AGCO Corporation

Good day, and welcome to the AGCO 2025 Fourth Quarter Earnings Call. All participants will be in a 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 touchtone 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, ADCO Head of Investor Relations. Please go ahead.

Thanks, Sam. Good morning. Welcome to those of you joining us for ADCO's fourth quarter 2025 earnings call. We will refer to a slide presentation this morning that's posted on our website at www.aggocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures 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 our financial impacts. 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 forward-looking statements are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks are further described in the safe harbor included on slide two in the accompanying presentation. 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 SEC, including its Form 10-K and subsequent Form 10-Q filings. AGCO disclaims any obligation to update any forelooking 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, as well as Damon Adia, our Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead. Thanks, Greg, and good morning to everyone joining us today. We closed the year with another strong quarter, delivering an adjusted operating margin of 10.1% on fourth quarter net sales of $2.9 billion, which were up 1% year over year, or up nearly 4%, excluding the grain and protein divestiture. EEN continued to be a powerful driver, delivering 8% growth and extending its multi-quarter record of strong performance. On a full-year basis, we delivered a 7.7% adjusted operating margin. Adjusted earnings per share were $5.28 on sales of $10.1 billion, reflecting a 13.5% decrease versus 2024, or just 7%, excluding the divested grain and protein business. These results highlight the disciplined execution of our global teams, driven by our three high-margin growth levers, sustained cost discipline, and the positive impact of our multiyear structural transformation. We operated at intentionally low production levels, and despite a soft market environment that weighed on industry demand, we ended the year with significantly lower company and dealer inventories compared to 2024, a favorable outcome that strengthens our position and demonstrates meaningful progress. Our adjusted operating margins are among the best in AGCO's history and the strongest we've ever delivered at this point in the cycle. We have nearly doubled our adjusted operating margins from prior troughs and are close to prior industry peaks, clear evidence that AGCO has structurally changed to a higher performing and more profitable company. I want to thank the AGCO team for their disciplined commitment and impressive execution throughout the year. Their agility allowed us to maintain solid performance, repeatedly exceed our expectations, and continue advancing our farmer-first priorities. Building on the transformational actions taken in 2024, including the formation of the PTX business and the divestiture of the majority of grain and protein business, 2025 was a year focused on advancing our strategic ambitions in agriculture machinery and precision ag technology. Our redefined portfolio and focus are where AGCO wants to be, poised to continue serving farmers and investors better than anyone else when demand strengthens. Our PTX brand continued to gain significant momentum. During 2025, we introduced 14 new products across the crop cycle, expanding the industry's most comprehensive retrofit precision ag portfolio. We also made substantial progress expanding our dealer network, ending the year with more than 70 global PTX Elite dealers, more than doubling the amount from the start of the year. These dealers sell both precision planting and PTX Trimble products, enabling us to broaden product coverage and deepen customer engagement. This independent retrofit network focused on the mixed fleet remains an absolute clear differentiator, providing the comprehensive product expertise and the broad equipment compatibility that today's farmers require. These PTX Elite dealers are supported by more than 300 Fendt, Massey, Ferguson, and Vulture equipment dealers, 200 C&H dealers, alongside continued sales to more than 100 OEM customers. This expanding footprint is strengthening our global market presence, increasing the number of farmers we can reach with our industry-leading smart farming solutions. Fendt delivered a standout year of market performance in almost every region, In North America, we gain large ag market share, underscoring the strength of Fent portfolio and the power of our team of experts and dealers. With some of our largest dealers switching to the Ideal Combine last year, it's further emphasized the strength of the Fent full-line product offering and our ability to accelerate our performance when North America large ag begins to recover. Our parts and service business continue to perform well across challenging market conditions. The PharmaCorp model combined with digital engagement, 24-7 online parts access, machine configuration tools, servicing capabilities, and industry-leading parts fill rates, continue to support this high-margin growth lever and drive meaningful progress. Strong execution also drove meaningful cost actions in 2025, resulting in a $65 million bottom-line savings through continued operating efficiency across the organization, reflecting a real focus on performance improvement. We anticipate a further $40 to $60 million of incremental savings in 2026. Our overall confidence in the business is reflected in $250 million of share repurchases in the fourth quarter, part of our $1 billion capital return program announced last year. As we look at 2026, we will continue to navigate a dynamic phase of the industry cycle. Trade patterns and record global crop production continue to compress farm margins with corn, soybean, and wheat prices near break-even levels. Despite this environment, our operational discipline positions us well for continued progress. Over time, we continue to expect increased adoption of precision ag technologies as farmers constantly look for ways to profitably increase yields. And during 2026, current market conditions continue to moderate demand across most equipment categories. Yet we remain able to advance our technology strategy and expect long-term positive industry progress. Slide 4 details industry unit retail sales by region for 2025. Industry retail sales across all major regions were lower in 2025 as the market adjusted following several years of elevated demand. In North America, industry retail tractor sales were 10% lower compared to 2024, with larger horsepower categories accounting for a greater portion of the change as the year progressed. Combine unit sales were 27% lower year over year. Current farm income dynamics, evolving grain export demand, and elevated input costs continue to guide purchasing behavior, particularly for larger equipment heading into 2026. In Western Europe, industry retail tractor sales were 7% lower than 2024, with most major markets experiencing double-digit percentage movements. Looking at 2026, relatively stable farm income levels and an aging equipment fleet are expected to support industry volumes growing modestly above the 2025 levels. In Brazil, industry retail tractor sales were 2% lower than the prior year. Growth in smaller and midsize equipment partially offset the modernization in larger tractor categories. While crop production remains healthy and certain trade developments provided opportunities for farmers, demand for larger equipment has not yet shown renewed growth. As in prior cycles, industry demand is expected to recover over time. While farmers are currently prioritizing productivity improvements across their existing fleets, The need to increase yields and meet global agricultural demand remains unchanged. Precision agriculture plays a critical role in enabling that productivity, and our award-winning portfolio positions AGCO well to capitalize on that long-term opportunity. AGCO's factory production hours for 2025 are shown on slide 5. To ensure year-over-year comparability, grain and protein production hours have been excluded from the 2024 baseline. Fourth quarter production hours were modestly higher in 2024 as increases in Europe and South America more than offset the significant production declines in North America. For the full year, total production hours were down 12% versus 2024, with North America accounting for the largest portion of that adjustment, reinforcing our disciplined approach to balancing output and market needs. For 2026, we expect production hours to be broadly flat year-over-year, with a modest lift in the first half, reflecting easier year-over-year comparisons, and a modest decline in the second half. This cadence ensures production remains well aligned with retail demand and supports ongoing dealer inventory normalization. Turning to regional inventories, in Europe we ended 2025 with dealer inventories at approximately four months of supply, aligned with our target levels. Being at these inventory levels in our largest and most profitable region is an important positive, especially with the industry projected to grow in 2026. In South America, dealer inventories increased modestly to about five months relative to our three-month target. This reflects adjustments to lower forward sales expectations as industry conditions evolved during the fourth quarter. Wherever year-end dealer inventory units were down, modestly from the third quarter levels. In North America, we achieved another quarter of sequential progress in inventory management, ending the year at seven months of supply compared to eight months at the end of the third quarter. While still above our six-month target, we reduced dealer inventory units by over 9% during the quarter and by more than 30% for the full year. We have significantly strengthened the quality of our channel inventory heading into 2026. and we will continue to adjust production to better align dealer inventory levels. Slide 6 summarizes how our strategy continues to deliver even in a muted demand environment. Over the past several years, we've reshaped AGCO into a more resilient, higher-performing company, one that generates stronger margins at the trough and greater earnings power through the cycle. The results we delivered in 2025 are clear proof of that. Our three growth levers, high-margin products, technology-driven differentiation, and a world-class aftermarket business continue to perform well this year. Each of them contributed meaningfully despite the softer industry backdrop, demonstrating that our model scales regardless of where we are in the cycle. This framework is also what positions us and gives us confidence to consistently deliver mid-cycle adjusted operating margins in the 14% to 15% range. It's a structurally different Agco, more focused on innovation, more disciplined on costs and investments, and increasingly driven by high-value revenue streams. Finally, the strength of this model supports 75% to 100% free cash flow conversion. That financial capacity allows us to keep investing in innovation, advancing our go-to-market transformation, and returning capital to shareholders, all while maintaining disciplined operational execution. Taken together, These levers explain why AGCO is executing at a higher level today than ever before at this point in the cycle, and why we're well-positioned to outperform as the cycle normalizes. Slide seven highlights key takeaways from our premier precision ag event, PTX's 2026 Winter Conference. It's an event that brings together thousands of farmers and dealers on-site and virtually, and this year was the first showing of the full breadth and depth of the PTX portfolio. More than 4,000 farmers, most under enormous pressures currently, focused on learning practical solutions and strategies for technologies that can be implemented immediately to improve productivity, efficiency, and returns, a high-value opportunity in today's market environment. As you would expect, the feedback on the event and new product introductions was exceptional. as farmers could clearly see how we were innovating to make them more productive and more profitable. This year, three technologies delivered notable impact. First, Symphony Vision. Our vision-based spray technology uses intelligent cameras to continuously adjust application rates based on weed severity, delivering a 60% chemical and cost savings. This year, we introduced Symphony Vision Duo, a dual nozzle system that allows farmers to spot spray contact herbicides while simultaneously variable rate applying residuals, fertilizers, or fungicides in a single pass, supporting better input management and higher field efficiency. This is a one-of-a-kind injection system that mixes the solutions, not only delivers meaningful cost savings from reduced chemical usage, but also delivers efficiency. significantly higher uptime for farmers than other systems just can't offer. As with our broader precision planting portfolio, farmers own the technology with no per acre recurring fees, reinforcing a strong value proposition. Second is ArrowTube, a breakthrough seed delivery system designed to improve plant orientation at placement. Conventional systems drop seeds randomly into the furrow, which can lead to uneven emergence and leaf alignment. Arrow 2 places seeds in an optimal orientation while controlling depth, spacing, and singulation, enabling each plant to capture more sunlight and reach its yield potential, a clear productivity advantage. When you think about the significant yield decline for plants that emerge just 48 hours later than the others, the opportunity is huge for our farmers. Third is Farm Engage. Launched in 2025, our farmer-facing digital platforms integrate machine connectivity, agronomic insights, and task management across brands and platforms. Farm Engage brings together functionality from Agco Connect and Fent One, and will be included in all model year 2026. Fent and Massey Ferguson machines sold in North America, serving as a central hub for day-to-day farm operations. Each of these innovations reflect how we listen to the farmer to understand the issue, then deliver practical, scalable solutions that address real on-farm needs and help farmers operate with greater productivity, efficiency, and profitability. I couldn't be more excited about the portfolio of award-winning products we have for our farmers. As I look forward to further introductions later this year, I'm even more confident that we will continue to be the most farmer-focused company in the industry, offering industry-leading smart farming solutions. With that, I'll turn the call over to Damon to cover the financials in more detail. Thank you, Eric, and good morning, everyone.

Slide 8 provides an overview of regional net sales performance for the fourth quarter and full year. Net sales for the fourth quarter were 3% lower year over year, excluding the favorable impact of currency transition. For comparability, we also excluded the $75 million of sales associated with the divested grain and protein business in the fourth quarter of 2024, breaking fourth quarter net sales down by region. Europe Middle East net sales were 1% lower than the same period in 2024, excluding currency impacts. Lower sales across many Western European markets were partially offset by growth in Germany and the U.K., Lower sales in tractors were partially offset by better performance in hay tools. South American net sales were 9% lower, excluding currency translation. Results reflected moderate industry demand, with reduced sales of tractors and implements offset in part by growth in combines. North American net sales were down 9%, excluding currency translation. Results reflected moderated industry demand and our deliberate production discipline to support dealer inventory normalization. Lower sales of sprayers and mid-range tractors accounted for most of the year-over-year change. Asia-Pacific Africa net sales were up 3%, excluding currency translation impacts. Higher sales in Australia were partially offset by lower sales across several Asian markets. Finally, consolidated replacement parts sales were $440 million in the fourth quarter, up 5% year-over-year on a reported basis, and down 1% excluding favorable currency translation. For the full year, parts revenue was $1.9 billion, reflecting 2% growth on a reported basis and flat growth excluding favorable currency effects, underscoring the strong value and consistent progress of this important growth driver. Turning to slide 9. The fourth quarter adjusted operating margin was 10.1%, up 20 basis points from the prior year. The improvement reflects excellent and resilient performance in Europe, Middle East, again this quarter, and consistent discipline across other parts of our business. Margin performance continued to be shaped by factory under-absorption and discounting across the industry. Despite that environment, higher sales and production volumes in Europe and our continued cost discipline supported better total company-adjusted operating margins during the quarter. By region, Europe Middle East income from operations increased by $57 million compared to the fourth quarter of 2024, with operating margins approaching 17%. Results were driven by effective pricing execution and a favorable sales mix. North America income from operations decreased by $33 million year-over-year, and operating margins remain below break-even. The results reflect lower sales volume and factory under-absorption associated with reduced production levels of over 50%, aligned with dealer inventory normalization, representing disciplined management of this business. South America operating income was $21 million lower than the prior year, with margins nearing 3%, reflecting lower sales and higher engineering expense. Asia Pacific Africa delivered relatively flat operating income, with operating margins near 8%, supported by effective cost management and lower SG&A expenses. Slide 10 shows our full-year free cash flow for 2024 and 2025. As a reminder, free cash flow represents cash provided by or used in operating activities, less purchases of property, plant, and equipment. Free cash flow conversion is calculated as free cash flow divided by adjusted net income, offering a clear and consistent measure of performance. We generated record free cash flow of $740 million in 2025, up more than $440 million versus 2024. This strong improvement was supported by better working capital execution, higher fourth quarter sales, and lower capital expenditures year over year, reflecting effective operational discipline. Our capital allocation priorities remain consistent. Reinvest in the business, maintain our investment-grade credit profile, consider acquisitions where we can accelerate technology adoption, and return capital directly to our shareholders. A framework that continues to deliver favorable long-term outcomes. Following the TAPI resolution last year, we've shifted our philosophy on direct returns to investors with a focus on share repurchases rather than our special variable dividend program. With this focus, we executed a $250 million accelerated share repurchase in Q4 of 2025 under our $1 billion repurchase authorization, demonstrating our commitment to shareholder returns. Given the strong free cash flow generation in 2025, we will evaluate further opportunities during our normal capital allocation review later this year. We also paid a regular quarterly dividend of $0.29 per share throughout the year, totaling approximately $87 million in dividend payments for 2025, reinforcing a reliable and healthy capital return program. We continue to deploy capital with the discipline to drive long-term shareholder value supported by the increased flexibility afforded by our repurchase program. Slide 11 summarizes our 2026 market outlook across three major regions. For North America, we forecast large ag industry sales down approximately 15% from 2025's already low levels. The USDA's elevated January crop supply estimates resulted in significant declines in commodity prices, and both soybean and corn prices remain below the long-term average. Farmers are delaying new equipment purchases due to elevated input costs and tighter profit margins. The U.S. government's $12 billion Farmer Bridge Assistance Program is helping to shore up farmers' balance sheets, but it's not translated into new equipment purchases at this time. The North American small tractor segment offers a more positive counterbalance as livestock and hay economics remain comparatively resilient, and the older fleet points to emerging replacement opportunities in 2026. We expect smaller tractors to be up modestly. In Western Europe, stability from the subsidy framework provides a solid foundation and offsets softer wheat prices and geopolitical cross-currents. Early season exports improved, profitability is expected to rise in 26, and winter seeding conditions have been supportive across many markets. The EU continues to benefit from lower interest rates versus other key ag regions, providing a more favorable operating position. We expect Western European tractor volumes to be up modestly in 2026. Brazil's crop environment remains constructive, led by a large soybean harvest and healthy export demand. At the same time, interest rates, credit availability, corn margins, and weather in select regions will pressure demand in 2026. Our plan assumes relatively flat demand for the year, with some pressure early in the year and a stronger second half due to potentially improved government support. Slide 12 highlights the key assumptions underlying our full year 2026 output. We expect global industry demand to remain relatively flat compared to 2025, with the industry increasing from 86% in mid-cycle to around 87% in 2026. Our sales plan assumes share gains, a 2% FX benefit, and between 2% and 3% in pricing. At 3%, our pricing is designed to cover material inflation and tariff costs on a dollar basis. but will be margin dilutive even at the high end of the range, impacting our 2026 operating margins and our year-over-year incrementals. Dealer destocking advanced in 2025, and we continue to prioritize strong channel alignment in 2026, particularly in North America, reinforcing a disciplined and balanced go-to-market approach. Our guidance reflects current tariff regime trends, and mitigation through cost actions in pricing, ensuring a well-managed framework for navigating policy dynamics. We will adjust our outlook if policy actions change. Engineering expense is planned to increase by almost $50 million year-over-year, representing approximately 5% of sales and ensuring an investment level that fuels the flywheel of innovation across the portfolio. As Eric mentioned, we expect further benefits from our restructuring actions of $40 to $60 million in 2026. Production hours in 2026 are expected to be broadly in line with 2025, maintaining healthy balance between production rates and retail demand to support ongoing inventory discipline. We expect adjusted operating margins between 7.5% and 8%, reflecting positive structural improvements to the portfolio and benefits from our ongoing cost initiatives, but muted due to the price versus cost and tariff equation this year, as well as higher engineering spend. Our effective tax rate is anticipated to be 32% to 34% for 2026. Turning to slide 13 for our 2026 outlook. Our full year net sales outlook is expected to range from $10.4 billion to $10.7 billion. Based on this sales outlook, flat production volumes, continued cost discipline, and pricing execution, we are targeting adjusted earnings for share in the range of $5.50 to $6. This assumes no material changes to existing trade measures. Capital expenditures are estimated to be around $350 million, positioning us for future demand inflection while maintaining investment discipline. We continue to target free cash flow conversion of 75% to 100% of adjusted net income, supported by strong working capital management and ongoing inventory efficiency. For the first quarter of 2026, We expect net sales modestly up year over year. As we align production with demand and continue to realize the benefits of our cost efficiency initiatives, we anticipate first quarter earnings per share between 40 and 45 cents. We expect profitability to strengthen as the year progresses, reflecting improved absorption, continued operational execution, and the timing of our cost actions. As Eric noted, 2025 performance demonstrates consistent execution on our strategy and a more resilient, better positioned business through the cycle. We are confident in delivering continued progress across net sales, adjusted operating margin, and adjusted EPS while navigating the current industry backdrop. With that, I'll turn the call over to the operator to begin the Q&A.