AGCO Corporation

Ladies and gentlemen, thank you for standing by and welcome to the AGCO 2020 Fourth Quarter Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Mr. Greg Peterson, AGCO Head of Investor Relations. Thank you. Please go ahead, sir.

Thank you, Shelby, and good morning. Welcome to those of you joining us for AGCO's fourth quarter 2020 earnings call. This morning we'll refer to a slide presentation, and we've posted those slides to our website at www.agcocorp.com. The non-GAAP measures that we'll use or that are used in that presentation are reconciled to GAAP measures in the appendix of those slides. This morning, we will make forward-looking statements, including 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 talk about production levels, share repurchases, dividend rates, and our future revenue, price levels, margins, earnings, cash flow tax rates, and other financial metrics. We wish to caution you that these statements are predictions and that actual events may differ materially. We refer you to the periodic reports that we file from time to time with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31, 2019, and the Form 10-Q for the quarter ended September 30, 2020. These documents discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. These factors include, but are not limited to, adverse developments in the agricultural industry, including those resulting from COVID-19, including plant closings, workforce availability, supply chain disruption, and product demand. Weather, commodity prices, and changes in product demand may also influence. We disclaim any obligation to update any forward-looking statements except as required by law. A replay of this call will be available on our corporate website. On the call with me this morning are Eric Ansodia, our Chairman, President, and Chief Executive Officer, and Andy Beck, our Chief Financial Officer. And with that, Eric, please go ahead.

Thank you, Greg, and good morning. We appreciate your interest in AGCO and your participation on the call today. We'll start on slide three that provides the financial summary. We finished 2020 with a very solid fourth quarter while overcoming supply chain delays and ongoing COVID challenges. I want to start this morning by thanking AGCO's 21,000 employees for their hard work that resulted in our world-class support for our farmer customers throughout the pandemic. You know, I could not be more proud of their efforts that enabled AGCO to do our part for the global food supply chain while keeping our factories and coworkers safe. These efforts helped deliver fourth quarter sales growth of 8% and 180 basis points of operating margin expansion. on an adjusted basis. Another major focus for us in 2020 was reducing our inventories. The progress we made in this area contributed to record cash flow from operations for the year, as well as put us in a great position to benefit from the strengthening market demand we are forecasting for 2021. Positive customer response to our improved product lineup is benefiting our retail sales performance, and we plan to keep investing in new technology. Our substantial cash flow from operations is enabling us to maintain our planned investments in smart farming solutions and enhanced digital capabilities. Products like our smart planters, smart nozzle sprayers, and connected premium tractor products are providing productivity enhancement options for our customers and our new margin-rich sales opportunities for AGCO. The recent rally in soft commodity prices lifted farmer sentiment and created higher demand for agricultural equipment as we finish 2020. We expect supportive market conditions to continue in 2021, and our new financial outlook reflects this optimism. We are targeting sales growth, margin expansion, and significantly higher earnings in 2021. Slide four details industry unit retail sales by region for the full year of 2020. As COVID pandemic unfolded early last year, the consumption of grain for food, fuel, and livestock was negatively impacted by global economic constraints. Towards the end of the year, grain consumption began recovering, consistent with improving economic activity and increased grain exports to China. Following reduced forecasts for ending grain inventories, soft commodity prices rose, which is positive for farmer economics. Consequently, global industry demand for farm equipment improved as we finished the year. North America industry sales of tractors increased in 2020 compared to 2019. Growth was strongest in the sales of low horsepower tractors with improving demand for higher horsepower tractors as we finished the year. The fleet age for large equipment remains extended, providing a strong potential for replacement demand in North American market. Industry retail sales in Western Europe decreased modestly during 2020 due largely to the COVID-related production constraints. Market demand in the second half of the year increased over the prior year and mostly offset significant declines in demand experienced in the first half. For the full year, industry sales were in the weakest in the United Kingdom and Scandinavia, and they were partially offset by growth in Germany, which benefited from some tax incentives implemented in 2020. Dry weather across much of Western Europe negatively impacted wheat production, although strong grain export demand and supportive wheat prices provided some offsets. European dairy and livestock fundamentals have stabilized after weakening earlier in the year. Industry retail sales in South America increased during 2020, with growth in Brazil and Argentina partially offset by weaker demand in the smaller South American markets. Strong crop production in Brazil and Argentina, as well as favorable exchange rates, are supporting positive economics. Farmers are replacing their age fleet following years of depressed demand due to economic weakness and the challenging political environments. As we communicated last quarter, our focus for 2020 was to address the needs of all of our key stakeholders during the COVID crisis. This perspective has guided our actions since the outbreak. First and foremost, we established protocols for all of our facilities focused on employee health and safety. These protocols have served us well and have been a critical factor in maintaining production. During the fourth quarter, we faced considerable challenges with our component availability from our supply base. Due to those efforts of our purchasing and manufacturing teams, we were ultimately able to secure the components in time to exceed our fourth quarter production projections and meet customer demand. The COVID risks of component supply availability as well as COVID workforce issues remain for both our operations and our suppliers' operations, which may impact our planned production output. We will stay diligent to attempt to mitigate these issues to the extent possible. We are proud of the way our employees are going above and beyond to keep farmers and dealers operating through these difficult circumstances. Innovative approaches to connecting with our dealers and customers through digital tools have been a positive byproduct that we can leverage in the future. AGCO's 2020 factory production hours are shown in slide six. For the full year, production was down about 5% compared to 2019 levels. As previously discussed, our manufacturing operations were significantly impacted by the crisis, particularly in Europe and in South America in the second quarter. Our supply chain and production teams have done a great job allowing us to recover the production in the second half. Total company production hours were approximately flat for the fourth quarter versus the same period in 2019. Growth in Brazil was offset by lower production in the US and Europe, where production was reduced to facilitate planned dealer and company inventory reductions. We met our dealer inventory reductions in North America and South America, as well as in the region. Turning to 2021, we currently project production hours to increase approximately 6% to 8% compared to 2020 levels. In addition, our order board entering into 2021 for tractors is significantly higher in North America, Europe, and South America compared to a year ago. I'm going to now hand over the call to Andy Beck, who will provide you more information about our fourth quarter results.