AGCO Corporation

Good morning and welcome to the AGCO 4th Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. To withdraw from the question queue, please press star then 2. 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.

Thanks, Anthony, and good morning. Welcome to those of you joining us for AGCO's fourth quarter 2022 earnings conference call. We will refer to a slide presentation this morning that's posted on our website at www.agcocorp.com. The non-GAAP measures used in that presentation are reconciled to GAAP metrics in the appendix of that presentation. We'll also make forward-looking statements this morning on our call, with respect to demand, product development and capital expenditure plans, production levels, engineering expense, exchange rates, pricing, share repurchases, dividends, interest rates, future commodity prices, crop production, supply chain disruption, inflation, component delivery, sales, 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 31st, 2021. 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, such as plant closings, workforce availability, and product demand. They also include supply chain disruption, weather, exchange rate volatility, 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 on our corporate website later today. On the call with me this morning are Eric Ansodia, our Chairman, President, and Chief Executive Officer, and Damon Audia, our Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead.

Thanks, Greg. Good morning. It's great to be with you. We finished 2022 incredibly well from both an operational and financial perspective. But before we get into those details, I want to start with a quick recap of the Investor Day we hosted in December. Those of you that attended will recognize this slide from that meeting. It's the foundation of our strategy all on one page. The purpose, vision, and overarching strategy we laid out at the 2021 investor meeting haven't changed. We are concentrated on delivering farmer-focused solutions to sustainably feed our world. These solutions are more than machinery. They are all about the data, technology, connectivity, and digital solutions around the machines. Sustainability is also key to who we are. It weaves through our day-to-day activities and is a cornerstone of our strategy. Finally, feeding the world energizes our purpose. While our strategy hasn't changed, we are doubling down on our key strategic initiatives, growing faster than the market, optimizing our business, and fostering a culture that enables success. We've raised the bar on our technology commitments and our financial performance. particularly in our operating margin performance. You'll see that as we move to our fourth quarter results. This focus is already paying off in terms of strong top-line growth and a very healthy margin expansion. Slide four highlights our great finish to 2022. We posted a record fourth quarter and full year in terms of sales, operating margin, and earnings. I would like to deeply thank AGCO's 25,000 employees for their hard work that resulted in the world-class support for our farmer customers throughout this challenging year. These efforts helped deliver fourth-quarter sales growth of 24%, with adjusted operating margins expanding by 340 basis points to 12%. For the full year, our net sales reached almost $12.7 billion. Adjusted operating margins improved 120 basis points to 10.3%, and adjusted earnings per share hit $12.42. Now, these are all records for AGCO. During 2022, while delivering record results, we also executed an ambitious investment plan to expand our smart farming solutions and enhance our digital capabilities through increased engineering spend and several key acquisitions. Overall, I could not be prouder of our team. These record results are a testament to our focused execution on our strategy while continuing to deal with supply chain challenges during the year. While the supply chain has improved over the last couple quarters, we continue to experience significant component shortages that are impacting our production volumes. The encouraging news is that despite the global supply bottlenecks and inflationary pressures, farmer economics remain healthy. and a global end market demand remains strong. We expect supportive market conditions to continue into 2023. Our financial outlook for 23 reflects this optimism, which will allow us to accelerate technology-related investments as well as continue to return cash to our shareholders. Slide five details industry unit retail sales by region for the full year of 2022. Support of farm economics resulted in robust demand for larger agricultural equipment as farmers continued to replace aging machines during the year. Supply chain constraints, limited industry production, and dealer inventory levels of new and used large ag equipment remain well below normal levels across the industry. For 2022, global industry retail sales of farm equipment were lower in North America and Europe despite significantly higher sales of larger machines. North America industry retail tractor sales were down approximately 5% for the full year compared to 2021. Smaller tractor sales declined from record levels in 2021, while increased sales of higher horsepower units helped dampen the decline. Industry retail tractor sales in Western Europe, which also were restricted by supply chain challenges, decreased approximately 9% in 2022 compared to robust levels in 2021. In South America, industry retail tractor sales increased 3% during 2022. Strong growth in Argentina and the smaller South American markets offset modestly lower overall sales in Brazil despite strong demand for large ag equipment. Healthy crop production and favorable margins are supporting farm profitability. These supportive economics are expected to drive healthy demand in South America again throughout 2023. We are very positive about the underlying ag fundamentals supporting strong industry demand in 2023. Stocks to use levels of grain all around the world remain at very low levels, supporting healthy commodity prices. With China's reopening, we don't think that'll change anytime soon. The dealer channel for new and used equipment is still below target levels from the constrained supply. Input costs like fertilizer and fuel are down significantly from their peaks last year. While farm income may be down modestly in 2023 from record levels in 22, we think it will remain at a very good level in 2023 and be supportive for industry demand. Currently, We don't see that changing much for 2024. AGCO's 2022 factory production hours are shown on slide six. You can see that our production increased in 2022 in line with our expectations. Although we continued to face supply chain and logistics challenges, we were successful in reducing our inventory as semi-finished products. In the fourth quarter, we reduced the work in process inventory by nearly $275 million compared to the level at the end of the third quarter. For the full year, production hours increased approximately 6% compared to the 2021 levels, as we worked to satisfy the strong demand. Based on our industry and market share forecasts, we are projecting a 3% to 5% increase in production hours for 2023. At year end, AGCO's Global Order Board remained extended and is approximately flat compared to the strong December of 2021 level. Orders for tractors and combines were higher in Western Europe and South America compared to a year ago. In North America, orders were down from 2021 levels as we have elected to limit our order intake to improve our on-time delivery rates. Our order coverage extends through the third quarter of 2023 in Western Europe and North America and through the second quarter of 2023 in Brazil, where we continue to limit our orders to around one quarter in advance to give ourselves more pricing flexibility. The bottom line? Demand for our farmer-focused products remains very strong. You'll recognize slide seven, which highlights our focus on three high-margin growth areas. These opportunities provide significant growth potential at higher margins and less variability during the cyclical downturns. The first focus area is taking our Fent full line brand global. We continue to grow the business along two vectors. The first, we expanded the Fent product line beyond tractors to now include key products like sprayers, planters, combines, and more. The second mention is taking this full line of Fent products global. As you can see in our results, interest continues to grow for our premium Fendt product lines in both North and South America. In 2022, our Fendt branded sales in those markets increased over 31% compared to 2021. Our Fendt and Challenger sales in North and South America are expected to double over the next four to six years. The second focus area is our global parts and service business. AGCO is already in a leading position in fill rates, which is just effectively having the right part at the right place when the farmer needs it. We're building from a solid foundation to capture more of the dealer's and farmer's business. We're helping dealers become better and more proactive with their service and parts offerings with our smart solutions and expanding digital capabilities. As a result, we expect our high margin after sales and parts business to continue to grow and have higher penetration rates. The third focus area involves precision agriculture. At AGCO, we address the precision ag market in two ways. First is through our precision planting business, which has become one of the most successful ag tech companies in the world. Precision planting has been a leader in providing automation and intelligence to planters. Over the last couple of years, it's growing beyond planters into the other parts of the crop cycle, like spraying, soil testing, and harvesting. In addition to its impressive technology, precision planting success is generated through their unique OEM-agnostic retrofit approach, which reduces the farmer's upfront investment and increases their ROI, regardless of the equipment brand that they own. By offering solutions through this retrofit approach, we are expanding the addressable market well beyond agco brands to all industry brands. The other way we address the precision ag opportunity is FUSE, which provides OEM solutions for our agco equipment. Regarding advanced technology, we remain focused on driving technology innovations that help our farmers improve their productivity, profitability, and sustainability. As we have seen multiple times, these types of innovations are receiving strong recognition in the form of industry awards. Just recently, AGCO won 10 innovation AE50 awards from ASABE, which recognizes the best innovations and technologies for agriculture, food, and biological systems. Not only was this the most awards of any company, but more than our top two competitors combined. Going a little deeper into our technology, our unique retrofit approach caters to a huge audience. There is nowhere better to showcase this and to educate our farmers than our Precision Planting Winter Conference, which held its annual event last month. At this event, we hosted nearly 7,000 of the best farmers in the world to hear directly from our engineers and agronomists about product development and research we have done in the field. I attend this program myself every year. I had the chance to have lunch with farmers from Kazakhstan, Ukraine, and Poland. All those that attended had the opportunity to see the latest precision planting technologies and learn how these advancements can help improve the productivity on their farms. Historically, the new product introductions had been focused on planters. However, starting last year, precision planting broke from that tradition and made a big announcement as they brought five needed solutions to the sprayer, including adding a neural network onto the 2020 architecture, leveraging artificial intelligence capabilities, for targeted spraying solutions. The team continued their momentum of solving the farmers biggest problems this past summer by announcing it was revolutionizing soil testing with the introduction of Radical Agronomics soil testing technology. Radical boasts the world's first fully automated soil laboratory and one of the AE50 award winners this year. This new product disrupts the 100 year old soil testing model and puts the capability into the hands of local agronomists with faster and more reliable results. Understanding how to improve soil health is great for farm productivity, but also great for the emerging need of carbon sequestration. At this year's conference, our precision planting team made another disruptive launch with their new Panorama Data app. The new app, pictured on slide 9, makes precision planting data the most usable, portable, and shareable planter information on the planet. Panorama modernizes the way our 2020 controller interacts with the world. It helps farmers better utilize collected data by allowing for easy uploads to the platform of their choice. Panorama allows farmers an unobstructed view of the data collected in their cab, whether on their app or through moving data to the platform of their choice. Panorama will feature map viewing, reporting, and the ability for a farmer to allow their precision planting dealer to provide remote technology support. We are very excited about continuing to bring these types of precision ag technologies to our farmer customers, with our core focus of trying to solve their biggest challenges, which will also contribute to our growth and margin expansion goals for Agco. With that, I'll now hand over the call to Damon, who will provide you more information about our fourth quarter results.