AGCO Corporation

Good morning. My name is Thea, and I will be the conference operator today. At this time, I would like to welcome everyone to the ADCO 2021 Second Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star and the number one on your telephone keypad. If you would like to withdraw the question, press the pound key. Thank you. At this time, I would like to turn the conference over to Greg Peterson, AGCO's Head of Investor Relations. Please go ahead, sir.

Greg Peterson Thanks, Thea, and good morning to those of you joining us for AGCO's second quarter earnings call. This morning, we will refer to a slide presentation that's posted to 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. This morning, we'll also make forward-looking statements, including demand, product development and capital expenditure plans, and 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 production levels, engineering expense, exchange rate impacts, pricing, share purchases, dividend rates, and future retail revenue margins, earnings, cash flow tax rates, and other financial metrics. We do 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, 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. Also, weather, commodity prices, and changes in product demand. We disclaim any obligation to update any forward-looking statements except as required by law. A replay of this call will be available later today on our corporate website. On the call with us this morning, we have 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 everyone joining us on the call today. We've come a long way over the last year responding to the global pandemic and addressing the needs of all of our key stakeholders during the COVID crisis. I think it's helpful to remember where we were in that journey during the second quarter of last year in order to provide some context to our current results. Last year, we experienced extended second quarter shutdowns in our European and South American factories, which negatively impacted our sales and earnings. Over the last three quarters, global economies have started to reopen and demand in our end markets has rebounded to very high levels. AGCO's results for the second quarter of 2021 reflect robust market recovery as well as strong execution by the AGCO team. We delivered sales and earnings growth despite significant ongoing supply chain challenges. Let's start on slide three where you can see the net sales grew 43% compared to the second quarter of 2020. Adjusted operating income increased nearly 150%, driven by a 420 basis point increase in our adjusted operating margins, with improvement achieved in all regions. Favorable pricing helped to offset raw material and component cost inflation in the second quarter, and we expect to see a more significant impact of higher material costs during the remainder of the year. The supply chain challenges we discussed in our last call are still a major factor as capacity constraints and COVID disruptions continue to impact timely receipt of components for production. Underlining these farmer fundamentals remain very strong and our order boards continue to be significantly above last year. Based on improved market forecasts across all regions, our strong second quarter results We increased our financial targets for the full year of 2021. Our investments in smart farming, precision ag, and digital solutions are paying off as we are seeing excellent demand for our technology-rich Fentractors, our precision planting solutions, and other aftermarket products. Our healthy balance sheet supports our technology-related investments as well as funds the return of cash to our stockholders as evidenced by the variable special dividend the company paid on June 1st. Slide four details industry unit retail sales by region for the first half of 2021. The reopening of economies has increased the demand for grain, putting pressure on global grain inventories, which remain at low levels. Agricultural commodity prices have fluctuated over the past quarter, but continue to support favorable farm economics, resulting in increased demand for machinery. These improved conditions are expected to generate industry growth across all major equipment markets in 2021. In North America, industry retail tractor sales increased about 22% in the first half of 2021 compared to the same period in 2020, with industry retail sales of large ag equipment growing by approximately 24%. Row crop farmers are taking advantage of improved commodity prices and projected healthy income levels to upgrade their equipment, Industry retail sales in Western Europe also increased in the first half of 2021 versus supply-constrained levels a year ago. With growth across all major markets, higher wheat, dairy, and livestock prices, combined with healthy levels of crop production, are generating positive farmer economics and farmer sentiment. In South America, industry sales increased during the first six months of 2021, driven by improved demand in Brazil, as well as recovery in the smaller export markets. A healthy first crop as well as favorable exchange rates are supporting positive economic conditions for farmers who continue to replace an aged fleet. AGCO's 2021 factory production hours are shown on slide five. Our suppliers have been impacted by COVID-related disruptions as well as capacity constraints due to surging industrial demand. Despite the great work by our purchasing team, we continue to experience supplier bottlenecks and delays in all of our regions. We expect significant challenges in the quarters ahead to meet the current strong levels of end market demand. Since last quarter, we increased our production plan to meet additional end market demand. Despite this increase, our new production plan does not represent the top of our capacity. If we see further increases in end market demand in the second half of the year, subject to our supply chain ability to respond, we would still have room to further increase our production. Total company production was up approximately 40% for the second quarter versus the same period in 2020, with the largest increases in our European and South American factories, which were shut down for portions of the second quarter of 2020. We're projecting a 15% to 20% increase in full-year 2021 production compared to last year. you'll remember that our production ramped up significantly in the back half of 2020, so our growth in the second half of 2021 will not be as large as what we have experienced in the first half. Turning our attention to AGCO's order board, as of the end of June, our order board for tractors and combines was significantly higher in North America, Europe, and South America compared to a year ago. I'll now hand over the call to Andy Beck, who will provide you more information about our second quarter results.