Conference Transcript - AGCO 2026-03-02

Speaker 2

Okay. Thanks, everyone. We're moving along here. So happy to have the guys from AGCO with us today. Directly to my left, Damon Audia, who's a CFO. To his left, Greg Peterson, who's run IR, does a great job running IR. So maybe just we'll start kind of more high level, Damon, and, you know, set the stage on AGCO being, you know, it founded as effectively a roll-up of a number of tractor brands with a heavy presence in Europe. You know, some of the household names in the U.S. are 150-plus-year-old companies. AGCO is a 35-year-old company, so maybe not on as many radars. So maybe just start at a high level in terms of how the company has grown over time and what you see as the, you know, we'll start there in terms of where the company sits.

Damon Audia, CFO

Yeah, sure. No problem. So as you said, Tim, Ag was a 35-year-old company. We are the largest pure play ag company in the industry. So last year we did just over $10 billion in ag revenue. We go to market from an equipment site under three primary brands. So we have our Fent brand, which is our premium, or think of that as the best of the best. And then we have two more volume-orientated brands under Voltra and Massey Ferguson. So we have three major equipment brands. And then we have a technology portfolio, which we sell both to 100-plus other OEMs, as well as through a separate distribution channel, a retrofit channel. And we go to that market under the PTX brand. And so precision technologies multiplied, which would include both the legacy precision planting brand as well as our joint venture with Trimble called PTX Trimble. So under those equipment brands and that technology brand, last year we delivered an operating margin of around 7.7% with an industry as around 85% of the mid-cycle. We delivered 7.7%, which was about double or almost double the last time we were at that point in the cycle. And we did that through an array of portfolio changes and a change in our strategy, which is really based on three cornerstones. One, which is growing our FENT business in North and South America. So we've created a full line in the FENT brand, which legacy was just more of a tractor portfolio. So added a combine, added a sprayer, added a planter. And we've begun to bring that into North America and South America and roll that out through an array of dealer networks. and we've seen good growth in market share with Fent in both of those regions, and we had our largest market share growth ever in North America last year across our portfolio, and we'll touch on that maybe a little bit later. But we have Fent becoming a global brand. We have that PTX portfolio I touched on, so with the joint venture with Trimble, last year we had around $860 million in revenue under the ptx technology we see that growing to around 2 billion by 2029 between both the oem sales as well as that retrofit channel sales and then we have our parts business which has been enhanced by farmer core and we'll probably touch on that a little bit later but we see our parts business growing from around 1.9 billion up to 2.3 billion by 2029 so all three of those together, have really been delivering the mid-cycle margins improvement. Last year that's 7.7 driven by all of those performing exceptionally well. And longer term, we see those three growth engines coupled with our cost savings initiatives, coupled with the portfolio changes that we've made delivering a mid-cycle operating margin of somewhere in the range of 14 to 15 percent by 2029.

Speaker 2

And as you think about the kind of the regional contribution and getting to those margins, Can you maybe just give us some help in terms of the competitive positioning of AGCO, Europe being your largest market, but maybe talk to the regional dynamics that give rise to the margin dynamics in those three regions. I assume market share being a big contributor, but maybe just talk to your competitive positioning. Yeah, sure, absolutely.

Damon Audia, CFO

So as you allude to, so about 60% of our business comes from Europe. That is by far our strongest market, it's where we have the best share. Our three brands there, Fent is an industry leader. Largest share in many parts of Western Europe, but also very strong presence with our Vulture brand, as well as our Massey Ferguson brand. Europe's a critical market for us in a lot of different ways. A, it's because of our base and our strong market share, but also from a stability standpoint. Again, when you look at the three major regions that we play in, Europe tends to be the most stable. western european farmers usually get around 50 of their income through subsidies those farmers usually have better crop diversity so grain diversity and there's also a higher percentage of livestock and dairy in the european farm base and so because of that crop diversity and the mixture between livestock and dairy coupled with subsidies you tend to see that market less volatile so the order patterns tend to be more consistent there when you look at our business Our European region has usually delivered mid-teens margins, even last year, well below mid-cycle. Europe delivered around a 15% margin. So we see that market staying relatively stable. We still see good growth opportunities. Fent has done quite well in growing share in Europe, despite its already strong presence. But that's sort of the innovation engine for us from an equipment standpoint, is what you see coming out of Fent, starting in Europe and then moving into other parts of the world. So strong part of our business, very stable part of our business, our growth opportunities sit more here in North America and South America. So if I start with South America, more of an emerging market, as I said, it's around a little under 15% of our business there. We see tremendous growth potential heavily in FENT. So we've had a strong presence in South America for years with Massey, Ferguson, and Voltra. but as that Serrato region or the Mato Grosso part of the state in Brazil has really started to grow and if you recall Serrato does two to three plantings per year and so you have a very high use high big farms there and that's where Fent plays quite well because Fent is the most efficient tractors in the market the momentum planter does infield adjustments versus the competitors so really allowing the farmers to maximize their productivity and maximize their efficiencies So Fent plays very well in that Cerrado region, and we're seeing good growth there as we start to roll the Fent brand out there. So today the market share for Agco overall is good, say around 30% from a tractor standpoint. But if I look about Fent and Cerrado, we see significant opportunities to grow the brand there. That market right now is probably a little bit more challenged than the rest. There's not a lot of subsidies that go into the Brazilian market. And so farmers there are driven more by commodity costs, currency, the real versus the dollar, and how trade dynamics are affecting them as a global exporter. And so what we've seen in the South American market last year is that large egg part of the market really has not performed well because of all the trade uncertainty, because of low commodity prices. You haven't quite seen that international demand for Brazil yet. Longer term, we know they're continuing to grow. they're the only really the only country that's adding arable land and as grain demand continues to increase longer term we know that brazil is a is a critical market to help service those needs so lots of opportunity lots of optimism for us for south america long term but current industry environment's a little bit lower but hopefully recovering in the back half of the year as we start to see the election and some of the stimulus that we would expect to occur during an election year north america is also a tremendous opportunity for us as again we've said as we're bringing fent into this market we're rolling out our dealer network here it's of the three regions it's the area we have the lowest level of large ag market share when we think about bringing the fent products coupled with our massey ferguson products here we see significant opportunity to grow share as i mentioned in the opening comments we had our largest share growth ever in north america last year and it's really facilitated by several things. One is we talk about the Fent products so better performing products more fuel efficient than the competitors so farmers who are looking at minimizing their outflows Fent products run at a low have better fuel efficiency so you're saving on diesel fuel. We offer the best warranty in the industry we call it the gold star warranty here in North America so that's three years bumper to bumper so if anything goes wrong with that tractor that combine that dealer is going to bring you a loaner and we cover for three years versus the industry of two industry leading parts and service fill rate in north america and in europe by third party measurements so again if that machine goes down you have the best fill rates in the industry hopefully getting you back up and running and then one thing that we introduced last year which is different than our competitors is farmer core so farmer core think of that as the old philosophy of the mall where you used to have to go to the mall these big bays farmer core is more like amazon so how do we bring the service to you and with our dealer network that we're rolling out in north america we've shown them with our own company how farmer core when we can do 85 of the parts and service or 85 of the service on the farm so for that farmer who no longer has to bring his or her combine to the dealership we're out there with a mobile truck with the crane doing 85 percent of the work on the farm, making it easier for the farmer, better for that dealer because their absorption costs have gone down because they're building a smaller store, they're covering more white space with those mobile trucks, and it's better for Agco because with those connected machines, we're getting better parts revenue for that dealer to do the service on the farm. So we've seen great traction with that, and when you look at farmer core, the quality of the products, we saw the highest net promoter score we've ever had. So how likely are you to vote for in that case we've seen the highest level and we look at that net promoter score farmer core the products that fent has brought to the table coupled with the strength of our massey ferguson brand we feel very good about the traction that we've gained here in north america when i looked at that market share it was both massey and fent and it was across the portfolio it wasn't like it was one product it was planters sprayers tractors so we're seeing good momentum between net promoter with what we're doing with the dealers how we're helping the farmers and what we're bringing to the table couple with farmer core to really I think create a differentiated value proposition for the farmers here in North America. So the farmer core is almost like I think of the legacy dealer base a lot of the bigger stronger echo dealers were were and or are cat dealers and a lot of those you see a lot of cat service shops running around on wheels a similar similar concept whether it's something that they're certainly yeah very similar concept and what it allows us as we're rolling out the Fent brand specifically is rather than building new stores how do you leverage parts depots and mobile trucks to cover a larger white space rather than having to have an infrastructure a large store every 45 miles how do you have them 100 miles apart and let this mobile truck cover the white space more effectively that way if you need all of your service trucks on the east side of your of your store or the west side you're able to cover a larger area and more importantly for that dealer is it takes their investment costs down so as you're looking at this market here in north america that dealer is trying to manage his or her absorption through parts and service and with the farmer core model we've shown them they can deliver higher absorption with the farmer core model versus the more historical larger brick and mortar source which helps improve their profitability especially in these down years yeah and just sticking on north america and um what do you make of your the largest by far the largest player in the industry i've recently cited some some green shoots i'm not sure that that view is shared by everyone but what's your kind of thoughts or perspective on that in terms of large ag uh regions so we've been we communicated i think like the others that we do believe 26 will be the trough year here in north america we have the industry down large ag down around 15 percent so it'll be another challenging year. I think the way I would look at it is things are not getting worse. If we look at 2025 every quarter, there was a new surprise. Things tend to get a little bit worse. When we look at our dealer inventories in the fourth quarter, we were able to reduce the level of dealer inventories. Pricing in North America was better than what I had expected and what we had communicated. Market share came in stronger. So we're seeing some good momentum.

Speaker 2

Order boards look good for north america you know i think at this point we're sort of seeing things stabilize i'm not sure i would say they're getting significantly better they're just not getting worse and relative how we've been over the last year that's probably not a bad place to be right now one more just more kind of cycle question um if you look if you pull up a long-term chart in europe just look at tractor registration track high horsepower tractor sales over time the line is just you know steadily lower uh you know i think underneath that though can you there's there's been ongoing growth in terms of just the amount of horsepower tied to farm consolidation so maybe

Damon Audia, CFO

talk to the the the market from a unit but also underlying profitability meaning does the market necessarily get as you as you see those the tractor and and just horsepower increase kind of speak to the what that means from a profitability standpoint it's kind of two separate points yeah so i think you're you are seeing it the number of units come down over time as farms tend to consolidate now europe you generally have more family you generally have smaller farms um versus the u.s or versus europe or versus south america excuse me um that will likely continue to be the case but you are sort of seeing the size of the farms grow there um for us though it's offsetting that with technology when you look at the average price of a tractor today versus say five or ten years ago given the level of technology that we've added that's in theory sort of helping offset some of that volume decline that you would just see as the farms become larger and and farmers tend to upgrade to larger equipment the other strength for agco is we usually do much better from a profitability standpoint with that with the larger equipment versus that medium or that low horsepower power type equipment.

Speaker 2

Fence market share as you move higher up.

Damon Audia, CFO

Yeah, Fence has done exceptionally well the last couple years with its new product introductions, gaining share in some of the Western European markets, and has done quite well over the last several years with the new Fence 700, which we introduced a year and a half ago. Again, for those farmers who are looking for productivity, had a smaller engine, so it gave them better fuel efficiency but didn't compromise on the power or the torque, so it let them do all the same things they need to do but with a smaller engine so driving better profitability to them without compromising the the quality of the work product they were getting with that tractor so again fence tends to be an innovation leader from a technology standpoint and it just continues um each generation of products come out push it to a new level for us there yeah maybe one more and then before we move on just on brazil um you're calling for kind of a flattish market in in 26. uh i think some of your peers are maybe a little bit more cautious?

Speaker 2

Maybe just highlight there in terms of what you're seeing and hearing from dealers.

Damon Audia, CFO

Sure, I think we have the industry being flat. I think as we tried to elaborate on our call, we do see the first half of the year being quite challenged. When we look at sort of what we view the industry versus maybe the competitors, we've looked at our data analytics models and historically in the year that there is an election, there's usually stimulus that is put into the ag market to drive sort of favorable outcomes during the election. So our flat assumes that there is some sort of a stimulus in the back half of the year. As we've talked to the teams down in South America, we expect interest rates to start coming down, hopefully here in March, some sort of a stimulus in the back half of the year. And I think if we listen to the competitors who've said they've taken a very conservative view of the world, I'm not sure they've necessarily reflected that stimulus. So I think that's probably the delta between our outlook and theirs is whether something does happen or not. Yeah, but needless to say, a market that can move and often does move on a dime relative to the other. Yeah, can move very quickly here. And obviously, between currency, commodity prices, global demand, things can move quite quickly in Brazil.

Speaker 2

Yeah, maybe shift to margins. That's been a good story for AGCO in recent years. And you outlined a mid-cycle margin target in getting to kind of 14%, 15%. you've gotten to that level in absolute terms once before. So I think there's some skepticism that we've heard from investors. So maybe speak to what some of the key drivers are in terms of driving that higher structural profitability.

Damon Audia, CFO

Yeah, we feel good. I mean, our target is 14% to 15% adjusted operating margin by 2029. And maybe I'll just walk you through the different components here. So if I look at our, I'll I'll use our outlook right now, I'll use that 7.5% to 8% adjusted operating margin. So I'll use 8 because the math is easier for me. So we're sitting at around 85, 86% of mid-cycle. The 29 is a mid-cycle target. So to go from 85 to mid-cycle, that would add around 150 basis points just from the overall industry lift. So that's the industry dynamic, it's not anything unique to ICO, it's all of us who Then there's three specific things that we're doing or have done that will take us up to that 14 to 15. One is the portfolio change that we've already executed. So in the last year and a half, there's been two significant changes to our portfolio. One is we did the joint venture with Trimble. So we now have PTX Trimble, where we've acquired 85% of that. When you look at that business, it runs at around a 30% EBITDA margin. And so when that moves back up to mid-cycle, that's accretive to our margins. At the same time, we divested our grain and protein business late last year. So that was a single-digit margin business, relatively low growth. So when you look at us at mid-cycle, those two together, the addition of PTX Trimble, the elimination of grain and protein, that adds around 150 basis points to our margin at mid-cycle. So those two are already done. we just need the the industry to sort of pick it up pick back up to mid-cycle and that will that will deliver margin enhancement there the second one is the restructuring actions that we've done so for the last year year and a half we've been talking about significant headcount restructuring um offshoring some of our work outsourcing some of our work and really pushing ai throughout our portfolio of products both in customer and revenue generation but also in cost and productivity When you look at those things together, we said by the end of 26, we would be run rate savings somewhere in the range of $175 to $200 million of cost savings. At the end of 2025, I said we were already run rating $190 million. So we're very much in line with what our plan was. This year, we'll save around $40 to $60 million of incremental savings year over year. But because a lot of that cost started in the fourth quarter, the run rate will probably be around $200 million. So I'm very good in delivering my cost savings. Most of this is coming out of SG&A. So think about $200 million of cost savings, run rating by the end of this year. That delivers about another 150 basis points of margin enhancement at mid-cycle. And then the third bucket is those three growth initiatives. So FENT going up to about $1.7 billion by 2029, parts growing from $1.9 to $2.3 billion, and then the PTX portfolio getting to around $2 billion by 2029. those three growth levers together will deliver another 150 basis points to 200 basis points of margin. So when you stack those three on top of the industry, you kind of get into that 14% to 15% range.

Speaker 2

Got it, got it. Certainly not impacting the longer term, but in more near term, given the tariffs being a significant factor for you, obviously a lot of potentially moving pieces there. What are you seeing? Do the IPA ruling, is that something that you could potentially go after refunds? Where do you sit on that?

Damon Audia, CFO

Yeah, so the ruling a couple weeks ago has definitely created a little bit more of a dynamic situation. We'll need to see whether we're able to recover any of that. Obviously, we're still going through the analysis of the new 15% global tariff, the rollback of the IPA tariffs and what that means for us. I think generally speaking, I don't see a significant change to what we gave our investors as our outlook on the fourth quarter call. So what we have said, excuse me, is total tariffs for us are in the range of $105 to $110 million. It may fluctuate a little bit, but generally speaking, it's the total tariffs. Incremental 26 is around $65 million of incremental tariffs this year versus last year. So that is flowing into our cost of goods sold. It'll be heavily weighted here in the first half, and then we'll start to lap some of those tariffs in Q3, and then by Q4, we'll have lapped that. So when I look at that from a total cost standpoint, plus inflation, we've said that our pricing this year will be in the range of 2% to 3%, and at 3%, we would be offsetting our inflationary costs and the tariff costs on a dollar basis. So it'll be zero from a dollar basis. It'll be margin dilutive to us if we're at 3% because I'm only covering on a dollar basis. And if we hit the midpoint, it would be negative margin and negative EPS. But generally speaking, we feel good when we look at that. Now we've got to see how the new world is and whether there's any opportunity for us. But I think today at least we're still in that $65 million range of incremental tariffs this year.

Speaker 2

Okay. On the pricing guide of 2% to 3%, how would you frame that in terms of are there certainly dynamics are different as you look across the key markets? Where do you see kind of maybe the most risk to that or where do you feel more versus least confident?

Damon Audia, CFO

Yeah, so if I think of the 2% to 3%, so I feel okay. We had about just over 1% carryover pricing from last year flowing into this year. And if I look at what we did in the fourth quarter, pricing came in better than what we had expected, coupled with market share being better and dealer inventories coming down. So I feel pretty good with the carryover. If I look at the 2% to 3%, I would say North America is above the midpoint in our outlook here. Europe is kind of at slightly below the midpoint, and South America is in between. From an industry standpoint, confidence level, Europe, again, given the stability of the market, we feel pretty good about that. North America is where we're dealing with the highest cost related to those tariffs. But overall, given the strength of that market of what we saw in the fourth quarter, still feel fairly good. But again, we watch what the competitors are saying, and we understand in our industry it's often a relative gain. So if we think about that FENT product and it's being compared to a competitor, we've got to make sure from a pricing standpoint that that value proposition that we're offering to the farmer is in alignment with what that price delta may be. so depending on what the industry does we've got to stay dynamic uh to keep our pricing competitive but overall we still feel good to be in that two to three percent range as we start the year okay yeah on the precision side i i spent time with a number of your uh your dealers back in in january at a dealer event and it was notable in terms of the just the the mood and the sentiment that they have in terms of what agco has done in terms of delivering more products and just they

Speaker 2

more more products to sell and so they definitely felt like a lot more um you know had definitely more of a spring in their step despite what is a you know really soft market so maybe just speak to that that's a north american comment but just speak to the precision um this is a long answer but you know what what you've done globally to to really improve the the competitive uh position there yeah ptx is a it's phenomenal for us it's a unique opportunity for us to differentiate versus the competitors i think all of us are progressing on the technology stack we're all driving technology i think there's a couple of us who are probably leading in many aspects of the industry from a technology whether that's targeted spraying whether that's autonomy you know all of us are

Damon Audia, CFO

pushing and some of us are pushing harder than others um but when i think about what's unique about agco is we have this unique retrofit channel where we service the mixed fleet we talk about being the most farmer focused company industry and we want to give farmers the technology regardless of the color of iron that they're using and we bring all of our new technology into this retrofit channel and it's a completely separate channel than the new equipment so these aren't usually new equipment sales people these are seed sales people agronomists people who are more on the farm trying to drive productivity and so we bring that technology there first and it's all done in a retrofit mindset where you can bolt that on to your existing equipment. So you look at our targeted spraying application. Farmers for years have done broadcast spraying because they can't afford the risk of a weed escape. Well now a couple of us have offered targeted spraying and you're telling a farmer trust me that this machine can go through with AI and identify a crop versus a weed and it can reduce your amount of pesticide that you're being spread. Which sounds really appealing to that farmer because it reduces his or her input cost. Well, for us, though, you buy that hardware. So if for some reason it didn't meet all of your needs, you can go back into that field two or three times, and you're only paying for your fuel and your time. You're not paying for that targeted spraying every time. So we're trying to give them ways to experiment with the technology at a lower upfront cost. When we offer these products in our retrofit market, it's usually one-year, maximum two-year payback for them. and so they can sort of experiment that as they get more and more comfortable with the technology, hopefully they roll over into a new piece of equipment that has it with the Fent brand or a Massey brand here in North America. So really trying to target technology for farmers to help drive them either incremental productivity or reduce their input costs trying to drive their net farm income up. And so for us, it's been a unique opportunity for us to connect with farmers of different makes who use different types of equipment to drive the technology for them and if i look at how that business performed last year again precision or ptx was flat year over year and there's the agco channel um there's the other oem channel both of those were down with the industry but the retrofit channel was down a lot less because for those farmers it's a much slower entry point much lower cost point and they're able to either drive better yield or lower input costs and so we see that channel performing better than the new equipment channel and that's a big part of the growth engine for us is we bring more new products coupled with because of the ptx joint venture last year we introduced 14 new products into the into the market you saw winter conference several new new products like aerotube so improving the yield to getting that seed um targeting done the right way so you get the right seed placement for better yield on the farm coupled with a couple of the other innovations so we see new product innovations being a huge part of our growth and then also the geographic rollout because we have a strong presence in North America with precision planting PTX Trimble was in Europe bringing those two together cross pollinating the portfolio and then the big growth coming in South America longer term yeah all right I think we I think we hit it there's a breakout session after if anyone has any

Speaker 2

questions we want to touch on. But thank you, Damon. Thank you, Greg.