Earnings Call Transcript - AGCO Q1 2026

Operator, Operator

Good day, and welcome to the AGCO 2026 Q1 Earnings Call. The operator has provided instructions regarding the question-and-answer session and muting lines. Please note this event is being recorded. I would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations. Please go ahead.

Greg Peterson, Head of Investor Relations

Thanks, and good morning. Welcome to those of you joining us for AGCO's First Quarter 2026 Earnings Call. We will refer to a slide presentation this morning that is posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of the presentation. We'll make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts. We'll address demand, product development and capital expenditure plans and timing of those plans, and our expectations concerning the costs and benefits of those plans and timing of those benefits. We'll also cover future revenue, crop production and farm income production levels, price levels, margins, earnings, operating income, cash flow, engineering expense, tax rates and other financial metrics. All of these forward-looking statements are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks are further described in the safe harbor included on Slide 2 in the accompanying presentation. 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 SEC, including its Form 10-K for the year ended December 31, 2025, 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; as well as Damon Audia, Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead.

Eric Hansotia, Chairman, President and Chief Executive Officer

Thank you, Greg, and good morning, everyone. AGCO delivered very solid results in the first quarter, reflecting effective execution against our strategy and the growing impact of the actions we've taken over recent years to streamline our cost structure. Net sales were approximately $2.3 billion, up 14% year-over-year, driven primarily by stronger performance in Europe compared to the challenging prior year period. With differing industry conditions across regions, the year-over-year improvement highlights our ability to perform consistently and deliver solid results across varied demand environments. Operating income increased more than 60% year-over-year to $80.7 million with reported operating margin expanding 100 basis points to 3.4%. On an adjusted basis, operating margin improved 50 basis points to 4.6% driven by better volume leverage and ongoing benefits from business optimization initiatives, partially offset by higher cost inputs, including tariffs. These results underscore the pragmatic, focused manner in which we are operating the business. Over the past two years, we have taken deliberate actions to simplify and focus our operations and sharpen execution, including a leaner cost structure, more disciplined production planning and improved channel alignment. The performance delivered this quarter supports the increased durability and resilience of our earnings model. While near-term demand remains uneven across regions, we continue to believe the business is operating around the trough of the cycle, with inventories normalizing and underlying conditions beginning to set the stage for the next phase of recovery. Adjusted operating income increased nearly 30% and adjusted EPS more than doubled year-over-year to $0.94, highlighting the operating leverage inherent in the business from lower cycle levels as well as a lower adjusted tax rate in the quarter. We also continue to emphasize structured working capital management and inventory alignment. Dealer inventories improved in the first quarter, positioning us in a more balanced position to support customers while maintaining better operational stability through the remainder of the year. We are encouraged by the progress delivered this quarter and remain fully focused on executing our plans to drive sustainable margin enhancement, cash generation and long-term value creation. Slide 4 details industry unit retail sales by region for the first quarter. While fleet ages continue to increase, farmer purchasing activity reflects a measured and thoughtful approach shaped by the current macro environment. Trade policy dynamics, higher interest rates and input costs, tighter credit conditions and currency volatility are influencing buying decisions globally, particularly for larger equipment. In North America, overall industry tractor volumes trended lower relative to the prior year with the most pronounced weakness in higher-horsepower tractors. Farmers continue to defer more capital-intensive purchases amid current farmer economics, evolving grain export demand and elevated input costs. In Western Europe, industry tractor sales increased compared to a softer prior year period with growth across most Western European markets. Combined demand, however, remains cautious as farmers weigh financing conditions and capital allocation decisions. In Brazil, industry retail demand moderated across both tractors and combines with larger equipment most affected by higher interest rates, credit availability and currency effects, while demand for smaller and midsize equipment remains relatively more resilient. Against the evolving macro backdrop, farmer purchasing decisions remain deliberate with customers balancing operational requirements alongside financing costs and broader economic conditions. Investment activity continues to prioritize solutions that deliver clear productivity gains and cost benefits, including precision agriculture and technology upgrades, while larger equipment replacement decisions are sequenced thoughtfully. This environment continues to support disciplined production planning and inventory alignment across the industry. AGCO's factory production hours are shown on Slide 5. First quarter production hours increased 15% year-over-year, reflecting a lower level of production in the first quarter of 2025. The year-over-year increase was driven primarily by Europe, where production levels rebounded from a particularly reduced first quarter 2025 base. Importantly, first quarter 2026 production was aligned with our operating plan and reflected intentional timing and product mix rather than a change in underlying demand trends. Full year 2026 production hours are still planned to be broadly flat to modestly lower than 2025. We are executing a deliberate and measured step down in production as the year progresses. This approach reflects our continued focus on inventory optimization in North America and Latin America, active support of dealer destocking and close alignment of output and market demand. Turning to regional inventories. In Europe, dealer inventory months of supply improved modestly to just under four months aligned with our target. This reflects effective execution across the channel, with Fendt operating below the regional average and Massey Ferguson and Valtra modestly above. This well-balanced position provides operational flexibility across product categories and supports continued focus on margin quality and mix optimization in our largest and most profitable region. In Latin America, dealer inventories moved to four months of supply from five months at year-end, continuing progress toward our three-month target. Dealer inventory units declined approximately 10% during the quarter, reflecting disciplined coordination of shipments and production with a slightly softer industry outlook. In North America, dealer inventories closed the quarter at approximately seven months of supply, consistent with our year-end levels and slightly above our six-month target. Large equipment units decreased sequentially but were offset by the normal increase in the low-horsepower segment this quarter in anticipation of the spring retail selling season. Production continues to be managed intentionally with a clear priority on channel health and long-term stability. Slide 6 highlights our strategy to outpace the market and drive margin improvement to our adjusted operating margin target of 14% to 15% at mid-cycle over time. What is increasingly evident is that AGCO is delivering stronger and more resilient financial outcomes across a range of demand conditions compared to prior cycles. The structural actions implemented over recent years are translating into more durable margins, improved earnings stability and higher-quality cash generation, demonstrating the effectiveness of our evolved operating model. Our three growth levers — high-margin products, technology-driven differentiation and a growing higher-value aftermarket business — continue to provide meaningful support in the current environment. Each lever contributes distinct value and together they reinforce a business model that is less reliant on unit volumes and more centered on value creation. This foundation underpins our ability to consistently deliver mid-cycle adjusted operating margins in the 14% to 15% range over time. It reflects a structurally improved AGCO, more focused on higher-value revenue streams, more disciplined on costs and investment and increasingly driven by technology solutions and services. Importantly, this operating model also supports strong cash generation with free cash flow conversions of approximately 75% to 100% through the cycle. That financial flexibility enables continued investment in innovation and business advancement while supporting capital returns to shareholders as evidenced by our recent increased dividend and share repurchase announcements. Taken together, these elements highlight why AGCO is operating today from a more favorable and resilient position and why our business is well positioned to deliver consistent performance across future market cycles. Turning to Slide 7. We are seeing a series of tangible strategy wins as we execute against our Farmer First priorities. These actions demonstrate how we're building a durable competitive advantage by combining engineering leadership with increasingly advanced digital and enabled capabilities. Our approach reflects a focus on prioritizing growth while also delivering efficiency, as we apply AI where it delivers measurable value for farmers and strengthens business performance through better decisions and execution. AI is increasingly becoming a significant enabler in that roadmap and across the organization to support long-term value creation and differentiation. AI solutions on the farm and in our products are designed to help farmers achieve more with fewer inputs such as land, labor, fuel and chemicals. Solutions, including Symphony Vision, use intelligent cameras intended to optimize precision application in real time, improving effectiveness and helping to reduce waste. At our PTX Winter Conference, we introduced AI-enabled innovations, including Symphony Vision Dual and AROTube to advance real-time precision applications and automated seed placement. These innovations reinforce our position in high-value technology-enabled solutions. We use AI in customer support and service to connect machine data, customer needs and AGCO expertise to reduce downtime and strengthen long-term customer relationships. It is transforming how we work with thousands of parts leads generated for dealers and tools like Product Information Assistant to more closely connect dealers and farmers. And third, AI inside AGCO is improving efficiency, quality, cost and speed. Use cases range from AI-powered financial forecasting to AI-driven market analytics that automate used equipment price analysis and free up experts to focus on more value-driven actions. These capabilities are being deployed in a structured and purposeful manner to support margin expansion and growth. We are seeing strong and growing demand from our employees to leverage and deploy AI solutions to better support our dealers and farmers. We view this momentum, along with our Project Reimagine run-rate cost savings, as a clear opportunity to drive measurable efficiency gains and productivity improvements across the organization over time. In short, we are taking an enterprise view with AI using human-in-the-loop oversight and aligning with the evolving regulatory frameworks to support trusted, responsible and scalable usage. On Slide 8, we also continue to see strong external validation of our innovation and technology leadership. Our retrofit fleet technology was recognized in the prestigious Davidson Prize for the second consecutive year, this time for strip tillage, reflecting our step-by-step progress towards our ambition for full farm autonomy by 2030. Our AGCO Parts shop received the Digital Engineering Award for a next-generation unified B2B platform that improves dealer efficiency, order accuracy and visibility at scale, which supports aftermarket growth and reinforces our Farmer First focus on uptime. As AGCO Power's Core engine was named Diesel Engine of the Year, this reinforces our continued leadership in efficient powertrain innovation. The family of core engines were designed to run on an array of fuel options, helping them deliver the performance our farmers demand around the world. I want to recognize and thank the teams across AGCO whose work continues to set a high bar for our industry. With that, I'll turn it over to Damon to walk through the financial results for the quarter.

Damon Audia, Senior Vice President and Chief Financial Officer

Thank you, Eric, and good morning, everyone. Slide 9 provides an overview of regional net sales performance for the first quarter. Net sales increased approximately 5% in the first quarter compared to the prior year period, excluding the favorable impact of currency translation. By region, the Europe/Middle East segment delivered a 9% increase in net sales on a constant currency basis; higher sales resulted from increased unit volumes compared to the first quarter of 2025, which included dealer inventory destocking. Sales growth in Germany and the United Kingdom was partially offset by lower activity in Turkey and France. The increase was driven by strong growth in high-horsepower tractor sales. North American net sales also increased 9%, excluding currency impacts. Higher unit sales compared to the prior year, together with positive share growth, supported the increase. The most significant gains were in high-horsepower tractors, hay equipment and sprayers, highlighting continued customer investment in productivity-enhancing solutions. Net sales in Latin America were 30% lower on a constant currency basis, reflecting very measured purchasing activity across virtually all product categories as the environment in Brazil and Argentina remained challenging in the quarter. Asia Pacific Africa net sales increased more than 20%, excluding currency impacts, driven by higher sales in Australia and South Africa partially offset by lower sales across most Asian markets. Consolidated replacement part sales were approximately $447 million in the first quarter, increasing 3% year-over-year on a reported basis and down nearly 6%, excluding favorable currency translation. Results reflected wet weather in Europe early in the quarter that limited parts consumption, and in North America dealers remain focused on inventory optimization amid continued cautious farmer sentiment. Turning to Slide 10. Adjusted operating margin was 4.6% in the first quarter, an improvement of 50 basis points year-over-year. This reflects strong execution in the Europe, Middle East region, once again, combined with continued operational and cost discipline across the broader organization. By region, Europe/Middle East income from operations increased by over $104 million compared to the first quarter of 2025 with operating margins exceeding 16%. These strong results were driven by sales growth, a richer mix and increased production compared to the prior period. North America income from operations reflected an approximately $27 million year-over-year reduction with operating margins remaining below breakeven. Results heavily reflect the year-over-year impact of tariff-related costs along with factory under-absorption associated with our disciplined approach to reduce production levels. Latin America operating income decreased roughly $47 million year-over-year with results below breakeven, driven by several factors, including significantly lower sales volume and negative pricing. Asia Pacific Africa operating income increased about $7 million in the first quarter, supported by higher sales and increased production during the quarter. Slide 11 outlines our first quarter cash performance and full year estimated free cash flow. Free cash flow represents cash used and provided by operating activities less purchases of property, plant and equipment. Free cash flow conversion is defined as free cash flow divided by adjusted net income. We used $455 million of cash in the first quarter of 2026 reflecting the normal seasonal inventory build, consistent with our operating cadence. The prior year quarter reflected unusually low production levels, mainly in Europe, that limited inventory investment and reduced cash usage. Our 2026 production schedule reflects a return to our typical seasonal patterns, resulting in higher inventory investment and cash usage early in the year. This profile was fully aligned with our plan and remains consistent with achieving free cash flow in a targeted range of 75% to 100% of adjusted net income for the full year. Our approach to capital allocation remains disciplined and consistent, prioritizing reinvestment in the business, maintaining an investment-grade balance sheet, pursuing targeted acquisitions that accelerate technology adoption and returning capital to shareholders. This framework continues to guide both our decision-making and the sequencing of capital deployment. As part of this approach today, we announced that we are evolving our long-standing AGCO Finance U.S. and Canadian joint ventures to better align with increasing regulatory and compliance requirements and to enhance capital efficiency. On April 30, the company executed various agreements with wholly owned subsidiaries of Rabobank to sell AGCO's 49% equity interest in its U.S. and Canadian joint ventures for approximately $190 million, while establishing new financing framework agreements that are intended to strengthen the strategic and commercial benefits of these partnerships. AGCO Finance remains the predominant financing partner for AGCO and our customers. This structural evolution strengthens AGCO's farm referral strategy by ensuring continued access to competitive finance offerings. These actions optimize regulatory capital deployment, strengthen our commitment to providing competitive financing solutions to our farmers and dealers and bolster our financial flexibility. The proceeds from these transactions are incremental to free cash flow and are being used to support capital returns to shareholders. Building on both our record free cash flow generation in 2025 and these proceeds, AGCO has increased our capacity to return capital to shareholders. We continue to execute share repurchases under our $1 billion authorization. Following the initial $300 million announcement in October last year, we are initiating an additional $350 million in repurchases during the second quarter of 2026. In addition, the Board of Directors also increased our regular quarterly dividend to $0.30 per share, up from $0.29. At this rate, annualized dividends would total $1.20 per common share. Collectively, these actions demonstrate a continued focus on disciplined capital deployment, balancing enhanced near-term shareholder returns with long-term financial flexibility. Turning to Slide 12, which summarizes our 2026 market outlook across our three major regions. Global agricultural markets entered 2026 reflecting conservative purchasing behavior shaped by high borrowing costs, extended margin compression and evolving policy and trade dynamics. Recently, geopolitical developments have contributed to higher fertilizer and fuel costs, reinforcing cautious behaviors across the industry. Current conditions point to a gradual and uneven recovery, rather than a near-term rebound. We are maintaining our forecast for North America and Western Europe and adjusting our Latin American forecast from flat to down modestly in 2026. In North America, farm income dynamics and increased input costs continue to shape demand, particularly for large equipment. Deal activity continues to focus on managing used inventories and limiting new commitments, which is weighing on large tractors and combine purchases. Higher fertilizer and diesel cost tied to recent geopolitical developments have added to grower caution heading into the planting season, further limiting discretionary capital spending. Smaller equipment continues to demonstrate relatively stable demand compared to large ag supported by livestock and hay-related demand. While performance has improved year-over-year, early-year activity has been more modest than anticipated amid recent macro events, reinforcing our view that upside remains limited for the remainder of the year. Overall, we expect the North American large ag equipment market to be down around 15% below 2025 levels with the small ag segment modestly higher. In Western Europe, near-term demand has demonstrated select areas of strength. At the same time, confidence remains fragile. Farmer profitability challenges, increased input costs, evolving regulatory uncertainty and prudent capital spending behavior continue to weigh on sentiment. Recent geopolitical developments, including developments in the Middle East, have added to this environment, particularly around energy cost despite near-term demand strengths. Subsidy frameworks and relatively favorable interest rate dynamics continue to provide a stabilizing foundation for the region. Taken together, we still expect Western Europe to be up modestly in 2026. In Brazil and the broader Latin American region, interest rates and tighter credit conditions continue to influence purchasing patterns, particularly for large machinery. Increasing input costs and financing dynamics are guiding investment decisions, contributing to equipment demand variability. Brazilian retail tractor volumes in 2026 are now projected modestly below 2025 levels, but with long-term fundamentals remaining relatively constructive. Overall, the agricultural equipment cycle in 2026 reflects discipline, selective purchasing and delayed replacement activity. As financing conditions normalize, input cost pressures moderate and grain prices improve, the aging fleet and structural foundation supporting recovery remain in place with regional timing varying by market and segment. Slide 13 highlights the key elements underlying our full year 2026 outlook. Global industry demand in 2026 is now positioned in line with prior year levels, operating at approximately 86% of mid-cycle demand, consistent with the stabilization phase of the cycle. Our sales plan reflects continued market share gains, pricing in the range of 2% to 3% and roughly a 3% foreign currency benefit. While pricing helped moderate the impact of material inflation and tariff-related costs, the incremental increases in these pressures from events in the first quarter will now more than offset pricing actions resulting in margin dilution and lower profitability in 2026. Inventory management remains a priority in 2026, particularly in North America and Latin America, supporting our ongoing dealer inventory alignment and a balanced demand-driven go-to-market approach. Our outlook reflects the current tariff environment and our established mitigation actions, including cost initiatives and pricing. Since the fourth quarter earnings call, the tariff environment has evolved with the Supreme Court ruling related to Section 232 tariffs as well as new guidance on the calculation methodology related to Section 232 tariffs. We now expect tariff costs of approximately $135 million in 2026, which is around a $90 million increase from 2025 and $25 million higher than our previous estimate. These estimates could change as things evolve during the year. Our adjusted operating margin and earnings per share outlook do not assume any refunds related to the Section 232 tariffs. We are currently evaluating the impact to our business and the ultimate timing and amount of any potential refunds remain uncertain. We are prepared to adjust our outlook should tariff or trade policy conditions change. Engineering expense is planned at around 5% of sales in 2026, representing an increase of nearly $40 million year-over-year, supporting innovation across the portfolio while maintaining investment discipline. Operational efficiency initiatives are increasing and we now expect them to deliver approximately $60 million to $70 million of benefit in 2026, up from $40 million to $60 million, reinforcing our ongoing transformation progress. Production hours in 2026 are expected to be flat to slightly down compared to 2025 with a measured step down as the year progresses to support inventory normalization and demand alignment. Based on these assumptions, adjusted operating margin is still targeted in the range of 7.5% to 8% reflecting structural portfolio improvements and cost actions, partially offset by price-cost pressures, increased tariff costs as well as increased freight costs. Finally, although our effective tax rate was 24% in the first quarter, we still expect our effective tax rate for 2026 to be in the range of 31% to 33%. Turning to Slide 14 for the 2026 outlook. We have modestly tightened our full year net sales outlook to $10.5 billion to $10.7 billion, reflecting improved performance in certain regions, slightly higher foreign exchange effects and continued execution, partially offset by ongoing market volatility. Adjusted earnings per share are targeted at approximately $6 supported by continued strong cost discipline and execution consistency. This revised outlook reflects our strong first quarter performance, along with the incremental tariff costs and other cost headwinds I mentioned previously. The current earnings per share outlook also assumes approximately $0.15 per share benefit associated with the share repurchase announced today. Capital expenditures are planned at around $350 million, positioning the company for future demand while preserving investment discipline. Free cash flow conversion remains targeted at 75% to 100% of adjusted net income, supported by strong working capital management and ongoing inventory efficiency. Second quarter net sales are targeted between $2.7 billion and $2.8 billion. Second quarter earnings per share are targeted between $1.35 and $1.40, reflecting the alignment of production with demand, cost execution and timing of efficiency initiatives. The second quarter EPS target excludes any impact from potential Section 232 tariff refunds or the sale of our equity interest in the AGCO Finance U.S. and Canadian joint ventures. The AGCO Finance transaction in North America will accelerate cash flows from the existing portfolio and result in a second quarter earnings lift. However, for the full year, we do not expect a meaningful change in the portfolio's earnings contribution. Slide 15 outlines the details for our 2026 Tech Day to be held near Chicago, Illinois. A strategic business update will be held on October 6, followed by a live field demonstration of our precision agricultural stack and Farmer Core initiative on October 7. We look forward to hosting you just outside of Chicago. With that, I will turn the call over to the operator to begin the Q&A.

Operator, Operator

Operator provided instructions for Q&A. The first question is from Jamie Cook with Truist.

Jamie Cook, Analyst, Truist

I have two questions. Damon, just unpacking how we should think about— I mean we had losses in North America and in Latin America in the first quarter. I'm trying to understand, in particular, how we should think about the full year potential loss cadence of earnings throughout the year. That would be my first question. And then my second question, can you dig a little deeper on some of the pricing commentary that you referred to by region? I was impressed that we actually held the 2% to 3% price increase. Can you unpack how that played out by region?

Damon Audia, Senior Vice President and Chief Financial Officer

Sure. If we look at the cadence here with the incremental tariff costs that we alluded to in the prepared remarks, we're going to see North America roughly stay in that mid-teens margin loss area for the balance of the year. Despite the solid pricing, that incremental $25 million is going to be concentrated in North America, as you would expect. It will fluctuate a little bit quarter-to-quarter with volume. But generally, you're looking at earnings in that negative range for North America for the full year. South America had a challenging first quarter and we see that sort of rolling into the second quarter with a slight breakeven or slight loss likely in Q2. Then as we hopefully see the industry recover — we've talked about the election year and potential incentives and the timing of FINAME funding in the middle of the year — we see that turning certain positive. Net for the full year, when you look at the first half headwinds and second half opportunities, Latin America is probably closer to a breakeven business for the full year. On the second question, on pricing, we did reaffirm the 2% to 3% price target. When I look at how pricing panned out in the first quarter, overall, total company pricing was modestly a little bit better than what we had expected. We saw stronger pricing performance in North America and in Europe, and significantly weaker pricing in the Latin American region. So for the total company, I still feel good that we're in that 2% to 3% range. But regionally, it's stronger in North America and Europe and weaker in Latin America, at least to start the year.

Operator, Operator

The next question is from Kristen Owen with Oppenheimer.

Kristen Owen, Analyst, Oppenheimer

Damon, you walked through a lot of puts and takes on the guidance. It's easy to look at it and say, okay, you beat by $0.50 in the first quarter, so we're going to raise the guidance by $0.50. But it sounds like there's a lot more to it than that. Maybe help us with the bridge on the updated guidance — what got better, what got worse? And then I have a follow-up on some of the cost-related items.

Damon Audia, Senior Vice President and Chief Financial Officer

Yes. If you look at our prior guidance, we were $5.50 to $6; we'll use the midpoint there. We rolled through the $0.50 beat in the first quarter. I noted on the call that tariffs are around a $25 million incremental headwind, so call that around $0.25 of an earnings headwind. We tweaked our volumes and our industry outlook for Latin America and a little bit in Eastern Europe, mainly Turkey, so the industry being a bit softer for the balance of the year is around a $0.20 headwind. We've had incremental freight costs — diesel fuel, ocean freight charges and other costs given the Middle East conflict — that's around a $0.20 headwind flowing into our cost of goods sold. To offset that, we included the share repurchase, which we've estimated at around $0.15 of a positive for the full year. We've also increased our restructuring savings outlook from $40 million–$60 million to $60 million–$70 million. That, coupled with a little bit of other cost-of-goods-sold savings opportunities, is around a $0.20 positive relative to our original outlook. When you put those together, you get to around $6 of EPS guidance.

Kristen Owen, Analyst, Oppenheimer

Fantastic. On the restructuring savings — the $40 million to $60 million is now $60 million to $70 million. In some of the prepared remarks, you talked about internal initiatives. How much of that is simply an acceleration or pull-forward of the savings that gets you toward the 14%–15% mid-cycle target, and how much is incremental upside that gives greater confidence in that mid-cycle margin target?

Damon Audia, Senior Vice President and Chief Financial Officer

I'd say it's about 50/50. We did have some savings planned more into the Q3–Q4 timeframe that we've been able to pull forward. If you remember on the fourth-quarter call, we said we were run-rate at around $190 million. After the first quarter, we're run-rate just a little over $200 million. So part of it was pulling some things ahead. But in this environment, as we leverage technology, more of the teams are seeing more opportunities, so there is some incremental long-term savings as well. For this year, it's split between a pull-ahead and incremental. That will carry over to some incremental savings as we get into 2027 given the annualization. Generally, I would say we're run-rate a little bit north of $200 million now.

Operator, Operator

The next question is from Mig Dobre with Baird.

Peter Kalanarian, Analyst, Baird (filling in for Mig Dobre)

I have one on Europe. How confident are you in the relative strength in Europe holding through the remainder of the year? My understanding is EU farmers maybe don't preorder their inputs to the same extent as we see in North America. Can you help me understand the dynamics there and what you're seeing in terms of farmer health? Second, on margin progression for Europe — it's previously been a pretty steady mid-teens through the year. Is there any change there we should be aware of?

Eric Hansotia, Chairman, President and Chief Executive Officer

If you think about crops planted in Europe, the biggest is wheat, and it's predominantly winter wheat. That's planted in the fall, grows over the winter and is harvested in early summer. The cycle is different than North America where much planting happens in spring. They still do prebuy a fair amount, not quite as much as North America, but a fair amount. It really comes down to how long the conflict will last and how big an impact the increase in fertilizer cost will be. Fertilizer is up somewhere between 35% and 50%, but it all depends on whether that lasts through the rest of the year. Most predictions are uncertain, but many are using the assumption that supply disruptions will be resolved in time for the next big fertilizer usage period in the fall. If that's true, then supply can normalize in time for the next big use of fertilizer in the Northern Hemisphere, which is weighted toward the fall.

Damon Audia, Senior Vice President and Chief Financial Officer

On European margins and cadence, Europe continues to be very strong for us. Generally speaking, I expect margins likely in the mid-teens for each of the remaining three quarters. It will be a little lower in the second quarter since we'll have some incremental engineering expense — we have a high concentration of engineering expense in Europe. I'd say likely closer to flat with last year's margins in Q2 and then picking up modestly in the back half of the year as we introduce new products and some of that pricing kicks in. But generally, mid-teens for the balance of the year.

Peter Kalanarian, Analyst, Baird (filling in for Mig Dobre)

Quick follow-up on Latin America. Do you have the pricing in place you feel to clear the channel in the next couple of quarters, or do you think price will have to come down further? Tangentially, how many quarters of destock do you think remain before inventory can get down to that roughly three-month target?

Damon Audia, Senior Vice President and Chief Financial Officer

We always look to price relative to market and competition. I don't see a significant change in pricing currently, but it remains subject to market conditions. From a production standpoint, we will reduce production about 20% year-over-year in Q2 to better adjust the schedule. We made great progress on dealer inventories last quarter — units were down around 10% — so we are taking units out. We'll reduce production again, aiming to get closer to the three-month target by the end of Q2. But remember, our dealer months-of-supply is a 12-month forward look, so as industry conditions change, that calculation can be influenced even if units come down. I feel good about how the team is managing this challenging situation. South America is sensitive to diesel fuel and fertilizer cost increases, so the team is managing production to keep retail and production closely aligned while still servicing demand and reducing dealer inventory.

Eric Hansotia, Chairman, President and Chief Executive Officer

One more point on Brazil: it's a very tight presidential race. At Agrishow last week there was a lot of talk about favorable finance terms possibly coming into the market from the government. There's no detail yet on what those terms will be, but there was a lot of talk. Farmers are somewhat on hold until they get clarity on what the environment will be. Typically, before an election you often see stimulus or favorable terms, which could be positive for farmers, but we don't have clarity yet.

Operator, Operator

The next question is from Steve Volkmann with Jefferies.

Stephen Volkmann, Analyst, Jefferies

I apologize if I missed this. I think you said that 2026 production hours will be flat to slightly down, but it sounds like they'll be down quite a bit in the second quarter and you reduced inventory in the first. Is the cadence such that we'll see some big increases in the second half? How does this play out across the year?

Damon Audia, Senior Vice President and Chief Financial Officer

We had a year-over-year increase in Q1 driven mainly by Europe because Q1 2025 production was unusually low. It wasn't that we were running in excess. For Q2, North America is likely relatively flat year-over-year. The big change will be South America where we'll be slowing production in Q2 and likely Q3 based on the current industry outlook. We manage it quarter-to-quarter given the volatility. Our flat-to-down guide for the full year assumes more underproduction in Latin America but relatively stable production in Europe and North America for the balance of the year.

Stephen Volkmann, Analyst, Jefferies

Any notable upside or downside to your view on Precision ag sales this year?

Damon Audia, Senior Vice President and Chief Financial Officer

I don't see a material upside or downside. The first quarter was very much in line with our expectations. PTX sales were relatively flat year-over-year, which is a good result given the broader industry softness. For the full year, we expect PTX to be flat to modestly up.

Operator, Operator

The next question is from Joel Jackson with BMO Capital Markets.

Joel Jackson, Analyst, BMO Capital Markets

You talked about traversing the bottom and things getting better as the year progresses. Do you have any updated views on what this cycle will look like over the next year or two as we get back into growth, and can you compare that to prior cycles?

Eric Hansotia, Chairman, President and Chief Executive Officer

We are in an uncertain environment, but when you look at the drivers of cycles, a primary one is the age of the existing farm fleet. In all our regions the fleet age is at peak levels. Farmers see old equipment and a lot of new technology coming to market, creating replacement demand. There are potential turbochargers that could boost demand: Brazil putting more corn into ethanol, possible increases to ethanol blending in the U.S., biofuel policies, sustainable aviation fuel, increased protein demand and other structural drivers. Those create tailwinds for recovery. Farmers need more certainty: trade flows opening up, input costs stabilizing and financing conditions normalizing. Once that happens the cycle typically progresses like it has historically. We've been around the bottom for two to three years; an equipment cycle often runs 7–10 years overall, so we expect a migration back up to mid-cycle volumes and eventually back above mid-cycle over time.

Joel Jackson, Analyst, BMO Capital Markets

For the buyback you announced, will that be executed upfront like the buyback last year or more spread out?

Damon Audia, Senior Vice President and Chief Financial Officer

Typically, we do the buyback in the form of an accelerated share repurchase (ASR). A portion is done directly with Tafi, our largest shareholder. You can assume roughly 85% directionally is done through an ASR with the balance coming from Tafi at a later date.

Operator, Operator

The next question is from Kyle Menges with Citigroup.

Randy (for Kyle Menges), Analyst, Citigroup (filling in for Kyle Menges)

Can you provide more color on the changing tariff dynamics as they relate to your outlook, specifically the impacts from the IEPA overturn and the new Section 232 ruling, and any color on how you're thinking about potential Section 301 impacts?

Damon Audia, Senior Vice President and Chief Financial Officer

With respect to the IEPA (the reference was to prior tariff guidance) and the Section 232 ruling, we've factored the new calculation into our guidance. The net effect of those changes is roughly a $24 million headwind relative to our prior guidance, and that's been factored into our outlook. We have not assumed any refund related to the prior tariff rulings in our EPS outlook. If something is monetized, that would be incremental. Regarding pending Section 301 tariffs, we have not assumed anything beyond what's currently in place today. Even if something were to be announced this summer, the chance of it meaningfully hitting 2026 earnings is low because of inventory flow timing. We're monitoring the situation and looking for mitigation strategies — for example, shipping directly to Canada where appropriate — to avoid or reduce tariff impact. Overall, about $25 million is the net headwind this year attributable to the tariff changes.

Operator, Operator

The next question is from Kevin with Wells Fargo.

Kevin, Analyst, Wells Fargo

Can you talk about what you're seeing in terms of used inventory destocking in North America during the quarter and what you expect the pace to be going forward?

Damon Audia, Senior Vice President and Chief Financial Officer

We don't have as much visibility on used equipment as some other players, but generally used inventory is not as big an issue for our dealers versus new equipment. We're probably directionally about a month in a better position on used versus new. It's not a huge issue but something we continue to watch closely.

Kevin, Analyst, Wells Fargo

How should we think about the sale of the stake in the joint ventures and the impact on the equity income line going forward?

Damon Audia, Senior Vice President and Chief Financial Officer

The $190 million of cash reflects the equity value and the cash flow considerations of the portfolio as of April 30. The transaction accelerates the cash flows from the existing portfolio and will result in a Q2 earnings benefit. For the full year 2026, we don't expect a meaningful change in that portfolio's earnings contribution. Looking into 2027 and beyond, the equity earnings line for those entities will disappear, and you'll see a smaller percentage of financing income but a corresponding change in how financing-related revenue and discounts are reported. Directionally, it will be slightly accretive to operating margin but a little negative from an EPS perspective on a forward basis.

Operator, Operator

The next question is from Angel Castillo with Morgan Stanley.

Esther (for Angel Castillo), Analyst, Morgan Stanley (filling in for Angel Castillo)

A question around North America market share. Can you unpack what you're seeing in North America and provide more color on the market share gains? Also, are farmers telling you anything that's driving brand switching and are there particular U.S. regions where you're seeing this?

Eric Hansotia, Chairman, President and Chief Executive Officer

Globally we had our highest market share in Q1; we grew market share again and now have an all-time record highest global market share. A big driver is North America. We're getting market share gains in both Massey Ferguson and Fendt. The phases we've gone through: first, getting parts and service performing at high levels; second, getting our product portfolio to be best-in-class; and now working with dealers to raise their performance, which is the focus of this chapter. We're implementing Farmer Core, which changes the distribution model to deliver more proactive support — doing work on the farm, monitoring machines and moving from reactive to proactive service. When farmers experience that convenience and proactive service, they appreciate it. The market-share gains are driven largely in large ag rather than small ag because Farmer Core is targeted more to the large-ag customer. It's not concentrated in a single geographic area; it's across the large-ag regions where we compete.

Esther (for Angel Castillo), Analyst, Morgan Stanley (filling in for Angel Castillo)

As you gain market share, are you seeing any aggressive pricing from competition in response?

Eric Hansotia, Chairman, President and Chief Executive Officer

We always watch competition closely, but historically the major players remain disciplined and focused on generating value rather than taking margin hits to chase share. We haven't seen broad-scale aggressive pricing and we're not seeing it now.

Operator, Operator

The next question is from John Peter with Bernstein.

Unknown Analyst (filling in for Chad), Analyst, Bernstein (filling in)

Can we double-click on your order book by region, please?

Damon Audia, Senior Vice President and Chief Financial Officer

Sure. For North America, our order board is in the range of two to four months depending on product type. For lifestyle or lower-horsepower products we're about two months, which is customary as we're in the spring selling season and the order board is at a seasonal low point. For Fendt, we're probably closer to four months. In Europe, we're at three to four months, relatively consistent with recent quarters. In Latin America, we only opened the order board one quarter in advance and so we're sitting at around three months of orders in South America. So overall it's fairly consistent with where we've been the last few quarters.

Operator, Operator

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

Eric Hansotia, Chairman, President and Chief Executive Officer

Thank you for joining us today and for your continued interest in AGCO. The first quarter highlights our continued progress in building a more focused and resilient AGCO, executing with discipline and staying anchored to what we control while advancing our Farmer First strategy. The performance delivered this quarter reflects the effectiveness of actions taken over several years, including portfolio sharpening, execution enhancement and improved earnings durability. We remain focused on delivering for all of our stakeholders. For our farmers, we continue to invest in practical innovation spanning precision agriculture and AI-enabled solutions, service and uptime — all designed to help them operate more productively and profitably. We've achieved the highest Net Promoter Score for Q1 in the history of our company and have a record-high market share globally with big gains in North America. For shareholders, our record 2025 cash generation enables balanced capital deployment, including increased dividends and ongoing share repurchases alongside continued investment. Looking ahead, we remain focused on cost management, production alignment, technology advancement and market share growth, positioning the company to perform effectively through the current environment and capture opportunity as demand grows over time. Thank you for your continued support for AGCO. We value your partnership and look forward to building long-term value together.

Operator, Operator

Thank you for joining the AGCO earnings call. The call has concluded. Have a nice day.