AGCO - Earnings call transcript Q2 2021

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Operator

Good morning. My name is Sia, and I will be the conference operator today. At this time, I would like to welcome everyone to the AGCO 2021 Second Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session [Operator Instructions] Thank you. would AGCO's turn Head I to conference time, Peterson, Greg of this like the to over At Investor Relations. sir. ahead, go Please

Greg Peterson

product plans, exchange and share predictions Thanks, at earnings of discuss of to update periodic revenue, to for rates, documents morning slide caution are respect presentation will disruption may prices those Sia, those you plans, product cause rate production to workforce resulting could and a be call benefits. but and us our in from tax our posted time that benefits XXXX. to, This demand. and joining website We to to that pricing, you We our repurchases, availability, events development flow, the timing statements, the and to refer reports factors cash factors financial will XX, We this those our to expectations demand, later discuss in are including also, replay in AGCO's retail by the to developments supply appendix in the contained do for including from of except those and The COVID-XX, those timing time commodity with important used forward-looking of those plans, the in obligation A corporate metrics forward-looking wish differ This year Commission, expenditure non-GAAP today earnings, required refer call. statements of quarter We'll website. actual and capital adverse make limited any and slide expense, company's that's results the that future morning, www.agcocorp.com. engineering plant December and GAAP costs agricultural materially from rates morning, also these on presentation. that and measures and including These also changes margins, demand, we available presentation any other you law. disclaim are statements. as product ended second not weather, that reconciled metrics. good include, actual we'll of These dividend including with levels, to materially. file Exchange industry, closings, the we Securities differ to and statements, forward-looking the Form chain XX-K the impacts,

go call Financial our Executive with Chief the Beck, have Hansotia, this Andy Officer; with Chairman, On us Officer. we President Chief morning, Eric ahead. and Eric, please And our that, and

Eric Hansotia

We pandemic key our We've needs last appreciate Thank to addressing everyone us long stakeholders COVID joining responding the way the during call on and and you, good morning. crisis. today. of all the the the Greg, come global a year, over of

earnings. journey – American in and we provide context think that our our remember helpful were factories, or I year second to to where second the results. impacted sales it's European current quarter quarter year, shutdowns in extended negatively the quarter we order of some Last our experienced to last and which last South during in

our strong three sales significant second recovery economies delivered reflect XXXX of has to very AGCO chain quarter started and AGCO's last in global market supply quarters, levels. challenges. markets despite well and the by We the earnings for demand Over high have as robust results to team. ongoing the as end reopen rebounded execution growth

nearly we capacity the XXX operating by production. to XXX%, where income on our year. COVID see start forecasts components during of And the Based of the significant and component last a material we a to The in helped last call expect XXXX. higher continue targets very increased chain farmer fundamentals Slide timely regions. are factor major boards of increase more improved operating to point inflation year cost impact receipt regions, increased offset a Underlining with our full be results, compared and order quarter. all quarter can strong grew these second still Let's net of achieved raw significantly XXXX. challenges in you see driven disruptions all in and constraints across for our XX%, discussed continue second we X, basis margins, the costs our quarter remain the strong, the sales for Adjusted above improvement supply in market as second Favorable to year. adjusted financial our on of remainder to material pricing impact

in solutions demand excellent aftermarket investments even off, as other planting tractors, and products. solutions precision digital we smart ag and precision for our technology-rich seeing paying are Our farming, are our

past healthy of details across on commodity June retail X. X XX%. same and Our Slide prices Western continue approximately levels in retail the of has first increased upgrade industry prices conditions are healthy increased with evidenced taking investments, pressure commodity supply first production stockholders, the across putting half in expected of income with all the grain, levels industry wheat, exchange period cash generate technology-related of healthy low livestock a sales These first and farm also grain XX% quarter, well economies levels region compared return dairy major our to funds resulting driven on industry improved which the South prices are XXXX to demand export our economics sales sales conditions growth as the favorable improved farmers machinery. paid in equipment Agricultural to in XXXX, dividend rates Slide supporting retail the farmer by AGCO's unit sales first as half XXXX. healthy of XXXX, as to sentiment. A markets, of equipment. their by inventories, ag markets recovery year to are advantage replace who Industry demand smaller for increased America, with about versus months as in as the remain special well during crop America, for Roll major demand sheet ago, as increased positive higher at have in the crop, support aged constrained markets. XXXX. Brazil, projected Europe retail all the increased by of reopening are factory X. balance of in growing of well an industry combined favorable economics, improved sales levels. half in supports industry and on the fleet. The farmer shown large variable for generating economic In as equipment tractor positive are In growth company global North fluctuated XXXX XXXX by farmers but to continue hours for production over the crop X first

well bottlenecks all disruptions COVID-related surging demand. regions. suppliers and due been Despite Our in by continue as industrial capacity to the great delays work experience have we to team, impacted constraints of purchasing supplier by as our our

the market expect see increased in half does capacity. of to Total XXXX, which additional to Despite the demand further end to the chain approximately market South the production to in market subject company of We quarter represent increases our XX% end meet we of was for our quarter quarter, plan top in shut this the demand. second in levels the plan down last room largest ahead to not our same still challenges second second up would American ability the XXXX. significant meet our respond, our for production further strong period increases European we have new of supply factories, we versus year, production. and with the our quarters were increase Since If in the current production of portions end increase, demand.

We a year. XXXX year full projecting compared XX% in to increase are last to XX% production

production significantly in half the You remember of XXXX. back that up our ramped

in half. So have in not will our XXXX what the second growth as as large be first of experienced the half we

Turning order to our AGCO's attention board.

of hand to results. end provide significantly order combines now South June, I'll the our America, Beck, over call America a in As Andy information to and who higher of year more about was board ago. our quarter and second you tractors for Europe North compared will the

Andy Beck

produced Combines, – XXXX, of increased XXXX. tractors, I'll Recovery net XXXX. XXXX. morning were same sales XXXX. impacts. favorable net looks in segment were America up The which excluding reported sales sales AGCO's XXXX, with quarter constant Australia Brazil, Slide to second currency, XX%, Asia increase. favorable second up second in and XXXX, compared the China currency, compared currency Increased approximately impacts. and increases along second of quarter approximately excluding positive currency in second was XX% on the up segment Strong most in impact X, Europe/Middle the planting the $XXX the excluding Kingdom. compared protein about Part to in of East tractors, end of to approximately drivers North over of replacement net drove XXXX experienced on Thanks, and and was approximately second Eric, United net regions. quarter growth regional were our up sales compared growth. currency start the Net impact excluding in significant increase and growth. XX%, growth positive sales midsized pricing an precision to increased sales strongest XXXX. to second translation. France, part occurred compared were AGCO's Consolidated impacts. quarter most market for of good of the demand of South about the positive quarter excluding XX% period translation impact of Pacific/Africa quarter America the the in second of in sales and for Net a quarter levels increases about The the grew XX%, sales showed the of compared Turkey the quarter everyone. the products half and the sales were across of performance grain currency in the AGCO's at which first the excluding to to basis of largest in of production-constrained strong currency million XX%, the XX%, The Africa, all

the of of addition, higher of our sales margin XXX were of production AGCO's by reflecting sales the operating XXXX, quarter in XXXX, by farming products Slide improved strong levels as smart first net pricing same XX% XXXX. net up first basis the compared In acceptance and solutions. in the sales period to positive Margins quarter. approximately performance. ag in our half half well examines precision and supported XXXX the of points adjusted AGCO's compared margins second to were X approximately as of for

increases. Our second X.X% cost approximately to adequate quarter inflationary cover was pricing of

North and the higher in second from increases the improved by and XXXX. Europe/Middle American increased the excluding Grain European grew region million $XXX strongest The farms. production, million profitability million approximately East in inflation sales operating higher to stronger segment, XXXX, to details quarter improved resulting to a pricing required mix the America largest improved grain regions with second protein improved increased regions. XX%, increases. year, operating by income the in reached $XX better we South by product stronger, and growth and showing quarter the grain grain nearly in XX.X% in American net Protein sales to equipment operating growth. region margins. and continued the sales to of significant maintain quarter prices X engineering XX%, income Asia/Pacific/Africa increase Slide in supported segment operating production. remainder product. to about of South material expenses. and period XX% equipment of our America margins demand XXXX quarter market income from currency South second Sales the compared and end margins the XXXX, sales the increased expanded In the approximately demand quarter. approximately of contributed of with an been the X.X% results. primarily Asia/Pacific/Africa has intensify, For and supported Operating in offset sales with sales first our XX.X% expect production in approximately sales Globally, our reflecting in by reached and operating The partially margins cost reported $XX same in and and mix XXXX. Higher compared

due has cover China, the started by pandemic, from production North where to production capacity segment impacted challenged. Asian the significant fever prices steel was surging improved, such costs. lower by and demand Protein labor In have their However, remains America, profitability recovering. as to manufacturers facilities. significantly so been processing are particularly is price swine protein increases issues The are higher muted The protein beginning input by to grain. production to market protein continues rebuild to producers in outbreak equipment costs be protein and recover

We used are heavily capital Slide expecting XXXX, flow cash X by were the protein XXXX, free following X addresses cash the represents activities for a first operating in weak recovery impacted in in sales in AGCO's pandemic. XXXX and of which grain which expenditures. months less sales

the requirements in both allowed greater generation first XXXX. the are seasonal of Our the flow repay facility that digital as cash the free bolt-on investments. term was ag X year and working us year. half out allocation year AGCO's provide capital months strong cash to resulted last adding priorities XXXX in and in in for offerings our to $XXX taken include of investment opportunistically flow negative in first million prior loan the well and precision AGCO's liquidity capabilities, as capital

the be Other of sales dividend details facilities, $X.X receivables associated flow expenditures shareholders. annual to variable capital we includes In continue shareholders first shareholders, dividend acquisition net, well million our terms were expense $X.X our and the the quarter dividend on will return returns quarter, share return compared first currently which an with included repurchase investment shares same XXXX. outlook. needs, repurchases second paid we are quarterly and the million period of payments, other based to which as the during for on the our special generation, cash to the of quarterly second receivable XX% regular Future as half We cash in include In market of increased opportunistically during variable our cash quarter. to in to and approximately special expect our financing on quarter will by XXXX. dividend of opportunities, to in second losses cash

full to Turning year our forecast.

We larger demand and favorable and increasing of Higher America, demand. sales. support expected are to to commodity up above prices be economics in to expected segment. strong positive project Slide Our grow North in for and improve XX% demand producers. from XXXX, approximately Milk in expected XXXX. prices average, additional during to from in expected is to farm Union the is to Replacement of to for tractor smaller In compared European support XX-year sentiment are are expected to the equipment. to approximately commodity remain XX. America equipment is increased XX% market for to improved on farming remain XXXX all the commodity supportive stable XXXX remain Elevated In industry demand American economics Western continue dairy most expected sales healthy industry XXXX. are several aged for levels. demand in South arable compared farmers as major an forecast rates replace X to prices total, to expected and industry is prices demand our aged industry XXXX, globally Europe outlook is retail XXXX markets exchange growth XXXX. after approximately XX% for captured regional South and equipment America expect increased Demand fleet regions increase. is result drive higher XXXX. farmer more of be years We unit in the higher North expected

XX, assumptions underlying Slide highlight outlook. XXXX to Turning we our the

for maintaining to Our dealers. working safe priorities continue providing be proactive our employees our customers support to a and and environment

addition In make focusing farmer first of to we solutions investments the end support on meeting market will strategy. robust development significant to in new our demand, the also

with pandemic. from demand, industry assumes global the forecast no XXXX Our improved additional impact

smart well and favorable offset to in increased sales and million expected price initiatives, rate at of pricing in increase positively Our investments products offsetting material XX by is platform to sales to increases levels, expected increase approximately by current precision by investments a to we farming of The – up share as Engineering rollout inflation productivity net from improvement to during products designs. XXXX. basis smart currency aimed XXX costs and production, translation basis, exchange targeted partially our ag X%. of digital market on our Operating expenses cost higher expect to sales at $XX XXXX. initiatives. as million rates, $XX plan exchange and by points driven includes continue are compared constant approximately material about and are the XXXX At higher impact X.X%, be margins

XX% We of tax lists for from our rate are targeting ranging XXXX an XXXX. investment selected – to XX financial goals. effective view an Slide XX%

not continue We further this in does any disruptions the operate and to outlook by caused outbreak. consider uncertain conditions, business COVID

We to approximately at be billion range, sales are per share earnings with the projecting to XXXX targeted in $XX.X $XX.X billion $X.XX.

and to flow in $XXX million capital approximately to $XXX be free be million the cash range. million expenditures $XXX expect to We

earnings share. our of as modestly from strong that shutdowns. was quarter, $X.XX catch unusually to second is range the per last lost to third of production approximately be estimate -- estimate below the worked the XXX facilities For in year, and per is quarter quarter Brazilian will third share production current up our This European which $X.XX the XXXX

engineering facilitate increased plan third quarter also XXXX. We new scheduled introductions in in product expenses to the

difficult While dependent timing I'll supports of results of estimate the our between call our quarters rest to QX improved We turn fourth on performance. that, the production sales suppliers that our to quarter. be during is due challenges With continue throughout outlook, currently will the component anticipate chain XXXX. the to highly supply is we forecast order our back Greg. availability over the from our quarter levels significantly over XXXX XXXX to and expect backlog

Greg Peterson

questions. ready we're And operator, we're [Operator to Thanks. Andy. Instructions] to questions. ready you, take And now, Thank take

Operator

from first will with The come question Stephen [Operator Jefferies. Instructions] Volkmann

Stephen Volkmann

you term, what some for a just curious, pretty mentioned. or the big feel that end of taking I'm Thanks like you quarter? guys. the to expect on have improvement limited in supplier sounds some like finished for Maybe then supplier you morning quarter? issues issues accomplished you reduced longer my do of guess question. the the product parts Did Good I Thanks. start the in waiting of sort of fourth quarter. And sort it second at you off

that. just around a color So little maybe

Eric Hansotia

going rest built Eric. quarter to Stephen, one two. yes. And -- show We've continue had that and extra as The continued through challenges through the all in other. answer the for questions of the right to the having or Those on we and Yes. this to is up those machines are raw year. the mostly reality, part is them material waiting year, of this extra for all your they're end expect

we So, a build are history. high hard but why high that he a highest built order -- company's the closed in Teams probably ready the did. really lot board, Andy expect to out the quarter machines made situation, that's that we invoice yet. still of are not with working board, tremendously got order through And to we comments that

to that expect continue situation yet. some We time on for

Stephen Volkmann

the But a your quarter normalize based guidance, things quarter obviously, pretty assuming looks Okay. fourth like guess I then? big you're on and

Eric Hansotia

we'll think I challenging. a to expect say We smooth topic we're but for perhaps yet. quite we not We're X And quarter bit not behind but little aiming wouldn't to get of worst it still we of bit quarter out overall the so, the little relief. normalized, yet. X be believe is of be but a that us, sailing less to

Stephen Volkmann

right. you. Thank All

Operator

Cook go will Suisse. The from ahead. Credit come next question Please with Jamie

Jamie Cook

Eric, the challenging XXXX? guess, have And how book material chain is pricing Thank for the Hi, quarter. is. stuff? just cost to you. noted good rate, morning. do how just dynamics orders I related great assuming you much for XXXX, you order book of type wondering today order how your given supply I'm Nice you approach

Eric Hansotia

is XXXX. of filling you most few about is order for XXXX. size XXXX. XXXX, Thanks, much the bank, the most the up bank When of products still but of it's into of rest of is a sprinkling Jamie. There it with yet order largely think the Not some, for

period I'll Our orders windows example, position time. up pricing order at take for we a time the given like at we'll just talk window and a South say at And say, a maybe banks, for America, window. X-month about, then close open only that X-month, a

inflation. the manage make the us to up market cost intense highly the with match allows sure our – most situation that that relative That's and those the being to inflation pricing We timing with -- can lined situation situation volatile. is inflation with So those.

And set Early that's way. doing. programs are what that order we're so

putting making we're we're sure pricing place So, that in in advance.

that's been year-to-date, all of actions far, so the proven with We've ahead our be case. costs of to And the pricing year-to-date.

Jamie Cook

follow-up, the Eric. cycle a a the as around sort that farm just bit There's are you in where and of then And lot peaked. debate Okay. of equipment concerns market

us So it? the back define given And is relative understand your region you. want then think of in however to farm or equipment get experience help level, peak you I'll you by cycle mid-cycle, to sort you can queue. Thank where

Eric Hansotia

now. would at marked Yes. is The No very strong farming say, have about that. yet. Is right question it We cycle it overall, don't at we peak? peak

below low for number still factors. demand grain prices. years. commodity high there's mid-cycle. went And it And we guided we that think years year, this to into because there's farmers There's this And holding year late above the to early, little now. above room during There's of forecasting have from of We've was – were lean the forecasting unmet of that's yet a but We on we for mid-cycle. replacement still yet be purchases many last year bit play off inventories. going out mid-cycle time some a

front us lot when a combine a for a conditions good pent-up fairly period. So, strong market current that all there's you in of We that, think demand. of

Jamie Cook

Great. Thank very you much.

Eric Hansotia

welcome. You’re

Operator

Ann The next JPMorgan. go come with Duignan will question Please from ahead.

Ann Duignan

Yeah, hi Beck.

I the one last of Just and your back not puzzle question than you is that faster input mean ever that have think risen for on to before. costs the the speak farmers did I response. that piece of

quite likely it their so, And net year. this that will have incomes is peaked

about you really I you cycle. the equipment -- take talked the about but cycle, could consideration you talking talk were think as that So farm you through into

and from squeeze that just North seeing, costs what and in the -- could that the on outlook. they're incomes you your input If farmer might do talk America about to

Eric Hansotia

time. a every typical behavior. happens is Yes. And This this very

there's In been cycle. purchasing. where constrained period So, each there's cycle, a not unusual it's this

not that the there's Then are marketplace. Europe. low, seeing catch when with prices in this America, And X.Xx with in and demand. suppliers demand There's We're try all so, there's racing to up especially are a in – are input prices low. in steel up the X.Xx commodity North room surge and costs

kinds because are ramp-up. And pressures the so those of of

in Our bean their slowing farmers behavior. like to too. that's are purchases, especially grain down purchase that, feeling And some extent,

And not so that's that stabilize we that market think chance why to cooling a farmers because prices. off that is We reason more And room after. price and another good elevated stay actually for those going year at some now. the buy I perhaps for think may that strength next downstream back or allows in there's think steel get for it's time year this that to

Ann Duignan

commodities. talking Yeah. our steel fuel about Could seed cost, perspective. I'm farmer's about for and P&L prices, from is fertilizer freight a I'm cost, prices you…? it talking costs, whatever not prices

Eric Hansotia

it's the all though. Yeah, I same think

I There's the they're a behaving up think same. all massive right run now.

machinery. going paying so I And paying will that -- more But lot farmers some more everything. -- to rental a They're fertilizer, for so for go so And are price are prices high up. more a to for and there's for think inflation. extent, seed, more

But down likely going to cool will moderate. prices that So buying their behavior. also are those

the well. it's for same think mid-term. to which I short-term, demand example it's steel out I So just thing over in are home, be as closer fertilizer the it's this to cool should the but the spread that that's use because -- Those demand why going

Ann Duignan

there of you. interest the time. I’ll at leave Thank Okay. in

Eric Hansotia

welcome. You’re

Operator

come The with ahead. go from next Oppenheimer. Owen Please Kristen question will

Kristen Owen

the North market wanted sense talk I mix that's impacted us a question. your my any taking there? give bit indication of a to Can for you how America. expansion for traction Thanks share? of the in little about And

Eric Hansotia

the? to you take Do want

Andy Beck

high-horsepower America, are our seeing improvement equipment most of in in that sure. by Yeah, really and America. strong is sales the North we our in Overall, in growth driven net North

high on we're I think, We're of this that. half track that's are with over XX% year. to And in sales I So of our think that. up big first the contributor a horsepower equipment, -- right

been product acceptance the fit has the of So good.

so our all in develop stronger and that's distribution, some continue results We leading to you're to the North of America. seeing

Kristen Owen

related what Great. the numbers of provided, ag maybe of out in the that my you was you. ag parse between in Can up and rest you precision the sense planting us give is somewhat precision And precision follow-up the half. on first XX% a it portfolio? and Thank that XQ

Eric Hansotia

that in first Sorry, have the by XX% The quarter. planting the We is of planting it up I precision first about half. half numbers. precision aspect don't just had

other the ag that below in the XX%, little precision kind XXs. so on of developing we so aspects And of were OEM a that revenue is low

Andy Beck

XX% Kristen, that first XX% or pretty consistent across half. -- the was

it's are for So our the mentioned, as Eric the strong half And whole first half. back in been well. boards strong as order the of year

Eric Hansotia

exactly maybe for. on that. planting story aiming just out The we And I'll you are told precision build is we playing like

So grow is multiple levers there. we've got growth One to continue to the planting business.

third planting the globally. crop grow to around into cycle. one is Second to other the And of outside grow one technologies is

take a are over at Planting, up sales up over you XXX%. were for South quarter XXX%. Precision America sales two look If the European

solutions targeted. a as coming business. So dimensions is we out those the the really of doing strategy are excited The customers and great that happening job in the of about is each very team

Kristen Owen

Thank Appreciate so the much. you color.

Eric Hansotia

You’re welcome.

Operator

Larry Maria The ahead. go is William De with next Please from question Blair.

Larry De Maria

morning, everybody. Thanks. Good

Precision maybe follow to size up that your to we – in term I'll the you or on question. that First, Ag margins broadly planning impact the us level Can on because business of is in and margins? the just that broadly overall see rough precision set on what dollar try

Andy Beck

margins. categorize would Yes. aftermarket type those I as Precision margins? Ag

double like OEM what parts get double our normal from a typically we –- they're machinery business, typically So just what sale.

Larry De Maria

dollars Okay. of hundred for Thanks. QX? And if for year, the a million couple full

Eric Hansotia

that. than More

Andy Beck

Yes.

running $XXX in growth rate to business were not what year. second and we're first is And last a expect we'll right important because about probably down revenues in significant the a still our come really can Planting So rate second the the but million see half half pretty in year. that now. full half, you Precision growth We'd as little sales see

Larry De Maria

some some Okay. next could to I South overproduce orders a from how Any discipline around pricing, The question. ask relatively your to positive philosophy inventory actual think to lean good maintain next and year. -- as to attached you're how pricing? require thinking we obviously, to this if about and the early positive my real getting But order what's production about You of Kind color overarching possibility Thank discipline. moving windows industry gave you year? next you. of America, into be maintain not programs, names maintain this going OEMs open production are into you And year?

Eric Hansotia

inventories retail keep really and order is, during is inventories retail high – which dealer on our retail for we production right be plan at of where demand but sell-through that's retail, strong is the and obviously focus our then to be, think and in and our the company are not now, Yes, they're that inventories produce constraints well going really some as Larry, the now, to what Right Eric dealer dictate but XXXX, if even because things strong inventories market now ago, going the sales continue approach look board, issues that. our will year in and that our is demand. the basically retail forcing levels line. monitor the the lower, right were and like And just to described, to below and focus a retail, we I we and what and XXXX, we extremely our there production of to lower

year be half fairly than I the of of but plan are end other prior markets be will some level year. we that inventories less that retail year, demand last our are likely still our at given levels lower the strong through the expect the the as back year would the is go inventory dealer So than its with

Larry De Maria

Okay. you. Thank

Operator

will with Bank. go Please ahead. The from Deutsche next come Nicole question DeBlase

Nicole DeBlase

Yes, guys. good morning,

Eric Hansotia

morning… Good

Nicole DeBlase

that with cost. the an your starting just issue? inflation positive guess Is I in second price ahead inflation appetite should in first price that for the Is there half? Maybe remain increases? I appreciate further And like of can was half. remain it you expectation

Andy Beck

Yes.

do there. in continue these So, to that -- big our plan this to business, challenge grain are. offsets will needed increases getting costs. believe in overall, But we offset pricing for material able material add have not severe some our a costs. in like of That's maintain the to we're year all And that, where sometimes, and cases, and protein cost of that because we squeezed to the we're pricing how is some

is pricing which be XX pricing, points the cost, about net material Our for full expected over the basis year. to is

Nicole DeBlase

it. Andy, traction there Okay, the really just got a this on quarter. And once that's then was impressive margins. South again really mean helpful. America I follow-up

America are how guess a to the since important you I margins half variable pretty for second about margin? So, overall South that's thinking

Andy Beck

Yes.

strong been really South in as of volume the some trigger you Our look the ahead in of has just year-over-year American terms first that along improvement way with significant help really say, mix production schedule we the for, margins, that increases and half.

we're And levels continue levels year. looking being go than We're fourth the and growth and a also, expense in we in mix. last down in third to we of the quarter, in fourth the the that the mix second giving seeing as relatively be that's overall, seeing horsepower what the -- areas. in second will increased profitability is of As the year. higher, second the strong into of half our the the But we're better quarter. in at little lower us weaker be sales in half will equipment, bit and our had the quarter engineering some margins some third the then not other flat fact in little a Despite and half

Nicole DeBlase

on. pass Got it it. Thanks Andy. I'll

Operator

of Gilardi come Bank will from ahead. Please with question America. next The Ross go

Ross Gilardi

Good guys. morning

Eric Hansotia

Hi Ross.

Ross Gilardi

had a whatever to captive about And to they business does and all you you're go potentially buying question of the you? how just going to from competitor's cause I at into a mean supplier I them? hands worry on a big Raven. are

Eric Hansotia

a That's a little fairly question. controls, Raven There Ross. in terms the Yes, minor bit grand limited. good technology of is a but it's scheme of from somewhat sprayer buy We of things. in supplier

with supply -- that. we for their If we to couple of components commitments componentry that In continuing Raven to there's CNH, buy. of you had we've that all planting AGCO prior and there's discussions the the CNH structure they're that precision we think nice honor planters. committed with feel about And there already dimensions a a to different short-term, to

spray that that we Raven CNH components today. and us and the feel Now, we -- continue with to so will supply confident purchase

the terms feel developments, half is, intending in We -- and will future stool: terms they is going forward, precision continue of from also development, property are intellectual your sharing to keep that going policy organization ag and componentry. the like got data where make so look with of had programs the off really question we we partnerships -- internal we've of But on. in acquisitions in our that, a to Raven sense. several three-leg And your then second we of walled be terms of rest and of that future commitments

active very where at companies the and for the landscape. finding ag can or we technology landscape and a of got group acquire we've so partner And precision looking

something so, quarters. next we'll And will the that that over I think, about be more talk few

Ross Gilardi

precision in Eric. helpful, flow, terms your your free cash priorities your a flow? where that I improves mean think ranks overall competitive you. super ag That's the in do for of cash just Thank order larger you pecking more position versus of related returning acquisition

Eric Hansotia

companies Well, when an size meaningful impact, standpoint, an investor a a because are from investor, that -- the a at relatively you to it's low impact internal priority. from there. From look are small it's high an out standpoint,

company we AGCO, with of relative group a So relatively making. the of impact acquisition important to planting, ingredient. they're an impact, precision look overall see big it's the small can A people at make like you but think small-sized

think, consumption a forms, a from flow investor I it's, and returning and it's cash it an Relative internally. big other So eat smaller impact. impact cash how to would into

Ross Gilardi

Thanks, very much.

Eric Hansotia

welcome. You’re

Operator

will Goldman Revich question come Please from with Jerry Sachs. go next The ahead.

Jerry Revich

on just I'm their Good equipment heading for morning, Hi. you comment Yes. into if your could inventory how see dealers everyone. you year-end. used balances wondering

the for potential versus length you be averages? have so equipment we by long-cycle if comment would sense helpful. do a can Just today that And could you for of extent where inventories region view you cycle, visibility, to used

Andy Beck

front numbers the well. seeing overall, as me, But extends don't I of have in Jerry. specific the Yes, the we're used market market into that strength

there. demand solid good So

in a a America. And overall, well. It's of with they used in -- Europe. but sector important I Very Our monitor is used market equipment. South you along big North But it's year And right America ago. market that's inventories new think prices and up. that really what a are important as below not the used most moving the lean. going are it's where and know, And we're part of to as seeing with were

Eric Hansotia

Sure.

finance our the returned -- monitor equipment some of that's in the at And with And inventory of we kind is that, used equipment costs equipment our ways One associated that. returned of low. we there's company. extremely look been normally, reselling

doing company. a business finance of we're profit This equipment. so, a reselling cost actually And on that making a for that's year, usually used

that only prices, in used prices is place really sign good supporting that's the a really up. good that's inventory a So, not driving equipment but

we helps that equipment. as us our So our -- sell new price or

So very supportive.

Jerry Revich

'XX? seasonally in And or in Is Okay. rate exit pretty about seasonality? looks extraordinarily is we numbers, type the rate a obviously, of as be positive that out normal fourth number. should should thinking look to anything we center adjusted the model for as quarter, think this there then quarter's business in Anything we the earnings the XXXX relative at robust of what that like we run

Eric Hansotia

close If basis as that, of regions. inventories Overall, quarter. of North to going we're That's ago, we probably South were in but XXX fourth we're reducing margin both America mainly to on dealer a driven pointed and we driven, not year expansion America, in those mainly out, seeing working Europe. I points back see think the to

margins in more And higher going of fourth particularly overall the sizable to sales horsepower levels in production be see we're strong so, equipment revenue mix of sales. the some high because in America growth, quarter, a quarter. higher And our should North and fourth

quarter good fourth should it be the overall, quarter. solid So in a

Jerry Revich

Thanks.

Operator

from Cleveland Please Research. is Adam with Elman question ahead. next go The

Adam Uhlman

Hey guys, up the are us remind could any bookings business get what GSI of chat update And and was like can down. we with you then the business to you that year? have the you that near so sales thoughts – Could looks I you steel bit on is for maybe the a sticker wondering outlook Could morning. the prices half looking second more. much, what term? customers little in just medium on remind profile next shock mentioned year? slowed here little and what about margin I the think the a good the if And is now this us us like? starting

Andy Beck

lot last – business was a sector year. Sure. The there shut of Grand weak Really, year protein protein issues. was really down, had a

we do revenue. see And recovery nice so a in

full expecting expect little about the we've Our and into margin for a year-to-date is revenue margin a year. up, year already improvement. entered we as mentioned, from XX%, we And the that standpoint,

the with between that to relatively the looks and costs and ability driven project. margins lead project-oriented it the our comments longer and by order really time longer Now we that's are my up like when there's get And going be a offset that flat to finish about previous deals. pricing to material keep type

some us So, will grain opportunity bit so squeeze into terms give protein margins. and there, a that little of a of moving in XXXX

Adam Uhlman

you today if revenues there to you would Okay. guess, improve. without help the if the I think more that be upside I in understand component standing mentioned How free? Eric, much in Got year, we're have could CapEx? this current where us significant And pretty earlier then you. was call, availability growth some footprint, could supply availability we

Eric Hansotia

Yes. all the problem. in picture components in into supply in really We factories closer But chain is factories. the getting flow the a We're – the couple not of our a yet getting today. capacity fundamentally, the is factories. It's big to

to a enough burned because a this expect here year, of you there. factory production running down shut sure, days lose out you you or don't up so, had unless capacity shift we or for And say

run out that of You capacity way.

capital put areas recently of We system warehouse a So piece, in continues our some work automation. next factories. to we bottlenecks. don't and Selati through continue factory some sticky. of work the are paint automation piece our by and that the automation in in to it's Those in really several flow. new these That We've for improvements capacity about the factories feeding requirement. steadily years, the through couple been component -- And story a major with see is

And with issue Big of staying is so chain. factories. ahead our supply we're it the out

Adam Elman

Great. Thanks.

Operator

ahead. question Tiss with go is BMO. from next The Joel Please

Joel Tiss

are guys. doing? you Hey How

Eric Hansotia

Hi, Joel.

Andy Beck

Hi, Joel.

Joel Tiss

I business if the sounds like on parts it's minute. really we zero a in doing could It wonder well. for

the But coming comps. easy is equipment there, there? from little that's just you base of capturing better, is what's is be may performing or sense more out a it it of it the that underneath or success deal installed Some of of

Andy Beck

absorption offset Well, up. making much of the we're is overhead of parts their improvements by is That's think overall I a sales. and measure few different Dealer fronts. on how service

parts move sales, so and in XXX% moving their they're to want they're with overhead And towards continue covering direction. that where service up we entire and them to

has So dealer improved. performance

market-leading strong Our the In parts conditions. and many markets, best very through we're rate has is in our the pandemic stayed fill industry. of the in

build so we in our and with continue think our the to And dealers. to extent, confidence marketplace with some I farmers,

And so potential. still we a there's But there. untapped bit shift a have of lot a of

our from leveraged potential machines. full haven't connected We our

revenue four potential. driving times still untapped By up. of is to proactively than connected we'll an be to connected more this move we that Our the into end service the in fleet machine machines And did have use just will able year, more being XXXX. parts

several think level, there's the and that the improving, dealer got level I we So are customer a lot still front at us. in of both but at areas, runway of

Joel Tiss

businesses that these that's all are might or through or the there best we small seem more a or they're that product units looking challenging whatever worry harder capital, as you're to kind it's or of to maybe be the pricing about? really go of commoditized other then use And little like or business too pieces of get times, not at through lines

Eric Hansotia

now. of our we've some ahead all is across this stay but very increases high, businesses of much pretty stick Granted, inflation the it to right price been with of getting to pricing. able We're

talked any that Andy don't to are zones being see So way for segments able the manage about. we it no-fly

Joel Tiss

Thank you. Okay.

Eric Hansotia

Welcome.

Operator

Dillard go Chad Please from Bernstein. is with question next ahead. The

Chad Dillard

Hi, good morning guys.

Eric Hansotia

morning Chad. Hey, good

Andy Beck

Hi Chad.

Chad Dillard

So a question guidance. on price you for realization your

X.X% to more X%. like probably guiding You're is around baseline, which versus your

like further from much So just demand you the core GSI just how talk before increases? sales understand just versus you're about I'm versus trying of side, sustainable delta. can things mix on comes you how similar lower then destruction? some push of points And this seeing XXX how to to there's Can the price basis much that incentives is.

Andy Beck

we're different pricing sources. getting comes The from that

the to dealer, Some that program. is it’s but of sell price the to adjustments our it equipment also the we invoice discount

we programs, a of in is of incent And volume discounts of that what So products net discounts programs -- price dealers. multi-unit the after terms there’s have invoice the most price the net our give – the price. so lot our -- are to we all below below of invoice sorts bonuses, different

able going pricing restrict and those to get to in order some And to unit. get more changing the That's us programs or so we’ve been place. in reduce promotional enabled year during the price pricing without the list on

and into we'll prices kind reset into in and we year -- price have a of this then we year terms repricing, lot model when can we room levels. of our get again those give get of Now model ourselves later our

have increase I overall, that approaches to price levers different we need. think we and enact different So, this

with timing in the pricing a have and I kind we coming mismatch needed. the we So issue here, think and order the of of squeezed get it's cost timing the of and whether lag or between the such we we timing, price strong board cost a of in. some new kind because coming think Obviously, still to material ability have is as have the more

but of So that's cost, schedule of things pointed of very out pricing ahead more Eric pointed be far, the cost terms out, really that as half second coming the one year. do monitoring closely. running in And versus we're we'll we increases see the the of Greg of in and

Chad Dillard

helpful. stay to assume now? inventory on I This they side versus the price supply XXXX with worse prices I are do That's abate, then channel want today. assuming again, see guess the add may I And guess, challenges you it. is dealer And I and flat net price. cost, chain you your that exiting, When levels. it behind And Got that deals out How And that that then you I the would a that far before mentioned question. side, versus just assuming where you guess peaking? right so -- to be second know the think of inventory you? inventory kind commodity

Andy Beck

In we be start quarter. expect in in to more would of will terms third price, I prices, think -- assuming surge to the of commodity to cost here another challenge start see get probably biggest I don't the quarter. fourth kind pricing, the balanced it

expectation from my be would standpoint. that So that

come as target any our And at probably of a We month as to how of year. just down, were risk where the but inventory had just pointed stay absolute our there's is. keep with certainly, -- inventory levels, retail our our strong to them we the that the coming the dealer demand to levels. We consistent levels. want the dealer kind of end supply terms because they already, But to year-over-year. level, they was amount, said of bigger I maintain be really they dealer down out don't desire right increase In inventory higher of dealer at expecting demand, which last inventories we're fairly have

Chad Dillard

you. Thank Great.

Operator

Fisher Steven The final Please ahead. with from question is go UBS.

Steven Fisher

some season there orders. growing too if guess or said Good you're to of of that's the farmers this capacity. Thanks. you meaningfully be telling sense give I'm hearing outcome guys. that drought dealers additional have isn't or curious change potential thinking bad, of you some are you Are how things I that will some side. the additional kind you where you leading, I Great. about demand know morning the

So, what hearing field the you there? are from

Eric Hansotia

continues events. a -- severe weather to before. now are and heat. our there's gotten Canada they're those and never South There's America, the come have there strong The of segments. snow under almost it and US getting farmers. all of That's for freeze Western where some in In is almost in demand drought and Well, they half droughts, problem severe

So, talk there's but all want don't time. there, about weather the weather events the you happening to

issue the that's So, safety are farmers those America, -- many but is The -- crop farmers. real that North to impacts insurance. in buy

produced And restricts inventories low. generally keeps globally, grain so and the that when yield events there's weather of

that impacted were high. in so much in least water. South Europe, America insurance -- America, at North nose their often but and above most America, them And in North stay keeps at then farmers those the the prices -- not least So,

a out. we market forecast stay have order now, demand rate see to staying strong. strong the that's our order we overall, So, going the strong. that yield the to cycle continue strong coming into because just to adding And cropping but next why We've got bank of continues order confidence bank is that pretty

Steven Fisher

As a Got most areas technology it. And you into of for expand status I'm to kinds just with spring. the mentioned kind motivated else? And other like feel quo then on of question. you curious Precision feel or beyond Where which you're Raven technology now Planting? you earlier, need satisfied sounds technologies desire it what of the to expand? do

Eric Hansotia

that machine on-the-go -- of making one the couple for categories. adjust can the be first a machines, Yes, would One smart on operator. is automating call we what function the the such it

our smart by mean the we you on As what that, can measurements per and allow an sensor X.X the go then like conditions It soil make to adjustments. million example, senses tell planter. firmer as just to acre. planter real-time It you takes

They farmer X,XXX like And would can so would per never that. on-the-go frequently. make do adjust acre. adjustments never it adjustments, A that

there's farmers a capturing of that its helping in of adjustments big then environment, or the sequestration stays carbon alternative it just have. that focus into application number the Making hay -- category soil. whether is vision, carbon machine to sustainability, fuels and We in but hydrogen So, on-the-go technology and a other number the things, its green electrification real-time air with really That's then the or of there's where focus that's also our the of the there. practice to relative That's type two, looking think or and optimize harvesting, out make lot and That's performance. And whether soil we're for to farming lot it's sense be able one. that's we sprayers. right planters, to evolution.

to be past, plus So, sustainability. all we've in trials field that to Precision used now Ag Ag our -- Precision the the they be shifted

two those be one that the several broad each categories have in ingredients of them. So, would

Steven Fisher

Thanks helpful. much. very so That’s

Eric Hansotia

welcome. You’re

Operator

turn And back I over at to closing any like management would conference to comments. the this time, for

Greg Peterson

everyone. Thank great up morning questions. you interest Thanks. participation you. and us day, additional you We in encourage this a And if to and your appreciate AGCO everyone's with follow have have

Operator

in Ladies and today's call. gentlemen, for thank conference participating you

You may now disconnect.

AGCO (AGCO) 29 Jul 212021 Q2 Earnings call transcript