Good morning. Welcome to the 8:05 A.M. session with AGCO. We have Damon Audia, the CFO, as well as Greg Peterson, Vice President of Investor Relations. We'll kick this off. My name is Chirag Patel. I cover the machinery sector here with Jefferies, along with Steve Volkman. I think we're just going to jump right into the Q&A, and I think the first thing on my mind at least is a very simple question. Where are we in the cycle? Easier question to ask than answer in that case. Chirag, if we look at the cycle, maybe I'll break it down by region, because each of our regions tend to operate a little bit differently. T he best side of the spectrum, I would say, is Europe. I f we think about Europe, it tends to... Let me start with the big sector. Last year, we finished at about 105% of mid-cycle, so we finished slightly above the ten-year average. We knew that we were coming off some very strong years. Generally, when our industry goes into a decline, it goes through one very large correction year, and we see that happening here in 2024. We're looking right now from an industry that was about 105% last year, probably declining somewhere to around 90% of the mid-cycle. A bout a 15% decline year-over-year. Historically, during some of the industry contractions, we normally see that one big correction year, where the farmers go from buying a lot as commodity prices drop or stock-to-use ratios decline. They slow their purchases down significantly. 2024 seems to be, that year. If we look at our industry historically, it usually then starts to ebb and flow in that area. You don't usually see two massive correction years back to back. Again, we'll see how 2025 plays out. There's a lot of reasons to think that it could be a little bit better than the prior cycles, and maybe we'll touch on that, b ut we're going through that big correction right now. If we then double-click and go region by region, Europe tends to be the least volatile. Given that the farmers, especially in Western Europe, have a lot of their income coming in from subsidies, government subsidies, they tend to be more consistent with their buying patterns, and so if you look at our outlook for Western Europe this year, or what we call our EMEA region, we're seeing it somewhere in the range of down 5- 10%. If we go to the opposite end of the spectrum, South America, which tends to be the most volatile of our three major regions, we see that being down somewhere in the range of 25-30%. A gain, those farmers are dealing with a different set of dynamics, so they don't have the level of subsidies that you see in Western Europe, they're usually getting some sort of subsidized financing from the government which comes out in the mid-year, and it can influence their buying behaviors, and not all farmers qualify. T hen you layer on the currency, the real versus the dollar, and how that affects their profitability versus, given the exporting prices. T hat tends to be the most volatile. And then we have the North American market, which right now we think will be down around 10- 15% this year, and it's somewhat in the middle related to the volatility between Europe and South America. Got you. A s we talk about the market itself being down, in that 10-15% range overall, I guess the next thing is the idea of how much is your production down, and what dynamics influence the idea of making that decision of lower production than the actual retail sales? Yes. A s the industry has been slowing, we've been, and I'd say our industry as a whole, have been fairly aggressive in trying to reduce our production to rightsize the dealer, our inventories and the dealer inventories. A gain, it's a little bit of, as the industry's been declining, we've been cutting more production around the world. A gain, that's one of the, I think, differences through this economic downturn that we're going through versus maybe some of the prior industry downturns, where historically we'd see a competitor or others sort of run a little bit longer, keep the absorption levels higher, push that into the dealer channel, but then ultimately it results in some sort of a price challenge. This year, we're seeing all three really work hard to cut their production a lot faster. Our production schedules are going to be down 20-25% this year. Again, that would fluctuate depending on where we are in the world, b ut again, we look at South America as an example. South America really started its decline towards the end of the Q3 in 2023. Q4 was a big adjustment year, and we continued to cut production heavily starting in Q4. Q2, we cut production 57% in South America. So working hard to really try to reduce our finished goods, try to make sure that the dealer levels get back to what we consider more optimal levels. A s you hear us talking about providing incentives or discounts, the discounts are really trying to drive more of that retail traffic. A ny of those farmers that are on the edge, trying to encourage them to move that inventory out, and then only replacing where appropriate, where either we know there's a direct retail sale or where there's a dealer who has a little bit of capacity to meet that optimal level. W e're working hard to get our dealer inventory levels down by year-end. If we look at Europe, we're about four months of inventory at the end of the Q2. O verall, I'd say Europe's in really good position for us. If we look at the Fendt brand, we're probably, there's some pockets where we're below that target. If we look at Massey and Valtra, which are a little more the volume-oriented brands, there's some pockets where they may be a little bit higher. We have a little bit of work to do there. If we look at South America, on average, we're at about four months as well. Ideally, we want to get that closer to three, but again, a lot of that is going to be based on the retail sell-off. Given the level of production cuts that we're taking, w e're not necessarily pushing more in, but we've got to incent to get it out of the system more on the retail side. A little bit of work to do there. North America is the one where we probably have the biggest challenge right now. We finished the Q2 at around eight months of inventory. Small Ag was a little bit higher than large Ag, which was a little bit below that. T he team's working hard to reduce the production on the large Ag, which is what we control, and you may remember, for a lot of the small Ag, we don't produce that equipment. W e don't deal with the absorption. We're buying that from third parties. There's long lead times on what our order patterns were. A gain, that would be more of an incenting on the retail sellout to try to reduce that inventory, b ut it's a little bit less critical to us versus the large Ag, where we deal with the absorption aspects of it. Understood. I guess one of the things that I'm interested to know also is that the pricing dynamic currently. Had a nice, big inflationary time period. I think investors are a little fearful of the idea of a big deflationary standpoint. We haven't seen that in capital goods historically, but can we talk a little bit about that and what you're seeing in the market, what your expectations are around that? Yes, I think it's important to go back over the last couple years. When you think about the very high pricing that AGCO, and our industry as a whole, was able to achieve, it was really done in many ways to offset the inflationary pressures we were dealing with. E ven though you saw us raising prices 11- 13% the last couple years, we were dealing with an unprecedented level of inflationary costs in the system. W hen you looked at that net amount dropping to the bottom line, it wasn't dramatically different than the historical standards. Last year was a little bit of a nuance to that, because if you remember, we started last year, the inventory in the channels was very lean. There was very strong demand, and the industry were able to put strong pricing into the market. G iven the speed of the decline in the industry, we started to see the material costs come down in the back half of the year, even though many of the products had already been sold, they had been locked in. W e did get a little bit more of a price versus material cost arbitrage in 2024 a nd then as we moved here... Sorry, in 2023. T hen as we moved into 2024, we talked about pricing becoming much more normalized as the inflationary cost of the materials was going down. Our current outlook right now for the total company is zero. If we broke that down by region, again, what we would see is positive pricing still here in North America. We're probably around flat in Europe and then negative in South America, and we sort of knew that coming in. We talked about the strength of the South American markets. We knew that we'd be seeing some pricing in that market, as there weren't even in the traditional dealer discounts last year this time. O verall, we still feel very good when we look at our cost of material versus our pricing. We still expect to be more positive on a net basis, which aligns with our historical standards. Understood. Is there any sort of competitive pressures on pricing from products? Anything like that happening in the industry that we should be mindful of? Yes. A gain, overall, I think the industry as a whole has tended to be fairly disciplined, both on the production side of the house as well as on pricing. It's a competitive industry, nonetheless. E veryone is working to gain share. Everyone is fighting hard to gain that last deal out on the table, whether that's here in the U.S., North America or Europe or South America. A gain, there's always going to be an anecdotal comment where dealer X was able to give pricing to win versus competitor one and two, b ut overall, again, that's not something how AGCO's operating. W e talk about our different product lines, we especially our Fendt brand, which we're really trying to grow the share here in North America and South America. Fendt is the premium price product. It doesn't compete on price. It competes on the value that it affords the farmers. The better fuel efficiency, the better technology, the three-year Gold Star warranty, those are the things that drive value for the farmer. It's not going to be that it's a cheaper priced product versus the competition. I t's not to say these things don't happen in isolation, but in general, that's not how we've been operating through this cycle. Got you. I wanted to pull on that a little bit, and just the idea of Fendt and the penetration that you've kind of seen, even in the softer market dynamic. What's been the uptake from farmers on the Fendt brand a nd how do we progress in market share currently versus? Yes. I think if we look at North America and South America, again, the overall numbers are down. If we just go back a couple of years when the industry was strong, Fendt was having tremendous momentum both in North America and South America. If we look at the sales in 2020, for those two regions, they were just over $300 million. We fast-forward to 2022, they were just under $750 million, and then last year, they were just over $1.4 billion. T hat's not all pricing, obviously. Right. We were seeing significant market share penetration, significant growth. This year, as the industries have slowed down, the absolute numbers have gone down, but we're still seeing very good penetration. We have several of our dealers who had been in position, did not have enough capacity to sell. W e're seeing good share opportunities for them there, and we still have ample opportunity to roll out more white space. Again, we talk about rolling out Fendt in North America and South America. Today, I think on average, we're somewhere in that 75-80% of the white space for both of those regions. Our goal is to get that up to around 9 5%. Y ou'll periodically see us announcing another dealer coming online, taking in an area here where we did not have a strong presence, so we're adding a dealership for him or her to really build out the Fendt network there, a nd the other thing that we're doing, again, which is a little bit unique with Fendt, is we're really leveraging FarmerCore more. A gain, we may touch on that, but again, that's our go-to-market model, where we're leveraging things like mobile trucks in lieu of the brick-and-mortar stores. It's really allowing the dealers to expand their scope of coverage, trying to service the farmers more how they want to be serviced. I.e on the farm, versus the old traditional brick-and-mortar model, where you're forcing them to bring their large combines, bring their tractors into the dealership, forcing them to go there. With our model, this FarmerCore, we've demonstrated with our company-owned store how much more profitable it is for the dealer and how much better it is for the farmer, because he or she's getting served where they want, how they want it, when they want it, and again, being more Amazon-like with that. We're seeing great success with that. W hen you put that alongside the quality of the Fendt product, we're seeing good momentum. It's just the overall water level of the industry is down. Understood. O n that FarmerCore idea, what's kind of the trajectory for rolling that across? I'm sure there's infrastructure that needs to be built out for that from the dealer standpoint. Can we talk a little bit about that dynamic? What investments are you making? What investments are you asking the dealers to make with you? Yes. W e started sort of, I would say, demoing FarmerCore within our own company-owned stores that we own in Kentucky, Southern Illinois, called Ag Revolution. We've been doing that for several years, and so we have about four years of a P&L for a dealership where we've been able to experiment, demo these large trucks going on farm, where they've showed that they can do about 85% of the service. W e have a good track record that we can point to a dealer and say, this is how this works. This is how the absorption works for your particular dealership if you leverage this mobile fleet concept. We started to roll it out this year, mainly with new Fendt dealers. I would say it's concentrated more in North America first, and then secondarily in South America. Europe, given the pretty well-established network right now, that would likely come third, b ut we're seeing good adoption, especially with the new dealers, the new Fendt dealers, as they think about adding a store. Is it more of a mobile truck and a parts depot, rather than adding a second or a third or a fourth store. R eally trying to work dealer by dealer through the existing Fendt network, along with the new white space opportunities, is what's the best configuration? Because again, when you build that giant store, as many dealers have for the last several decades, it's hard to then layer on the mobile truck bec ause if I go out to the field, that's one less bay that's likely getting service, which means that investment that I put in that store, the absorption is harder to recover if I've got someone out in the field versus doing the work in the store. W e feel good. We feel that it's unique for us because, again, we don't have a strong Fendt presence around North America and South America, so we're able to build it out that way versus trying to force it back into the box that's already in place. Got you. T hen, we touched on the cycles to start with and the idea of seeing a double-digit decline two years in a row is probably something that doesn't historically take place. Can we talk about prior cycles? What were some of the dynamics that... We saw a lot more volume in prior cycles than we've seen this cycle, it feels like. Where we may have had a lot of price, didn't have a lot of volume out there. C an we just talk a little bit about where we're kind of stepping into the two cycle periods? Yes. M aybe just to caveat, it's not that we wouldn't see two negative years. We just usually historically haven't seen two significantly negative years. If, again, we're down 15% this year, historically, we would not see another 15%. That's not to say the industry couldn't go down another 5% or something like that. We have seen the industry decline multiple years in a row, just not the order of magnitude of two big sort of step years. If we think about what's a little bit different, this one versus the prior years, there's a couple things. If we think about the prior downturns, as I mentioned, during the most recent one, we saw a little bit of incremental production. G oing into the face of the downturn, we saw the industry sort of get enamored with these shorter-term leases. W e, the industry, were offering one-year, two-year leases to the farmers, and so as the industry was in a depressed environment, the farmers were having the option to buy these semi-used or fairly new pieces of equipment in the used equipment markets in lieu of buying new. That only protracted the downturn for the OEMs. We, as an industry, realized that was a pretty bad practice to have, this selling new equipment, and so that's really stopped. You don't see that. There are still leases, but they're much longer duration leases in the industry now. Y ou don't have that, in this downturn versus the past one. The second one is we look at the peak here in 2021, 2022, and even in 2023. With the supply chain challenges, we as an industry weren't able to service all the demand that the farmers had. We all knew, and you heard us talk about it, we could have sold more. If we could have produced more, we could have sold more, and that was an industry-wide comment as well. In some ways, we took the peak, and that's been shaved off because of supply chain constraints. If you look at the average age of the equipment here in North America, we've now just achieved the long-term average. Again, if you think about prior cycles, during the downturn, the age of the inventory comes up, you get into a strong year, and it usually drops below the average, and it moves back and forth. The fact that we've only gotten to the long-term average here in North America, there's still a fair amount of pent-up demand that we as an industry couldn't service during the supply chain challenges. Hopefully, again, hard to predict, but hopefully, that either keeps the decline a little bit more shallow- ... or it shortens the duration of the decline, bcause we know at some point that has to get replenished to bring the average age of the fleet down. And then you layer on all the incremental technology that we're bringing into the marketplace. As we automate more and more tasks for the farmers, making it easier for them, again, the willingness to upgrade, to get more productive, better machines, again, hopefully, will accelerate that, b ut we look at those sort of factors this time, we say, it could be a slightly different downturn this time versus what we've seen in the past. Understood. I think on the point of adding technology and things of that nature, just can we talk a little bit more about the Precision Ag business for you guys, what you're seeing currently? Is there an early order program for some of that stuff, and how is that kind of shaping up, if there is? Yes. W e don't really have early order programs for the Precision Ag business, but we're seeing. We break out our Precision Ag businesses. T here's two components. There are really three components. There's the Precision Ag that goes from our PTx business into our Fendt, Massey, and Valtra businesses. T he intercompany sales, that is really going to ebb and flow based on the industry, based on what we're doing. We have the second part, which are third-party OE sales. Again, if we think about the old PTx Trimble group, they had relationships with over a hundred different OEMs. Our Precision Planting group had relationships with several different OEMs. T hat business to the other OEMs has been growing significantly over the last couple years. Again, that's going to fluctuate based on the industry dynamics as well, a nd then there's the third part, which is really another key differentiator for AGCO, which is our mixed fleet retrofit approach, and that's what we sell through a discrete channel versus others in the industry a nd that retrofit approach is where we're seeing relatively good demand. Again, that's where it's giving farmers the ability to upgrade his or her existing metal. They're able to get existing new technology on an old planter. They can buy small modules. They can buy the new Cornerstone piece from Precision Planting, which is effectively the whole piece of a Momentum planter, and they can stick that on their existing frame o r if they're more cash conscious or more cash constrained, they can buy different components, or they can buy a certain number of rows to get some of the technology benefits without having to do large-scale investment. We're seeing, even now as farmers are watching their cash, they're a little bit more conservative on their spending. We're still seeing that retrofit see good demand. Not where it was a couple of years ago, but again, relative to the OE business, the replacement part of that business is still doing fairly well. That's looking very good in the Precision Planting group. The PTx Trimble group, which again is part of the joint venture, the acquisition we did here earlier this year, again we're seeing good take rates in signing up the dealers. Again, as the industry level drops, there's still a lot of churn this year, b ut as we talk to the farmers, as we talk to the dealers of bringing PTx Trimble and Precision Planting together, both of them having that mixed fleet retrofit mindset. T here's a lot of excitement about what's happening in the retrofit market for them, and then at Winter Conference last week, we just announced the OutRun, which is the first autonomy for the grain cart, again in a retrofit approach. Farmers who already have a tractor out there, they can bolt this tool, this technology, onto their existing equipment and start to get autonomous services for their grain cart, which is a critical part for them in the midst of the harvest, where they're very labor constrained. Now, they don't need to have someone sitting in the cab of that grain cart, and if you talk to the farmers around the country, that's a big pinch point for them. W e're really excited to really launch that last week, and that'll start to go into sale for beta testing later on this year here in the U.S. Got you. T hen I guess, when the acquisition of PTx Trimble had come on board, we had to set a goal of about $2 billion in Precision Ag sales by 2028. With the depressed market, whatever, where do we stand on that target? How we should be thinking about it? L inearly? Is there an S-curve to that or? Yes, I think we finished last year. I f we were to combine the Precision Planting business that AGCO had prior to PTx Trimble, and we layered in that revenue, we were just around $1.2 billion or $1.3 billion. O bviously, this year we're going through a downturn here. We still see the pathway to $2 billion by 2028 for the combined group. P art of that is we'll go through the cycle. Part of that is the adoption rate. A s you start to think about things like autonomy, w e've talked about having an autonomous offering around the crop cycle by 2030. T here's more to come from us. We layer on some of the other technologies that we're offering with Radicle Agronomics, Targeted Spraying coming out later this year. There's a tremendous number of new offerings coming to market, coupled with sort of the foundational offerings that we already had in Precision Planting and PTx Trimble. A gain, we still feel very good about our portfolio. Again, I think as farmers see the value of the benefits in some of these new technologies that we're offering, hopefully, we see an acceleration in the take rates. Again, when you look at things like autonomy, which we're offering these farmers the ability to reduce take labor out of the cab, or it's not necessarily a cost savings, but if it allows you to run longer during your peak harvest period to maximize your yield, again, it's conveying to that farmer, what he or she is getting as a result of that. I t may not be that you're saving a worker, but if you're able to condense that and get more crops out of the ground at its peak time, driving higher yield for you, ultimately translating to more value, that autonomous service is worth what you're paying for, and it's sort of educating them on all the value. W hen we look at those sort of things and what we're introducing, we still feel good about getting to $2 billion by 2028, and we'll talk more about that at our December Investor Day as well. Excellent. I guess, thinking here from this farmer's standpoint, their largest cost to operate the farm, besides the actual land leases and things of that nature, are going to be fertilizers or herbicides, things of that nature. Machine and actual equipment tends to be what percentage of the overall? 10-15%. 10-15%? T hen, at the end of the day, if you're able to reduce the cost or the amount of applications, be it on the fertilizer, herbicides, what can that look like for the farmer from a profitability standpoint? How much can your technologies reduce that cost for them? Yes, again, if we look at some of the things like our targeted spraying that we're introducing, it depends on the crop size, depend on the field size, but some of the things that we've showed that with targeted spraying, the farmer can reduce his or her input cost by somewhere 60-70% on the amount that they're using for fertilizers or herbicides and things of that nature. A gain, depends on the application, depends on fertilizer or herbicide, but on targeted spraying and the herbicides and the insecticides, we're talking sometimes 60-70% reduction in uses, which is meaningful for the farmer. I think the key for AGCO, though, again, when we talk about introducing these retrofit products to the farmer, our value proposition to them, again, because it's new technology, it's something may not, they end up being... is trying to show them that they have a one-year payback, maximum of two-year. A gain, we're not asking them to look at this technology, thinking they got to use it for four or five years before they get anything. The whole mindset is, how do we demonstrate a return on that farmer, where he's looking or she's looking at no more than a one to two-year payback on that investment? That's sort of that opportunity for them to invest, smaller opportunity to put some less cash up front, but hopefully getting the payback before they look at maybe upgrading to a brand-new, full-scale Momentum planter or some of these larger OEM-type technologies. A gain, more that leading them into the technology with a lower upfront investment and sort of giving them an opportunity for a faster payback. Got you. W ith a little over five minutes, if there's questions from the audience? Perfect. Just wait for the mic real quick and then... Sorry, thanks. One, I always think of year-end as a big retail selling season for farmers. Could you remind us what percent of the year sales are like November, December, around that year-end period? T hen secondly, could you just comment? Y ou talked about the new inventory. Could you talk about used inventory, used pricing in the last several months? Thanks. Yes, sure. Q4 is usually one of our strongest quarters for sure. A little bit depends on that farmer profitability, especially here in the Northern Hemisphere. They go through the harvest, they understand what the yields were. Their accountants or their financial experts say, "You made money," or, "You didn't make money." G enerally, especially here in the U.S., where there are some tax incentives for deductibility of equipment, we may see spikes in the Q4. Obviously, for us, as a year-end company, we're working hard to maximize our year performance as well. W e know our teams are out working hard, but you'll generally see the Q4 tends to be one of the strongest quarters for us, for sure. I t's probably 30%. Yes. Not dramatically different, but Yes, probably around 30%, give or take. Used inventory levels, again, a little bit dependent upon what the product type is, i f you're looking at tractors versus combines versus planters or sprayers. Since the supply chain challenges, the inventory levels have risen. I would say that you're seeing a little bit higher inventory levels on planters, and on combines. High horsepower tractors are up a little bit as well, relative, again, to the historical standards. W e're seeing the inventory levels elevate. I think importantly, though, is the used pricing. Although inventory is up, the pricing isn't dropping as dramatically the way you would have thought this. A gain, part of that is to my comment to Chirag about the short-term leases. You're not seeing that flux of semi-used or semi-new equipment flowing into there, and the pricing relative to historical standards is still staying fairly strong. We're working with our dealers. Every time a dealer sells a new product, there is a certain amount of money that's allocated into a pool fund that allows him or her to work on trying to move the used equipment. I think the industry does that as well, and so you're not seeing a glut of used equipment, and the pricing at least is staying relatively attractive compared to the new one. A gain, it seems, it's following a traditional pattern, I would say, but it's not becoming a concern, at least thus far. You spent a lot of time talking about technology that you're driving to the clients, automation, things like that. How are you looking at it internally in terms of OpEx management, right? Is there a differentiation there? C an technology used internally, continuous improvement, downtime of equipment, things like optimization across your whole production fleet, how are you looking at that? M aybe theoretically, what is the possible efficiency improvement that you're looking to achieve over the next two to three years by optimizing internal OpEx across the board? Yes. There's a couple of components to the question. I think if I look at the manufacturing side of the house, with December 2022, we talked about raising our mid-cycle targets up to 12%. Part of that was coming from inefficiencies in our factories. A s we're leveraging better predictive maintenance, doing things on better scheduling, we saw an opportunity to create better efficiencies in our factories. Y ou're not seeing massive investments in creating new factories, but more tweaking where there's bottlenecks, but getting more tractors. W e look at our Marktoberdorf factory, where we make a lot of the Fendt wheel tractors. We produced more tractors there last year than ever before without doing massive, significant increases in investment, more by de-bottlenecking and doing better predictive maintenance, taking the equipment down, better scheduling. A gain, as the tools get smarter, artificial intelligence, things of that nature, gives us better scheduling, we'll be able to squeeze out more efficiency, thus lower cost per unit. T hat's happening. O ur manufacturing teams are deep into the weeds, looking at those sort of opportunities, talking to third parties. W e definitely see opportunities for continuous improvement to drive productivity, a nd we task them every year to deliver X% above inflation to try to drive some sort of margin improvement. T hat's part. The other side is on the SG&A side. Again, we went through... In June, we announced a restructuring action as part of the downsizing, taking out about 6% of our workforce, b ut we also alluded to leveraging technology more, really trying to use things like generative AI to go through and do a lot of the traditional manual processes, leveraging technology, a nd I tell you, in finance, we're doing things where we're looking at 100% of the data now leveraging generative AI, versus what used to be one or two person doing spot checks or sample tests. R eally trying to drive efficiencies where we're getting more information covered, more accurately, and faster without the use of people. W e see that as a huge opportunity. Where we can't do that, we're looking at more shared services. AGCO as a 34-year-old company, was built through an array of acquisitions. We really haven't created that one common skeleton throughout the world. W e're seeing opportunities to create efficiencies where we can centralize things as a center of excellence, usually in a lower cost country, to take SAG costs out of the system as well. A s we think about some of the steps, opportunities for us going forward, we know there's opportunities leveraging technology better to drive lower costs, that we think will help offset inflation or enhance the margins. A gain, that's part of that December Investor Day, as we think about the next stage metrics for us. There's lots of things that we've done in the last one year between the Trimble acquisition, grain and protein divestiture, the restructuring actions, all of those, as the analysts have asked us, our 12% mid-cycle margin doesn't seem appropriate, which we've said we understand. Something's coming in December, so just be patient, but that's part of it. With that, we will keep you guys on schedule, hopefully, and to the next one. Damon and Greg, thank you so much. Thanks, Chirag.