AGCO Corporation

Good day and welcome to the AGCO first quarter 2025 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 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, and good morning. Welcome to those of you joining us for AGCO's first quarter 2025 earnings call. We will refer to a slide presentation this morning that's posted to our website at www.agcorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of that 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. and timing of those plans and our expectations concerning the costs and benefits of those plans and the timing of those benefits. We'll also cover revenue, crop production and 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 benefit. difficulties in integrating the PTX Trimble business in a manner that would produce 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 and in a manner that produces the 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 ACCO's filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2024. ACCO disclaims any obligations to update any forward-looking statements except as required by law. We will make a replay of this call available on our corporate website later today. On the call with me this morning is Eric Ansodia, 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, and good morning to everyone on the call. I'm pleased to announce AGCO delivered solid results in the first quarter in the midst of a very challenging industry and an uncertain and evolving trade environment. We achieved over $2 billion in net sales, down approximately 30% compared to quarter one, 2024. The lower net sales are a result of continued soft demand in the ag market, coupled with our efforts to destock dealer inventories, as well as the impact of the divestiture of the grain and protein business. Excluding last year's grain and protein results, sales declined by about 25%. Consolidated operating margins were 2.4% on a reported basis, and 4.1% on an adjusted basis, reflecting decremental margins in the low to mid 20% range. This reflects the strong performance from our teams around the world. They are executing on our sales plans as well as on the restructuring actions. We achieved these decremental margins despite a 33% reduction in production hours versus quarter one, 2024, as we look to better align dealer inventories. We've made headway lowering both working capital and dealer inventories, which were down across all regions. Our working capital progress showed up in our cash usage for the quarter, which was significantly improved compared to the first quarter of 2024. Sentiment in Europe, as measured by the SEMA index, is on an upward trend. Europe currently represents the majority of Agco sales and should help mitigate the adverse impact of the U.S. trade policy on our financials. Geopolitical uncertainties and trade friction have dampened U.S. farmer sentiment recently, and as a result, demand for machinery was lower in the quarter than we had expected. Despite higher net farm income forecasts related to government aid, margins for U.S. farmers remain tight due to high input costs and reduced export demand. On the flip side, South American farmers are expected to expand global share in key commodities over the next year due to trade policies. Our top priority during the geopolitical uncertainty is to take care of our farmers. We want to be there to help them be more productive and more profitable by leveraging our industry-leading solutions. We will continue to monitor the rapidly changing tariff policies and implement pricing actions or supply chain adjustments where it makes sense and is feasible. ECHO continues to focus on its three high-margin growth levers by investing in key strategic markets and products. including smart farming solutions and enhanced digital capabilities to help deliver more resilient and higher earnings across the ag cycle. Our financials continue to be weighted toward the second half of the year as we expect the market to find bottom and start recovering along with optimizing dealer inventories. Slide four details industry unit retail sales by region for quarter one, 2025. Global industry retail sales of farm equipment remain challenged in North America and Europe with some early signs of recovery in Brazil. In Western Europe, industry retail tractor sales decreased 17% during the first three months of 2025 compared to the first three months of 2024. You'll recall that last year at this time, we were still seeing relatively strong demand. Industry demand is expected to remain soft in 2025, as lower income levels pressure demand from arable farmers, while healthy demand from dairy and livestock producers is expected to mitigate some of the decline. North America industry retail sales decreased 14% during the first three months compared to the first three months of 2024. Sales declines were relatively consistent across the horsepower categories, with higher horsepower categories declining more in recent months. Combine unit sales were down 46%, compared to the same period in 2024. Uncertain demand for grain exports and higher input costs are expected to pressure industry demand in 2025, leading to weaker North American sales compared to 2024, particularly in large equipment. Brazil industry retail sales increased 11% during the first three months of 2025 compared to the first three months of 2024, primarily in the smaller tractor categories. While the U.S. may face reduced market access for key exports, Brazil is likely to ship more to China, which should help the industry recover faster. Despite record soybean harvests and potential trade benefits, we haven't seen meaningful improved demand for larger equipment yet. If increased trade benefits, farm economics, we could see improved demand later this year. For now, we expect industry demand in Brazil to improve modestly in 2025. Regardless of the near-term trade environment, AGCO will benefit from the long-term growth of the agricultural equipment segment, thanks to market expansion stemming from population growth and a middle class with diets that consist of greater amounts of protein. Our tech stack has been evolving significantly over the past few years and allows us to provide farmers with the differentiated precision ag solutions needed to raise yields and meet the world's growing agricultural needs. AGCO's factory production hours are shown on slide five. To improve comparability, we have eliminated grain and protein production hours from the 2024 hours shown here. Significant production cuts were made in all regions in quarter one, 2025, with the biggest reductions occurring in North and South America. Our production hours were down approximately 33% in quarter one, 2025 versus quarter one, 2024. 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. As I mentioned earlier, we have made progress in destocking the dealer channel in the first quarter, but 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 declines. our plan remains front-loaded and aggressive to get inventory right-sized quickly. Our current outlook for 2025 assumes production in North America and South America will be less than retail demand. Diving into regional breakdowns, in Europe, dealer inventory reduced modestly to just under four months, which is in line with our target. Fent is still below this average, and Massey Ferguson and Valtra are slightly above. Our near target dealer inventory level in Europe remains a positive for AGCO given significant exposure to this region. In South America, we reduced the number of units on hand at dealers by 7% from the quarter four 2024 level, reducing the months of supply from around five months to approximately four. Given the forward outlook, this is still above our targeted level of three months. We still anticipate to underproduce relative to retail demand in the second quarter to further reduce dealer inventory levels. Similarly, in North America, we further reduced the units on hand at dealers by approximately 1% in total from quarter four 2024 levels. This is still approximately eight and a half months of supply versus our six-month target. However, this modest change is reflective of good momentum in large ag, where we reduced inventory by around two months and around 7% on a unit basis. This solid progress was offset by the normal seasonal position for small ag equipment entering the peak selling season for dealers. Given the continued challenging outlook in 2025, we currently expect to underproduce to retail demand into the third quarter. 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 we are a much stronger company that has less variability throughout the business cycle. Higher mid-cycle, but also higher highs and higher lows. To reiterate our 2029 growth lever targets, we discussed at our analyst meeting last December, number one, the globalization and full-line product rollout of our front branch. where we now expect North and South America Fed revenues to reach $1.7 billion. Number two, growing our precision ag sales to $2 billion globally. 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. Agco's continued strong investment in R&D has been recognized by numerous global organizations with awards. and illustrates how we innovate to put farmers first. On slide seven, you'll see a few of the products that have won prestigious awards recently. Each aimed to help farmers improve their profitability through lower costs or increased yields, while also focusing on the ease of use and operator comfort. The first is our PTX Trimble OutRun Retrofit Autonomy Kit, which was awarded the esteemed Davidson Prize for the absolute most innovative products of the year. OutRun is the first commercially available autonomous retrofit grain cart solution on the market and is recognized for its ability to help farmers maximize yield and combat the labor shortage many farmers are facing around the world. This is just the first of several retrofit autonomous solutions being developed by the PTX team. The Valtra S series, which was the brand's flagship product, has won three major design awards in just a few months since launch. A Good Design Award, an IF Design Award, and now the prestigious Red Dot Award for Product Design. This hat trick has never before been achieved by any tractor brand. Red Dot judges were so impressed with the S-Series design and attention to user experience that they awarded the tractor the Red Dot Best of the Best Award. This special recognition is the highest distinction in the competition and is only awarded to the truly pioneering designers. Finally, the Massey Ferguson 5M Series Tractor was awarded with its own Red Dot Award for product design. This affordable and versatile tractor was recognized by judges for its straightforward and accessible features, high performance and efficiency with the best value for price. I want to take a moment to thank the teams that earned these awards, helping Agco deliver on our vision of being a farmer's trusted partner for industry-leading smart farming solutions. Now I'll hand it over to Damon to walk you through some of the financials for the quarter.