AGCO Corporation

Good day and welcome to the AGCO second 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, Agaco Head of Investor Relations.

Thanks, Zane. Good morning. Welcome to those of you joining us for AGCO's second quarter 2025 earnings call. We will refer to a slide presentation this morning that's posted on our website at www.agcocorp.com. The non-GAAP measures used in 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 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 the 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, interruptions in the supply of parts and products, the possible failure by us 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 reduction in pricing by them. 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 foreign 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 AGCA's filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31st, 2024, and subsequent Form 10-Q filings. ACCO disclaims any obligation to update any four lifting statements, except as required by law. We'll make a replay of this call available on our website later today. On the call with me this morning is Eric Hansodia, our Chairman, President, and Chief Executive Officer, and Damon Adia, Senior Vice President and Chief Financial Officer.

With that, Eric, please go ahead. Thanks, Greg, and good morning to everyone joining us today. We delivered solid second quarter results driven by disciplined execution in areas within our control, despite a challenging global agricultural landscape. Weak farmer economics and delayed purchasing decisions across several regions heavily influenced the uncertainty in global trade that impacted demand. Net sales totaled over $2.6 billion, down approximately 19% year over year, or 11%, excluding the grain and protein business we divested last year. This decline reflected continued softness in North America and Western Europe, coupled with our ongoing impact from reducing dealer inventories in several parts of the world. Despite the uncertain near-term outlook, we remain focused on executing our strategy, supporting our dealers and customers, and investing in technologies that will fuel long-term growth. We are closely monitoring evolving tariff policies in the US and in other parts of the world. As I said last quarter, we will try to limit the effects on farmers by trying to minimize increases through supplier discussions and other supply chain adjustments. We will implement price increases where appropriate and feasible. For the quarter, consolidated operating margins were 6.2% on a reported basis and 8.3% on an adjusted basis, reflecting strong decremental margins in the mid-teens. This performance highlights excellent global execution by our teams, who continue to deliver on our sales strategy and with a richer mix of products in several parts of the world, while simultaneously executing on our ongoing restructuring plans. Notably, we achieved these margins despite a 16% reduction in production hours compared to quarter two, 2024, as we are diligent in our efforts to align dealer inventories as quickly as possible. We made meaningful progress in reducing both company and dealer inventories. This discipline was reflected in our working capital improvements and free cash flow generation during the first half of the year. which was up nearly $400 million compared to the same period in 2024. In Europe, sentiment has been moving more positive for much of the past year. Granted, that improvement trend has paused in the last two months. As AGCO's largest and most critical region, Europe continues to provide better demand stability, strong consistent operating margins, and helps dampen the impact of U.S. trade policy on our financials. In North America, farmer sentiment remains cautious. Although government aid is expected to support higher net farm income, tight margins persist due to elevated input costs and reduced export demand. The uncertainty for farmers on several fronts has continued to weigh on the willingness to update their equipment. However, North America ag barometers continue to show relatively strong sentiments. On a more positive note, South America farmers are poised to expand their global share in key commodities over the next year, supported by favorable trade policies. Despite the near-term uncertainty in some markets, we continue to believe that 2025 will be the trough for the ag industry, with modestly higher demand in 2026 in all regions. Global tractor sales were the lowest last month of any time in the past 15 years, which supports our view of trough conditions. Turning to a couple AGCO-specific items, we recently announced the resolution with TAFE on all outstanding commercial, governance, and shareholding matters. This outcome was made possible through close collaboration with Sudarshan Venu, son of TAFE's chairman and managing director. This agreement was a very positive step forward for AGCO and its shareholders. This agreement paves the way for a more shareholder-friendly capital allocation strategy, including the new $1 billion share repurchase program that Damon will discuss shortly. AGCO's board and management remain fully committed to our Farmer First strategy, which we believe will enhance customers' outcomes, drive operational success, and deliver strong returns for shareholders. Slide 4 provides an overview of industry unit retail sales by region for the first half of 2025. The global farm equipment market continues to face significant headwinds, with North America and Western Europe experiencing the most pronounced declines. However, Brazil is showing early signs of recovery, supported by favorable trade dynamics coupled with the fact that they were the first of our major markets to experience the downturn. North America tractor sales declined 13% year-over-year, with consistent softness across the horsepower categories. Higher horsepower segments saw steeper declines in recent months. reflecting ongoing uncertainty around grain export demand and persistently high input costs. These pressures are expected to continue weighing on demand, particularly for large equipment. In Western Europe, tractor sales fell 12% in the first half of 2025 compared to the same period last year. This decline reflects more cautious farmer sentiment, driven by policy uncertainty and softening commodity prices. We are now in the fourth year of industry decline, which is longer than the typical European market downturns of past cycles. Turning to Brazil, tractor sales rose 6% in the first half of 2020-25, led by demand in lower horsepower categories. While the U.S. continues to face reduced access to key export markets, Brazil is well positioned to expand shipments to China, which could support a faster recovery. Despite record soybean harvests and a favorable trade condition, demand for larger equipment remains subdued due to the weaker crop prices. That said, we are seeing early signs of recovery in the broader ag machinery market and expect continued improvement in Brazilian industry demand through the remainder of 2025. And for combine sales, we saw declines across all three markets, North America, Western Europe, and Brazil, with North America experiencing the sharpest drop at 33% year-over-year. Despite these near-term normal industry challenges, AGCO remains well-positioned for the long term. Structural tailwinds, including global population growth, rising protein consumption, and increased demand for clean energy solutions like sustainable aviation fuel and vegetable oil-based diesel, continue to support our outlook. Although geopolitical trade actions may shift the source of grain supply, They do not constrain the global demand for green. Our evolving precision ag technology stack, with a focus on retrofitting almost any brand, provides a differentiated, competitive edge, helping farmers improve yields and meet the world's growing food needs. Slide 5 outlines Agco's factory production hours. To ensure year-over-year comparability, we've excluded green and protein production hours from the 2024 baselines. Quarter 2 production hours were down approximately 16% compared to Quarter 2, 2024. Regionally, production was down in Europe, up in South America, and down over 50% in North America, where we are hyper-focused on reducing dealer inventories. Looking ahead, we still expect full-year 2025 production to be 15% to 20% lower than the 2024 levels. For the balance of the year, we will effectively be producing in line with retail demand in most parts of the world, with the exception of North America, where we will continue to significantly underproduce as we continue to right-size our dealer inventories. Reducing dealer inventory remains a top priority in light of soft market demand and elevated inventory levels. We're in good shape for the second half of 2025 in Europe and South America, and further work is needed in North America. Looking at a regional inventory breakdown, in Europe, dealer inventory remains just under four months of supply, in line with our target. Fent is below this average, while Massey Ferguson and Valtra are slightly above. Overall, Europe's near-target inventory levels are a big positive, given AGCO's significant exposure to the region and its stability. Looking to South America, we made good progress, reducing dealer inventory to around three months of supply, with units down around 3% and months of supply down almost one month from March 31st. We are now at our target level. And in North America, dealer inventory units declined approximately 10% from quarter one, 2025, driven by significant production cuts. However, inventory remains elevated at around nine months of supply above our six-month target, given the lower outlook. Given the continued challenging outlook, we expect to underproduce relative to retail demand for the balance of the year in North America. Slide 6 highlights AGCO's three high-margin growth levers, which are central to our strategy to achieve mid-cycle operating margins of 14% to 15% by 2029, while also outgrowing the industry by 4% to 5% annually. These initiatives reflect AGCO's transformation into a more resilient and higher-performing company, one that is not only targeting stronger mid-cycle margins, but also delivering higher highs and higher lows across the business cycle, which we are clearly demonstrating these past couple of years. To reiterate the 2029 growth lever targets we shared at our analyst meeting last December, Number one, our Fendt globalization and full-line expansion centers on scaling the Fendt brand across North America and South America with combined revenues expected to reach $1.7 billion by 2029. Number two, our precision ag growth. For that, we are targeting $2 billion in global precision ag revenues, driven by our retrofit-first strategy and the integration of advanced digital capabilities that enhance farmer productivity and profitability. And third is our global parts expansion. We aim to expand our global parts business to $2.3 billion with a focus on increasing the market share of genuine AGCO parts and improving service penetration, leveraging our farmer core strategy. These three levers are designed to drive sustainable, high margin growth and position AGCO to deliver superior returns through the cycle. AGCO's continued strong investment in R&D has earned recognition from leading global organizations, reinforcing our commitment to innovation and our farmer-first strategy. Slide seven highlights two award-winning technologies that exemplify this approach, each designed to enhance farmer profitability through improved efficiency, yield, and ease of use. PTX OutRun is the world's only autonomous harvesting solution and was recently honored with a 2025 World Changing Ideas Award from Fast Company. It is the first commercially available autonomous retrofit grain cart system designed to help farmers maximize yield and address the global labor shortage. The OutRun kit enables autonomous grain cart operation and is currently compatible with competitive tractors, with Fent compatibility coming in 2026. This breakthrough represents a major leap forward in harvest efficiency, and smart farming. On the equipment side, you have heard me say before that Fent is the best of the best, and the Fent 620 Vario is another example. It continues to set new benchmarks in performance and efficiency. It achieved the absolute best-in-class fuel efficiency in the DLG power mix test, recording the lowest diesel consumption in the 165 to 240 horsepower category. Thanks to its VarioDrive transmission and Fendt low engine speed concept, the 620 Vario delivers unmatched efficiency and performance. Profi Magazine also praised the tractor for its exceptional field and road capabilities. These achievements are just a couple of the examples that reflect AGCO's commitment to delivering smart, farmer-first solutions that drive profitability, sustainability, and ease of use. I'd like to take a moment to recognize and thank the teams behind these innovations. Their efforts are helping AGCO fulfill its vision of being a farmer's trusted partner for industry-leading smart farming solutions. On slide eight, you can see the details of our 2025 Tech Days in Germany. We're looking forward to showing off our PTX portfolio and how it will solve farmers' problems in late September. The key to delivering better customer outcomes for our farmers is our precision ag business. The performance of our PTX business is improving across many areas. We've been hitting our financial and operational forecast consistently over the last few quarters. Our margins, although at trough levels, are improving. We are seeing strong growth in channel signups of dealers and are growing strongly throughout the world. The conversion to PTX Trimble guidance receivers on echo machinery is almost complete. And our innovation engine is firing, with the team on track to exceed more than 10 innovations in 2025, well ahead of plan. We hope you will join us and look forward to seeing you there on a hands-on and up-close experience. Now I'll hand it over to Damon to walk you through some of our financial results from the quarter.