Good morning. Welcome to the AGCO Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Gregory Peterson, Vice President of Investor Relations. Please go ahead.

Thanks and good morning. Welcome to those of you joining us for AGCO’s third quarter 2022 earnings conference call. We will refer to a slide presentation this morning that’s posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP metrics in the appendix of that presentation. We will make forward-looking statements on the call this morning, including demand, product development and capital expenditure plans, production levels, engineering expense, exchange rate impacts, pricing, share repurchases, dividends, future commodity prices, crop production, our supply chain disruption, inflation, component deliveries, retail revenue, margins, earnings, cash flow, tax rates, and other financial metrics. We wish to caution you that these statements are predictions and that actual events may differ materially. We refer you to the periodic reports that we file from time to time with the Securities and Exchange Commission, including the company’s Form 10-K for the year ended December 31, 2021. These documents discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. These factors include, but are not limited to, adverse developments in the agricultural industry, including those resulting from COVID-19, including plant closings, workforce availability and product demand, as well as supply chain disruption, weather, exchange rate volatility, commodity prices and changes in product demand. We wish to disclaim any obligation to update any forward-looking statements except as required by law. A replay of this call will be available on our corporate site later today. On the call with me this morning are Eric Hansotia, our Chairman, President and Chief Executive Officer; Damon Audia, our Senior Vice President and Chief Financial Officer; and Andy Beck, our Former CFO and now Senior Vice President and Senior Advisor. With that, Eric, please go ahead.

Thank you, Greg, and good morning. We appreciate your interest in AGCO and your participation on the call today. Our record third quarter results have us solidly on track to meet our full-year financial targets, which include strong revenue growth, margin expansion, and record earnings per share. These are further evidence that our strategies are working. The quarter was highlighted by solid operational performance and continued double-digit pricing. Those helped us overcome continued supply chain challenges, inflationary pressures, and significant currency headwinds. The encouraging news is that despite the global supply bottlenecks and inflationary pressures, farmer economics are very healthy. Global end market demand remains at a high level, and demand for our products continues to be strong. Our team is working hard to mitigate these challenging conditions to serve our customers and maximize our full-year results. Let’s start on slide three where you can see that net sales grew 14.5% compared to the third quarter of 2021. Adjusted operating income increased nearly 32%, while margins improved about 140 basis points. We are seeing excellent demand for the technology-rich Fendt full lineup of equipment, our Precision Planting solutions, and replacement parts. AGCO’s Precision Ag sales are up over 21% so far this year. We have experienced strong growth for both our Precision Planting business and our Fuse suite of products, as farmers see the benefit of these high-tech solutions. We have also made significant progress with our efforts to optimize our South American operations and improved margins there. Through the third quarter, our year-to-date South American operating margins hit 16.5%. That’s over 700 basis points of improvement from last year. Slide four details industry unit retail sales by region for the first nine months of 2022. Healthy farm income is projected across most of the major agricultural production regions. Elevated crop prices are offsetting higher fuel, fertilizer, and other input costs. Despite ongoing supply chain disruptions, favorable farm economics are generating strong demand for large farm equipment across all major global markets this year. Industry retail sales continue to be negatively impacted by supply chain constraints, which has limited equipment production during the first nine months of 2022. We continue to believe that the weaker year-to-date industry sales are the result of supply chain challenges, as end market demand remains very strong. North American industry retail tractor sales were down approximately 6% in the first nine months of 2022 compared to last year. Smaller tractors declined from record levels in 2021, while increased sales of high horsepower units offset some of the decline. Industry retail tractor sales in Western Europe decreased approximately 10% in the first nine months of 2022 compared to the strong levels in the same period of 2021. However, forecasts for healthy farm income in Western Europe are expected to support solid retail demand for equipment for the remainder of 2022. In South America, industry sales increased 9% during the first nine months of 2022, with robust demand across all South American markets. Strong crop production levels, as well as elevated commodity prices are supporting positive economic conditions for farmers who continue to replace their aged equipment. AGCO’s 2022 factory production hours are shown on slide five. You can see that our production increased in the third quarter, as we aggressively ramped up our facilities in line with our expectations. For the full year of 2022, we currently project production hours to increase approximately 6% compared to 2021 levels, with fourth quarter production levels up double digits compared to the fourth quarter of 2021. Our current October production rates are solidly on track to deliver the higher production plan in the months ahead. As we discussed over the last several quarters, supply chain issues have impacted our ability to complete and ship units and caused several inefficiencies in our factories. The volatile supply chain environment is still requiring us to keep higher than normal levels of raw material and work in process inventory on hand. We continue to face supplier bottlenecks and delays in all regions, and although trending slightly better in some markets, we expect continued challenges for the remainder of the year. The higher level of production in the fourth quarter, as well as our current volume of semi-finished products, supports our full-year sales outlook. At quarter end, AGCO’s order board remained extended. Orders for tractors and combines globally were modestly higher compared to a year ago and extend into the second half of 2023 on many products. You will recognize slide six, which highlights our focus on high margin growth. The first focus area is taking our Fendt full-line brand global. We are working to grow the business along two vectors. The first is expanding the Fendt product line beyond tractors into combines, planters, and sprayers, where we have top-performing products across the board. The second is taking the Fendt full-line products global. Interest is growing in our premium Fendt product lines in both North and South America. Our Fendt and Challenger combined sales in North and South America are expected to double in 2022 compared to 2020. Our ambitious target is to double them again over the next five to seven years. The second focus area involves Precision Agriculture. At AGCO, we address the Precision Ag market in two ways. The first is through our Precision Planting business, which has built an innovation-driven growth record of 24% per year growth since we have owned the business. Precision Planting has been successful in providing automation and intelligence to planters. Now, we are growing beyond planters into the other parts of the crop cycle, like spraying, soil sampling, and harvesting. In addition to their impressive technology, Precision Planting’s success is generated through their unique retrofit approach, which reduces the farmer’s upfront investment and increases their ROI. By offering solutions through a retrofit approach, we can expand the addressable market beyond AGCO brands to all industry brands. The other way we are addressing the Precision Ag opportunity is Fuse, which provides OEM solutions for our AGCO equipment. The third high margin focus area is our Global Parts and Service business. AGCO is already in a leading position relative to having the right parts in the right place when the farmer needs it. We are building from a solid foundation to capture more of the dealer and farmer’s business. We are helping dealers become better and more proactive with their service and parts offering with our smart solutions and expanding digital capabilities, which leverage the growing number of connected machines. As a result, we have driven our after-sales in parts business to grow at 8% annually over the past three years, compared to 4% for the three years prior. Combined, these opportunities provide significant growth potential at higher margins and less variability during cyclical downturns. Our farmer-first approach is also making strides and being recognized in the area of sustainability. During the third quarter, AGCO was named Sustainability Company of the Year by Enablon. One of the ways we are growing our premium Fendt business is by continuing to expand and upgrade our product offerings. During the third quarter, we had a global launch event for the Fendt 700 Series. This high-tech tractor ranges from 200 horsepower to 300 horsepower and is the highest volume row-crop tractor Fendt sells. Through our farmer-first approach, we listen to what farmers want and then we deliver it with this new tractor. They told us they want the lowest fuel consumption, superior maneuverability, minimal soil compaction, as well as cabin comfort features for long working days. The new 700 Series has more than delivered. On slide seven, you can see some of the specifics for this great new tractor. The short version is that it’s bigger, smarter, more fuel-efficient, and more sustainable than ever before. The spacious cab with its continuous field of vision is more like a luxury sedan than a tractor. From the joystick control to the extensive automation of processes, we have packed even more technology into it and made it easier to drive. Its tighter turning radius gives it the maneuverability of a much smaller tractor. Farmers love the Gen 6 version, and based on early indications, there is a lot of interest in this Gen 7 version. It is innovations like this at our Fendt lineup that give me continued confidence in Fendt’s ability to win around the world. With that, I will hand it over to Damon, who will provide more details on our third-quarter results.

Thank you, Eric, and good morning, everyone. We will start on slide eight with an overview of AGCO’s regional net sales for the third quarter. Net sales were up approximately 26% in the quarter compared to the strong third quarter of 2021, when excluding the negative effects of currency translation. Pricing in the quarter, which was around 13%, contributed to higher sales, along with continued strong growth in high horsepower tractors, combines, and Precision Ag products. By region, net sales in North America increased approximately 44%, excluding the unfavorable impact of currency translation compared to the third quarter of 2021. The strong year-over-year growth was driven by the success of our Fendt large tractor sales, significant increase in demand for our Precision Planting products, as well as overall solid pricing. The Europe/Middle East segment reported an increase in net sales of approximately 15%, excluding the negative impact of currency translation compared to the sales in the third quarter of the prior year. Despite the overall weaker market conditions due to the factors Eric highlighted earlier, we continue to see good pricing and strong retail demand in large equipment in several countries, like Germany and France. In South America, net sales grew approximately 50% compared to the third quarter of 2021, excluding favorable currency translation driven by favorable market conditions, helping deliver significant pricing, as well as volume and positive mix effects from growth in Fendt products. Sales were up strongly across the South American markets, with high horsepower tractors and combines showing the largest increases. Net sales in our Asia-Pacific/Africa segment increased about 15% compared to strong sales in the third quarter of 2021, excluding the effects of currency. Higher sales in Japan, Australia, and Africa were partially offset by lower sales in China, mainly related to grain and protein business, which has been challenged by customer demand being limited by COVID-19-related lockdowns in the quarter. Finally, consolidated replacement part sales were approximately $425 million for the third quarter, down approximately 4% from the third quarter of 2021. Excluding negative currency effects of 12%, part sales increased about 8% compared to the third quarter of 2021. Turning to slide nine, the third quarter adjusted operating margin improved by approximately 140 basis points versus the comparable period in 2021. Margins in the quarter benefited largely from higher sales and production volumes, as well as positive net pricing. The third quarter price increases of approximately 13% more than offset the significant material and freight cost inflation on a dollar basis contributing to the margin improvements in the quarter compared to the third quarter of 2021. For the full year, we are now expecting pricing in excess of 10% and not only offset material cost inflation on a dollar basis, but also on a percentage basis. By region, South America continued its very strong performance with operating margins reaching nearly 19% in the quarter and operating income improving over $63 million year-over-year. Continued strong end market demand, solid pricing, and a healthy sales mix supported by impressive year-over-year growth. North America operating income for the third quarter improved over $75 million year-over-year, and operating margins reached 12%. Higher sales volume and production, as well as a richer sales mix, specifically more Precision Planting and Fendt sales resulted in the improved third quarter operating results. The Europe/Middle East segment reported a decrease of approximately $50 million in operating income compared to the third quarter of 2021, primarily from foreign currency translation related to the weaker euro. In addition, operating income was also adversely affected by higher material inflation and operational inefficiencies due to supply chain challenges, which in total offset strong pricing. Finally, in Asia-Pacific/Africa segment, operating margins expanded over 130 basis points to over 13% in the third quarter, reflecting mainly an improved sales mix. With margin expansion over the last two years in our North American, South American and Asia-Pacific/Africa regions from our strategy execution and disciplined pricing, we expect the margin profile will be more balanced across the globe in the years ahead. Slide 10 provides an overview of our grain and protein sales by region and by product. Sales increased about 2% in the first nine months of 2022 compared to 2021. Globally, grain equipment sales increased approximately 20%, with our South American and North American regions showing the largest increases. Protein production equipment sales declined approximately 22% in the first nine months of 2022, with the weakest demand in the Asia-Pacific/Africa region, mainly due to swine-related equipment sales. Overall, grain equipment demand has been strong, supported by improved grain prices and profitability of farmers. However, North American demand has been muted due to industry-wide price increases to cover the increased cost of steel. The protein production equipment market remains challenged due to labor issues and higher input costs, such as grain. As protein prices are improving, so is protein producer profitability, which should lead to further investment. Slide 11 details AGCO’s free cash flow for the first nine months of 2022 and our outlook for the full year. As a reminder, free cash flow represents cash used in or provided by operating activities less capital expenditures. For the first nine months of 2022, free cash flow has been a use of $566 million, which is over $400 million higher than the first nine months of 2021. The primary driver for the change is the higher inventory levels related to the continued supply chain challenges influencing our safety stock and work in process inventory. For the full year of 2022, although we expect our raw material and work in process inventory to continue to remain elevated to help us manage through the continued difficult supply chain environment, we do expect to see a significant reduction in our work in process inventory in the fourth quarter and now expect to generate $400 million to $500 million of free cash flow for the full year, which is up from 2021. The decrease in our outlook from our previous forecast is related to continued supply chain challenges, as well as the timing and geographic mix of sales in the fourth quarter. Our capital allocation priorities remain unchanged and will continue to include investment in our Precision Ag offerings and digital capabilities, as well as opportunistically adding bolt-on acquisitions to help position AGCO for long-term success. In addition, we have focused on our direct returns to investors this year with our regular quarterly dividend that we increased 20% earlier this year to $0.24 per share and this year’s variable special dividend of $4.50 per share, given our expectations of our strong free cash flow generation. Future returns of cash to shareholders will be based on cash flow generation, our investment needs, which include capital expenditures and acquisition opportunities, as well as our market outlook. Turning to slide 12 for our current 2022 full-year forecast in the three major regional markets. Despite the continued strong retail demand, especially for high horsepower equipment, we believe supply chain constraints and the corresponding effects on production will limit demand upside in the fourth quarter. For North America, with higher commodity prices and healthy farmer sentiment, we expect relatively flat demand compared to the healthy levels last year. We expect continued growth in larger equipment segments to be offset by softer demand for smaller equipment after several years of strong growth, coupled with increasing interest rates, which is further slowing this segment of the market. For South America, we expect the industry demand has been relatively healthy and increased around 10% compared to last year. This year-over-year growth is driven by supportive commodity prices and favorable exchange rates, which is allowing farmers to continue replacing aged equipment as the number of planted acres continues to expand. EU farm economics are expected to remain supportive. Elevated commodity prices are expected to offset higher fertilizer and diesel costs. Economics remain positive for dairy producers, as milk prices have moved to record levels and are offsetting higher feed costs. However, weakening forecasts for the general economy, concerns over the energy supply, and ongoing conflict in Ukraine are weighing on farmer sentiment. As such, we believe Western Europe industry demand is now expected to be down modestly compared to 2021 levels. Slide 13 highlights the key assumptions underlying our 2022 outlook. Our fourth quarter results are still dependent on our supply chain’s performance. Our outlook is based on current estimates of component delivery levels for the remainder of the year and our results will be affected if actual supply chain delivery performance differs from these estimates. Our sales outlook includes price increases of over 10% aimed at more than offsetting higher material cost inflation during 2022. With significant weakening of the euro versus the U.S. dollar, we now expect currency translation to negatively affect full-year sales by about 8% based on the current exchange rate versus our prior outlook of negative 7%. Engineering expenses are expected to increase by approximately 10% compared to 2021. The increases are targeted at investments in smart farming and Precision Ag products, as well as the company’s digitalization initiatives. For the full year, we expect an operating margin of approximately 9.9%, which is above the 2021 operating margin, as a result of higher sales and corresponding production, and improved factory productivity, partially offset by increased engineering and digital investments. Finally, we are targeting an effective tax rate of approximately 28% for 2022. Slide 14 provides our outlook for 2022, which continues to be based on the current estimates of our supply chain capacity. Results will be affected if the actual supply chain delivery performance differs from these estimates. We are now projecting 2022 sales to be in the range of $12.5 billion to $12.6 billion and corresponding earnings per share to be in the range of $11.70 to $11.90. We expect capital expenditures to be approximately $325 million and free cash flow in the range of $400 million to $500 million.

With that, I will turn the call back to Greg for Q&A.

The first question is from Stephen Volkmann with Jefferies. Please go ahead.

Great. Hi. Good morning, everybody. I guess, I am curious, Eric, you talked a little bit about the backlog sort of pushing well out into 2023. Can you just comment on sort of where you are, are the order books basically open for 2023? If not, any sort of trends at the margin relative to what you are seeing for orders over the last few weeks, relative to the major end markets, would be appreciated?

Yeah. Our order situation in terms of how we run the process is largely unchanged from what we have talked about in the past. In South America, we only opened up one quarter at a time. And then in the rest of the world, we opened up longer periods, but we don’t confirm pricing on what we call non-retail orders or our wholesale orders. So if it doesn’t have a customer name attached to it, we don’t confirm pricing. We only lock in pricing if you have a farmer with a name on it. So our order bank is still extended well into the second half of or at least into the second half of 2023. Order rates continue strong, but they are cooling a little bit back to more of a normative rate, and that’s what we expected. There was such a surge in demand last year and the first half of this year that bringing them back to more of a normal incoming rate is what we expected. So no big changes here from what we have talked to you about the last couple of quarters.

Okay. Great. And sort of off that base, you did take down your North American and EU industry outlook a little bit. Was that mostly just the small end or are there some other trends that you should call out for us?

Two factors there. On the demand side, it’s all about small ag in North America, which is the only place we see demand diminishing. But the industry is capped by supply constraints. So the expected industry we thought we were going to see is being limited due to the component availability for us and our competitors. So we just aren’t able to deliver the amount of machines that we would have liked as an industry.

The next question is from Jamie Cook with Credit Suisse. Please go ahead.

Hi. Good morning. I guess two questions just to follow-up on Steve’s. Can you comment specifically on the order trends by geography? And then as you took down your industry forecast, some of it because of supply chain. Does that mean that will get pushed into 2023, and I am just wondering if that’s incremental to 2023? And then my last question, the margins in South America were exceptional this quarter, just wondering if there’s anything one-time there and sort of structurally how to think about your South American margins, just given improvement in 2022? Thank you.

Damon, would you?

I think, regarding the orders by region, all of them increased by double digits, although North America had a downturn in small ag while large ag saw significant growth. Therefore, net orders in North America decreased year-over-year. In contrast, we experienced over a 20% increase in orders in EME, low double-digit growth in South America, and growth in the teens for Asia-Pacific. As Eric mentioned, demand remains very strong except for small ag in North America. Regarding South America, the team deserves credit for implementing the fixed plan several years ago, which has driven strong demand as we expand Fendt and high-margin products. This growth is occurring against a backdrop of exceptionally strong market conditions. South America is currently our strongest market, reflecting strong demand that supports a favorable pricing environment, thanks to the team's efforts in pricing along with the growth in Fendt products. Overall, we have made significant structural improvements in our South American business, and we are very pleased with our progress, which has been further boosted by these strong market conditions.

Thank you.

The next question is from Stanley Elliott with Stifel. Please go ahead.

Hi. Good morning, everybody. Thank you all for taking the question. A quick question, with the portfolio change you guys have made in North America, you have got small ag softening, but the large ag looks pretty healthy. How does the North American margin profile hold up, and how should we think about that longer term?

Well, there will be two factors, and they are both moving in the same direction. We expect the large ag market to stay strong for some time yet. There is still some pent-up demand in large ag. So from an industry standpoint, there’s more tailwinds there. Small ag, there’s probably a little bit of pull ahead during COVID, and so although, it’s cooling off, that one’s tied more to the economy. So we think that that’s the movement of the industry. And then the focus of AGCO within the company is really about growing our large ag participation in North America. We have already established 75 dealer outlets for Fendt. We are growing them steadily according to our plan of only turning on outlets that can meet the very rigorous total Fendt experience. We have brought in the Fendt tractors, combines, sprayers, and planters. They are all performing exceptionally. Customers love them. So our bias and focus is really on growing North American large ag share, and so with that comes two things. One is, we should see margin expansion and a bit more stability in margins over time.

I think, Stanley, the other thing I would add to that is, Precision Ag is doing great, up significantly year-over-year. And as Eric alluded to in his pre-scripted remarks, that is one of our higher growth and higher margin segments, and we are seeing good growth and expect to see continued growth in the North American market, which should continue to help enhance those margins.

Perfect. And then thinking about the Brazilian election, I mean, is there any potential impact from your seat that you all see down there? Just curious kind of high level what you are hearing on the ground from there?

In the short term, there are currently several protests and blocked transportation routes in various regions of the country. It's difficult to estimate how long these disruptions will continue, but we hope they will not last long. We are working to navigate around these challenges. Regarding the long-term perspective on policy changes, the agricultural industry generally supported Bolsonaro, but it also performed very well under Lula. Given the agricultural sector's significance to the economy, we do not expect any major policy shifts.

Great, guys. Thanks and best of luck.

The next question is from John Joyner with BMO Capital Markets. Please go ahead.

Good morning and thank you for taking my question. In relation to Jamie’s earlier question, I understand you may not want to address this directly. However, regarding the margins in South America, it seems there has been a surprising improvement. Has this enhancement caught you off guard internally? Also, what do you envision as the long-term structural margins, in percentage terms?

Currently, all our businesses in South America are performing very well. Damon mentioned the structural changes we have made in our machinery division, shifting our focus from small machines in the South to larger ones in the Midwest. We have deployed our dealer organization in that area and introduced new products to the market. Our emphasis has shifted towards larger agricultural machinery, expanding beyond just tractors to a complete lineup of equipment. Our planters have been sold out for three consecutive years, showing exceptional performance. The machinery business is doing robustly, allowing us to implement strong pricing. The industry is experiencing significant growth. Our grain and protein sector is also thriving in South America, being entirely sold out and also benefiting from strong pricing. Precision Planting is experiencing good growth with high margins as well. All businesses are performing well, bolstered by a favorable market, and they are executing effectively. We anticipate the industry to be around 20% above mid-cycle and believe it may eventually align closer to mid-cycle, which will likely result in a decrease in margins. However, we have consistently stated our expectation for every business to maintain margins above 10%, and we believe South America can sustain that, particularly at mid-cycle.

Okay. Excellent. Thank you, Eric. And then just one last one, on the parts business, historically, I guess, the revenue there is running maybe like $1.3 billion or so of sales annually, up through 2019, and now I believe it’s probably running closer to $1.8 billion. And I guess that the industry fundamentals are better and you have been able to grow the business in South America, implemented a SAP system, improved fill rates, I mean, there’s a lot of things that you have done there, which is impressive. But are there any other factors that have boosted this business, and do you see it kind of continuing to trend higher and maybe even higher as a percentage of overall sales?

This is really important. I've mentioned it whenever I get the chance as one of our three growth engines. Our initial focus was on increasing parts fill rate, ensuring that when customers or dealers need something, we have it available. We've made significant improvements in parts fill and believe we now have industry-leading rates in North America and Europe, with considerable progress in South America towards that goal. This improvement builds confidence in our overall channel, encouraging them to turn to us for parts. The next step is to enhance our digital tools and utilize our connected fleet to monitor when machines are approaching service intervals, allowing us to reach out to customers to offer servicing or parts ordering. While these services may seem simple, they help us capture a larger share of the farmer's spending. Over the past three years, our parts sales have increased by around 8%, compared to about 4% in the three years prior, indicating a fundamental shift. Notably, throughout the last decade, even with industry fluctuations, our parts sales have consistently grown without a down year. We believe we've significantly boosted our performance, and we don’t anticipate any negative trends, regardless of broader industry conditions.

Okay. Excellent. Great. Look forward to seeing you next week. Thanks a lot.

Thank you.

The next question is from Nicole DeBlase with Deutsche Bank. Please go ahead.

Yeah. Thanks. Good morning, guys.

Good morning, Nicole.

Hi, Nicole.

Hi. Maybe just starting on the 4Q production outlook, I guess, could you just speak to the level of confidence in being able to continue to ramp up and I think that ties into maybe what you guys are seeing from a supply chain perspective in real time?

You bet. It’s one of our top management topics that we are focusing on. One question you might have is, given the big quarter ahead, can we deliver? When we break that down, we find that one major challenge is still related to supply chain issues in receiving parts. However, for about half of our unfinished product—machines that are nearly complete but awaiting a few parts—we now have the necessary components. The next step is to apply the workforce to complete those machines. We have added several resources to enhance our capacity to finish these machines by the end of the year while maintaining high quality. This will ensure they can be processed through the distribution channel and fully invoiced to farmers for year-end tax purposes. We believe that the overall supply chain situation is improving, and a significant portion of our finished goods challenge is within our control to resolve, supported by our additional resources. Thus, our confidence remains strong.

That’s very helpful color.

Our confidence isn’t 100%, but it’s strong.

Got it. Okay. Great. And then just to follow-up on Europe, obviously, a really hot topic right now among investors. It feels to me like your commentary is just maybe a tad more cautious than it has been on the region. So, I mean, what is the risk that Europe could be down in 2023, just because of all of the economic and geopolitical issues happening in the region?

Well, there is uncertainty for our European region, so I will say that. It’s hard to give you really exact answers. But we still are quite bullish on Europe. The Europe, as an industry, does not move up and down in a very volatile way. They hover more around the midpoint through the ups and downs, and that’s what we have seen. So we expect that to continue. The farmer economics are still very strong for the farmer. Their prices that they can lock in are super high. They can lock in all the way out to early 2024 right now, and we are seeing many farmers do that. So all indications are our order bank is very strong in Europe. We have just launched the new Fendt product that I talked about, that’s got great reception. So product, industry, farmer ordering, order bank, all positive. We have got a lot of news articles about energy supplies and things like that, and that’s a real topic. But we have put in place, I will call it, plan B options in all of our facilities to have an alternate source of energy, whether that be electric or liquefied natural gas or other things. So we are quite bullish about Europe staying strong again next year.

Thanks, Eric. I will pass it on.

The next question is from Mig Dobre with Baird. Please go ahead.

Yeah. Good morning. Thanks for the question. And I want to follow-up on this Europe discussion here, because in your assumptions, you have tweaked industry sales lower, and I would like to know what’s behind that. And from your perspective, if there is resolution to the conflict in Ukraine, hopefully, sometime soon, do you think that that’s a positive or a negative for equipment demand in Europe and sentiment overall?

The adjustments we made regarding the European industry were purely related to supply and not demand. The industry faces challenges in meeting the demand from farmers, and AGCO is experiencing similar issues. However, our perspective on the demand from European farmers remains unchanged. In fact, profitability for these farmers may have slightly improved since our last quarter, indicating that the fundamentals are solid. Regarding the potential easing of the conflict, we believe it would generally benefit European farmers. Currently, the prevailing uncertainty leads to some caution, making people hesitant, which introduces a degree of conservatism. Nevertheless, the core factors are still price and cost, as there is currently a market price and cost influenced by the global grain shortage. We don't anticipate any significant changes until perhaps next spring. Additionally, South America is expected to have a strong harvest that could help alleviate the situation, but we may not see sufficient global grain availability until next fall.

Understood. And then maybe a question on where you are going to be in capacity utilization in the fourth quarter and going into 2023, I mean, if let’s say, the supply chain starts to ease a little bit, can you continue to increase production hours next year? Do you have the capacity available or is there something else that you are going to have to adjust the business to address that?

No. We have been investing steadily through this year to add more capacity in our bottleneck areas. I have talked to you about our planter factory being sold out each of the last three years. That’s, I guess, a good problem to have. But we don’t like shorting any farmer that wants a product. So we continue to invest in all of the facility areas where there are bottlenecks, and so if the demand is there, we will take production up next year in the areas that require it.

Okay. Thank you.

The next question is from Seth Weber with Wells Fargo Securities. Please go ahead.

Good morning, everyone. Eric, I wanted to revisit your recent comment about adding more resources to expedite product delivery. Should we expect that operating margins will decline across the regions, or is the reduction mainly due to normalization in South America that leads us to the 9.9% operating margin for the year? I'm trying to get a sense of where costs are shifting as we approach the fourth quarter. Thank you.

No, I would see that in reverse. What we are doing is reallocating resources across our factories. We are pulling resources from factories with a good situation and moving them to other facilities that need extra help completing these mostly built machines. That's what we meant by one of the sources of extra capacity. We are also tapping into other sources. However, the labor cost is very small compared to the incremental margins on these machines to get them finished. It usually requires just a couple of parts and a few hours to get a large machine to the marketplace. Therefore, we have no concerns that this action will impact costs.

And I think, Seth, regarding your question about margin, generally speaking, when you consider the fourth quarter, margins should be relatively flat compared to Q3. You might notice a slight geographic mix; for instance, the European margins this quarter were a bit low. As Eric mentioned, there’s a significant amount of semi-finished work in process, particularly in Europe. As we address that, you can expect to see some improvement, possibly offset by a few other regions, but overall, we anticipate the total company margins to remain relatively flat compared to Q3.

Thank you for the information. I have a quick follow-up regarding Precision Planting. In light of the supply chain delays and semiconductor issues, have you experienced any cancellations of orders in the Precision Planting segment?

Not at all. Our demand remains extremely strong. For the full year, we expect Precision Planting to be up 35% to 40%, and our Fuse brand for AGCO machines is anticipated to be up 20% to 25%. Overall, our Precision Ag business, when combining those two, is projected to increase by 30% to 35%. We are not encountering any order cancellations. We launched a new automated soil sampling business in August, which has received positive reviews. We will also be introducing additional new products in January at our annual conference. The innovation engine is operating at full capacity, with no expected slowdown.

Got it. I appreciate it, guys. Thank you.

The next question is from Tammy Zakaria with JPMorgan. Please go ahead.

Hi. Good morning. Thank you so much. So, most of my questions have been asked already. I have a couple of quick ones. Are you seeing any improvement in China quarter-to-date sequentially, or should we expect that region sales to be challenged for the rest of the year?

Hi, Tammy. Right now, excuse me, we would expect China to continue to be challenged as we go through the fourth quarter here with the sort of the lockdowns they have experienced through the first part of the year here.

But China constitutes a very small part of our business.

It’s probably 10% to 15% out of our Asia-Pacific business.

Yeah. And so company-wide, China is a very small portion of our total company sales. So, although it will be challenged, it’s not very meaningful to the total number.

Got it. That’s super helpful. And then have you seen any relief in inflationary pressures in your raw materials costs, maybe in the GSI segment, given used bronze, steel?

We are observing that as steel prices decrease, many of our products, particularly in the grain and protein sector, are also seeing a reduction in costs due to their price indexing. This should provide some relief in the market since we have had to set high prices for our equipment, which has influenced demand this year. We are hopeful that as prices stabilize, it will positively impact the overall grain and protein market.

Got it. Can I just squeeze in one quick one, I am sorry if I missed it, but did you comment on the level of pricing you are embedding for next year’s orders?

So we did not comment on pricing, Tammy. I think what we do expect through the pricing actions that we put in place this year, we said we expect in excess of 10% for the full year. There will be a decent amount of carryover pricing that will go into 2023, but as we look at the material cost inflation that we still expect to go into 2023 and we expect it to be up year-over-year. We would expect some incremental pricing in 2023 as well, but we haven’t given any specifics as of yet.

Got it. Thank you so much.

The next question is from Tim Thein with Citigroup. Please go ahead.

Thanks. Good morning. Maybe just to circle back and I apologize if I missed this. But just your near-term margin expectations for EME and how we should be thinking about, and really more importantly, looking beyond the fourth quarter just as we think about the volatility both from an FX, and certainly, an energy cost situation, but also with the prospect of production hours increasing. So, just how do we kind of weigh those all together as to what that means for margins in the near-term?

We are very optimistic about Europe. Our order board has increased by 20% in Europe compared to the same time last year. Energy costs account for less than 1% of our cost of goods sold. While there are elevated energy costs, they do not significantly affect the overall business. We have implemented alternative energy sources at all our factories, including wood pallets and electricity, to ensure continuous operations. We are also collaborating with our unions to maintain flexibility for different shifts or working days if needed. Demand remains strong, supported by solid fundamentals for farmers. Prices are robust, and costs have largely stabilized, allowing European farmers to secure prices going into early 2024. They continue to place orders, contributing to our growing order bank. We also have the capacity to increase production at our European factories next year. Overall, I believe I addressed all aspects of your question regarding our positive outlook for Europe. From an industry perspective...

Okay. Got it.

We believe it will remain relatively stable; although we are not providing a forecast, we do not anticipate any significant decline in Europe. The market there tends to be quite stable from year to year.

Can you provide some insight on the product mix for AGCO as a whole? The company has expanded significantly beyond just tractors, and there seems to be a considerable variation in the performance of individual products. Given your visibility on backlogs, should we consider this a potential boost to margins in 2023? I understand you aren't offering guidance, but with the orders you currently have, do you expect this to be a positive influence? Thank you.

Yeah. I don’t know if I would give a big strong tailwind there. I think we are definitely moving into a full line of equipment, planters, sprayers, combines, and tractors, along with our hay equipment and grain and protein. But just because we are adding in those other machinery forms doesn’t mean that our margin mix would shift considerably. We have certain tractors we make good margin on; certain tractors are low, and same thing with the rest of the products. So I don’t think it’s a fundamental change to our business. We are strengthening our large ag business, so that’s a positive, but I wouldn’t over-bake it.

Eric, I would say that, thinking longer term, not really talking about 2023, but longer term, when we talk about those growth areas, those key growth areas of growing and expanding Fendt globally, growing our parts business, growing our Precision Ag business, those are all of our highest margin businesses. So if we can grow those faster than the rest of the business, which is our strategy, that will give us a stronger mix and give us margin improvement in future.

Well said.

All right. Thanks for the time.

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

Hi. Good morning. Thank you for taking the question. I wanted to ask specifically about Precision Planting, some of the strength that you have seen in the back half there. Eric, I think, previously you had talked about that business being up 30% for the year. It sounds like maybe now that’s higher 35% to 40%. I am wondering if you can speak to, how much you feel like there is unmet demand in that business, there’s any sort of pull-through effect, because of the supply chain constraints on whole goods. Just a bit more color on what you are seeing specifically in that business.

Quarter one and two faced some limitations due to semiconductor chip shortages. We have made some adjustments to the product and sourced different chips, and we are now addressing this in quarter three and quarter four. Our order rates remain robust, which is why we have increased our expectations for the year. However, we anticipate that the backlog will persist. We plan to introduce a new range of products in January, indicating that the unmet demand remains strong. Our penetration rate in most products is still in the single digits for these features, with a few reaching into the 20s. We believe we are far from being saturated in terms of product features. Geographically, we are expanding in Europe, where growth is still in the early stages, and we see ample opportunity in South America. Additionally, we have acquired a harvesting business, as well as companies like Appareo and JCA, totaling six acquisitions last year to enhance Precision Planting. This growth stems from various factors, including geographic expansion, new features organically developed by Precision Planting, and our M&A strategy, creating a strong growth multiplier effect.

Great. And then, if I could ask just a follow-up on some of the comments around South America. Can you just give us an update on where you are in terms of your local manufacturing content there?

We feel we have what we need. Go ahead.

Over the past four to five years, we have localized a significant amount of our latest tractor technology in Brazil. In recent years, we have made notable progress with the localization of components due to the challenging supply chain situation. As we look ahead, not only in 2023 but in the coming years, we have the opportunity to increase our local content percentage closer to historical levels instead of the lower levels we see now. This is definitely an opportunity as we consider localizing components, which should ultimately help reduce our cost base in that region.

Thank you.

And our last question today is from Jerry Revich with Goldman Sachs. Please go ahead.

Yes. Hi. Good morning, everyone. I am wondering, Eric, if we just expand on Precision Ag conversation. Can you talk about how much runway you folks have on the Fuse suite growth over the next year? I felt like you folks were maybe approaching a full adoption rollout across the portfolio this year. So I am wondering do we have opportunities to continue to grow the different features to drive continued growth in Fuse? And on Precision Planting, how much capacity growth do you folks have based on your latest supply look as we look out the next 12 months compared to the positive revisions you made to the production plan this year? Thanks.

On Fuse, we see significant growth potential. We have established connectivity and guidance on most of our large agricultural equipment in Europe and North America, with considerable growth opportunities still available in South America. Additionally, we have not yet explored any retrofit options or additional features. As machine-to-machine communication and other capabilities continue to evolve, Fuse has a lot of potential for expansion in both features and geographical reach. Regarding Precision Planting, we announced a couple of quarters ago that we are constructing a large new facility in Illinois to support the growth of that business. The factory will cover 500,000 square feet, and we have broken ground and are currently in the production phase. We expect it to be operational in 2023, which will help us meet the rising demand for those products and the acquisitions we have made.

Okay. Super. And in terms of the production plan, this quarter you folks are planning to produce more than under normal seasonality as we think about production cadence into next year. It sounds like we are going to be off to a stronger than normal seasonal start to calendar 1Q. But I am wondering if you could just expand on the production plan given how abnormal 2022 was because of the disruptions.

Yeah. I think as you heard us say in our scripted remarks, we do expect Q4 to be up, I will say, low-double-digits year-over-year. As we look at 2023, again, as Eric alluded to, we still see strong demand. So we would expect production hours to follow more of a traditional seasonal trend, likely be up as we have done some investments. I think the important thing to also remember is, even if production hours are flat, the productivity of where we go with supply chain starts to improve, the amount of rework of our equipment becomes less, which will allow us to get more units out per factory, even in a similar number of hours. So we still expect it to be up, but I think the quality of those hours as supply chain starts to improve should improve the output as well.

Okay. Thanks.

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

Thank you. I will close this morning by saying thank you very much for your participation and your continued support for AGCO. Despite additional currency headwinds and supply chain challenges, we had a very solid first nine months of 2022. With a lot of work still ahead of us in the balance of the year, we are solidly on track for strong sales growth, margin expansion, and higher full-year earnings per share. These results will deliver a record year for AGCO, and equally as exciting it further positions us for more success as we enter 2023. I want to leave you with our growth slide I discussed earlier and reiterate our plans to grow our business. We are very convinced that the continuing development of farmer-focused solutions that solve critical farmer problems will greatly expand our addressable market and drive significant sales growth over the long term. We are also engaging strongly on sustainability, helping our farmers make the transition to not only more productive farms but more sustainable farms. We look forward to seeing many of you at our analyst meeting on December 16th. Thank you and have a great day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.