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spk06: Good day and welcome to AXCO first quarter 2024 earnings call. All participants will be in the listen only mode. Should you need assistance, please signal and conference specialist by pressing the star key followed by 0. 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 questions, you may press star, then 1, on your touchtone phone. To withdraw your question, please press star, then 2. Please note that this event is being recorded. I would now like to turn the conference over to Greg Peterson, AXCO head of investor relations.
spk08: Please go ahead.
spk09: Thanks,
spk08: Jagar,
spk09: and good morning. Welcome to those of you joining us for AXCO's first quarter 2024 earnings call. We will refer to a slide presentation this morning that's posted on our website at .axcocorp.com. The non-GAAP measures used in the slide presentation will be used to provide a better understanding of the non-GAAP measures used in the slide presentation. We'll make forward looking statements this morning, including statements about our strategic plans and initiatives, as well as their financial impacts. We'll discuss 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. It will also cover future revenue, crop production, and farm income, production levels, price levels, margins, earnings, cash flow, and other financial metrics. All of these are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks include but are not limited to adverse developments in the agricultural industry, supply chain disruption, inflation, weather, commodity prices, changes in product demand, interruptions in supply of parts and products, the possible failure to develop new and improved products on time, including premium technology and smart farming solutions within budget and with the expected performance and price benefits. Also includes difficulties in integrating the PTX Trimble business in a manner that produces the expected financial results. The reactions by customers and competitors to the transaction, including the rate of which PTX Trimble's largest OEM customer reduces purchases of PTX Trimble equipment and the rate of replacement by the joint venture of those sales. And it also includes introduction of the new or improved products by our competitors and reductions in pricing by them. To warn the Ukraine difficulties in integrating acquired businesses and in completing expansion and modernization plans on time in a manner that produces the expected financial results and adverse changes in financial and foreign exchange markets. Actual results could differ materially from those suggested in these statements. Further information concerning these and other risks included in ACO's findings with the Securities and Exchange Commission, including our Form 10K for the year ended December 31st, 2023, and subsequent Form 10Q filings. ACO disciplines any obligation to update any forward-looking statements except as required by law. We'll make a replay of this call available later today on our corporate website. On the call with me this morning are Eric Ansodi, our Chairman, President, and Chief Executive Officer, as well as Damon Adia, our Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead.
spk11: Thanks, Greg, and good morning. Before I get into the details of the quarter, I wanna take a moment to express my confidence in the team and our strategy. Despite weaker industry conditions, our focus on three growth drivers, as well as integrating PTX Trimble, and staying agile by adjusting production and our cost structure, all continue to position 2024 to have the second highest level of full year adjusted operating margin in the history of the company. With that, let's look at ACO's first quarter results. First quarter 2024 net sales came in at 2.9 billion, which was down approximately 12% from last year due to softening global end market demand for agricultural equipment. Consolidated operating margin was .3% of net sales on a reported basis and .6% on an adjusted basis. We focused on reducing production more than the industry decline and further tightened our cost controls in the quarter to align with slowing end markets. Lower sales and operating leverage were a factor in our reduced margins. Stability in the European region helped partially offset sales and operating margin declines in all other regions. Despite the industry being down in Europe, sales were flat compared to the first quarter of 2023. Yet operating margins hit an all time first quarter high of 16.4%, an impressive 230 basis points better than the first quarter of last year. Margins in South America remained pressured as the industry weakened even further than expected. And we saw operating margins of approximately .3% in the first quarter of 2024 compared to nearly 20% in the first quarter of 2023. Market demand remained weak in Brazil and we also under produced retail demand there which helped lower our dealer inventories in the region. More challenging global market conditions are expected to continue in 2024 due to reduced commodity prices and lower farm income expectations. As a result, ECHO is forecasting lower sales in 2024. To mitigate these challenges, we will remain focused on manufacturing cost reduction opportunities, driving increased SG&A expense efficiencies, and lowering company and dealer inventory. In addition, ECHO's growing precision ag business, full line FENT branded products, and our parts business are expected to help us dampen the ag cycle. To better serve farmers, we will continue our investments in premium technology, smart farming solutions, and enhanced digital capabilities to support our farmer first strategy while helping to sustainably feed the world. Slide four details industry unit retail sales by region for the first quarter of 2024. Global industry retail sales of farm equipment in the first quarter were lower in all of ECHO's key markets. North America full industry retail sales decreased 9% during the first three months of 2024 compared to the first three months of 2023. Sales declines in smaller equipment were more significant than most of the larger equipment categories. Lower projected farm income and a refreshed fleet are expected to pressure industry demand in 2024, resulting in weaker North America industry sales compared to 2023. In Western Europe, industry retail tractor sales decreased 8% during the first three months of 2024 compared to the same period of 2023. Farmer sentiment in the region has continued to be negatively impacted by the conflict in Ukraine and input cost inflation. Industry demand is expected to soften in 2024 as lower income levels pressure demand from arable farmers while healthy demand from dairy and livestock producers is expected to mitigate some of this decline. South American industry tractor retail sales decreased 18% during the first three months of 2024 compared to a very strong demand in the first three months of 2023. Brazil and the smaller South American markets showed the most weakness while declines in Argentina were moderate after weak industry sales in 2023. Following three strong years, retail demand in South America is expected to further soften in 2024 as a result of lower commodity prices and farm income. Similar to tractors, the combine industry was down significantly in all regions in the first quarter of 2024. Although market conditions continue to soften from the extremely strong conditions over the last few years, we remain positive about the underlying ag fundamentals supporting the long-term industry demand. Stocks to use levels are higher than recent lows, but they remain supportive of profitable commodity prices versus historical levels. As the demand for clean energy grows, the need for solutions like sustainable aviation fuel and vegetable oil-based diesel will grow strongly, driving the demand for our farmers that will further support commodity prices. Also, input costs such as fuel and fertilizer are down from their peaks in 2022. We expect farm income to be down in 2024 relative to 2023, closer to the long-term averages, but still supportive of industry demand. Agco's 2024 factory production hours are shown on slide five. Our production decreased in the first quarter by approximately 16%, slightly more than expected versus the same period in 2023. Reductions were taken in all regions, with the biggest reductions in South America and North America. We are aggressively managing our company and dealer inventory to match the softening retail demand. As I mentioned earlier, we made progress in de-stocking the dealer channel in the first quarter in all regions, but still have work to do. We expect further production cuts during 2024 with all regions aligning to retail demand by quarter four. Currently, we're expecting 12 to 15% lower production in 2024 versus 2023 in a full year basis. This reduction reflects our 2024 market forecasts, market share growth assumptions, and targeted reductions to dealer inventory. Relative to historical demand patterns, orders for our products remain solid. In Europe, tractors had five months of order coverage. That's a healthy level compared to the two to three months we were accustomed to pre-COVID. Dealer inventories of approximately four months of supply are in line with our targeted levels, with certain products like Fent high-horsepower tractors still below the optimal levels in certain areas as we continue to grow share in the region. In South America, we have order coverage through June of 2024, where we continue to limit our orders to one quarter in advance due to inflationary pressures. We now have four months of dealer inventory across all products, while our target level is around three months. We cut production by more than 30% in the region in both quarter four 2023 and quarter one 2024, and our goal is to be between three and four months by year end. In North America, we currently have between four and five months of order coverage, while our dealer inventory is just over six months of supply. Our North America target for dealer inventory range from four to six months, depending on the product. We continue to focus on under producing retail demand coupled with retail market share execution to bring dealer inventories down to our targeted range by year end. Moving to slide six, where you'll see our three high margin growth levers aimed at improving our mid cycle operating margins to 12% and outgrowing the industry by four to five percent annually. To reiterate, these three growth levers are the globalization and full line product rollout of our FEMT brand, focusing on accelerating our global parts business and increasing the market share of genuine ag co-parts, and growing our precision ag business, which supports not only factory fit technology, but also significantly focuses on mixed fleet retrofit solutions for farmers and OEMs. You will notice new logos on this slide, which represent the precision ag portfolio of our newest leading brand, PTX, as well as PTX Trimble. I wanted to take a moment to elaborate on the combination of our multiple brands and how we have unified them under PTX. Slide seven shows the new PTX branding and how the name PTX is rooted in our heritage. This PTX portfolio will provide seamlessly compatible, powerfully simple precision ag solutions. Part of that portfolio is PTX Trimble, which we formed with the closure of our transformative joint venture with Trimble on April 1st. We are tremendously excited to have Trimble Ag technology offerings as part of our ag co-family. This deal significantly enhances ag co's technology stack with disruptive technologies that cover every aspect of the crop cycle, which ultimately helps us better serve farmers no matter what brand they use. PTX will serve farmers around the world through three -to-market approaches. Specialized precision ag dealers will help farmers retrofit almost any make or vintage of equipment they already own with the latest technologies. PTX will also expand its relationships with more than 100 OEM partners that can integrate products from the PTX portfolio directly at the factory. Similarly, new machines from ag co's leading brands, Fent, Massey Ferguson, and Valtra will also offer factory-fit technology from the PTX portfolio. The JV will be positioned to drive outside its growth and better provide next-generation technologies to even more farmers around the world. In addition to presenting a unified offering to the market, we are also evolving the visual identity of precision planting as part of the new PTX brand portfolio. Taken all together, the P represents precision agriculture, the T represents advanced technologies, and the X represents the fact that we're multiplying and increasing the impact we create by bringing our technologies and solutions together in seamless, intelligent, and farmer-centric ways. On slide eight, you can see how we plan to build equity in PTX, simplify our offerings to farmers, and present a streamlined portfolio. We'll consolidate ag co's precision ag brands to create the critical mass needed for a market-leading precision ag brand. Together, these teams represent the best precision ag tech talent in the industry. We will form one cohesive team who will collaborate on product development, go to market channels, and how to best serve both farmers and OEMs. We will innovate, solve problems, complement each other's strengths, and grow together, bringing mixed fleet precision ag solutions to the market faster than anyone else. PTX Trimble includes JCA technologies, Trimble Agriculture, Billberry, and Mueller Electronic. Precision planting will bring head site and intelligent ag under its brand. Slide nine summarizes our precision ag business. As we highlighted before, we are focused on expanding our addressable market from just traditional agriculture machinery spend, which today is in the low to mid-teens as a percentage of total farmer spend. With our precision ag portfolio, our sites are set to impact around 70% or effectively all non-land areas. We believe that the investment in precision ag positions both agco and our customers well, as it will play a major role in achieving our global sustainability targets currently being established, while simultaneously helping our farmers improve their profitability. Now that we have closed on the joint venture, the form PTX Trimble, we remain committed to our goal of achieving $2 billion in annual precision ag sales by 2028. With that, I'll hand it over to Damon.
spk10: Thank you, Eric. Slide 10 provides an overview of the regional net sales performance for the first quarter. Net sales were down approximately 13% in the quarter compared to the first quarter of 2023 when excluding the positive effect of currency translation. Pricing in the quarter, which was around 1%, contributed to higher sales. By region, the Europe-Middle East segment reported flat sales in the first quarter of 2024 compared to the same period in 2023, excluding the impact of favorable currency translation. Growth in Germany and France was offset by lower sales across nearly all other European markets. Positive pricing and increased sales of high horsepower tractors, especially bent products, was offset by declines in other products. South American net sales decreased approximately 42% in the first three months of 2024 compared to the same period of 2023, excluding the impact of favorable currency translation. Significantly softer industry sales drove lower sales of tractors and combines, which accounted for most of the decline. The substantial sales decrease in Brazil was slightly offset by modestly higher sales in Argentina. Net sales in the North American region decreased approximately 21% in the first quarter of 2024 compared to the same period of 2023, excluding the impact of favorable currency translation. Softer industry sales were partially offset by positive pricing. The most significant sales declines occurred in the hay equipment, mid-range tractors, as well as combines. Net sales in Asia-Pacific Africa decreased 16% excluding negative currency translation impacts in the first three months of 2024 compared to the same period in 2023 due to weaker end market demands. Lower sales in China and Australia drove most of the decline. Finally, consolidated replacement parts sales were approximately 434 million for the first quarter, down approximately 5% year over year, or 6% excluding the effect of positive currency translation. Turning to slide 11, the first quarter adjusted operating margin declined by 210 basis points versus a strong first quarter of 2023. Margins in the quarter were mainly affected by the significant decline in production, reflective of the weak industry conditions, higher discounts, and higher SG&A, and increased engineering expenses. These items were partially offset by positive net pricing. By region, the Europe-Middle East segment income from operations increased 43.5 million, and operating margins improved by 230 basis points in the first three months of 2024. The improvement was driven by positive net pricing in mix, partially offset by higher SG&A expenses and engineering expenses. North American income from operations for the first three months of 2024 decreased 59.7 million compared to the same period in 2023, and operating margins were 5.8%. The decrease resulted from lower sales and production, as well as increased SG&A and engineering expenses. Operating margins in South America in the first three months of 2024 decreased by approximately 83 million compared to the same period in 2023. This decrease was primarily a result of lower sales and significantly lower production volumes, as well as negative pricing. The quarter was positively affected by the reversal of a dealer termination accrual, which improved margins by approximately 4% this quarter. Finally, in our -Pacific-Africa segment, income from operations decreased by 10 million in the first three months of 2024 compared to the same period in 2023 due to lower sales volume. Slide 12 details our -to-date free cash flow for 2023 and 2024. As a reminder, free cash flow represents cash used in or provided by operating activities, less purchases of property, plant, and equipment, and free cash flow conversion is defined as free cash flow divided by adjusted net income. We used $465 million of cash in the first quarter of 2024, approximately 217 million or 32% less than the first quarter of 2023, primarily related to improved working capital and lower capital expenditures. For the full year, we anticipate our free cash flow to be in the upper half of our long-term target range of 75% to 100% of adjusted net income. We remain focused on direct returns to investors in 2024. In addition to the regular quarterly dividend of 29 cents per share, we also declared a special variable dividend of $2.50 per share in the second quarter. This is now the fourth consecutive year of us paying the special variable dividend. Even with the closing of the PTX Trimble joint venture, the special variable dividend is another sign of our confidence in how we have transformed our long-term profitability and remain focused on deployed capital in the most effective ways possible for our shareholders. Slide 13 highlights our 2024 retail market forecast for our three major regions. For North America, we continue to expect demand to be 10% lower compared to the levels in 2023. The high horsepower row crop equipment segment is expected to decrease after several years of strong growth that was fueled by high levels of farm income. The small tractor segment is also expected to decrease in 2024, although the rate of decline is slowing compared to the prior years. For Western Europe, we continue to expect the industry to be down 5 to 10% compared to 2023. Farm income is nearing the long-term average for the region due to reduced commodity prices and higher input costs. In South America, we are updating our guidance to reflect industry sales down approximately 20% in 2024 compared to our previous estimate of a 10% reduction. The industry for tractors greater than 340 horsepower, combines and planters have deteriorated even more than we had anticipated. Farmers are holding on to grain longer in the region, awaiting higher prices and shortfalls in the subsidized financing programs are causing farmers to postpone purchases. Although this may affect demand in the short term, this region remains one of the most long-term attractive end markets, especially in Brazil where the farm footprint is increasing. While farm income is expected to decline from elevated levels in 2023, we generally expect farmers to remain profitable in 2024. And AGCO brand agnostic retrofit approach to precision AG and a strong parts business should help dampen the cycle, making our margins less volatile. On slide 14, a highlight of a reconciliation of sales, adjusted operating margin and adjusted earnings per share from what we communicated on our fourth quarter earnings call on February 6th to today. Starting from the left, our initial outlook reflected sales of 13.6 billion, adjusted operating margins of approximately 11% and adjusted earnings per share of around $13.15. The negative effect of currency translation and the weaker South American industry outlook assumption change coupled with the modest reduction in our pricing outlook reduce our sales outlook by approximately $400 million, which is partially offset by the inclusion of the PTX Trimble joint venture sales of approximately $300 million for the balance of the year. Our new sales outlook is down to slightly to $13.5 billion. Our continued and heightened focus on taking costs out of the business is mitigating margin erosion from the lower operating leverage. We anticipate remaining at 11% adjusted operating margins before adjusting for the impact of the PTX Trimble joint venture. The strong margins in the high 20% range of the PTX Trimble business helps us raise our full year adjusted operating margins now to 11.3%. Our new adjusted EPS guidance is approximately $12 on a consolidated basis. The reduction in EPS is a combination of multiple factors, including the effect of currency translation, industry assumption changes, a slightly lower pricing assumption, continued FX losses that affect other income and expense, and an increased effective tax rate related to inflation in foreign currency in Argentina, as well as the incremental interest expense on debt related to the acquisition of the PTX Trimble joint venture. This is partially offset by the consolidation of the earnings of PTX Trimble. The figures for PTX Trimble you see on this reconciliation reflect nine months of activity, and they exclude any sales related to other parts of AGCO. As we said at the announcement of the deal back in September and reiterated on April 1st of this year, we anticipate PTX Trimble to be accreted to AGCO's revenues, adjusted operating margin, and adjusted earnings per share in the first full year post-closed. This will be achieved by paydown of the debt, combined with higher earnings from PTX Trimble as we transition to a new distribution model and realize synergies across the AGCO portfolio. Slide 15 highlights a few key assumptions underlying our 2024 outlook, which now includes the consolidated results of PTX Trimble joint venture. At this time, we see markets continuing to weaken in 2024. Our sales plan include market share gains, along with price increases reverting back to approximately 1%. As our raw material cost is stabilized and we pursue further cost savings actions, we expect this level of pricing will more than offset inflationary cost increases. We expect currency translation to now have a 1% adverse effect on sales year over year, primarily due to a weakening of the euro, which is modestly lower than our previous assumption. Engineering expenses are expected to be up approximately 3% in 2024 compared to 2023, including PTX Trimble. Excluding PTX Trimble, engineering expenses would have been down around 4% as we look to moderate some investment given the softening industry outlook. With the expectations of our industry declining around 10 to 15% from our approximately 105% of mid cycle in 2023 to around 90 to 95% in 2024, we would expect our adjusted operating margins to come down from the record 12% in 2023 to around .3% in 2024, slightly above the value creation line due to the strong performance of our three growth drivers, increased cost control measures, and the inclusion of the high margin PTX Trimble joint venture. We will provide updated long-term margin targets that are December 2024 analyst meeting to account for the performance of PTX Trimble. Our effective tax rate is now anticipated to be between 28 and 29% for 2024, which is 1.5 percentage points higher than our previous guidance. The reason for the increase is due to the impact of foreign exchange rates and inflation in the calculation of income tax in Argentina. Turning to slide 16 for our 2024 outlook. Our full year net sales outlook for 2024 is 13.5 billion, down from the record level seen in 2023. Our adjusted earnings for share forecast is approximately $12. We've also set a capex target of around $475 million, slightly lower than what we spent in 2023. Our free cashflow conversion should be at the upper end of our range of 75% to 100% of adjusted net income consistent with our long-term target. With the continued underproduction relative to retail demand in the second quarter of 2024, we project sales in the $3.6 billion range, adjusted operating margins of about 11%, and adjusted earnings per share of around $3. With that, I'll turn it back over
spk08: to the operator for Q&A. Thank you very much.
spk06: We will now begin the question and answer session. To ask a question, you may press star, then one, on your touchtone phone. If you are using a speaker phone, please pick up your handsets before pressing the keys. To withdraw your question, please press star, then two.
spk07: If you are using a phone, please press one, and please limit yourself to one question and one follow-up.
spk08: The first
spk06: question is from the line of Jamie Cook from Tuist. Please go ahead.
spk05: Hi, good morning. Two questions. One, can you help us a little bit on South America in terms of how you're expecting production cuts, like the low level production cuts in South America, sort of pricing and how you're thinking about margins in South America in the back half of the year? I think before you said you expected margins to be in the maybe low double digit range. I'm just wondering if that's still an opportunity. And then my second question, Damon, I just wanna make sure I understand Tremble. Understanding you're saying it's going to be a creative for the first full year post the close. Do you mean by the first quarter of 2025? I just wanna be clear there. And then I'm just wondering, the path to get there given it's gonna be 13 cents dilutive, you know what I mean, for the year, I guess it's just, debt pay down, any color you could help me there. And then I guess how creative by the first, by the full year, just given the, farming trends aren't really favorable right now. Thank you.
spk10: Yeah, so Jamie, I'll start with the Tremble question and I'll revert back to the South American question. So fully accretive in all of 2025. So not the four quarters, but if we look at all of 2025 is what we're planning on it being accretive. And it's really a combination of us being able to repay some of the debt that we took on here given our strong free cashflow generation. But more importantly, as we really start to ramp up some of the synergies here in leveraging the precision ag channel that we have, our precision planting channel, and also complimentary products from precision planting moving into the Tremble Vantage channels. So we see those two things really helping drive some growth next year and then paying down some debt. So again, accretive for the full year of 2025 versus the first four quarters. On South America, as you heard in Eric's opening comments, we did reduce our production, again, over 30% here in the first quarter. So that's after 30% reduction in the fourth quarter. I would expect to see continued production cuts more heavily weighted here in the second quarter. We did make some marginal improvement in the dealer inventory down there, but still not where we need to be. So I would expect to see further production cuts here again in the second quarter. And then hopefully, as we move into the back half of the year, those production cuts starting to become less. And hopefully, as we get to the fourth quarter laughing. As we think about the margins in South America, and again, I'm gonna give you margins that are inclusive of the PTX Tremble being rolled into these numbers just to stay consistent. But we do expect the margins really in the back half of the year to start to get backed up into those mid teams. Again, under the presumption that the markets continue to improve, the new Finami financing comes out here in the back half of the year, which spurs growth in some of the other farmer activities. So, right now, we see the first half continue to be challenged both for farmer demand, as well as our production and the absorption, but then hopefully improving in the back half.
spk05: Thank
spk08: you so much. Thank you.
spk07: Our next question is from the line of
spk06: Christine Owen from Oppenheimer. Please go ahead.
spk04: Great, thank you for taking the question. Sort of an extension of Jamie's here, but maybe broadening that out to the other regions. You know, just given the production cuts that were both higher than expected and broad-based, and now the updated outlook, I'm hoping you can walk us through your updated assumptions for the next quarter. Just organic volume growth across the regions for the remainder of the year. So maybe if we strip out the TRIMBLE results, what does organic expectation cost? Thank you.
spk10: Yeah, so I think, Kristen, if we look at the organic, again, excluding TRIMBLE, we expect to see the, I would say, the North American markets probably down right around 10% for the full year. So a little bit better if they were down 21% in the first quarter. So call that sort of mid-single, upper-single digits for the balance of the year. Europe, after the strong first quarter that we saw here, I would tell you relatively stable year over year, other than that fourth quarter. Remember, we had a record fourth quarter with Europe. We don't see that repeating given the state of the market. So I would say Europe will likely be down sort of that mid-single digit for the full year. A lot of that though concentrated in the fourth quarter year over year comp. Asia-Pacific, relatively flat as we move through the year here off the big decline here in the first quarter, we see that stabilizing through the balance of the year. And then South America, again, big decline here in the first quarter. We expect another large decline year over year in the second quarter, and then a decline in the third quarter, and then again, laughing at what hopefully is an easier comp, seeing growth returning back in the fourth quarter. But I would put the sales in South America down at around 20% for the full year. And that sort of gets you to our negative 9% or so, what we're looking at organically here for the company.
spk04: Okay, thanks for that, Damon. And then you didn't mention this in the prepared remarks, but I was wondering if you could address the 8K yesterday regarding your commercial relationship with Taffy. Just provide us some of the background, any terms related to the termination and just the strategic rationale there.
spk10: Yeah, so thanks for the question, Kristen. You know, nothing, I guess nothing significant other than, you know, again, Taffy, as you know, is one of our critical suppliers to us last year. We purchased about $172 million of low horsepower tractors that we sell in other parts of the world. And, you know, like any supplier relationship, we work through them on how they're performing. And we've had multiple communications with Taffy over the years on our supplier expectations of them. And, you know, we basically got to a point where we worked with them and, you know, we needed to give them notice that we were going to take a different path to source these low horsepower tractor from a different supplier at some point in time in the future. So we followed the ordinary course. I would tell you, Kristen, we did this as we would treat any, you know, important strategic supplier relationship with, you know, significant communications over the last several years, outlining expectations. But at some point, as we think about the farmer's demand for our products, the dealer's needs for certain products around the world, you know, we felt this was in the best interest of ADCO and our farmers and our dealers to make this
spk08: change. Great. Thank you so much.
spk06: Thank you. We have our next question from the line of Stanley Elliott from Stiefel. Please go ahead.
spk13: Hey, good morning, everybody. Thank you for the question. Can you talk a little bit more about what you're seeing in Europe? You know, curious, I guess, kind of how much of this margin is maybe mixed versus some of the manufacturing improvements you all have had going on over there?
spk10: Yeah, I think, Stanley, I sort of... Europe is maybe a little bit a tale of two cities there. You know, our FENT product line has done exceptionally well. We've seen good pricing and I would say some very strong mix coming out of Europe. Again, we got the new 600, and we have the next generation 700. So seeing some very good performance, good share capture by the team. Our FENT EME team has done phenomenally well in gaining share in the European region as well. So I would say that part of the business has done quite well. As the industry has weakened there, I would say we're seeing more pressure on the more volume-orientated brands in Europe. So Massey Ferguson and Vultra, although doing OK, I think they were a little bit more subject to the market weakness. And so, again, overall, the markets are weakening, but FENT continues to perform exceptionally well at that value proposition that those farmers see as being rewarded right now.
spk13: And just, I guess, a point of clarification. So the $300 million that's going to come from Tremble this year, those are only the sales to Agco, and that kind of strips out, you know, sales to other parties that Tremble used to sell to. And then if that's the case, at what point, or can you help us with kind of a timeframe when you think you recoup some of those sales?
spk10: Yeah, so, Stanley, I think it's just a little bit more of the inverse. So the $300-plus million of sales that I showed on the slide are to sales to everyone excluding Agco. We do, there is some sales, and if you looked at the 8K that we filed about a month ago, you would have saw that last year there was about $35 million of sales that the Tremble JV would have sold to Agco because we now consolidate that business. Those numbers are stripped out as part of the corporate eliminations. And so the $300-plus are all third-party sales. So, again, similar as we talked to Wall Street about our precision ag business, as you know this well, we talked about two pieces of that business. We talked about the precision planting, the retrofit third-party sales. That's usually been about half of the number. And then we talked about our fuse business, which is the OE sales that we're selling the high technology into Fent, into Massey, into Vulture. Same thing that we're going to have to communicate to you guys now about PTX Tremble because we'll continue to make the sales third-party. And again, that's $300 million-plus, but there will be a growth in the Agco sales that you won't necessarily see in that number. So we'll have to give you that similar overview of sort of what's the combined number versus what's in the reported number.
spk08: I hope that makes sense. Thank you.
spk06: We have our next question from the line of Tammy Zecharia from JP Morgan. Please go ahead.
spk03: Hi, good morning. Thank you so much. So just want to understand the guide a little better. I think you're excluding PTX Tremble that you expect about $300 million-plus. The core business, the new guide suggests like it's down by almost $400 million versus the previous guide. So can you just help me understand the buckets of this guide down? How much is North America versus South America versus if there's any effects in there? So really trying to understand what's the delta between the current and previous outlook for the core business X Tremble.
spk10: Sure. No problem, Tammy. So we went from $13.6 to $13.2 on the core business. I would tell you, just call it worth around about $150 million of that is related to the currency weakness, give or take. You got about $200 million related to the change in the South American market. And then the delta would be the pricing coming down from about one and a half percent down to around one percent. Those are the three big buckets.
spk03: Got it. OK, thank you. And then I saw the presentation. I think you're expecting high 20 percent ebit margin from from the Tremble PTX Tremble, which I would think is a little lighter than what Tremble as a standalone company used to do. Again, I know probably sales are down this year, but can you just help me understand, you know, what drives that high 20 percent ebit margin and where do you eventually see it going as, you know, hopefully the ag market recovers at some point?
spk10: Yeah. So again, Tammy, you know, what we're showing you is the revenues excluding agco or agco sales. So keep that in mind again, last year, that was $35 million. So if I think about what we said is Tremble or PTX Tremble margins in the high 20s, if you look at what we showed in September, we would have showed an ebit margin in the low 30s. So again, I think if you add in about five million of depreciation, these numbers do reflect some TSA costs. And we're doing a transitional services agreement with Tremble. So there's a few million dollars embedded in these numbers. You know, that'll work its way out of the system over the next couple of years as we start to integrate them more into our system. So that'll help pick up, you know, the margins there. And then again, with the revenues coming down, again, you're losing some of that leverage, which is depressing the margins a little bit. And then again, I would layer in if again, $35 million of good margin business with no real change in the SG&A cost is what's bringing the margins down a little bit as well. So, you know, overall, when we look at the products, we look at the gross margin of what we're selling them in the marketplace, we feel really good about it. And then we start to talk about the synergies and the revenue growth as we integrate that more into the ADCO portfolio here going forward.
spk08: Thank
spk06: you. The next question is from the line of Mick Dobber from RW Burt. Please go ahead.
spk02: Yes, thank you. I also want to follow up on this on this TrimbleJV. Look, you know, maybe I'm a little bit confused here, but using the information that you put out in the AK about a month ago, it strikes me that the margins that we saw there, the operating margins for the TrimbleJV were a little bit lower than the high 20s that you're talking about here. So when I'm kind of looking at what's going on in terms of volume compression and obviously the fact that the CNH business is going away from Trimble, I'm kind of curious how to square to that 300 million revenue guide that you provided, but also to the high 20s margin here. So what assumptions are you making on on the core Trimble revenue and on the CNH related business in these
spk10: numbers? Yeah, so, Meg, I guess when I think about the the AK where we publish the standalone financial statements again, I think it's important to remember that this was a segment or a portion within the Trimble business that they were reporting. And as they went through or as we created with Trimble, the standalone costs, there were certain allocated costs that were applied to create in theory, the pro forma of that business that we filed in that AK. That doesn't necessarily reflect all of the costs that we have taken over as part of the business or costs that we would incur because we'd be able to leverage many of our operating resources. And so, again, it was trying to create the goal that AK is to create a standalone financial statement for what that business, which was included some of the allocated costs that Trimble would not have shown or that we would not have shown in the when we did the announcement back in September, but are not actually reflective of the ongoing cost structure. So hopefully that explains when we give you the numbers that we're talking about. Right now, it's the business that we're controlling the cost structure that we see in the business. We see the revenues right now for the balance of the year. And again, that's for the remaining three quarters. We see that being about three hundred million dollars. We do see the CNH business coming down again. If you looked at the revenue in that AK, we said the revenues were just over five hundred million dollars or right around five hundred million dollars. When you layer in the first quarter of what Trimble will ultimately announce related to this business, directionally, let's say you're going to see about the numbers coming down around one hundred million year over year, which is not surprising because when we think about that, our markets have come down since our initial announcement have come down around 10 percent. So you have around 50 million dollars of revenue related to lower market. We do expect the CNH business to come down. We talked about that in September. We continue to expect that. I would say that's probably going to come down, you know, directionally, 40 million dollars or so year over year. And then the rest of the number is a little bit of the churn that we knew in the CNH dealer channel as they were beginning to either sign up with Trimble as a vantage dealer or if they were going to be going elsewhere. And so, again, we look at the numbers, the decline year over year, we look at the margins. Again, we still see this to be a great business. And again, we feel comfortable with these high 20s operating margin and growing as that volume continues to come back
spk08: here over the next couple of years. Thank you.
spk06: The next question is from the line of Jerry from Goldman Sachs. Please go ahead.
spk01: Thanks, Cleon for Jerry. As a follow up to that on the CNH dealers, are you seeing, you know, signups for those? How can you just update us on the progress for signups for those to become the advantage dealers or, you know, is there still some D stock in it as we look forward? Thanks.
spk10: Yeah, Clay. So I think, again, the relationship with CNH and Trimble, you know, they made that change long before the announced joint venture between us and them. And again, they had had some very good success in signing up many of these dealers to begin to sell the Trimble products directly. We've continued to see good momentum as the sales teams have been out with the dealers as, you know, some of our team members now over the last one month have begun to work with the Trimble team as well in working to update and connect with these dealers about the value and the benefits of the PTX Trimble products. And again, really no change in how we're approaching this with our precision planting business. You know, we're very much focused on the farmers and servicing all makes in all models. So our precision planting group is very much similar to what the Trimble group had been. And the key for us and not for the dealers is that, again, we want them to be able to service the farmers the way the farmers want to be serviced. And whether that's with a competitive product or an ad co-product, you know, we're agnostic to that. We're there to service them, make them more productive, drive their yields, reduce their input costs and make them more profitable. So I would say we're seeing good momentum. Obviously, the market environment is a little bit more challenged. Farmer incomes in many parts of the world are lower this year than they were last year. So you're seeing a little bit of hesitation, more just on farmer spending. But I would say the momentum that we're seeing with our team now engaging with the PTX Trimble team has been very good. And the engagement from the dealers has been very good as well. Again, we still have to work through some of the history of how many of these dealers receive their Trimble product, because that would have come directly from the OE. And as this now transitions from the JV, we would continue to expect a little bit of churn here in the first half of this year and then hopefully normalizing as we move into the back half of the year.
spk01: Thanks. And separately, you have an update for us on the just the GSI portfolio review timing and what the last 12 months EBITDA has been. Thanks.
spk10: Yeah. So, you know, we continue to be under the strategic review of the grain and protein business units. Significant amount of external interest on this. And also the team continues to execute exceptionally well as we started the first quarter. You know, what we've what we've historically said is the EBIT margins for this business, you know, are sort of in that mid single digits. Again, credit to the grain and protein team. They've done exceptionally well and, you know, had a great first quarter here. So I think we'll be in a position to sort of come to a final conclusion on that sort of in the summer here of this midsummer time frame.
spk08: Thank you.
spk06: The next question is from the line of Chad Dill from Boonstein. Please go ahead.
spk12: Hi, good morning, guys. So my question is on the change in pricing guidance for twenty four. I just want to get a sense for what you're seeing from a regional standpoint. With all the change driven by South America or other regions, we saw a pullback. And then specifically for South America, how should we think about the cadence of pricing from one key through the balance of the year?
spk10: Yeah, I think Chad, the pricing system is really important. It's going to be pretty much across the board. I wouldn't say a little bit, you know, heavily weighted here in the first half as we start to lap some of the comps, especially in South America in the second half, I would say again, it's a little bit more concentrated in the volume orientated brands. If I had to weight it between Fent and Massie and Valtra. But generally speaking, it's it's across all of the all of the regions here.
spk12: Gotcha. That's helpful. And then second question on your legacy Agco precision planting business. What was the the year on year change in revenues in the first quarter? And what are you embedding in your guidance for the full year for that business?
spk10: Yeah, so if I look at precision Ag revenue, it was flat year over year. If you remember the first quarter last year, we were still coming off the very strong momentum supply chain challenges. So the revenues were flat year over year at just around 200 million. And that's inclusive of the fuse business. So, again, I think from a similar to the prior one, the earlier questions that both the retrofit sales as well as what we would term the internal few sales. That was around 200 million dollars. We still expect sort of I would say mid single digit growth in that business. And again, we talked about helping dampen the earnings of our business through the cycles precision. Our precision Ag business is doing really well. The aftermarket or that retrofit, we see that continuing to grow despite the part of the business. So good momentum, great margin business. And I would say sort of that mid single digits continue to expect mid single digit growth here for 2024 for that particular business.
spk06: Thank you. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Eric and Zoria for any closing remarks.
spk11: Yeah, I'll close today by saying that there's never been a more exciting time to be in the agricultural business. Technologies transforming how farmers operate and providing them with the potential to produce more food and more resource efficient ways, a critical need given the world's expanding population. AGCO's farmer first focus centers on helping them realize this potential, enables them to operate more profitably and sustainably. The key to our success is the continued execution on our farmer first strategy. Our focus is on growing our margin rich businesses like Fent. In fact, I was just up at the launch of the Fent Lodge, our brand home in North America, and we had unbelievable excitement by farmers and dealers about that brand and how it can grow, continue to grow into the future. Secondly, our parts and services business. And third, our precision Ag business, which we've been investing in heavily in the last few years. In April, we reached a major milestone in our company's history by closing the PTX Trimble Joint Venture, which creates an industry leading global mixed fleet precision Ag platform to better serve farmers and original equipment manufacturers. Over the last few quarters, we've touched on many factors supporting our markets, including growing populations, changing diets, low stocks to use levels, increased demand for biofuels and relatively healthy commodity prices. All these trends give us confidence in the long term health of our industry. I'll finish where I started. Our financial outlook reflects my confidence in the team and our strategy. Despite weaker industry conditions, we continue to execute on investing in the future, delivering market share gains and staying nimble on our costs. All these will help position us to deliver the second highest level of adjusted operating margin in the history of our company, despite meaningfully weaker market conditions year over year. We look forward to seeing you at the upcoming
spk07: technology
spk11: event
spk07: in June. Thank you and have a great day. Thank you. Thank you
spk06: for joining the ACCO
spk07: first
spk06: quarter 24-24 earnings call. This call has concluded. Have a nice day.
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