AGCO Corporation

Good day and welcome to the AGCO first quarter 2023 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. In consideration of time, please limit yourself to one question and one follow-up. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Craig Peterson, AGCO Head of Investor Relations. Please go ahead.

Thanks, Jason, and good morning. Welcome to those of you joining us for AGCO's first quarter 2023 earnings call. We will refer to a slide presentation this morning that we posted on 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. We will make forward-looking statements on the call this morning with respect to strategic plans, demand, product development, and capital expenditure plans, production levels, engineering expense, exchange rate impacts, pricing, share purchases, dividends, interest rates, future commodity prices, crop production, supply chain disruption, inflation, component deliveries, 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, 2022. 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 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 later today on our corporation website. On the call with me this morning are Eric Cansodia, our chairman, president, and chief executive officer, and Damon Audia, 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 started 2023 incredibly well from both an operational and a financial perspective. Slide 3 highlights the results of Quarter 1, 2023. We posted a record first quarter in terms of sales, operating margin, and earnings. The combined efforts of AGCO team has helped deliver first quarter sales growth of 24%, with adjusted operating margins expanding by 260 basis points to 11.7%. This makes three consecutive quarters with operating margins above 10.5%. Sustainable progress towards the mid-cycle 12% target. These results are a testament to the tremendous value we are adding to farmers as we revolutionize the crop cycle. This success is playing out with the backdrop of a continuing strong industry. Agco's precision ag sales were up 30%, and ideal combine sales increased 70% in the first quarter compared to a year ago. Development is underway on targeted spraying, autonomy, and dozens of smart precision ag features. We are making solid progress towards our ambitious technology deployment goals we set in December. These results and forward-looking focus stem from our commitment of being the most farmer-focused company in our industry. Our customers' growing interest in AGCO's precision ag solutions is supporting extended order boards. We expect healthy market conditions to continue, and our improved financial outlook for 2023 reflects this optimism. We've increased our sales and earnings forecast and expect to generate significant cash flow this year. The strong performance supports our technology-related investments aimed at advancing our digital capabilities and growing our precision ag sales. We will also continue to return cash to our shareholders. Last week, we announced a special variable dividend of $5 per share, as well as a 21% increase in our regular dividend, given the strength of our business and our confidence going forward. Slide 4 details industry unit retail sales by region for Q1 2023. Supportive farm economics resulted in robust demand for large agricultural equipment as farmers continued to replace aging machines. While dealer inventory of smaller equipment has increased versus 2022 levels, larger machinery is still below historical averages. North American industry retail sales were down approximately 3% for quarter one versus 2022. Smaller tractor sales declined from a high level in 2022, while increased sales of greater than 100 horsepower units helped to offset the decline. Industry retail tractor sales in Western Europe decreased approximately 3% in Q1 2023 compared to 2022. Farmer sentiment has been negatively impacted by the war in Ukraine, as well as input cost inflation. But forecasts for healthy farm income in Western Europe are expected to continue to support solid retail demand for equipment throughout 2023. In South America, industry retail sales decreased 3% during Q1 2023. Positive farm economics, supportive exchange rates, and continued expansion in planted acreage in Brazil are driving increased investments in high-tech farm equipment and resulting in an outlook of modest growth for the South American tractor industry in 2023 compared to strong levels last year. Across all regions, the combine industry was up significantly compared to Q1 of 2022, given the relatively low level in the first quarter last year due to significant supply chain constraints. We are very positive about the underlying ag fundamentals supporting strong industry demand in 2023. Stocks to use levels remain at low levels supporting elevated commodity prices. While there's been some pullback in commodity prices over the last six months, they are still well ahead of historical averages. Equipment in the field is aged and increasing significantly. increasingly due for replacement. New dealer inventory of large ag equipment remains below targeted levels, while small ag dealer inventory is up from last year. 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 2022, we believe it will remain at very good levels in 2023 and be supportive for industry demand for 2023, assuming normal crop production. And at the same time, we don't see that changing much for 2024. Our team did a great job maintaining focus on our strategy while continuing to deal with supply chain challenges. While the supply chain has improved over the last couple of quarters, we continue to experience some component shortages that are affecting our production volumes. The encouraging news is that even with global supply bottlenecks and inflationary pressures, farmer economics remain healthy and global end market demand remains strong, especially in the large farm segment. AGCO's quarter one 2023 factory production hours are shown on slide five. While some supply chain shortages linger, we grew our production in quarter one by approximately 8% versus 2022. We were planning on higher production levels in quarter two versus 2022, and we were planning for relatively flat production levels in the back half of this year versus 2022. Based on our industry and market share forecast for 2023, we are projecting a 3% to 5% increase in production hours for the year. As of the end of March 2023, demand for our farmer-focused products remains very strong, and our order boards remained elevated across all regions. In Europe, tractors have order coverage through the end of the year with large egg orders up double digits and small egg orders down double digits compared to last year. In South America, we have order coverage through September of 2023, where we continue to limit our orders to around one quarter in advance to give ourselves more pricing flexibility. To give you an idea of the strength in this market, When we opened the system to receive third quarter orders, the order board was filled effectively in one day. In North America, our orders for tractors, combines, and sprayers extended into 2024 as the demand in big farming market continues to be extremely strong. As we outlined last quarter, orders remain below last year's levels as we have elected to limit order intake to improve our on-time delivery rates. Normalizing for the new order intake rules, large ag orders are up and small ag orders are down. This next slide highlights our three growth vectors to outpace the industry by 4% to 5% per year. Our FEMP global full line business, our global parts and services, and our precision ag product offerings. All three provide significant growth potential at higher margins with less variability during cyclical downturns. This morning I want to focus on our efforts on our FENT initiative. We continue to grow the business along two paths. First, we are expanding the FENT product line beyond tractors to now include key products like sprayers, planters, and combines. Second, we are taking this full line of FENT products global. As you can see on our results, interest continues to grow for our premium FENT product lines in both North and South America. In the first quarter, our Fendt branded sales in those markets increased by 139% and 94% respectively. Our Fendt and Challenger sales in North and South America are expected to double over the next four to six years. As part of our Fendt globalization efforts, we are launching the Fendt 200 Vario in the North America market. This segment leading tractor has been successful in the European market for many years. and now we are bringing it to North America where it launched in February at the 2023 World Ag Expo. The tractor will serve customers with vineyards, orchards, and other high-value specialty crops. The lightweight and maneuverability combined with the high performance of the machine enable premium pricing and high margins. At the World Ag Expo, dealers and potential customers were impressed by the cab space, front three-point features, and variety of widths offered. We expect the Fendt 200 Vario to continue to provide our farmers with exceptional results they have come to expect as part of the Fendt experience. With the introduction of the 200 to North American market this year, the globalization of our Fendt tractor product line is nearly complete. We will have brought to the market models ranging all the way from the largest 1000 series down to the 200 series. Our technology-rich products are enabling more sustainable farming practices and outcomes for our customers. We are also in a much stronger position from a sustainability perspective. Slide seven shows a couple highlights from our 2022 sustainability report, which was issued in March. We are delivering on our sustainability commitments, from industry-leading innovation to improved sustainable outcomes for our farmers, to decarbonizing our products and operations offering our talented, diverse employees a safer, more engaging workplace. I am proud of the progress we're making, which includes achieving our Scope 1 and 2 targets three years ahead of schedule by reducing the emissions intensity of our manufacturing operations. Other impressive achievements include our renewable electricity usage is now 63% of our total. Our renewable energy usage is already at 36% of our total. Improvement in health and safety metrics, like reducing our incident rate by 14%, helped in part by increasing the number of sites that are ISO certified. And taking employee feedback from our Voices survey to help make AGCO a great place to work. With that, I'll now hand over the call to Damon, who will provide more information about our first quarter results.