Good morning and welcome to AGCO's Fourth Quarter 2023 Earnings Conference Call. Please note that this event is being recorded. Now, I would like to turn the conference over to Greg Peterson, Head of Investor Relations. Please proceed, Greg. Thanks and good morning. Welcome to those of you joining us for AGCO's fourth quarter 2023 earnings call. We will refer to a slide presentation this morning that's posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP metrics in the appendix of that presentation. We'll also make forward-looking statements this morning, including statements about our strategic plans and initiatives, as well as our financial impacts. We'll discuss demand, product development, and capital expenditure plans, and the timing of those plans and our expectations with respect to the costs and benefits of those plans and timing of those benefits. We'll also discuss future revenue, crop production and farm income, production levels, price levels, margins, earnings, cash flow, and other financial metrics. All of these are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks include, but are not limited to, adverse developments in the agricultural industry, supply chain disruption, inflation, weather, commodity prices, changes in product demand, interruptions in supply of parts and products, the possible failure to develop new and improved products on time, including premium technology and smart farming solutions within budget and with the expected performance and price benefits, difficulties in integrating the Trimble Ag business in a manner that produces the expected financial results, reactions by customers and competitors to the transaction, including the rate at which Trimble Ag's largest OEM customer reduces purchases of Trimble Ag equipment and the rate of replacement by the joint venture of those sales, introduction of new or improved products by our competitors and reductions in pricing by them, the war in Ukraine, difficulties in integrating acquired businesses and in completing expansion and modernization plans on time and in a manner that produces the expected financial results and adverse changes in the financial and foreign exchange markets. Actual results could differ materially from those suggested in these statements. Further information concerning these and other risks is included in AGCO's filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2022, and subsequent Form 10-Q filings. AGCO disclaims any obligation to update any forward-looking statements, except as required by law. We will make a replay of this call available on our corporate website later today. On the call with me this morning is Eric Hansotia, our Chairman, President, and Chief Executive Officer; and Damon Audia, our Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead.

Thanks, Greg, and good morning. I'd like to start by taking a moment to thank the AGCO team around the world for their tremendous work in 2023. AGCO's record results are an outcome of the team's laser focus on executing our Farmer-First strategy, where we aim to provide the farmer an exceptional customer experience. AGCO finished 2023 with record full year net sales of $14.4 billion which was up nearly 14% from last year, due to strong pricing as well as outperforming a global market that was actually down in 2023. Record operating margins reached 11.8% of net sales on a reported basis and 12% on an adjusted basis. As impressive as these margins are, I think it's even more impressive to recognize that 2022 adjusted operating margins were just over 10%, which was a major milestone for us at that time and another data point reinforcing the strength of our strategy. We delivered those record results while also increasing our technology development efforts with engineering expenses up over 20% in 2023 compared to 2022. Over the last 3 years, our R&D spend is up over 60%. Those investments are producing an increased technology patent group for AGCO, award-winning products for our farmer customers and record financial results for our shareholders. Turning specifically to the fourth quarter, our results reflect the strength of our increased global diversification. Strong performance in Europe and North America helped mitigate generally slowing market demand, particularly in the South America region. AGCO's net sales were down 2.5% and operating margins were down 160 basis points year-over-year. Significantly increased competitive retail activity in Brazil with a rapid deceleration of demand in the quarter as well as significant retail incentives put pressure on our results. Damon will touch on the competitive environment in Brazil in more detail. More challenging global market conditions are expected in 2024 due to reduced commodity prices and modestly lower farmer income expectations. As a result, AGCO is forecasting lower sales in 2024. We remain focused on growing our Precision Ag business, globalizing our full line of Fendt branded products and expanding our parts and service business to mitigate some of the softening industry demand. We've also sharpened our focus on manufacturing cost-reduction opportunities, SG&A expense efficiencies, and lowering company and dealer inventory. As a result of this focus, coupled with the structural changes we have made to our business, we expect that our operating margins will be more resilient than in past cycles. In fact, our outlook of 11% operating margin for 2024 would be significantly higher versus the last time we experienced those projected industry levels in 2019 and 2020. Finally, we will continue our investments in premium technology, smart farming solutions, and enhanced digital capabilities to support our Farmer-First strategy while helping to sustainably feed the world. Slide 4 details industry unit retail sales by region for full year 2023. Farm income was down modestly across the major regions in 2023 and another modest decline is projected for 2024. Much of the industry fleet has been refreshed over these last 3 years and dealer inventories have been restocked. Full year global industry retail sales of farm equipment in 2023 were lower in AGCO's key markets. North America full year industry retail sales declined approximately 3% compared to the previous year. Lower sales of smaller equipment, more closely tied to the general economy, were partially offset by strong growth of high-horsepower tractors and combines. Lower projected farm income and a refreshed fleet is expected to pressure industry demand in 2024, resulting in weaker North America industry sales compared to 2023. Industry retail tractor sales in Western Europe decreased 4% for the full year of 2023 compared to the high levels in 2022. Further declines in industry demand are expected in 2024 as lower income levels pressured demand from arable farmers, while healthy demand from dairy and livestock producers is expected to dampen some of the decline. South American industry retail tractor sales decreased 8% during 2023 which is a steep drop from our 2% to 3% decline that we had expected. Retail demand in Brazil was negatively affected by funding shortfalls of the government subsidized loan program, especially for smaller equipment. In addition, adverse weather conditions in certain parts of Brazil and lower commodity prices, especially soybeans, further constrained retail demand in the quarter. Following 3 strong years, retail demand in South America is expected to further soften in 2024 as a result of lower commodity prices and farm income. The combine industry was up modestly in North America and Western Europe in 2023 versus 2022 due primarily to improving supply chains. Combines in South America declined 17% in 2023 compared to the prior year. Although market conditions continue to soften from the extremely strong conditions over the last couple of years, we remain positive about the underlying ag fundamentals, supporting long-term industry growth. Stocks-to-use levels are higher than recent lows but they remain supportive of profitable commodity prices versus historical levels. As the demand for clean energy grows, the need for solutions like sustainable aviation fuel and vegetable oil-based diesel will grow strongly, driving demand for our farmers that will further support commodity prices. When you look at just renewable diesel, we're seeing that in the U.S. by 2025, renewable diesel demand could grow to consume about 40% of the current U.S. soybean crop. That's very similar to what has happened with ethanol consumption of the corn acres. So there's a big demand growth driver right on the horizon here. Also, input costs such as fuel and fertilizer are down from their peaks in 2022. We expect farm income to be down modestly in 2024 relative to 2023 but above long-term averages and still highly supportive of industry demand. AGCO's 2023 factory production hours are shown on Slide 5. Our production decreased in the fourth quarter by approximately 10% versus 2022. Recall that 2022's fourth quarter production was exceptionally high as we were recovering from the cyberattack and reflect the actions taken during the quarter to better align production with the current demand outlook. Even with this change, the full year production was up 4% versus 2022. Looking to 2024, we are aggressively managing our company and dealer inventory to match the softening retail demand. Our dealer inventory levels are at or above targeted levels, so some reductions will be required in 2024. Currently, we're expecting around 10% lower production in 2024 versus 2023. This reduction reflects our 2024 market forecasts, market share growth assumptions as well as targeted reductions to dealer inventory. As of the end of December 2023, demand for our products remained strong. In Europe, tractors had between 5 and 6 months of order coverage. Now this is approximately 40% below December 2022 levels but still roughly double our historical average. Dealer inventories are slightly above our target level of 4 months in the region, with certain products like Fendt high-horsepower tractors still below the optimal levels in certain areas. In South America, we have order coverage through March of 2024, where we continue to limit our orders to around 1 quarter in advance. With the competitive price pressure in the region, particularly in quarter 4 2023, we now have higher dealer inventories than desired which is slowing AGCO's sales into the dealer channel. We have just over 4 months of dealer inventory on tractors and 6.5 months of dealer inventory of combines, while our target level is around 3 months. In response, we have reduced production in the region and plan to continue managing production levels to match demand. In North America, our orders for track tractors, planters, and application equipment are fully booked for all of model year 2024. That takes us to around the mid- to late summer period. We have returned to a continuous order rating program on all other tractors as dealer channels have begun to stabilize. We currently have approximately 5 months of order coverage for both large and small ag and 6 months of supply in the dealer inventory in the region. Our target for dealer inventory remains 4 months on large ag and 6 months on small ag. Moving to Slide 6, where you will see our 3 high-margin growth levers aimed at improving our mid-cycle operating margins to 12% and outgrowing the industry by 4% to 5% annually. To reiterate, these 3 growth levers are the globalization and full line product rollout of our Fendt brand, focusing on accelerating our global parts business and increasing the market share of genuine AGCO parts. And the third is growing our Precision Ag business which supports not only factory-fit technology but also significantly focuses on mixed fleet retrofit solutions for farmers and OEMs. 2023 marked an important milestone for each of these 3 growth levers. All 3 of them respectively recorded the highest sales in the company's history. In addition, we also announced the largest ag tech deal in our industry with a transformative joint venture with Trimble which will further efforts in Precision Ag. The Trimble Ag joint venture is still pending regulatory approval and we hope to close the transaction in the first half of 2024. Slide 7 recaps the 2024 Precision Planting Winter Conference which is the 23rd consecutive year of the conference and is absolutely one of my favorite events of the year. This year, the team announced some incredible new products to help deliver improved farmer productivity. We are pleased that some of you were able to join us for this premier event. The conference brought together over 5,600 farmers across 21 locations in the U.S. and Canada but farmers are from all around the world. We demonstrated customizable retrofit solutions for the operational challenges farmers face every day. The theme this year was solutions for every season, illustrating to our farmers that Precision Planting has successfully expanded across the crop cycle and beyond just the industry-leading planters into products and technologies that span the crop cycle. This year, we introduced the CornerStone Planting System which is a complete row unit equipped with the latest Precision Planting technology. Over half the value of a planter is in the steel and chassis components that don't necessarily wear out. CornerStone allows farmers to have the most advanced planter at a lower price point than a new OEM planter, while offering the feel of an OEM finish and integration. This is a tremendous opportunity for farmers to drive increased productivity as we estimate that around 50% of farmers in the U.S. will likely never buy a new planter. We also launched Clarity which is a solution for small grains that provides high-definition detail at a row-by-row level, shows variation in reduction in flow through the air seeder or drill, and displays that information on a Precision Planting 2020 Monitor, so the information is right at the farmer's fingertips. Our Symphony Vision system will be commercialized later in 2024 and is our retrofit-targeted spraying solution. Symphony Vision helps farmers significantly reduce herbicides applied to a field by spot spraying only the weeds rather than covering the entire field. Not only does this save on costs for the farmer but the environmental benefit from the reduced chemical usage is also significant. Finally, some of you toured our new 510,000 square foot facility in Morton, Illinois, where we've consolidated several sites into one modern facility. This expansion will position us well for the future as we look to grow this high-margin business and be the best partner to our Precision Planting dealer network. This dealer network gives AGCO a competitive advantage when it comes to on-farm expertise and provides customers with brand-agnostic retrofit solutions, significantly increasing our total addressable market. I'm proud of what our team was able to accomplish as we closed out 2023 and Slide 8 lists some of the major highlights. As I touched on earlier, we've raised our R&D spending by over 60% since I became CEO in 2021. We're seeing the results of increased spend in the number of awards where we continue to win each year. We took on 6 AE50 Awards in 2023 alone and our brands have earned 24 AE50 awards over the last 3 years. We also won 6 awards at the Agritechnica Farm Show, the largest ag trade fair in the world. These outstanding achievements help solidify our position as an industry leader in innovation and engineering excellence that advances farmers' capabilities, improves their operations and helps them feed the world. Our technology stack took a big leap forward in late 2023 with several important developments. We announced the pending joint venture with Trimble Ag which will make AGCO a leader in brand-agnostic retrofit solutions. We opened our Scottsdale Acceleration Center to attract talent in the areas of autonomy, precision ag, artificial intelligence, and digital products. And we announced the acquisition of digital assets from FarmFacts, a tool that will help farmers improve productivity and efficiency by better managing farm data. We launched AGCO Ventures which formalizes our approach to sourcing and funding new and early-stage technologies to deliver on the company's strategic priorities. This allows us to drive innovation by investing in startup companies, venture funds, incubators, accelerators, higher education, and research institutions. We are also making bold moves with our distribution model. Just last week, we launched FarmerCore, AGCO's global initiative to revolutionize sales and service distribution by combining digital and physical elements to serve farmers how and where they want to be served, on-site and online. FarmerCore is built on 3 pillars: the on-farm mindset, smart network coverage, and digital engagement. The on-farm mindset positions dealers to meet their customers' needs at every stage of the ownership journey. Mobile sales support provides on-farm convenience while a distributed team of highly skilled technicians with mobile service vehicles save farmers time and money by maintaining and repairing equipment on-site. Smart network coverage includes light retail outlets, service centers, and parts-only locations. By matching the retail outlet type to the market, dealers can maximize ROI on physical locations, while optimizing service coverage and increasing operational efficiencies. We strongly believe FarmerCore will help transform our industry and truly put farmers at the center of what we do. With all of these exciting developments, the future is bright at AGCO. There's never been a more exciting time to be in the ag business and our investments will continue to drive innovative solutions that are focused on helping improve farmers' productivity. With that, I'll hand it over to Damon.

Thank you, Eric, and good morning, everyone. Before I cover the financial results, I wanted to take a moment to reflect upon the continued success of our Farmer-First strategy. Slide 9 is an update to the value-creation slide that I presented at our December 2022 Investor Day. The slide does a nice job of illustrating the progress AGCO has made with our operating margins through the cycle over the last several years as we've continued to leverage our 3 growth drivers and continue to make operational improvements in the other areas of our business. We've raised the mid-cycle equivalent margins every year since 2018 and 2023 was no different. The teams around the world did an exceptional job delivering the record adjusted operating margin of 12%, raising the bar again versus our prior record in 2022. Using our value-creation line helps us provide a guide to ensure we are delivering the right incremental margins as our market strengthens and flexing our costs down when our markets weaken, which will likely be more relevant in 2024. As we look through the cycle back to 2012, this chart demonstrates the benefits of the disciplined execution of our strategy. It's clear that we've structurally improved the adjusted operating margin of our company by over 500 basis points when compared to the average from 2013 to 2018 at mid-cycle. Slide 10 provides an overview of regional net sales performance for the fourth quarter. Net sales were down approximately 4% in the quarter compared to the fourth quarter of 2022 when excluding the positive effect of currency translation. Pricing in the quarter, which was in the high single-digit range, contributed to higher sales. By region, the Europe/Middle East segment reported an increase in fourth quarter net sales of approximately 1%, excluding the positive effect of currency translation compared to the prior year. The improvement was driven by increased sales of high-horsepower tractors and strong parts sales, along with favorable pricing. In South America, net sales in the fourth quarter declined approximately 42% year-over-year, excluding the positive effect of currency translation driven by significant pricing pressure and lower sales volumes in the region. All products were down year-over-year except for parts. Net sales in North America increased approximately 7% in the quarter, excluding the favorable impact of currency translation compared to the fourth quarter of 2022. The growth resulted primarily from increased sales of high-horsepower tractors, sprayers, and hay tools, along with the positive effects of net pricing. On a constant currency basis, fourth quarter 2023 net sales in our Asia/Pacific/Africa segment increased about 12% driven by large ag equipment and our Grain & Protein business. Finally, consolidated replacement part sales were approximately $401 million for the fourth quarter, up approximately 9% year-over-year or 7% excluding the effects of positive currency translation. Turning to Slide 11. The fourth quarter adjusted operating margin declined by 130 basis points versus a very strong fourth quarter of 2022. Margins in the quarter were mainly affected by higher discounting in the South American region, higher engineering expenses and higher SG&A. These items were partially offset by positive net pricing. For the full year, we realized approximately 10% pricing. By region, the Europe/Middle East segment reported an increase of approximately $48 million in operating income compared to the fourth quarter of 2022 and margins improved 160 basis points. Higher sales from strong net pricing and a healthy product mix contributed to the improvement. North American operating income for the quarter increased approximately $20 million year-over-year, while margins improved approximately 160 basis points. Operating income benefited from higher sales due to positive net pricing and a favorable mix based on significant growth in Fendt products year-over-year. Grain & Protein margins also improved in the quarter, despite lower sales. Operating margins in South America significantly underperformed our expectations in the fourth quarter. Operating income eroded by approximately $119 million versus the fourth quarter last year. The South American results reflect several factors that not only affected sales but also had a disproportionate effect on operating margins. Given the materially lower industry retail demand in the quarter, we experienced aggressive competitor pricing which required us to significantly increase our retail campaigns. With the dealer inventory levels achieving optimal levels in the third quarter, we elected to limit dealer channel sell-in and correspondingly reduce production in our facilities. Although the margins on the dealers' sell-in sales remain strong, the significantly lower volumes versus what we had anticipated resulted in an outsized compression in operating margins when taking into consideration the retail campaigns and the lower factory production levels. Finally, we also recognized a large dealer termination fee in the quarter of approximately $13 million which adversely affected the adjusted operating margin by around 3%. Although the results this quarter were unexpected and disappointing, the South American team has demonstrated significant skill, delivering exceptional returns several quarters in a row and we are confident in the margin recovery as market conditions improve. Finally, in our Asia/Pacific/Africa segment, fourth quarter operating income was equal to 2022 levels, though margins contracted approximately 100 basis points. Slide 12 summarizes our Precision Ag business. As we highlighted before, we are focused on expanding our addressable markets from just traditional agriculture machinery spend which today is in the low to mid-teens as a percentage of total farm spend. With our Precision Ag portfolio, our sights are set to impact around 70% or effectively all non-land areas. We believe that the investments in Precision Ag positions both AGCO and our customers well as it will play a major role in achieving our global sustainability targets currently being established, while simultaneously helping our farmers improve their profitability. For the full year 2023, AGCO recorded $750 million in Precision Ag revenue, an approximately 7% increase from 2022. This was below our target of $800 million to $850 million due to a combination of 3 factors: a return to more traditional seasonal sales patterns as we move past supply chain shortages; the OEM portion of the business slowing; and start-up delays at our new Morton light assembly and distribution facility. We view the return to seasonality and the start-up delays as temporary and we anticipate continued growth in our Precision Ag business in 2024. Including the proposed joint venture with Trimble which is pending regulatory approval, we expect to hit $2 billion in Precision Ag sales by 2028. Slide 13 details our year-to-date free cash flow for 2022 and 2023. As a reminder, free cash flow represents cash used in or provided by operating activities less purchases of property, plant, and equipment. And free cash flow conversion is defined as free cash flow divided by adjusted net income. We generated $585 million of cash, approximately $135 million or 30% more than 2022, despite increasing capital expenditures by almost $130 million year-over-year. Our cash flow fell short of our long-term 75% to 100% of net income target due to a couple of factors. First, the timing of year-end collections of $150 million to $200 million of accounts receivable was recognized in early January versus December. Second, the weaker results in the South America region also contributed to the shortfall relative to our expectations. We remain focused on direct returns to investors during 2023. In addition to the regular quarterly dividends that we've increased by 21% to $0.29 per share and the payment of the special variable dividend of $5 per share in the second quarter, we also repurchased around $50 million of shares in the quarter to maintain our average shares outstanding. Slide 14 highlights our 2024 retail market forecast for our 3 major regions. Increased grain inventories and related decline in commodity prices are expected to result in softer demand across all regions in 2024 compared to 2023. For North America, we now expect demand to be 10% lower compared to the levels in 2023. The high-horsepower row crop equipment segment is expected to decrease after several years of strong growth that was fueled by high levels of farm income. The small tractor segment is also expected to decrease in 2024, although the rate of decline is slowing compared to the prior years. For Western Europe, we expect that industry to be down 5% to 10% compared to 2023. Farm income is nearing the long-term average for the region due to reduced commodity prices and higher input costs. In South America, we expect industry sales to be down about 10% in 2024. Higher dealer inventories that began to emerge in the third quarter and weather patterns in the Cerrado region and Southern part of Brazil are making farmers more hesitant. Although this may affect demand in the short term, from a long-term perspective, this region remains one of the most attractive end markets, especially in Brazil, where the farm footprint is increasing. While farm income is expected to decline from elevated levels in 2023, we expect farmers to remain profitable in 2024. And AGCO's brand-agnostic retrofit approach to Precision Ag and strong parts business should help dampen the cycle, making our margins less volatile. Slide 15 highlights a few key assumptions underlying our 2024 outlook which does not include the impact of the pending joint venture with Trimble. At this time, we see markets further softening in 2024. Our sales plan includes market share gains, along with pricing reverting back to a more traditional level of approximately 1.5%. As our raw material costs have stabilized and we pursue cost savings actions, we expect this level of pricing will more than offset inflationary cost increases. We do not expect currency translation to have a significant effect on sales year-over-year. Engineering expenses are expected to remain relatively flat in 2024 compared to 2023. With the expectation of our industry declining around 10% from approximately 105% of mid-cycle in 2023 to around 95% in 2024, we would expect our operating margins to come down from the record 12% in 2023 to around 11% in 2024, in line with the value-creation line. Delivering an operating margin of 11% at this projected industry level would be several percent higher than what we achieved back in 2019 and 2020 at similar industry levels which is another testament to the transformation of the business we've executed over the last several years. Our effective tax rate is anticipated to be 27% for 2024. Turning to Slide 16. Our full year net sales outlook for 2024 is $13.6 billion, down from the record levels seen in 2023. Our earnings per share forecast is approximately $13.15. We've also set a CapEx target of around $475 million, slightly lower than what we spent in 2023. Our free cash flow conversion should be in the range of 75% to 100% of adjusted net income, consistent with our long-term target. For the first quarter of 2024, we are targeting sales of approximately $3 billion and earnings per share of approximately $2.30. Both are significantly lower than the first quarter of 2023 due to lower production in many factories and further inventory reductions in the South American region. With that, I'll turn the call back over to Greg for Q&A.

Thanks, Damon.

Our first question is coming from Larry De Maria from William Blair.

Just two questions. Can you give us and help us understand the '24 growth assumptions in the three growth areas, Precision Planting and parts, to help you obviously outperform the market? Secondly, any update on the Grain & Protein storage? Maybe you could help with margins by the two businesses that are in there that if you're at this point considering only selling the whole thing, keeping, splitting up, just any color there.

Thank you, Larry, for your questions. Looking ahead to our 2024 outlook and the three growth drivers, we expect Fendt to continue expanding its market share as we introduce more models in North and South America. Specifically, this year we are launching the new Fendt 600, and we recently announced the next generation 700, along with the new 200 designed for vineyards. We have several new tractors entering the market alongside our sprayer, which is gaining traction as we approach 2024. We're excited about the diverse product range we are offering globally and are confident in our team’s ability to execute with these new launches. Moving on to our parts business, it performed exceptionally well this year, generating over $1.8 billion in revenue. We maintain industry-leading parts fill rates in North America and Europe, and we believe we have achieved similar success in South America. Our team has worked hard to ensure dealers and farmers can access the parts they need. Looking to next year, we anticipate the parts business will continue to grow in the mid-single-digit range, which is significant as the industry is expected to slow down, prompting farmers to replace their equipment with parts. Finally, regarding Precision Ag, I previously mentioned its strong performance in 2023. We expect continued growth in 2024, driven by a combination of the retrofit and OEM-focused Fuse business, although the OEM portion may see a decline. Overall, we are still projecting Precision Ag to grow in the mid-single-digit range in 2024, slightly below our long-term target due to the influence of the OEM segment.

And this is Eric. I'll elaborate on that a bit. Damon is absolutely right. We still see a lot of potential ahead of us. The Fendt has excellent products, as Damon mentioned. Additionally, our distribution network has expanded significantly. In North America, we've increased our distribution coverage from about 40% to 80%. The last update showed it at 75%, and we improved it by another 5 percentage points in 2023. We aim to exceed 90% coverage in North America. In South America, we have grown our coverage from 0% to 70% last year and are now at 74%, with a target of 90% as well. We have new products launching through our innovation engine, and there are still opportunities for expanding Fendt's distribution. In Precision Ag, we continue to see many growth opportunities globally. Over the last few years, we've grown our dealer network in North America from 350 to 500 and increased from 50 to 120 outside North America. There is still ample room for further distribution expansion in the Precision Ag sector. We are also enhancing our innovations throughout the crop cycle, with this year's focus on providing solutions for every season. While we are experiencing growth this year, we still foresee significant progress ahead.

In response to your second question about Grain & Protein, the overall business performed well in 2023, although it faced challenges in the Asia Pacific region, particularly in China. The profit margins in that segment improved significantly, reaching the mid- to high single digits, especially in the U.S. and South America. Regarding the strategic review, we are still in the process of evaluating its value to our business. We are exploring external opportunities to see if others can create more value, which would enable us to reinvest capital back into the company. On your question about possible separations, we consider the overall value of the Grain & Protein business, recognizing its countercyclical nature and how it complements the traditional AGCO business. We are not focused on divesting portions but rather see value in the entire business, which we intend to retain and grow as planned. If we determine that there is greater value in monetizing the whole segment, we would likely pursue that option, but no final decisions have been made. We expect to reach a decision by around mid-2024.

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

This is Andrew on behalf of Stanley. Could you give us some insights into your sales outlook for next year by segment? I appreciate the information you provided about industry expectations, but I would like to hear your thoughts on inventory levels by region, pricing expectations, and related details.

Yes. I think Andrew, regarding the dealer inventory levels, what we observed in the fourth quarter was an increase in dealer inventory levels globally, although to varying degrees. In North America, I noted that we were likely around 6 months of inventory, which is above our target of closer to 4 months. Therefore, we anticipate some inventory will be leaving the channel, and this is reflected in our plan to reduce production by about 10%. In Europe, we saw a slight increase from the third to the fourth quarter, landing around 4 months or slightly above that. Our preferred range is between 3 to 4 months, so we see some room for improvement. However, in some market segments, particularly with our Fendt high-horsepower tractors, certain dealers remain below optimal inventory levels. In South America, we experienced the most notable change. As I mentioned in the third quarter call, dealer inventories reached optimal levels due to a significant slowdown in retail sales, which led us to limit sales into the dealers. Nonetheless, dealer inventory levels are still just over 4 months for tractors and slightly more than 6 months for combines. Ideally, we aim to have those levels between 2 to 3 months. Therefore, as we adjust production, we expect the cuts to be more significant in South America in 2024 compared to other regions as we work to align inventory levels. As for pricing, we anticipate that it will normalize around 1.5% as we move into 2024. It's challenging to break that down by region or product type due to new product launches and other factors, but we are generally expecting a return to more traditional pricing levels in 2024. Instead of going into great detail on each region during this call, we plan to provide further clarity in follow-up discussions with Stanley.

And our next question comes from Kristen Owen from Oppenheimer.

Sort of a follow-up on some of the regional dynamics. Obviously, the very acute margin in South America in 4Q, I'm just wondering if you can talk to some of your assumptions for margins by region in 2024. That's obviously been such a strong contributor to the overall profitability of the company but still very strong in '24. So I'm hoping you can provide some color on the regional margin outlook.

Yes. So Kristen, if I just look at maybe South America and then if we want, we can go into maybe a little bit more detail on other regions, if you want to follow up on that. But South America, again, had a very challenging fourth quarter given some of the comments that I made in the market. We still see that inventory levels being adjusted likely in the first quarter. So the factories are going to be down significantly year-over-year, that with likely some slow ramp-up of the retail sales. So we're sort of expecting to see the South American margins in that, what I'll call, that mid-single digits in the first quarter. And then as that dealer inventory improves, our production levels hopefully will normalize. We'll start to see that pick up in the second quarter. And then as the new financing plans for the crop plants kick in in the third quarter and the fourth quarter and the industry hopefully becomes more stabilized, we see that getting back to those mid-teen margins which is what we've been planning for South America to be at. And again, I think you remember, the margins the last couple of quarters have been exceptionally strong given the strength of that market. But we sort of see South America as a mid-teens market and we expect that to be sort of the second half outlook for South America.

Great. And then a follow-up to Larry's question earlier on some of the growth assumptions and those growth pillars. You said parts revenue, just over $1.8 billion. That's approaching nearly 15% of your sales. And you're calling out growth in that business for next year. Just wondering if you can help us sort of do the math there or at least understand how that is helping support this through-cycle margin target that you've got out there.

Yes, the key point is that our parts business is one of our three high-margin growth areas. The team has made significant efforts to enhance fill rates, implementing strategies like positioning inventory in various global locations, particularly in South America. By utilizing more digital tools with farmers and increasing connectivity with our dealers and farmers, we are achieving greater visibility, predictability, and engagement, which helps us service our equipment effectively. This has contributed to the growth we've observed in recent years. We anticipate continued mid-single-digit revenue growth in 2024 for our parts business. We remain optimistic about this segment, especially given the market dynamics, where farmers may be more inclined to replace equipment instead of purchasing new, which aligns with the overall decline in our industry. Overall, we feel confident in our business and the team driving it in 2024.

We now have a question from Timothy Thein from Citigroup.

I apologize if I missed this as I was handling multiple calls. I heard your comments about aiming to return to mid-teens margins in South America during the second half. I'm curious, considering that some of the recent gains have been due to significant pricing advantages for AGCO and others, how will normalization affect this? Given the inventory challenges you and others face in South America, do you need to focus on price or cost to transition from low single-digit margins to mid- to high teens? Can you achieve this solely through operating leverage and volume, or is cost management necessary? I hope that question is clear.

Yes, Tim, the response involves a combination of factors. We clearly need operating leverage to create absorption through the factory for efficiency. We expect to be price/cost-positive in 2024, even with a more traditional 1.5% pricing. As I mentioned, and Eric can confirm, we are intensely focused on our operations to achieve two main goals. First, with supply chains improving, we aim to enhance productivity in our factories through better scheduling and reduced rework, ultimately boosting efficiency based on the improved supply chain. This will be implemented globally. Secondly, due to the limitations we faced over the last couple of years, we were at times compelled to secure products at any cost for farmers. Now that supply chains have normalized, our team can revisit and challenge our supply base to understand the real costs and identify areas for productivity and cost savings. We have initiatives in our factories and built into our assumptions to improve costs through enhanced productivity and reduced prices, thereby supporting or stabilizing our margins at the 11% level we have communicated, along with other strategies such as gaining market share, parts growth, and Precision Ag growth. So, it’s a blend of both aspects, but I want to emphasize that our team is very focused on managing costs, particularly in South America, where the markets are most volatile, as well as in Europe, North America, and Asia.

To elaborate on that, the core question is whether South America can be a profitable region since one quarter showed low profits. However, the three quarters prior had margins exceeding 20 percent. From a broader perspective, we are confident that farmers in South America will indeed be profitable. Many areas in the region allow for the planting of two or more crops; for instance, after harvesting soybeans, farmers can immediately plant corn. The region's tropical climate supports this. There is potential to bring more land into intensive production for planting and harvesting. Over the next two decades, as we have often stated, the world will require increased agricultural output, and Brazil will play a significant role in meeting that demand. Additionally, the improving infrastructure is enhancing the effectiveness and efficiency of Brazilian farmers. Therefore, we are optimistic about Brazil's market potential and believe that farmers will add substantial value and achieve profitability. We are also implementing the strategies discussed by Damon to ensure we support these farmers efficiently through our supply chain.

Got it. Okay. Very good. And just on Europe, could you share a few words about the margin outlook for 2024? I'm interested in how product mix affects it. Additionally, regarding your comments on Fendt, it seems that dealer inventories might be slightly low, which could significantly impact margins. Please discuss the profit expectations, similar to your remarks about South America.

Yes, Tim. We concluded our performance in Europe at approximately 14.5% to 14.6%, which is a remarkable achievement by our team there. We've observed an industry outlook indicating a decline, leading us to anticipate some contraction in margins due to the overall decrease in units. However, considering the strength we're experiencing and the upcoming new product launches from Fendt, alongside our strong market presence, we believe that for the full year, our margins should likely remain stable. There may be some fluctuations from quarter to quarter, but with the new product mix from Fendt, we expect to maintain relatively flat margins throughout the year.

To build on that mix, as you mentioned, there is a channel aspect for Fendt. Our new products are entering the market, including the e100, which is Fendt’s first electric tractor in Europe. However, we anticipate that the Turkish market will contract or at least not grow as much as it has, particularly in the low-horsepower, lower-margin segment. While the overall market is cooling, there are many positive mix elements within Europe.

We have a question from Tami Zakaria from JPMorgan.

So just wondering, can you update us on the Trimble JV? Do you expect it still by mid this year? And do you expect the JV to be accretive in year 1?

Yes. The joint venture is progressing as planned. We have engaged an external partner to assist with integration planning, which is going very well. There is strong collaboration, teamwork, and cultural development taking place across all aspects of the business to ensure we are prepared from day one and can realize the benefits of merging these two excellent companies to better serve farmers than anyone else in the industry. Regulatory approvals are on track, with several regions already approved. We still have a few pending, but those are moving along as expected. According to our timeline, we anticipate completion in the first half of this year. Additionally, we remain committed to achieving short-term gains and long-term growth, aiming for a $2 billion Precision Agriculture business that leads the industry in serving mixed fleet Precision Agriculture farmers globally, whether through retrofitting or by supporting over 100 other OEMs in a tailored and discreet manner, as well as through AGCO machine enhancements. We’re very excited about this.

Super helpful. And then one quick question to clarify something. So your production hours are expected down 10%. But sales, you expect down 6% this year. And pricing up 1.5%, I think you said. So help me understand, what's the bridge from sales down only 6% versus production down 10%?

Yes. Tami, you are observing growth in several areas, including parts, Precision Ag, and Grain & Protein, particularly in Europe with the introduction of new Fendt products. This is essentially what is contributing to the differences.

Our next question comes from Seth Weber from Wells Fargo.

I wanted to discuss the North America margins for 2024, particularly regarding the Precision Ag business. I understand that you are moderating your growth rate there, but there have been numerous supply chain disruptions over the last couple of years. Is there any reason your Precision Ag margins shouldn't improve in 2024 compared to 2023, even with more moderate growth this year?

Yes, Seth. Precision Ag margins have been relatively stable. When considering the products, the gross margins have remained consistent. Although we are experiencing fluctuations in revenue, the pricing and margins have been stable. Therefore, I do not anticipate any significant changes in overall margin for that business as we approach 2024.

Okay. In your prepared remarks, Damon, you mentioned efficiencies and cost measures. Is AGCO planning any additional proactive cost actions, or are these just normal efficiency measures that you typically implement? Are there any more structural actions you are considering in this softer environment?

Yes. From my perspective, when we engage with our supply base, there is a greater emphasis than what you would typically observe in a standard year. This focus is in addition to our everyday efforts to reduce costs in the supply chain compared to previous quarters and years. Regarding broader changes, if you're thinking about a potential SAG restructuring, we do not have any announcements of that kind at this moment. We are monitoring market conditions and will measure our performance against our value-creation goals, as presented in today's slides. We are aware of market trends and how our team can enhance productivity, which also applies to the SAG area. If we fall short or the market weakens further, we will explore all options. I want to emphasize that our team is actively pursuing opportunities in our global businesses and brands, particularly with Fendt, by seeking back-office consolidations to improve efficiency. While we don't typically make sweeping announcements, we are working to establish a common framework within parts of AGCO to enhance long-term operational efficiencies. I would note that we are taking steps in 2024 as well, but we are not announcing any significant restructuring at this time.

And this concludes our question-and-answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks. Please go ahead.

Thank you for your participation and support of AGCO. We are very proud of our performance throughout 2023, which has been a record year in many aspects for our customers, employees, and investors. This sets us on a resilient trajectory for our results moving forward. We have been discussing this for a couple of years, and it's great to see it coming to fruition. I hope you share our excitement. The key to our success lies in the ongoing execution of our Farmer-First strategy. We are focused on growing our margin-rich businesses such as Fendt, parts and service, and our Precision Ag business, which we have been heavily investing in over the last few years. The announcement of the upcoming AGCO-Trimble joint venture is the largest agtech deal in history and will position AGCO as the global industry leader in mixed fleet Precision Ag solutions, particularly through our unique retrofit solutions. Over the past few quarters, we've highlighted many factors supporting our markets, including growing populations, changing diets, low stocks-to-use levels, increased demand for biofuels, and relatively stable commodity prices. These trends bolster our confidence in the long-term health of our industry. We're excited about what lies ahead and look forward to seeing many of you in the upcoming weeks and months. Thank you and have a great day.

The conference has concluded and you may now disconnect. Have a great day.