is if the economy recovers and some will use more volume oriented brands start to outpace in a recovery mode. It may have a little bit of effect, but I don't see that changing the overall EMEA margins significantly from what <unk> been seen us perform over the last couple of.
Kyle: Quarter.
Kyle: That's helpful. Thank you and then I think it would also be helpful. Just to get some sense of what Trimble top line and margins looked like in the quarter.
Kyle: Like where margins possible positive and then just.
Kyle: How should we be thinking about as you start lapping that <unk> dealer stock up that we saw just what are you seeing now in terms of the dealer inventories and order trends from those dealers.
Speaker Change: Yes, so I'll touch on maybe the numbers and I'll, let Eric talk about what he is seeing specifically related to some of the dealers.
Speaker Change: The products here, but if you remember we did not have <unk> trimble in the portfolio here in the first quarter. So for our overall <unk> revenue that's incremental sales for that part of the business were just over $60 million in the quarter.
Speaker Change: And if you remember what Trimble would have announced it was a little bit over 80% that did include agco related sales, so down a little bit.
Speaker Change: Not too different than the overall industry. So very much in line. So we're feeling pretty good about what we're seeing.
Speaker Change: Relative to the industry dynamics, but Eric can talk about what we're seeing with the Cma's channel and some of the other agco dealer channels that were bringing on board right now.
Speaker Change: Yes. The main focus we've got is establishing the channel in the future and Thats ramping up our AG dealers to also take on the <unk> contract from where we were at the end of 2024 until today, we've about tripled the amount of.
Speaker Change: Industry coverage that we've got covered by Agco dealers, but also carry Pts we expect that the bulk of that work and to be done by the end of the second quarter, we'll have most of them the large size dealers.
Speaker Change: Signed up and so that channel.
Speaker Change: As is our most urgent to get activated and it's underway and a good way.
Speaker Change: The topic is utilizing trimble technology on AG co products.
Speaker Change: We started when we launched the JV a year ago, we were at about 20% take rate.
Speaker Change: Got it to about 70% take rate at the end of 2024 and now we're more like 90% take rate, which is about where we think it'll stabilize.
Speaker Change: Because there'll always be niches that we may still provide other other.
Speaker Change: Brands.
Speaker Change: But so thats fundamentally well in place and we think that the last time buy of the CAH made just prior to the deal closing.
Speaker Change: Yes.
Speaker Change: Getting closer to being exhausted.
Speaker Change: And so that should no longer be a headwind to the overall business. So feeling very good about first quarter acceleration of channel readiness.
Speaker Change: As well as the cross selling activity in the full line Tech channel I talked about the agco dealers. Those are the machinery dealers itself planters sprayers combines and so on that also sell Pts, but then we've got this unique we're the only ones in the industry that have a full line tech channel in all of these sellers technology, because they're either former trimble dealers are former precision.
Speaker Change: <unk> dealers that are going to sell the full portfolio and we are working on cross selling helping those dealers be capable and proficient at cross selling the entire line.
Speaker Change: That will.
Speaker Change: Taking hold this year it'll be a little bit longer runway on that because it's a little bit more complicated, but we feel like we're on pace with that as well.
Speaker Change: Then kind of wrapping up on the profitability.
Speaker Change: <unk> was profitable for us in the quarter not to the levels, we want just yet but again as we've talked in the past given the lower levels of volume and the high Incrementals and Decrementals. There. We know we need to get volume back in but we were profitable here for the first quarter. So a good start to the year with six Trimble team, maybe one more comment.
Speaker Change: Imagine that there's other questions on other people's minds, so to say.
Speaker Change: We reorganized the leadership team of the Pts business in quarter, four where we had <unk> trimble as the JV and precision planting along with the other tech companies that we had bought.
Speaker Change: We blended all of that together melted together into one global <unk> leadership team and with that in quarter. One we've seen a significant acceleration in the synergies both within Pts.
Speaker Change: Ideas of revenue synergies and cost synergies as well as with Pts to agco.
Speaker Change: So that's the other element that we were committed to getting done and we've found a nice acceleration in quarter one.
Speaker Change: Really helpful. Thank you guys.
Speaker Change: You bet.
Speaker Change: The next question comes from Christopher Nolan with Oppenheimer. Please go ahead.
Christopher Nolan: Good morning. Thank you for taking my question I wanted to follow up on <unk>.
Speaker Change: Jamie touched on in her question and just make sure I understand the mechanics on the full year guide.
Christopher Nolan: So you've got the Q1 top line in line full year maintained.
Christopher Nolan: Bottomline be by 40 full year maintained.
Christopher Nolan: <unk> also lifted and some of the outlook for price.
Speaker Change: FX. So is it fair to think that your assumptions around tariffs or something on the order of.
Speaker Change: The four points that you added to the top line that that could be a four percentage point headwind and similarly, a 40% headwind on the bottom line side of it along with your question there, but I just want to make sure I understand the mechanics, and then I do have an unrelated follow up.
Speaker Change: Yes, I think so Chris maybe I'll do it bye bye bye.
Speaker Change: By earnings per share just to <unk>.
Speaker Change: Keep it simple for me our guide was 4% to $4 55.
Speaker Change: Hi roll through the 40 <unk> be directionally that we had in the first quarter.
Speaker Change: Foreign currency is a positive for us as we've said we went from negative three to around flat think of that's probably directionally around 840 <unk> picked.
Speaker Change: Picked up as well.
Speaker Change: We've taken the industry outlooks in North America, and Europe down Asia is also down.
Speaker Change: When I look at those industry dynamics, South America is up that's around a 30 cent headwind for us.
Speaker Change: Tariff net tariff impact to us so pricing coupled with that volume comment I made earlier.
Speaker Change: That's around 30 and.
Speaker Change: And then you've got some incremental negative absorption because of the industry changes, we're still in the 15% to 20% hours cut but that's because we're taking the industry down and we have the assumption in North America. We have some further absorption embedded in our numbers so that coupled with some other things was about another 10 or so.
Speaker Change: That's incredibly helpful. Thank you for that payment and then I did want to ask you mentioned in the prepared remarks as you typically do about your capital allocation.
Speaker Change: <unk> just given the progress with your large shareholder and their decision not to stand for reelection I'm wondering if you can maybe update us on what potential outcome could look like there and how that might influence your capital allocation going forward. Thank you.
Speaker Change: Yes, I'll take that one we feel really good about the progress we've made in discussions with cafe and you've seen that that the board seat. The task ahead is no longer in place and so <unk> gone from 10 directors down to nine.
Speaker Change: And so you can kind of imagine that.
Speaker Change: Overall discussions are pretty robust.
Speaker Change: We're not all the way done with them, yet, but we're getting close.
Speaker Change: And we recognize that investors would like us to do share buybacks and because of that we would like to do that as well we've been constrained from doing them over the last several years because of that shareholder concentration.
Speaker Change: As you can imagine that as part of our discussions and we're trying to represent that on behalf of our investors I can't see any specifics right now because the discussions arent done, but I promise you that that's that's certainly at the forefront of what we're trying to get accomplished.
Speaker Change: As soon as we can share it I promise you we will.
Thank you.
Speaker Change: The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.
Jerry Revich: Yes, hi, good morning, everyone nice quarter.
Speaker Change: Eric.
Speaker Change: Wanted to ask you.
Speaker Change: If you folks.
Speaker Change: Looking at the scenario that I'm sure you've evaluated fewer too.
Speaker Change: <unk> production into the U S for the U S market, what would that look like for Agco, what would the impact be on unit costs. If you were to move in that direction, how long would that transition take can you just fill us in.
Speaker Change: On that contingency plan.
Speaker Change: And how you folks have evaluated it if it were to come down to it.
Speaker Change: Yes, we've looked at that we actually even looked at it before the tariffs we look at it every year of our overall footprint and understand what what market demand is looking like and Where's the best place to produce as exchange rates move in and the volumes change and things like that and we've been gaining market share nicely with fendt in north and south.
Speaker Change: America. So it's a natural thing that we do annually.
Speaker Change: I will say that for any of these footprint decisions one of the things that we need to count on us.
Speaker Change: A sustainable set of assumptions and that we can.
Speaker Change: Count on those for the long term so.
Speaker Change: Now that that environment doesn't exist and so we're we've got a few different scenarios of what we might do.
Speaker Change: But.
Speaker Change: As you can imagine tractor production, especially volatile machining capability.
Speaker Change: Okay.
Speaker Change: The transmission and engine.
Speaker Change: In powertrain.
Speaker Change: Clearly, but a lot of the castings takes a lot of machining machine capital good items and so all the major players kind of centralize those into one spot for high horsepower production.
Speaker Change: Now those that's for the components to do final Assembly.
Speaker Change: A little bit more flexible so we've got options for.
Speaker Change: Different very different levels of how much vertical integration, we would potentially do we.
Speaker Change: We've got the site selected and understanding the impact of the supply base, but right now we are waiting until things stabilize we don't anticipate to make any.
Speaker Change: Any real changes.
Speaker Change: In manufacturing locations in the short term now we are working with our suppliers.
Speaker Change: To move component production around because.
Speaker Change: That's a little bit more flexible but final production is is something that we are holding off until things stabilize further.
Speaker Change: <unk>.
Speaker Change: Super.
Speaker Change: Just just to shift gears and nice to hear progress about the precision AG reorganization and what that has meant for cross selling can you just update us on your views on the legacy Trimble retrofit kit you've got a competitor that's spoken publicly about making good headway in terms of launching that product.
Speaker Change: Lower upfront costs with subscription over time.
Speaker Change: Echo counterpoint to that offering are you folks in the market.
Speaker Change: Numbers have been quoted earlier include.
Speaker Change: Potential lower ASP, but higher subscription value can you just talk about how you're thinking about the competitive landscape. Yes. In fact this week.
Speaker Change: This week, we are launching the new <unk>.
Speaker Change: Latest and greatest.
Speaker Change: Guidance technology, we call. It the NAV 90, 60, Thats just a new model number it's at agro show and its getting tremendous.
Speaker Change: Interest from the market down there and in fact, the overall agro show is very positive we see ordering up.
Speaker Change: Across all of our brands lots of interest, especially in defense, but across all three of our brands in South America, and then coming back to the technology, We've got Pts.
Speaker Change: Marketing and education embedded in each of our brand boots within the show as well as our <unk> unique source. So.
Speaker Change: <unk> is playing a very strong position in the market and we just rolled out.
Speaker Change: The latest new technology.
Speaker Change: We're excited about the new 960 <unk>.
Speaker Change: As it relates to pricing we have experimented with both.
Speaker Change: Full price on the hardware upfront and subscription based pricing.
Speaker Change: And.
Speaker Change: I think we're going to end up having a bit of a mix as it goes into the market, where depending on where we are in the world, we will probably use different tools.
Speaker Change: It's really because we want to be the most farmer focused company in the industry.
Speaker Change: And serve those markets the way the farmers want to consume that technology.
Speaker Change: We recognize the value and subscription does it relates to our.
Speaker Change: Our income statement, but we were trying to balance that with what farmers want to make sure.
Speaker Change: Most productive in their operation.
Speaker Change: So I think youll see a little bit of both.
Thank you.
Speaker Change: The next question comes from Stephen Volkmann with Jefferies. Please go ahead.
Speaker Change: Hey, good morning, guys. Damon I'm wondering if you can sort of mark to market relative to your various cost cut programs and what have you achieved so far what do you expect to achieve by year end any changes in that outlook.
Speaker Change: No no changes Steve I think we are on very good pace I think at the end of the first quarter, we have expense somewhere in the range of around $160 million and if you remember our guide was somewhere in the range of 150 to 200 in total costs. So we're getting through the bulk of that.
Is past us here.
Speaker Change: Savings Wise, we are our guide was 100 to 125 I feel very confident that we will we will be exiting.
Speaker Change: The year here at that level.
Speaker Change: Great.
Speaker Change: Earnings for our whole leadership team all last year and into this year. We just had two and a half days working on that we've got a very detailed management approach to this.
Speaker Change: Our whole working tool that tracks every project by date by location and so it's not a hope it's very detailed.
Speaker Change: And well managed program to deliver on that.
Speaker Change: I would say that we also announced that you remember at the December Investor Day, We announced another 75 million of cost opportunities. We saw that we thought we could materialize by end of 2026, given the environment. We're in right now probably no surprise to you. We are as Eric said working with our teams around the world.
Speaker Change: And then where are areas to potentially accelerate those cost out opportunities trying to enhance that $100 million to $125 million of run rate savings, we have with the original restructuring so.
Speaker Change: Nothing to add incremental right now, but I would say is our top priority of this team around the world looking for ways to pull that in where appropriate.
Speaker Change: Super Thank you for that and I guess as I think forward I think Damon you said Youre still looking at 25 is kind of the trough of the cycle.
Speaker Change: I guess just based on all this cost stuff there shouldn't be any real reason that we wouldn't factor in.
Speaker Change: No again, I think as we look at the structural costs that we're taking out.
Speaker Change: Look at our Decrementals are this quarter, we were actually slightly positive to our normal call. It around 30% and part of that is the cost savings actions that are dropping to the bottom line.
Speaker Change: I think obviously.
Speaker Change: Obviously as you start to go into an upswing in the market. Steve There is some variable costs that comes in things like variable comp hopefully gets a go to become a headwind for us.
Speaker Change: But I think overall, we would feel that we have structurally changed the profitability of this business.
Speaker Change: Through the cost actions, coupled with the large with the primary primary growth engines, Eric talked about so hopefully the incrementals will be above our normal bump, let's let's get to that point in the conversation when the industry is recovering and we can dig deeper at that point in time.
Speaker Change: Got it thank you.
Speaker Change: The next question comes from Tami Zakaria with Jpmorgan. Please go ahead.
Tami Zakaria: Hey, good morning. Thank you so much. So my first question is on <unk>.
Speaker Change: So if if there is.
Tami Zakaria: And put on test from the EU.
Speaker Change: Starting in July.
Speaker Change: Your plan regarding defense DRAM My understanding is it's a premium priced product already.
Speaker Change: Would you consider raising prices or would you would you absorb the cost initially.
Speaker Change: To not drive.
Speaker Change: Any price escalation in an already weak market.
Speaker Change: Yes, let me talk about tariff strategies.
Speaker Change: And it plays defense or any other product that we bring in.
Just because one product from one country gets a tariff that doesn't mean you can put all of that load on that one product coming from that one country. It gets that that machine out of whack in the marketplace.
Speaker Change: Instead, we're looking at it more strategically and seeing what are the total cost the company is incurring.
Speaker Change: Across all components and all machines that we export to new market.
Speaker Change: And then evaluating what can we do about that cost how do we that's why we're so aggressive at taking cost out of the core of the company that allows us a little bit more breathing room.
Speaker Change: To be able to manage through that number two how much can our suppliers either by us resourcing or working with them to take cost out how much can be absorbed in our supply base and then when we're all done is probably going to be a bit of a more broad based pricing strategy versus the one model that originated.
Speaker Change: The cost increase and that's because you need to keep your overall portfolio essentially in line.
Speaker Change: With the market so.
Speaker Change: <unk>.
Speaker Change: All of the miles within a given brand, but also from one brand to the next do you want to keep them.
Speaker Change: Matched with the value proposition that they deliver and the position they have in the market. So it would be more likely spread.
Speaker Change: Across the overall portfolio versus the.
The model has originated the issue.
Speaker Change: That's very helpful. That's all I had for today. Thank you.
Speaker Change: Mhm.
Steven Fisher: The next question comes from Steven Fisher with UBS. Please go ahead.
Steven Fisher: Thanks, Good morning, I, just wanted to follow up on the 30 <unk>.
Speaker Change: The tariff impact so just clarify from a flow perspective.
Steven Fisher: What are the tariffs that is.
Speaker Change: He is really driving that is that.
Speaker Change: Europe to U S is it China.
Speaker Change: Where does that all come from.
Speaker Change: Yes, Steve the largest headwind for us is going to be the tariffs currently in effect related to the EU that would be our largest headwind that we're dealing with and then secondarily would be the components coming out of China.
Speaker Change: We source given the higher tariff rate there and then it drops off.
Speaker Change: After those two we do import as you're probably aware, we import some smaller low horsepower tractors out of countries like Japan, Indonesia, India, a little bit from Brazil, So that tail drops off after EU and China.
Speaker Change: Very helpful. And then it seems like Brazil is obviously on the verge of perhaps really turning more positive here. So what can you do and what are you doing to to make sure youre keeping competitive pace, there and really trying to ease the objected to.
Speaker Change: A win in Brazil can you just give a little color there.
Speaker Change: No. We are we are full speed ahead in Brazil, We've said each time broken through that comes up we're bullish on Brazil, we've been bullish on Brazil for years, we think it's one of the most critical growth markets and global agriculture.
Speaker Change: Got the capacity to grow two crops of season, sometimes even more than that and more put more acreage into the production along with more use of high technology precision AG tools. So our brand leads both of them are senior Vice President of both brands are down there. This week I wish I could have been but we had this time calling on today.
Speaker Change: Head of <unk> down there.
Speaker Change: So we're engaging with the market vigorously all of them, giving me feedback that the customer group is much more excited this year.
Speaker Change: Sales sentiment is much more positive this year than last year, we're working with our factories and supply base to make sure that we can be ready for an increase in demand that is likely coming.
Speaker Change: Brazil is either going up or down it doesn't stay flat for a very long and so we recognize that and we think we're on the path to be going up for some time, because all all the indicators are pointing towards Brazil being a winner out of the volatility that's in the marketplace and so we're well positioned for that Damon talked about we're about one month high and dealer inventory, but.
Speaker Change: Probably through agro show Thats going to get evaporated here soon and then it's really about building to the market.
Speaker Change: Terrific. Thank you.
Speaker Change: Yeah.
Speaker Change: The last question will come from Tim Thein with Raymond James. Please go ahead.
Speaker Change: Alrighty.
Speaker Change: Snuck into the year.
Speaker Change: Bottom of the order.
Speaker Change: Just a quick one I guess, Eric just just continuing along the line there.
Speaker Change: Getting flashbacks, Greg to my old baseball days batting here at the bottom the lineup but.
Speaker Change: Just on the back of that comment on Brazil.
Speaker Change: I guess I'm just curious in light of the.
Speaker Change: The increase in.
Speaker Change: And interest rates.
Speaker Change: Putting a bit more pressure on the federal government in terms of that kind of the way.
Speaker Change: Over when they have.
Speaker Change: In terms of announcing our.
Speaker Change: Subsidized interest rate programs I'm, just curious if theres been any.
Speaker Change: New or anything Thats come out there in terms of what next year's program.
Speaker Change: It may look like.
Speaker Change: So maybe that's part one and then part two just.
Speaker Change: I probably missed it but.
Speaker Change: The change in.
Speaker Change: Pricing expectations I know it wasn't a brand change but.
Speaker Change: The change from last quarter was there a region or not.
Speaker Change: And then a mix dynamic going on.
Speaker Change: Brazil, improving to that by saying that the overall pricing.
Speaker Change: Higher from last quarter, maybe just a comment on that thank you.
Speaker Change: Yes, real briefly Brazil, we haven't heard any indications yet I don't think there's any indication has been provided but we do have confidence that that government is highly supportive of farming and farmers and so we think that the priority on farmers will remain but don't have any specifics yet.
Speaker Change: Be able to digest and I'll ask David to help out with the mix and pricing at Tim I think overall, our outlook from which was zero to 1% so around 1% heavily weighted on what we've assumed related to the north American market. There. So theres been a little bit of improvement here.
Speaker Change: In Europe.
Speaker Change: But generally speaking the change in guidance is solely focused mainly focused on North America.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Eric <unk> for any closing remarks.
Thank you I just wanted to thank the group for joining us today and the great questions on the call.
Speaker Change: When you take a step back agco has gone through a substantial transformation over these past several years, particularly in 2024, where we supercharged our precision AG portfolio with the <unk> brand. We're so glad that we made that move.
Speaker Change: AG performed well in the first quarter better positioning ourselves amidst global trade uncertainty and continued weak industry demand, we made substantial progress on our cost reduction efforts and reducing inventory.
Speaker Change: All of these efforts will be priorities for the remainder of the year. We're excited about the fact that farmer sentiment indicators are trending positive in all the major regions six months in a row now in <unk>, which is our biggest market and we still see the trough being in 2025.
Speaker Change: Our key to our long term success is the continued execution of our farmer first strategy. Our focus is on growing our margin rich businesses like fendt parts and services and our precision AG business.
Speaker Change: Finish where I started with our financial outlook reflects my confidence in the team and our strategy even in the weak industry conditions, we continue to execute on investing in the future delivering market share gains and staying nimble on our cost to all of our shareholders. We appreciate the support and look forward to building value and executing a farmer for strategies have a great day.
Speaker Change: Thank you for joining the <unk> earnings call. The call has concluded have a nice day.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: [music].