Good day, welcome to the AGCO Second Quarter 2023 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 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, AGCO Head of Investor Relations. Please go ahead. Thanks, and good morning. Welcome to those of you joining us for AGCO's Second Quarter 2023 Earnings Call. We will refer to a slide presentation this morning that's posted to our website at www.agcocorp.com. The non-GAAP metrics used in the presentation are reconciled to GAAP measures in the appendix of the presentation. We'll also make forward-looking statements this morning with respect to strategic plans, demand, product development, and capital expenditure plans, production levels, engineering expense, exchange rate impacts, pricing, dividends, interest rates, future commodity prices, crop production, farm income, supply chain disruption, inflation, component delivery, sales, margins, earnings, inventories, cash flow, tax rates, and other financial metrics. We wish to caution you that these statements are predictions and that actual events may differ materially. We refer you to the periodic reports that we file from time to time with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31, 2022. These documents discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. These factors include, but are not limited to, adverse developments in the agricultural industry, including those resulting from COVID-19, supply chain disruption, weather, exchange rate volatility, commodity prices, and changes in product demand. We disclaim any obligation to update forward-looking statements except as required by law. A replay of this call will be available on our corporate website later today. On the call with me this morning is Eric Hansotia, 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. Good morning. We appreciate your interest in AGCO and your participation on the call today. This morning, we reported another record quarter in terms of sales, operating margin, and earnings. The continued execution on our Farmer-First strategy yielded second quarter sales growth of almost 30%, with adjusted operating margins expanding by 420 basis points to 13%. This makes four consecutive quarters with operating margins above 10.5%, which is evidence of how we have structurally transformed our business and further demonstrates the progress we are making towards our mid-cycle 12% operating margin target. We are seeing excellent demand for our technology-rich Fendt tractors, our Precision Ag solutions, and replacement parts. North and South American Fendt sales are ahead of our growth targets as we expand our distribution networks into the regions to give more farmers access to the industry's best equipment. Compared to June year-to-date 2022, AGCO's Precision Ag sales were up 23%, and IDEAL combine sales increased 76%. We've also made significant progress with our efforts to optimize our South American operations and improve margins there. This quarter marks the fourth consecutive quarter, with South American operating margins over 19%, which is a testament to the team's execution and industry-leading products. Our customers' growing interest in AGCO's Precision Ag solutions is supporting extended order boards. We expect solid market conditions to continue. Our improved financial outlook for 2023 reflects this optimism. As we look at the second half of the year, we have increased our full-year sales, operating margin, earnings, and free cash flow forecast. Slide 4 details industry unit retail sales by region for quarter two 2023. Supportive farm economics resulted in robust demand for large agricultural equipment as farmers continued to replace aging machines. While dealer inventory of smaller equipment has increased versus 2022 levels, larger machinery is still at or below targeted levels. North American industry retail tractor sales were down approximately 2% through June year-to-date versus 2022. Smaller tractor sales continued to decline from the higher levels in 2022, as increased interest rates and overall economic conditions have slowed demand. Strong demand and increased sales of greater than 100 horsepower units helped partially offset the decline. Industry retail tractor sales in Western Europe decreased approximately 1% through June year-to-date 2023 compared to 2022. Farmer sentiment continues to be negatively influenced by the ongoing war in Ukraine, as well as input cost inflation. However, forecasts for healthy farm income in Western Europe are expected to continue to support solid retail demand for equipment throughout 2023. In South America, industry retail tractor sales decreased 3% through the first six months of 2023 compared to 2022. Retail demand in Brazil was negatively affected by the depletion of the subsidized loan program prior to the June 30th fiscal year-end. With new funding recently announced, positive farmer economics, supportive exchange rates, and continued expansion in planted acreage, we are still anticipating modest growth for the South America tractor industry in 2023 compared to the very strong levels of last year. The combine industry was up in North America 57% and in Western Europe by 44% through June year-to-date versus 2022, due primarily to improved supply chains. Combines in South America declined slightly in the first 6 months of 2023 compared to the prior year. We remain positive about the underlying Ag fundamentals, supporting strong industry demand in 2023. Stocks to use levels are a bit higher than the recent lows, but they remain at a level that supports profitable commodity prices. Where there's been recent volatility in commodity prices over the last quarter related to weather uncertainty, they are still above the historical averages and favorable for farmers. As the world demand for clean energy grows, the demand for vegetable oil-based diesel will grow strongly. This is a demand driver for our farmers that will be supportive of commodity prices. Equipment in the field is aged and due for replacement. By our calculations, the current average age of high horsepower tractors in the U.S. is approximately seven and a half years old, which is one year older than the historical average. Across all regions, new dealer inventory of large Ag equipment remains at or below targeted levels, while small Ag dealer inventory is up from last year. Input costs, like fuel and fertilizer, are down significantly from their peaks last year. We expect farm income to be down modestly in 2023 from record levels in 2022. However, we believe that it will remain at very good levels in 2023 and be supportive for industry demand, assuming that normal crop production continues. The team has continued to do a great job managing supply chain challenges over the last few years. We are no longer using brokers to acquire semiconductors. This is not only a cost savings, but it also allows us to move products to finished goods inventory and on to customers faster. While the supply chain has improved from where we were a year ago, there are still components that are affecting our production volumes. The encouraging news is that even with these hurdles, capacity is improving. At the same time, farmer economics remain healthy, and global end market demand remains strong, especially in the large farm segment. AGCO's 2023 factory production hours are shown on slide 5. We grew our production in Q2 by approximately 18% versus 2022. Part of this increase is due to the cyber event we experienced in Q2 2022, which suppressed production volumes last year and shifted production to the second half of 2022. Because of this phasing and our focus on managing inventories, we are planning for a relatively flat production level in the back half of this year versus 2022. Based on our industry and market share forecast for 2023, we are projecting a 4%-5% increase in production hours for the year. As of the end of June 2023, demand for our farmer-focused products remains very strong, and our order boards remain elevated across all regions. In Europe, tractors have order coverage into the first quarter of 2024, with large Ag orders up double digits and small Ag orders down double digits compared to last year. In South America, we have order coverage through September 2023, where we continue to limit our orders to around one quarter in advance to give ourselves more pricing flexibility. We plan to begin accepting fourth quarter orders in Brazil in mid-August. In North America, our orders for track tractors, combines, and application equipment extend well into 2024, as the demand in big farm market continues to be strong. As we outlined last quarter, orders remain below last year's levels, as we have elected to limit order intake to improve our on-time delivery rates. We currently have around nine months of order coverage for both large and small ag. Moving to slide 6. Over the last several years, we have been providing insight into our recent acquisitions and where they fit into our tech stack. For those that were present at our recent 2023 technology event in Kentucky, you saw many of the cutting-edge advancements that these companies have helped to accelerate and enable here at AGCO. With the products and technologies we demonstrated at the event, we showcased how we have been able to execute on integrating these companies by giving them the opportunity to be entrepreneurial and creative, while leveraging AGCO's scale and go-to-market expertise. Among some of the highlights were Precision Planting, starting the journey with us in 2017. They are the cornerstone of our technology stack. They have perfected planters, which we have leveraged into the industry-leading Momentum planter. Now they're taking their know-how beyond planting to areas like sprayers and soil testing. JCA was acquired a year ago, and its technology was on full display at our technology event with the autonomous grain cart running next to the Fendt combine. We are excited to launch this product into the market in 2025. Slide 7 recaps the key messages from our recent technology event. The event highlighted all 3 of our key growth levers: the global Fendt full line, growing our Parts and Service business, and growing our Precision Ag business. On that Kentucky farm, we demonstrated a number of our technology-rich Fendt products, from a momentum planter, to a round baler, to an IDEAL combine. We discussed the ways we're meeting the farmer where they want to do business through our Ag Revolution dealership model, which blends a brick-and-mortar presence with over 30 mobile service trucks capable of performing most services right on the farm. This mobile service model will help us further grow our parts penetration by utilizing the telemetry data coming off of our machines and proactively performing maintenance before it becomes a problem. We are bringing parts and service to the farmer instead of requiring them to always come into the dealer store. We also showcased much of our Precision Ag portfolio and how we're helping to sustainably feed our world, while also helping farmers increase their net farm income by at least 20% across the entire crop cycle. Our new Radicle Agronomics automated soil sampling lab got a lot of attention at the Tech Days for how it is revolutionizing the entire soil sampling value chain and lowering farmer cost. We also reiterated the target dates of when we'll be having cutting-edge products in the market. For autonomous solutions, we demonstrated how we will have automated many of the tasks in the cab on our path to full autonomy. We demonstrated examples of the full crop cycle from the teach-in headland feature on the tractor pulling the momentum planter, to the IDEAL drive on the combine. The IDEAL combine automates more tasks than any other in the industry, resulting in less fatigue for the operator and a cleaner harvest with improved yield. We'll have autonomous retrofit solutions by 2025, supporting tillage and grain cart applications. We'll follow that with fully autonomous solutions across the crop cycle by 2030. For targeted spraying, we demonstrated Precision Planting's Symphony Vision, a retrofit solution which will be available for any brand of equipment starting in 2024. We'll follow that up with an OEM solution by 2026. For clean emissions, we highlighted the paths we're taking to reduce emissions by investing in electric tractors and launching the E100 model in 2024, with more electrified platforms to follow. We also highlighted some of our other paths we're exploring, like biomethane and hydrogen. When you look at it all, there's just never been a more exciting time to be in the Ag space. For those of you that were with us, we want to thank you for your attendance at the event and your interest in AGCO. We hope that you saw how we are driving innovative solutions that are focused on helping improve our farmers' profitability. With that, I'll hand it over to Damon. Thank you, Eric. Good morning, everyone. I will start on slide 8 with an overview of regional net sales performance for the second quarter. Net sales were up approximately 31% in the quarter compared to the second quarter of 2022, when excluding the negative effect of currency translation. Pricing in the quarter, which was over 14%, contributed to higher sales. The strong year-over-year performance was partially influenced by the lower sales in the second quarter of 2022 that were negatively affected by the cyberattack we experienced, particularly in our European and North American operations. By region, the Europe Middle East segment reported an increase in second quarter net sales of approximately 36%, excluding the negative effect of currency translation compared to the prior year. The improvement was driven by increased sales of mid and high horsepower tractors and combines, along with favorable pricing actions. In South America, net sales in the second quarter grew approximately 16% year-over-year, excluding the negative effects of currency translation, driven by the continued strong sales growth in Brazil, partially offset by lower sales in Argentina. Higher sales of tractors and momentum planters, as well as favorable pricing effects, drove most of the increase. Net sales in North America increased approximately 35% in the quarter, excluding the unfavorable impact of currency translation compared to the second quarter of 2022. The growth resulted primarily from increased sales of high horsepower tractors, combines, and application equipment, along with the positive effects of pricing that more than offset inflationary cost pressures. On a constant currency basis, net sales in our Asia Pacific Africa segment increased about 14%. Delayed shipments from our European factories in late 2022 caught back up in the second quarter, resulting in the higher sales in Australia and China. Finally, consolidated replacement parts sales were approximately $492 million for the second quarter, up over 9% year-over-year, or 10% excluding the effects of negative currency translation. Turning to Slide 9. The second quarter adjusted operating margin improved by 420 basis points versus 2022. Margins in the quarter benefited from higher sales and production, a richer mix, and positive net pricing compared to the second quarter of 2022. Price increases in the quarter of over 14% more than offset significant material and freight cost inflation on a dollar basis, and were also positive on a margin basis. For the full year, we are projecting approximately 8% pricing. By region, the Europe, Middle East segment reported an increase of approximately $134 million in operating income compared to the second quarter of 2022, and margins improved over 380 basis points. Higher sales, stronger net pricing, and a healthy product mix contributed to the improvement. North American operating income for the quarter increased approximately $86 million year-over-year, while margins improved by approximately 690 basis points. Operating income benefited from higher sales and production, positive net pricing, and a favorable mix based on the significant growth in Fendt products year-over-year. Operating margins in South America exceeded 20% in the quarter, a 380 basis point increase over the same period in 2022. Operating income improved almost $36 million versus the second quarter last year. The improved South American results reflect the benefit of higher sales and production, as well as a favorable sales mix. The continued market strength in Brazil has resulted in continued price resiliency in the quarter, helping deliver very strong results once again. Finally, in our Asia Pacific Africa segment, operating income declined approximately $10 million in the quarter, due primarily to a weaker mix of sales, the negative transactional effects of imported products, and higher logistics costs. With the margin expansion in the last two years in our North American and South American regions from our strategy, execution, and disciplined pricing, we expect AGCO's margin profile to be more balanced across the globe in the years ahead. Slide 10 summarizes our Precision Ag business. As we highlighted before, we are focused on expanding our addressable market from just traditional agricultural machinery spend, which today is in the low to mid-teens as a percentage of total farm spend. With our Precision Ag portfolio, our sights are set to impact around 70% or effectively all non-land areas. We believe that the investments in Precision Ag positions us well as it plays a major role in achieving the global sustainability targets that are being established, while simultaneously helping our farmers improve their profitability. Through June year-to-date, we recorded $384 million in Precision Ag revenue, approximately a 23% increase from the same period in 2022. We anticipate continued strong growth in the back half of 2023, which takes us to our previously communicated target of $800 million-$850 million in sales. Our current run rate puts us solidly on track to hit the $1 billion sales target by 2025 that we announced during our December 2022 Investor Day. Slide 11 details our year-to-date free cash flow for 2022 and 2023. As a reminder, free cash flow represents cash used in or provided by operating activities, less capital expenditures, and free cash flow conversion is defined as free cash flow divided by adjusted net income. Through June year-to-date, we have used $602 million of cash, 15% less than 2022, as supply chains have improved and the second quarter last year was affected by the cyberattack. The use of cash follows our seasonal inventory build in the first half of the year for the spring selling season and the sell down over the back half of the year. The year-over-year improvement reflects higher earnings, partially offset by almost $100 million in increased capital expenditures year-to-date. For 2023, we still expect our raw material and work-in-process inventory to remain somewhat elevated, given supply chain challenges, but we still expect it to be a modest source of cash versus a use in 2022. We expect our free cash flow conversion to continue to range from 75%-100% of adjusted net income, a significant increase from 2022, consistent with our improved financial outlook. We remain focused on direct returns to our investors during 2023, with a regular quarterly dividend that we increased last quarter by 21% to $0.29 per share, and the payment of a special variable dividend of $5 per share. Future returns of cash to shareholders will be based on cash flow generation, our investment needs, which include capital expenditures and acquisition opportunities, as well as our market outlook. Slide 12 highlights our 2023 retail market forecast for our three major regions. Globally, driven by elevated commodity prices, we expect healthy farm economics to support strong end market demand. For North America, we continue to expect similar demand compared to the healthy levels in 2022. We expect continued growth in high horsepower row crop equipment segment to be offset by softer demand for smaller equipment after several years of robust growth. Current interest rates are expected to continue to slow the smaller equipment segment of the market. In South America, we still expect industry sales to be flat to up 5%. We expect the recently announced funding for the subsidized loan program to stimulate demand, especially for smaller equipment in the second half of 2023. This region remains one of the stronger end markets, especially in Brazil, where the farm footprint is increasing. We expect another year of healthy farmer profitability, which we expected to drive demand for large Ag equipment beyond 2023. For Western Europe, we continue to expect the industry to be relatively flat compared to 2022. Farm fundamentals in the region are generally healthy, with grain prices continuing to outpace input inflation. Meanwhile, supply chain constraints over the last 2 years are extending equipment replacement. Slide 13 highlights a few key assumptions underlying our 2023 outlook. In addition to focus on meeting the robust end of market demand, we will also make significant investments in the development of new solutions to support our Farmer-First strategy. Although we see strong market demand, AGCO's results will still be dependent upon our supply chain performance in 2023. Our sales plan include market share gains, along with price increases of approximately 8%, aimed at more than offsetting material cost inflation. We currently expect currency translation to positively affect sales by about 2%. Engineering expenses are expected to increase by approximately 20% compared to 2022. The increase is targeted at investments in smart farming and Precision Ag products. Given our first half performance and our outlook for the second half, we now expect our operating margins to improve to around 11.7% versus our prior outlook of 10.9%, driven by sales, favorable pricing net of material cost, and improved factory pro-productivity, partially offset by increased investments in our engineering and digital initiatives, as well as inflationary cost pressures. We now expect other expenses to increase approximately $90 million year-over-year, most of which was incurred in the first half of 2023. Half of this increase is tied to the sale of receivables to AGCO Finance. We were being affected by higher sales volume and higher interest rates compared to 2022 that we've been forecasting. The other half is related to the increased volatility in the Turkish lira and the Argentinian peso. We are continuing to target an effective tax rate of 27%-28% for 2023. Turning to slide 14. We've raised our sales and earnings per share targets from what we highlighted on our first quarter call. We now expect next sales to be in the $14.7 billion range based on our first half performance and the stronger euro. Adjusted earnings per share should now be approximately $15.25 in 2023 versus our prior target of $14.40. We've also modestly increased our CapEx target to $400 million to include additional investments in our CVT capacity and to further enable Precision Ag growth. As I mentioned earlier, free cash flow conversion should be in the range of 75%-100% of adjusted net income, consistent with our long-term target, and based on our improved outlook, should deliver an additional $75 million-$100 million in free cash flow. With that, I'll turn the call back to Greg for Q&A. Thanks, Damon. To maximize participation in the Q&A session today, we'll ask you to limit yourselves to one question and one follow-up. Gary, with that, we're ready to go ahead and start Q&A. We will now begin the question-and-answer session. To ask a question, you may press Star, then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. Again, please limit yourself to one question and one follow-up. The first question is from Jamie Cook with Credit Suisse. Please go ahead. Hi, good morning, and congratulations on a nice quarter. I think, you know, my first question, obviously, a nice quarter, a nice raise to guidance. I'm just trying, you know, the guidance, in particular, the operating margin assumption in the back half seems conservative. You know, given what we put up the margin performance in the first half of the year, I think margins in the back half are implied down about 150 basis points from the first half. Just trying to understand the drivers of why margins would deteriorate second half versus the first half, where is the conservatism there? My second question, just understanding you have a strong, you know, order book and/or, or some visibility to 2024. What's your approach for the order book for 2024, and of the orders that are there, what's going to retail versus dealer? Thank you. Sure. Jamie, I'll start with the margins first half, second half, and then maybe I'll let Eric talk about the order board. You know, I think if we think about the first half, again, we had a very strong performance here, as you alluded to. For the second half, if I think about that sequential change, there's really a couple of drivers influencing the second half. One is the engineering spend. As we've been talking about this year, we are increasing our engineering spend over $100 million year-over-year. If you look at my first half engineering versus second half, you know, you're going to see that increasing. That will be a little bit of a detractor on the second half. Second is material cost. Even though we're seeing the underlying fundamentals of things like steel come down, you know, we are still seeing sequential increase in material cost. That would be the second biggest driver. Third would be, I would say, a little bit of pricing, first half versus second half. You've heard us talk about the lower horsepower segment in South America as we think about some of the incentives to spur the retail delivery there. You know, we do see potentially some further, some incentives there, again, that we didn't have to use in the first half in South America. I would say those are the big three drivers, first half versus second half, maybe a little bit of mix as well. As you know, planters are a big first half product for us, which is a rich mix, and then that South American low horsepower tractors, which were lower than expectations in the first half. As they ramp back up in the second half, that'll be sort of a negative mix to the Brazilian or the South American margins, first half versus second half. Jamie, your question on order board. We expect to continue to manage the place where we're managing it, the order board most tightly is in South America, and we continue to plan to roll that out one quarter at a time to be able to handle both pricing and market volatility. That's been really effective for us, and we think we'll keep that into next year. We've got strong order books in terms of quantity, but also those books are loaded with retail orders. It's already today, we're remaining a high percent retail order, well over 40%, and we think that'll continue to strengthen into next year, probably over 50% retail order percentage of the order bank. Okay, thank you. I appreciate the call. The next question is from Tim Thein with Citigroup. Please go ahead. Hi, good morning. Maybe just, first question on Europe, and maybe, Eric, you can speak to, you know, some of the, which don't always have, a perfect track record in terms of their predictability, but some of the sentiment indicators there have softened. You know, one of the points raised is some concern around, some pickup in inventory. You know, which is counter to the message that you've conveyed this morning from what you guys are seeing. Maybe just speak to the feedback and what you're hearing from the dealer base. I know it's not a uniform. There's a lot of countries which can, you know, move in different trajectories, but maybe just speak to Europe as a whole and, and how you're thinking about that into 2024. Europe, you know, there's a couple dynamics going on. They have a little more inflation than some of the other markets, so that's a negative. The Ukrainian, as, as bad for the world as the Ukrainian grain stoppage was, in, in some ways it was good for farmers because we, you know, most expect that that's gonna drive prices up somewhere in the 10%-15% range for most commodities, 'cause you have substitution. It's not just wheat. You have substitution across all grains. That, you know, that helps profitability for the farmers, especially in Europe. Although the sentiment indicator came down a little bit, it's still pretty strong relatively. It's, it's trending towards, you know, a little more towards neutral from red hot. That doesn't concern us at this moment. We're still seeing strong order rates coming in, and we're growing share in most of our brands across Europe. The business, the industry is pretty healthy, and we think with this grain restriction, it'll remain healthy, and we continue to grow share. You know, global wheat stocks are down for the fourth straight year, which is the primary crop in Europe. That just gives you an overall sense for as that commodity is tight, any more further restrictions really pushes price up. Yeah. Okay. Mechanically, from a quarterly earnings perspective, you historically, it, you know, and seasonality has kind of gotten mixed up a little bit here recently, but historically, fourth quarter is typically the highest. Do you still expect that this year, the way you have the plan laid out? I think, Tim, as we think about the seasonality of the business, again, we'll see how the second half unfolds. I think as Jamie asked the question, you know, revenue-wise, Q2 and Q4 tend to be our strongest quarters. You know, if we think about the margin-wise, Q2 has been an exceptionally strong quarter here at 13.1%. For all the reasons we articulated on the call, you know, if I look forward here to the back half in the fourth quarter, you know, we do have a little bit of a we had a very strong fourth quarter last year, you know, given the sort of the supply chain challenges and the very rich mix that we saw of that front product portfolio last year. As I think about the second half, between engineering spend increasing a little bit of the mix, I'm not sure we'll necessarily have it as our strongest margin quarter, but I think it'll still be one of our top two quarters for sure. By design, last year, you know, we were running the catch-up all through the year, and we had a big surge at the end of the year last year. By design, we aim to be much more building to demand through the course of this year, and we're doing that so far. We don't wanna have this kind of spike at the end of the year that is a catch-up mode. We wanna be building to customer demand, and that's... With supply chain easing, we're doing a way better job of that this year than other years. Thanks for the time. The next question is from Larry De Maria with William Blair. Please go ahead. Hey, thanks. Had two interrelated questions. First, on Fendt, obviously highlighted this ongoing strength there. Can you sort of discern a little bit between, you know, channel fill and retail sales there? Because I know you're obviously building out the distribution, which you've talked about, but, you know, how much of the growth is going to fill the channel versus sell-through? Second part on Ideal, I think up 75%. Can you put a little bit of that in perspective, just to kind of help us understand the materiality of that? Because I think it's from a small base in terms of, you know, that's needle moving, or if that's, you know, just from a small base, that's nice for now and more important in a couple of years. Thank you. Yeah. No, go ahead. You know, I think, Larry, if you think about Fendt for us, again, as we allude to very strong performance here. If I think about it, in the North American market, you know, it was up several hundred units year-over-year of sales. I think we're up about over 150% in North America. I would tell you a high percentage of that is actually retail. Our retail was up right around 100% as well. You're seeing a little bit of that channel expansion that you're talking about as we fill and bring on new dealers, but we're seeing a high retail concentration as well there. Good getting it out to the farms and word of mouth, building the momentum as we talk to the farmers. You know, as you saw in that tech field day, that farmer, he heard about Fendt and word of mouth as his neighbor had one. Again, part of that Fendt experience really helping grow the brand recognition out there, and getting it into the ultimate farmers. IDEAL, to your point, I would tell you, it's lower numbers, so we are seeing good growth, good percentage, but it's still smaller numbers that we're building off of here on the IDEAL combine. You know, just to put a few numbers behind that, if you go back to 2018, when we really started globalizing the Fendt business, we had a North America coverage, something in the 40% range. Now it's up to 75. In South America, we had essentially zero. We weren't in that market with Fendt, now we're at 70%. We've gotten to the point where we've got much of the important market covered. We still want to grow that to about 90 in both cases, you know, we've got a lot of good dealers in the areas where it's important. I mean, we still have lower inventory than we want at those dealers, but a lot of it's going right through to retail, as Damon said. Okay. Very good color. Thank you very much. Mm-hmm. The next question is from Tami Zakaria with JP Morgan. Please go ahead. Hi, good morning. Thank Thank you so much for taking my questions. I was hoping to get more color on the flat production, hour growth outlook for the back half. What is it expected to look like for small versus large ag, if you could give some details? Yeah, I think, Tami, you know, just 2 comments on the production. Again, we're reflecting or forecasting relatively flat production year-over-year. As a reminder, you know, we had the cyber event in the second quarter, which took our production out. We really increased production in the second half of last year to recover, so we didn't do the normal summer shutdowns, preventative maintenance, as we were trying to recover on that lost production. This year, again, you're seeing a relatively flat production, you know, based off of the higher capacity, the higher demand, but we are still implementing some of these preventative maintenance periods, the European holiday. If I look at it, large versus small ag, I would tell you large Ag is running strong. You know, probably more capacity, CBT-related capacity coming on large ag, where you are seeing some of the, you know, production coming down is gonna be on the smaller Ag part of the business there. Got it. large Ag production hour should be positive in the back half? Yeah. That is. Got it. Flat. Got it. Thank you so much. That's helpful. If I could ask one more: What's the pricing expectation again for the back half for large versus small AG? It seems like for the back half, low to mid-single pricing is what's embedded, is it gonna be similar for large versus small AG? Yeah, we don't really break it down that way, Tami. I think your assessment for the second half and the low single digits is right, but it's gonna be product by product, and we really don't break it out large Ag versus small Ag. Okay, that's fair. Thank you so much. The next question is from Seth Weber with Wells Fargo Securities. Please go ahead. Hey, guys. Good morning. I wanted to just ask about your nine months of coverage comment for the North American backlog. Can you just frame that for us? Is that, like, on a relative basis versus historical, is that about where it typically sits? Is it, you know, better than average, worse than average? Just any kind of framework for that nine-month number or even versus last year. Thanks. It's, it's interesting to decide what typical is anymore. If we say it's during COVID, it would be less, prior to COVID, it's probably twice what we would normally have. That's, that's what we're, you know, seeing, is we still actually would like to get that backlog down and not have to have farmers wait as long as they're waiting right now for their demand. We know there, there's a lot of thirst for the new technology we're bringing out on the products, we'd like to be able to get that to them faster. It's still probably twice as high as we'd like it to be and, and have historically been. Okay, thanks. Then just on the parts revenue up 9%, I assume you're pushing pricing on parts as well. I'm just trying to understand: Is parts volume up in the quarter, or is it down? Yeah, Seth, the pricing isn't too much different, whether you're talking about whole goods or parts. We're saying 8% for the full year. It was double digits in the first half. Probably not as much on the parts side. We do have modest volume growth year-over-year, but not to the extent that we're having the whole goods growth. That's normal. I mean, parts typically are more stable over the cycle. In times when demand for equipment is stronger, you don't see that same pull-through on parts, or they're typically steadier. Similarly, when demand softens for big equipment or equipment in general, parts tend to stay more stable. It's just kind of the nature of the beast. Helpful. Okay, thank you, guys. I appreciate it. Good. The next question is from Stephen Volkmann with Jefferies. Please go ahead. Great. Good morning, everybody. Most of my question has been answered, so maybe I'll try a big, broad brush, Eric. I guess the, the elephant in the room is just the cycle question, right? I'm curious if you have any updated thoughts on just where you think we are on the cycle here, and you've given some sort of qualitative thoughts, I guess, going forward about market share gains and precision and biofuels. You know, can 2024 be an up year for the industry, or is it too early to tell? It's too early to tell, but it still can be a very good year. We see a lot of indicators that, that are tailwind indicators. We've had, you know, a couple of good years in a row, but, you know, just a couple more to give you. If you look in the U.S. and the high horsepower area, that's still growing. You know, small Ag is cooling off, we've said that, but high horsepower is still growing. The average age of the high horsepower tractor in the U.S. is about seven and a half years based on our data. The historical norm, if you look over a number of years, is more like six and a half. It's still a pool of equipment that needs refreshment. Not to mention all of the technology. The rate at which we're bringing out technology on the new products and the artificial intelligence features on those products is bringing new productivity enhancements to the farmers, that even if they didn't have to refresh, there's new features that give them a good ROI. Used equipment levels are still about 50% of below what they were in 2018 or 2019. Those are kind of things that we're watching that say, does this market have room to still be a good market next year? They look like they are when you look at the machinery. When you look at the grain, I've already talked about, you know, the impact of the Russian blockade of Ukraine. All indicators we've seen say prices will go up on grains about 10%-15% because of that, and we're starting to see it, especially on wheat. Wheat moved up a lot. We're seeing record heat waves going through much of the growing portions of the world, North America, Europe. Although August is an important month, so we've got to get through that, it has not been good for crops, and there's a potential downside coming on that. Lots of indicators that say 2024 could still be a very good year. Great. Okay, thank you. Maybe a Damon question. I think we've talked in the past about some productivity challenges due to the supply chain volatility that we've been seeing, and I guess that's improving. Is there still some productivity to come as supply chains kind of finally get normal again, or are we sort of through that already? Yeah. Steve, we are still experiencing supply chain challenges here. We're a lot better now than what we were a year ago. I mean, just to put it in perspective, and you've sort of seen it in our performance, and Eric alluded to that fourth quarter spike last year. If I look at our semi-finished inventory that we had at the end of last Q2 last year, you know, we've reduced that by about 60% year-over-year with that semi-finished product. Again, a lot of that is due to the supply chain improvements, and as Eric said, trying to get a better cadence of our sales that you saw in Q2 and in Q3 and in Q4. What we're seeing, significant improvement. We are not where we want to be yet. What I would tell you, if we were dealing with 10 suppliers per factory last year, this time, we're still dealing with one or two. We still have disruption in the flow in the factory. We still have the rework to get things onto the tractors when they show up, or the combines. There's still opportunity for further productivity, further volume output, as the supply chain continues to normalize, but it's getting better. Great. Thank you, guys. The next question is from Kristen Owen with Oppenheimer. Please go ahead. Hi, good morning. Thank you for taking the question. Wanted to ask you specifically about some of the outlook for the back half in South America. I mean, you did previously call out some of the financing headwinds, the small horsepower tractor incentives. Specifically around, like Argentina being an offset there, there's an election coming up in that region. Just any sense of what you're hearing on the ground that could influence deliveries in the back half of the year? You know, I think, Kristen, for us, you know, as we've alluded to in the last couple quarters here, the, you know, we've been very strong with our pricing and that the demand that we've been seeing has allowed our team to really hold on to some of the more traditional discounts or incentives they would provide dealers. You know, as we think about You know, the changes that have come out with the financing plan here, we're optimistic that the small horsepower tractors will start to pick back up. Again, we just look at the overall market conditions there. You know, we sort of expect to see the teams getting back to that more traditional level of discounts here, that they would have sent the dealers with in the back half of the year. Argentina, you know, definitely continues to be a little bit more of a challenging market. It's being more than offset by the strength in Brazil. Overall, we still feel good about the South American market. It's still our strongest market as we look at 2023 here, probably a little bit weaker from a margin perspective as we move into the back half of the year. That's really helpful. If I could follow up on the 9-month coverage in higher horsepower, just any indication of pricing in that order book? How much of that is sort of resuming that, that normalized level, you know, 3%-4%, or if you're able to see something a little bit better than that in the order book? Thank you. Yeah. Kristen, most of those are 2023 orders. We've talked about kind of the level of pricing for this year, and this year, that implies kind of mid-single-digit pricing in the back half of the year. You know, going into next year, you know, we'll have some carryover from the back half pricing, and then we'll likely add some incremental pricing on that based on market conditions for the new orders that we'll get under the 2024 order program. Great. Thank you so much. The next question is from Steven Fisher with UBS. Please go ahead. Thanks. Good morning. Just to follow up on South America, now that the financing situation there has been clarified in Brazil, have you seen already a pickup in the activity there? Was that financing uncertainty the only impact on the smaller Ag piece in the second quarter? Because it seemed like you sold more big Ag equipment than you expected. Right. Steve, the way the... There's a couple different pieces of that program. One that's geared towards the smaller farmers, that ran out of money in January, and those guys tend to use. They're very heavy users of that program. 90% roughly of the equipment purchased by small farmers goes through that FINAME program. They definitely waited, as we got into, you know, really first quarter and here in the second quarter, and we have seen pick up. One of the things that our sales folks locally in Brazil have been doing is to help, you know, with the AGCO Finance folks process those applications, because the administrative process in Brazil is not smooth. One of the things we're trying to do is facilitate the rapid fulfilling of those loans, that's going on as we speak. Our expectation, as Damon said, is to see some improvement for the small stuff. The bigger stuff, or the bigger farmers, caps out at about the threshold is about $9 million of gross sales for farmers, so that's still somewhat big, but those guys only use the program. It's about 60% or 70% of the purchases that happen go through that, the FINAME program for the bigger farmers. A lot of those guys were still using or are and will continue to still use commercial bank funding. If you get into the bigger, kind of the mega farms in the Mato Grosso region, a lot of those guys have not used the program, so they've continued to order. It's really a mixed bag as we think about Brazil. I think, Steve, as we alluded to, I think it was on Jamie's question, the first half versus the second half margins. You know, part of our expectations are, as Greg alluded to, with this funding now available, these lower horsepower tractors should pick up volume-wise, which is a little bit margin diluted for the South American region, given the strength of what we saw here in the first half. Great. Thank you very much. The next question is from Jerry Revich with Goldman Sachs. Please go ahead. Hi, this is Clay on for Jerry. Congrats on the strong Precision Ag sales in the quarter. We're curious on how we should think about, you know, production capacity in the Precision Ag product lines and, you know, here now and then moving forward towards the 2025 target. Thanks. We've got a huge factory coming online at Precision Planting. It's 500,000 sq ft. We're putting the equipment into it right now. The building's done. It looks fantastic, and it'll be way more than we need in the short term, but we expect to grow into it in short order after we've acquired those 6 other companies and can consolidate into it. That's coming online this fall, and we don't see capacity constraints there in terms of our internal capacity. The big issue that we've had over the last couple of years is semiconductor chips, and that's moderated significantly. Relative to Precision Ag, we have a good runway ahead for growth. I think, like, just, for us, you know, we still expect to be up in the range of $800 million-$850 million in sales this year. We were $700 million last year on our Precision Ag. Our goal right now is $800 million-$850 million, we feel well on path to deliver that billion-dollar target by 2025. Maybe even sooner. Sounds great. Thanks. Our last question today comes from Chad Dillard with Bernstein. Please go ahead. Hi, good morning, guys. thanks for squeezing me in. I just had a question for you guys on, on small ag. first of all, can you just quantify what share of the business it represents? can you just talk about where you are on your destock and whether you expect to be done by the end of the year? You know, the small A g definition, Chad, is a little flexible, but we would typically somewhere say between 25 and a third of our business is small ag. It's a little bit different in the U.S., in that there's a distinct category of compact tractors, which is sub 40 horsepower tractors. Not a, you know, very much not a ag-related kind of part of the business. Globally, kind of outside of North America, it's the small mid-size stuff is tied a lot of times to dairy and livestock. Globally, the number has come down over time. I'd say if you go back 5-10 years, that number was probably closer to 40%. You know, with a lot of the new product introductions and a lot of the focus on technology, we've shifted our mix, especially in South America, but globally, kind of away from the small Ag into the, the bigger farms. I think, Chad, you know, to your question on the inventory of the destocking, again, we're watching the dealer inventory levels very closely around the world here. As we've talked, you know, we know that those inventory levels are up to what we would consider the more optimal level. You know, two things that we're doing here. One is, I think Tami had asked the question, we are slowing the production for what we produce, those low horsepower tractors. We are sort of slowing that down just to make sure that we don't build up dealer inventory stock in that particular segment. I think you know, we also buy a lot of these low horsepower tractors from third-party manufacturers. We don't actually produce them, but we source them. You know, we've slowed the, the order board for those as well, you know, helping, continuing to adjust the, the inflow of product here to try to keep that dealer inventory at the, at the optimal level. That's helpful. Just one last question on your engineering expense over the medium term. I guess, like, how should we think about the appropriate level of spend? Should we be thinking about the second half of the year, like, that should be a good run rate on a go-forward basis? Yeah, you know, I mean, we continue to increase our engineering expense annually as we are focused on increasing the technology development here. As I said earlier, this year, we're gonna be up $100 million. You know, I think the rule of thumb going forward is around 4% of sales. You know, we've been trending a little bit lower than that the last couple of years, you know, given we've been trying to hire as fast as we could. As everyone, no surprise, it's hard to get a lot of these top-tier engineers. We're ramping that up. I would tell you sort of rule of thumb for the outer years is, you know, around 4%. Great. Thanks. This concludes our question and answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks. I'll close today by saying thank you very much for your participation and your support of AGCO. It was a really good call again today. We're very proud of how we've started 2023. It's a record quarter in many ways. We're setting ourselves on a trajectory to deliver another record year. We have higher and higher confidence that we're gonna deliver on all of the commitments that we've made to you over this last year or two. The key to our success is the continued execution of our Farmer-First strategy. Our focus is on growing our margin-rich businesses like Fendt, Parts and Service, and our Precision Ag Smart Machine business. We've been investing heavily in the last few years, like Damon was just talking about. In 2023, we're making even bigger investments to continue the development of these farmer-focused solutions that are solving critical farming problems, many of them with very short paybacks. I was glad to see many of you on the farm being able to see those in live and in action. We demonstrated, you know, the overall strategy and these products at our technology event, and we were using Precision Ag tools to really engage strongly on sustainability, putting more and more of our technology efforts there, capturing a lot more data, and helping our farmers make the transition to not only more productive farming, but also more sustainable farming. Lastly, the large Ag markets continue to be strong globally. Farm fundamentals are healthy and supporting farmer investments. Over the last few quarters, we've touched on many factors supporting our markets, including growing populations, changing diets, low stocks to use levels, healthy commodity prices, and more. All of these trends give us confidence that our industry could stay strong for some time. We look forward to seeing many of you at the Farm Progress Meeting in August twenty-ninth in Decatur, Illinois. Thanks again for a good session today. Thank you for joining the AGCO Second Quarter 2023 Earnings Call. The call has concluded. Have a nice day. You may now disconnect.