AGCO Corporation

Good day and welcome to the AGCO fourth quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please see your conference specialist for 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 would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations.

Thanks, and good morning. Welcome to those of you joining us for AGCO's fourth quarter and full year 2024 earnings call. We will refer to a slide presentation this morning 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 the presentation. We will 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, the timing of those plans, and our expectations concerning the costs and benefits of those plans and timing of those benefits. We'll also cover future revenue, crop production, farm income, production levels, price levels, margins, earnings, operating income, cash flow, engineering expense, tax rates, 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, tariffs, weather, commodity prices, changes in product demand, 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, difficulties in integrating the PTX Trimble business in a manner that produces the expected financial results, introduction of new or improved products by our competitors and reductions in pricing by them, the war in the Ukraine, difficulties in integrating acquired businesses and in completing expansion and modernization plans on time in a manner that produces expected financial results, and adverse changes in the financial and foreign exchange markets. Actual results could differ materially from those suggested in these statements. Further information concerning these and other risks is included in AGCO's filings with the Securities and Exchange Commission, including Form 10-K for the year ended December 31, 2023, and subsequent Form 10-Q filings. AGCO disclaims any obligation to update any forward-looking statements except as required by law. Later today, we'll make a replay of this call available on our corporate website. On the call with me this morning is 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, and good morning. Earlier today, AGCO reported fourth quarter results for 2024, where we delivered a strong 9.9% adjusted operating margin and $1.97 in adjusted earnings per share on sales that were down 24% from quarter four last year. On a full year basis, we achieved an 8.9% adjusted operating margin and $7.50 in adjusted earnings per share on sales that were down 19% from 2023. The adjusted operating margin performance is by far our best performance in an industry downturn. What makes it more impressive is that the North American industry decline in 2024 was the worst single-year decline since the downturn in 2009 associated with the financial crisis. Our margin resiliency in this challenging environment is clear evidence that we have structurally improved the company through our ongoing transformation efforts over these past years. I want to take a moment to thank the AGCO team around the world for delivering such strong results for the year. Despite a challenging and dynamic macroenvironment, and at the same time with significant portfolio shifts that occurred in our business. The organization teamed up and put farmers first, reinforcing AGCO as the most trusted partner for industry-leading smart farming solutions. 2024 was a transformative year for AGCO. We closed the largest ag tech deal in our industry's history with the PTX Trimble joint venture. And we also exited a non-core part of our business, by divesting the majority of the grain and protein business. These portfolio changes helped us enhance our strategic ambitions and allow AGCO to focus on agricultural machinery and precision ag technology. These strategic changes will also provide margin tailwinds for us over the long term, as we outlined in our analyst day in December. On the precision technology side of our business, we combined all our brands under the newly launched TTX brand so that we can swiftly unlock synergies across the enterprise and grow precision ag sales to $2 billion by 2029. We have already demonstrated tremendous progress in 2024, where we now have over 1,000 PTX dealers, all while continuing to foster relationships with over 100 OEMs. Looking into the future, we know our independent retrofit dealer network is an absolute key differentiator for us that provides unmatched product expertise, and support to farmers regardless of the equipment brand they prefer. Autonomy, targeted spraying, and off-board technologies will become more mainstream in the coming years. AGCO is poised to partner with farmers at any point in their technology journey. The depth of our product portfolio and unique consultative go-to-market approach allows us to offer a wide variety of products for any brand and vintage of machinery, and this is a very difficult thing to replicate. In addition, given our farmer-first focus, we also rolled out our Farmer Corps initiative in 2024 and further streamlined our distribution network by partnering with some of the greatest dealers so that we can best serve farmers on farm, online, or on-site at the dealership the way they want to be best served. The Fed portfolio in North America comes with an industry-leading uptime commitment, and our Farmer Corps strategy is designed to help deliver that uptime. We expect vent coverage in North and South America to continue its growth trajectory and reach approximately 82% in 2025 through these continued efforts. The quarter wasn't without challenges, however. Dealer inventories remain higher than target going into 2025. On a weighted average basis, we have between one and one and a half months of excess dealer inventory to work through. To address this, we are planning to significantly underproduce retail demand again in 2025. Although we anticipate further declines in large ag machinery volumes in 2025, recent sentiment surveys and many of our recent interactions with farmers show a sense of cautious optimism that is an improvement from where we were just six months ago. Recent positive news around the stocks-to-use ratios and commodity price rallies have improved farmers' expectations about future profitability. The byproduct of this is a back-half-weighted outlook for agco. To best position ourselves in this environment, we anticipate more significant production cuts in the first half of the year, offset by modest growth in production hours in the back half as we lap easier comparables. Finally, we will see cost savings begin to materialize in earnest around mid-2025 as our right-sizing transformation initiatives begin to manifest in the P&L. We expect these efforts to mitigate some of the weak industry demands. Despite a lower sales forecast and significant underproduction, we expect higher and more resilient margins compared to past cycles due to the structural improvements in our business. Slide 4 details industry unit retail sales by region for 2024. Global industry retail sales of farm equipment continue to be weak in all of AGCO's key markets. We expect the bottom of the cycle to occur in 2025. North American industry retail tractor sales decreased 13% during 2024 compared to the previous year. Sales declines were relatively consistent across the horsepower categories with higher horsepower categories declining more in recent months. Combine unit sales were down 22% in 2024 compared to 2023. Lower projected farm income and a refreshed fleet is expected to pressure industry demand even more in 2025. resulting in weaker North American industry sales compared to 2024, particularly in larger equipment. Brazil industry retail tractor sales decreased 4% and combine sales decreased 33% during 2024 compared to the previous year. Farm acreage in Brazil increased only modestly in 2024 after five years of more significant growth. Lower commodity prices, rising farmer debt, and reduced demand from China created caution among Brazilian farmers. Industry demand is expected to remain effectively flat in 2025 due to mixed market dynamics. As with other cycles, industry demand will recover. It's a matter of when, not if. Agco will benefit from the long-term growth of the agricultural equipment segment thanks to a growing population and a middle class with diets that consist of greater amounts of proteins. With the actions we took in 2024, our consistent farmer-first focus, we have positioned ourselves very well to capitalize on the growth of precision ag that is needed to raise yields and meet the world's growing agricultural needs. Agco's factory production hours are shown in slide five. We have eliminated grain and protein production hours from 2024. Significant production cuts were made in all regions in quarter four, 2024. with the biggest reductions occurring in South America and North America. Given the continued weakening industry conditions, we reduced production hours even more than we planned, as sales in the quarter were below our expectations. Our production hours were down approximately 33% in the quarter 4, 2024, versus low levels in the quarter 4 of 2023, and down approximately 28% on a four-year basis versus the year of 2023 at a global level. We remain laser focused on reducing dealer inventories as quickly as possible in 2025, given the current soft demand environment and elevated dealer inventory levels. Sequentially from quarter three to quarter four, 2024, we saw modest reductions in dealer inventory, but we still have work to do primarily in North America and South America. We are projecting 2025 production hours between 15 and 20% lower than 2024. with the North America region showing the biggest decline. We expect quarter one 2025 production hours to be down between 35 and 40% versus quarter one of 2024. Our plan is front loaded and aggressive to get inventory right sized quickly. Our current outlook for 2025 assumes North America and South America will result in production less than retail demand, at least through the first half of 2025. Diving into the regional breakdown, In Europe, we ended 2024 with dealer inventories at just over four months of supply, effectively in line with where we'd like. Fent is under this average, and Massey Ferguson and Vulture are slightly above. The near target dealer inventory level in Europe is a real positive for AGCO, given the significant exposure to the region. In South America, we reduced the number of units on hand at the dealers by over 8% from quarter three level. However, given the forward outlook, dealers are still holding around five months of supply versus our targeted level of three months. We anticipate underproducing retail demand at least through the first half of 2025 to further reduce dealer inventory levels. Similar, in North America, we reduced the units on hand at the dealers by approximately 7% from quarter three levels. However, given the challenging outlook in 2025, we are still approximately nine months of supply versus our six months target. The current environment will result in a significantly lower production levels, at least for the first half of 2025. Moving to slide six, where you'll see our three high-margin growth levers aimed at improving our mid-cycle operating margins to our new target of 14% to 15% by 2029 and outgrowing the industry by 4% to 5% annually. This demonstrates that we are a much stronger company that has less variability throughout the business cycle. Higher at the mid-cycle, but also higher lows and higher highs. To reiterate, these three growth levers are, number one, the globalization and full-line product rollout of our Fent brand, where we now expect North and South America Fent revenues to reach $1.7 billion by 2029. Number two, growing our precision ag sales to $2 billion globally by 2029, And number three, focusing on accelerating our global parts business and increasing the market share of genuine Agco parts to achieve approximately $2.3 billion in global sales by 2029. We rolled these new targets at our recent analyst meeting in December, and we appreciate those who were in attendance. Moving to slide seven, you'll see a recap of Precision Planting's 2025 Winter Conference. That's one of my favorite events every year. I just never miss it. This premier event attracted over 4,000 farmer attendees from across the globe. The objective is to help farmers learn strategies and technologies that will help them efficiently and productively improve their operations, and they can all be implemented immediately on their farms. The conference also gives them opportunities to connect with other farmers and experts to share knowledge. One of the highlights from the event included an update on our Symphony Vision targeted spray system, which will begin deliveries in quarter one of 2025. As you'd expect from us and our Pharma First strategy, this technology can be retrofitted on all sprayers sold in North America in the last 10 years. We are going to the market with two tier of offerings. The first is Symphony Vision Rate, which allows farmers to leverage pulse width modulation technology with live vision variable rate control. The second is Symphony Vision Spot, which adds spot spray control of each nozzle. Farmers can grow into the technology at a pace they prefer simply by adding additional cameras for the full spot spray feature set. Farmers will own the technology with no per acre recurring charge, enabling them to control weeds in a cost-effective manner year after year while maximizing tax incentives in the year of purchase. Our unique Independent distribution network emphasized retrofit first through a hands-on approach where the dealers are seen as trusted advisors by the farmers. The depth of the precision planting portfolio coupled with the PTX Trimbles product lineup allows AGCO to offer absolutely the most comprehensive suite of technology hardware and services regardless of the make or year of equipment a farmer owns. AGCO's objective is to be the technology hub of the mixed fleet. This event is a testament to our unwavering commitment to innovation and shaping the future of the industry alongside our farmer partners. I couldn't be more excited about what's ahead. On slide 8, you'll see a familiar slide that highlights how our precision ag products can help farmers reduce every expense except land, where we can positively impact over 70% of the costs on a given farm. The value add and return on investment is clear for farmers. We're seeing increased adoption of technologies even in this challenged ag economy. Let's take electric drive planter rows and smart sprayer nozzles, leaving our factories as examples. In quarter four, we had electric drive planter rows approaching 90% take rate. Smart nozzles saw over a 50% take rate in quarter four, and we expect that to grow significantly with precision planting symphony nozzles. 2024 marked a significant milestone for AGCO's precision ag business. We brought together two powerful brands, Precision Planting, known for its innovation and farmer focus, and PTX Trimble. These two working in a fully integrated way as one powerful team to deliver market-leading precision ag technology focused on the mixed fleet. Through this integration, we have already made several changes to better position the business for success, including recent leadership changes to enhance the focus on driving innovation and winning across all brands and farmers. These improvements accelerate our ability to deliver on being the most farmer-focused precision ag technology company in the industry. We also made progress on transforming our technology stack with the PTX Trimble joint venture. We recently launched our OutRun Retrofit Autonomy Kit, and there's lots of excitement about it. While the long-term opportunity is attractive, there are some near-term dynamics impacting the business. As we indicated at our analyst meeting, sales and margin for PTX Trimble have been pressured given the rapid decline of the broader industry and the ongoing distribution transition. Related to the softness, we have taken a goodwill impairment charge in quarter four, which Damon will cover in more detail shortly. Despite this, we know this was absolutely the correct strategic move and will continue integrating, innovating, and growing the PTX portfolio of products and services to hit our 2029 sales target of $2 billion. The short-term market environment has no effect on the strategic value of this asset and our confidence in achieving our $2 billion sales target. Helping PTX accelerate development and deploying industry-leading solutions for farmers around the world will be one of my top priorities in 2025. I'll now hand it over to Damon to walk you through some of the financials from the quarter.