All right. Well, good morning, everyone. Thank you for joining Oppenheimer's 19th Annual Industrial Growth conference. I'm Kristin Owen, Lead Analyst for AGCO. I have the pleasure of being joined this morning by Damon Audia, Chief Financial Officer, and Greg Peterson, Head of Investor Relations. Thank you both for being with us this morning. Quick housekeeping note before we get started. Today's presentation will be fireside chat format. If you have a question or would like to submit a follow-up, please do that in the Q&A feature that we have on the webcast here, and we'll try to get to that during the presentation. With that, a lot to unpack this morning, but given that you all reported just last Thursday, Damon, I'll ask you to-
Mm
... kick us off with a one-minute recap on the earnings.
Yeah, sure. Great, and good morning, Kristin, and thank you for, thank you for having us as well. It's great to be here. So let's unpack the current outlook that we have for 2024. As you saw in our earnings guidance last week, we changed our outlook to $12 per share, and a couple components to that, so let me break that down. We started the year with an outlook of $13.15, and as we've reflected sort of the new market conditions, mainly the significant change in the market in South America, along with a few other negative FX issues, and then some below-the-line items, we've taken our overall EPS down to $12. Now, there's a couple pieces. Again, operationally, if we think about what's happened, South America, FX, you know, those together are around $0.45.
We also layered in some changes below the line due to hyperinflation, some higher securitization costs, and a revision to our tax rate, mainly related to Argentina, and those were about $0.29 for the taxes and $0.25 for securitization. So those are what affected, I'll call it, more the traditional underlying part of the business. At the same time, with the closure of the PTx Trimble joint venture, we've now begun to consolidate that into our financial statements, effective April 1st. And so as we gave the outlook for that, that is marginally dilutive when you look at the value of what Trimble's bringing in, coupled with the interest expense.
And so what we disclosed was, for the nine months of Trimble, of PTx Trimble, we expected that to be about $0.70 accretive, and that would be offset by about $0.83 in interest expense related to the financing of, of that transaction. And so, Kristin, a lot of numbers there, but when you put them all together, the $13.15 drops to about $12.15, and then you layer on the Trimble PTx accretion, and that, and that brings us down to about $12. You're-
We are gonna unpack some of those moving parts in the guidance. The sales guidance starting with 8.4% organic revenue decline, production expected to be down, and this is a full-year sort of implied outlook on an organic-
Mm
... or ex-Trimble basis.
Mm.
Production expected to be down 12%-15%. Sort of what makes up the delta, given sort of pricing and FX are gonna offset one another?
Yeah, a couple components. So when you look at the revised outlook we gave on the industry, again, specifically related to South America, I would sort of look at our overall industry decline somewhere at that 11%-12% range. We've talked about dealer inventories around the world at different degrees of where we would like them to be, and effectively, most of them, if not all of them, have to come down. And so you're gonna see some level of destocking in the inventory. Again, we'll call that around 5%. We've talked about our parts business and our precision ag business both growing in this market. Despite the industry decline, we see that growing, and again, that's a positive, call it 1%-2% as we look at those parts of the business.
And then you get to the delta, and that's really a combination of both our mix, and you saw some of that in Europe this quarter with the strong mix, and market share gains. And again, we saw some good market share gains in the first quarter in parts of the world, and we expect some of that to continue here for the balance of the year.
Damon, I wanna ask a follow-up on the market share question, 'cause if we ask across your peers, it seems as though everybody is calling out market share gain-
Mm-hmm
... opportunities. So can you get a little bit more specific about where you're seeing those market share gains?
Mm
... whether it's in the high horsepower range, low horsepower range, brands, just any additional color that you have there?
Yeah. So it's, it's definitely in the higher horsepower ranges. And I would say, generally speaking, it's more of the Fendt-branded products that are gaining share around the world. And if I look at Western Europe, for example, Kristin, you know, the market performance that we saw there, you know, record margins in the first quarter for Fendt, that was Fendt, and that was some Fendt market share in Western Europe. I would also point to here in North America. So we saw... Even though the industry was down in North America, AGCO's North American sales were down. Fendt tractor sales were actually up year over year. And again, so just a little bit of a data point as to what we're seeing, you know, with Fendt really gaining share in different parts of the world.
I've got to figure out that mute and unmute button. I wanna ask about South America, 'cause that does seem to be a problem child for everyone. Couple of questions here, so I'll stack them just so that we can cover all the ground. First, just color on what's happening on the ground. You talked about some of the financing. It's obviously a pretty volatile environment, but then we also got a question come in from the audience about Argentina exposure, and if you can help us just understand what the Argentina impact was to the EPS guide. I think there's some questions around the accounting metrics for that. How much South America revenue is Argentina? How much of that is Argentina in the operating profit? Sorry, a lot of questions there, so we-
Yes.
We wanna make sure we cover all the ground.
Okay. You're gonna have to remind me in case I forget some of the, the latter ones. But let's start with our South American outlook overall, and I think, again, that was the one significant change we made in our outlook from our, our starting of our fiscal year to the end with our first quarter outlook, and we updated our guidance to really reflect the, the industry sales coming down at around 20% versus our original outlook, which was around 10%. And what we saw were the high horsepower tractors, so greater than 340 horsepower combines and planters. You know, those have really deteriorated more than what we had anticipated at the start of the year. Farmers are holding on to their grain longer, as they're awaiting higher prices.
You know, some of the subsidized financing programs, as you know, the pricing right now is not competitive, and so you're seeing farmers really postpone their purchases here. Again, that's hopefully a shorter term effect. As we look at the long term, you know, this region remains one of the most long-term attractive markets for us, especially in Brazil, where the farm footprint is increasing there. A couple more details for you, and then I want to come back to sort of the market environment. You know, we have around 4 months of dealer inventory. I think as we've said on our calls, ideally, we wanna get to around 3, 3 months or so. So we still have some work to do.
Again, production in the first quarter, we had reduced that over 30% in South America. That was after we reduced it over 30% in the fourth quarter. So we still see some production coming down here in the second quarter, to sort of continue to rightsize that dealer inventories. The FINAME, which is the subsidized financing program, that comes out July first. You know, we're hopeful, as Lula has talked about being very supportive of the farmers, we're hoping to start to see some of that information here this quarter, which will hopefully set the tone of the dollar amount and the interest rates. But again, optimistic that they'll, you know, hopefully put something out there which is attractive, that spurs growth. And then we just came off the Agri Show.
You know, last week in Brazil, there was the big Agri Show. We don't have the details yet from the team. They're still pulling that together, but I would say the preliminary feedback that we heard from them over the weekend was that the sentiment seemed more positive than what they had expected. Good turnout, good excitement. Now we need to see how that materializes into orders and what that means for the third and fourth quarter. So I would say overall, it was a slight positive, but we got to get a little bit more information. I think, Kristin, probably the other thing to touch on here is the more recent event with the flooding in Rio Grande do Sul. Obviously, that will affect the farmers. There's a lot of flooding in that region.
Don't know what that does to their crops, to the yields and ultimately the prices, but, you know, I think it's important to know that that could affect the demand environment there. For AGCO specifically, I would tell the investors, you know, our Canoas facility did experience some flooding. However, at this point, it's still too early to know what the, you know, what the level of damage may be, but, you know, we did experience some flooding, over the weekend due to that.
And just what does that facility produce?
It's mainly Massey Ferguson tractors.
Okay.
They do produce some, some Valtra tractors, but it's mainly the Massey Ferguson.
Okay, fantastic.
Okay.
Thank-
So now maybe we flip over-
Thank you for that update.
Yeah.
So yeah-
Flip over to Argentina.
Flip over to Argentina-
Okay
... if you don't mind. Thank you.
Yeah. So if I think about Argentina, a couple pieces here. So in the grand scheme of our revenue base, for South America, Brazil makes up around 80% of the overall revenue, of that region. Argentina makes up at around 10% of the business overall. You may recall, Argentina had a very challenging year last year with some of their yields. We actually saw some good improvements, in the overall business year-over-year. The challenges for us in Argentina are, you know, twofold in the outlook numbers that we gave you. One, in the other interest and expense. Even though there was a devaluation in the currency in December, you're continuing to see that devaluation and the effects of that foreign currency losses.
Really, Argentina and Turkey flow through that other interest expense line. So that's part of the increase of what we adjusted our outlook for EPS, was an increase both in mainly Turkey and Argentina currency. The other part, which is more Argentinian related, is our tax rate. So we took our tax rate up about 1.5 basis points. The biggest challenge there is sort of the translation of receivables versus payables, and as the country elongates the payables, and how you calculate book tax versus cash taxes, you now have a gap from a receivable versus a payable, and that sort of change in the deflationary environment is resulting in a permanent difference in our taxes. And that's driving about 1.5% increase in the tax rate.
That's translating to about a $0.29 impact on our EPS related solely to taxes.
... Does that carry over into 2025? Just, you said permanent, so I just wanna understand what permanent means.
Yeah, it will. Again, I think the key for us is to reduce the amount of inventory to better match your receivables and your payables. But because of the decline last year, I would say we had more probably excess inventory sitting in the country. So hopefully, it becomes a smaller issue as we move into 2025.
Got it. Thanks for that clarification. I'm gonna pull us out of the South America rabbit hole-
Thank you
... if we can. And I wanna come back to the 1%-2% growth that you're forecasting, sort of the source of outgrowth in precision and aftermarket performance. Maybe let's use that as a transition to talk about the Trimble JV. So you've guided revenue $300 million plus.
Mm-hmm.
You know, sort of a mixed bag on 2024 financials, given the incremental financing needed to-
Mm
... support that acquisition. But you also said you expect 2025, that that deal will be accretive. So help us bridge the gap to 2025, 2024 versus 2025. How do you make that acquisition accretive?
Yeah, well, I think there's really two primary components to that. I guess one is the simple one is the debt pay down. If you know, if you looked at the financial statements, you saw that we issued about $1.1 billion of, I'll call it, medium to long-term debt. Given the strength of our balance sheet, given I felt that we were probably a little bit under-levered our capital structure, we took advantage of the strategic, significant acquisition to put some longer-term debt on the balance sheet. So, you know, we put the 10-year out there, and we put the shorter term, $400 million shorter term debt out there, but we also put $500 million of a pre-payable term loan.
And again, that's payable at our discretion, no penalties, and that gives us a lot of flexibility. Given the strength of our balance sheet, the free cash flow generation that we'd expect to have here in 2024, it gives us a lot of latitude to, to repay that debt, hopefully very quickly, assuming that we choose to do so in, in the market environment. So I think that's the baseline. Again, given the strong free cash flow, you know, and that debt usually carry- that debt's north of 6% interest. Again, so again, for us to drive that interest expense down, again, if you- it's not a you can see a significant reduction as we pay down that, that short-term, term loan here. So that would be priority one. Priority two is more on the top line.
Again, we talked about, you know, this is a, a little bit of a choppy year for the, for the PTx Trimble JV, as some of the sales, as you know, Kristin, quite well, the way that that business used to be working is the, the CNH dealers were receiving their products directly from the OEM. As Trimble and CNH disbanded that long-term relationship, Trimble began to work directly with many of those dealers that we may touch on. But at the same time, CNH has continued to sell their product that they had in inventory into their channel. And so we're seeing a little bit of a choppiness, and we knew that that would happen here in, in 2024, and we saw that in the first quarter. We expect to see that again in the second quarter.
And we then start to hopefully see things normalize as we get better control, they work through the inventory. So we don't expect to see as much of a challenge next year. I can't predict where the industry's gonna be, but just that level of churn hopefully won't be there in the first half of 2025 versus what we're seeing here in 2024. And then you layer on some of the synergies. We talked about this business over the next couple of years, driving somewhere in the range of about $100 million in synergies. And what we said is by the third year, and we said about two-thirds of that is coming from growth synergies. So that's better leveraging our Precision Planting channels or the Trimble Vantage channels, leveraging the Precision Planting products.
I would tell you, the team's already off and running, looking where those dealers are, where do we add precision with Vantage? Where do we add Trimble with precision and/or AGCO dealers? So I think for us, you know, as we start to get some of that revenue synergy next year, that's incremental to the debt pay down that we would likely do.
Yeah. The channel question is a really important one. Some synergies, both in terms-
Mm
... of geographic overlap, where Trimble has historically had more of a footprint versus where AGCO or, rather Precision Planting, has had more of a footprint. I think the biggest gap is still to fill is replacing the CNH channel. You provided a little bit of an update on the call last week. Just any update as far as how many of those dealers you were able to sign up independently, and would you consider that as part of this $100 million revenue synergy bucket, or is that incremental to the synergies?
Yeah. So, you know, I think there's a couple comments. We're not looking to transition away from the CNH dealers. Again, as you know us quite well, our focus, you know, we talk about being the most farmer-focused company in the industry, and our goal is to serve the farmers, in theory, no matter what color tractor they're driving. And you saw that with Precision Planting, right? The largest customers for Precision Planting here in the US, most of them drive John Deere equipment. And so we're very much agnostic in trying to serve the farmers to make sure that they're getting the best yield, you know, the lowest input cost possible.
And so, you know, when Trimble and CNH dissolved their partnership, Trimble began to sign up many of the CNH dealers to become more of a direct distributor of the product, and they saw some very good success in signing up those dealers. And then we subsequently announced the creation of the joint venture. We've continued to see good success of many of those dealers continue to sign up. We do expect that we won't sign up 100% of those dealers, but we are seeing very good transition as Trimble and now PTX Trimble joint venture goes out and works with these dealers, and explaining very much how we're a retrofit mindset, OEM-agnostic mindset, trying to focus on the farmers.
The key for us, and the key that we instill with the JV leadership, is really maintaining the relationship with the CNH farmers. Again, you know, Chris, you've followed our industry a long time. As implements are getting smarter, as technology in the machines, you're getting more and more of a natural mixed fleet, just because of the level of technology and implements. For these farmers who have the Trimble as their installed base of information, you know, we wanna make sure that they have that readily available, regardless of whether it was coming historically from CNH, or whether it's coming directly or was directly from Trimble, or now coming from PTx Trimble. We want them to ensure that they have that technology, the convenience, the comfort of what they're used to using, and they're going to get that service no matter where.
Even if it's not coming from their CNH dealer, there'll be a PTx Trimble Vantage dealer, there may be a Precision Planting dealer, or maybe it's an AGCO dealer, but our goal is to make it as seamless or as frictionless as possible for them, and that way they can continue to use that Trimble software that they got comfortable using for the last 20-plus years.
So build on that, that technology piece and sort of what the full customer is maybe accustomed to, what the Precision Planting customer is accustomed to. And Trimble did have some product in the pipeline that allow you to leapfrog, at least get a foothold in other parts of the crops. Precision Planting finding pretty good foothold. You're coming out with a sprayer solution this year, but other... Thinking about their WeedSeeker product or autonomous solution that they bought through Bilberry. Just maybe talk a little about some of the functional technology synergies, maybe beyond what most people for Trimble, in terms of that baseline guidance.
Yeah. Well, you know, I think that if you go back to when we announced the joint venture back in September, we talked about how complementary the product portfolio of what the Trimble Ag team was bringing to the table, coupled with what AGCO had. And it was a very complementary. You touched on the distribution channels. Again, their strength in Europe under Müller, our strength really in North America, and so there was two complementary distribution channels. And then you laid together the product portfolio, starting with their guidance system, their data management system, and you moved around the crop cycle, and it was a very much a complementary portfolio. So you touched on WeedSeeker again, you know, very good program, you know, very good product as it identifies green on brown.
You know, we'll be introducing our a retrofit approach to targeted spraying later on this year, ultimately moving into an OEM version, likely in 2026. You look at Bilberry, again, a very strong, very much grain-oriented targeted spraying, as we've been working on much more of a row crop-oriented. So again, a very complementary set of products. The key for us is to get with that team, and our team has already done that, and sort of look at the libraries, look at the algorithms, and are there ways to commonize? So rather than having two or three sets of algorithms, is there a way to create one set, you know, one library, that's looking across to see what's the best for the farmers and best for the products? So we see a lot of complementary parts of the product.
You think about their water management system. Again, we hadn't talked about water for, you know, for many years, but it's becoming more and more relevant for the farmers. And so as we look at that, how do we build upon that with our programs, like Radicle Agronomics? Again, soil sampling, water, all of these things come together to focus on the farmer and give them, hopefully, a complete suite of offerings that either drive their productivity and their yield up or, you know, keep their input costs as low as possible.
The synergies between Precision Planting and Trimble, I'm gonna ask a little bit qualitative, a little bit quantitative-
Mm
... on this. You rebranded Precision Technology Multiply, PTx.
Yeah.
It's the multiplication that I wanna ask you about, 'cause if we look at AGCO, say, 2017-
Mm
… so last trough cycle-
Mm-hmm
... before you acquired Precision Planting, AGCO was kind of this portfolio of disparate brands. You didn't really have a full lineup. You had EBIT margins, which even in the good years, were high single digits. You had some great brands, but it wasn't really a cohesive strategy around farmer solutions.
Yeah.
Now we have this blueprint that Precision Planting brought to the organization. It's my opinion that that sort of fundamentally changed some of the culture at AGCO. Help us understand where you see Trimble in that blueprint. What did you learn from Precision Planting, and where do we get this multiplication effect?
... I mean, you can come onto my side. Kristin, you did a great job. I mean, you hit the nail on the head here, right? I mean, if I go back to 2017, you know, Precision Planting was really the first business to demonstrate that farmer first mindset. You know, they're very much focused on solving the farmer's challenges. And again, back then, it was mainly in the planting space. But I would tell you that as we learned what they were doing with new products, addressing the pain points, you know, we as a broader company, really began to embrace that mindset. And I'd say it got turbocharged throughout AGCO as being the most farmer-focused company in the industry.
You know, you look at not only what those Precision Planting do on planting, but now as we've been able to invest in them, you know, they're really demonstrating that farmer first mindset, addressing the pain points around the crop cycle. You know, that's things like Radicle Agronomics, which are so critical for the farmer to understand from a soil sampling standpoint, what he or she is getting, getting better information in a more timely... But then we've also done targeted spraying that we touched on. We've got the Symphony nozzles coming out of Precision Planting. We've added Headsight. Again, a small bolt-on acquisition that's really addressing the harvest, but again, getting them to embrace that farmer pinch point, mindset of how do we help drive productivity.
And now you see that flowing through our brands as well, whether that's Fendt, whether that's Massey, whether it's Valtra, all of them, you know, basically thinking about the farmer first. And so when you add that power, so that's our baseline. Now, you add the power and the technologies coming from PTx Trimble through this farmer focus lens. Again, it's not about selling a product, but it's about the farmer focus and addressing his or her needs. You know, the opportunities for us are immense. Now, again, go back to the history of this, of what Trimble was. It was really going. You know, they were selling to an OEM, and the OEM was selling to a dealer, and that dealer was then selling to the farmer.
When you shift the work now, going from the farmer focusing on the farmer's pain points, and you bring that back upstream in your product development, that's where the real potential, when you combine that mindset, coupled with all the technology we already had in our tech stack. And so when we think about that multiplication effect, and again, we look at the examples of what Precision Planting was doing and how they were addressing it, and you start to layer that in now with the PTx Trimble technology and portfolio, that's where we see the real opportunity to accelerate the growth, accelerate the penetration with the farmers, and hopefully developing better relationships with them. Because now they're gonna have even a bigger suite of portfolio of products to bring to the table to these farmers.
Well, so here we get to the quantitative piece then. If this is the qualitative and the product solution, let's talk about what it means for AGCO margins.
Mm-hmm.
You currently have a 12% mid-cycle target out there. In the guidance, there is assumed some margin uplift to the overall portfolio from Trimble, obviously in this choppy end market.
Mm.
So help us understand, you know, let's fast-forward three years from now, what does the margin profile look like? And then I'll have some follow-up questions for you on that.
Yeah. So, a little-- you're a little bit ahead of me on this one already. We're, we're just one quarter in, we don't even have a quarter with PTX Trimble, but well, what we did say, and you're right, last year we did 12%, slightly above mid-cycle. So when you bring that back to mid-cycle, we're getting close. I would say we're probably closer to 11.5%. So we're very close to achieving our, our mid-cycle target, last year. You now layer in Trimble, the PTX Trimble business. What we said is it's gonna be about 30 basis points accretive to margin this year. You know, we would expect that to grow, grow in a couple of, A, the margins as we think about the revenues right now, they're kinda depressed given what's going on with the CNH churn.
But then as that business hopefully outpaces the broader, the broader AGCO business, like Precision Planting has, or our precision ag business, you know, we hopefully expect to see that margin accretive. I, I don't wanna give a number just yet. We're gonna have our investor day here in December, and we'll and we'll give you new margin targets, and we'll embed this, as part of that. But we expect this to be margin accretive. We expect it to be part of that contributor that's gonna help us continue to outpace the industry, as we said at our December 2022 investor day.
So if I think about the organic, then the underlying margin enhancement opportunity, I mean, to get to that 11.5%, one of the biggest uplifts has come from improvement in margins in South America.
Mm-hmm.
This is a question that came in from the audience. I mean, you've moved your margins from mid-single digits to high double digits. Obviously, Q1 kind of retraced back to-
Mm-hmm
... those low single digits. What are the levers for improving structural margins in South America, and how do you get more equal balance on the margin profile across the regions?
Yes. Well, there's a couple of questions embedded in there as well. You're good at your multi-question, questions. Yeah, I think if I look at South America, the structural improvement in profitability to the business is there. And I look at the gross margins, again, a little bit of a competitive pricing environment right now. If I think about what we've done to structurally grow the high horsepower part of the business, you know, really attacking that Cerrado region or the Mato Grosso part of the country, where you have these large professional growers, you're seeing good growth there. Again, go back to the Fendt penetration. We have 70% of the white space covered there. You know, we continue to grow there. So the gross margin of the underlying product is relatively strong.
I think there's probably two variables right now that are influencing South America. One is a little bit of the market competitive pressures, that we're seeing, and that's driven more by the speed at which things decline. Again, you go back just six months ago, that industry was red hot. And now we see, you know, there was some poor planting, you know, you saw the interest rates, there was a few variables, and it slowed down significantly. I think we, in our industry as a whole, have all reacted very quickly in cutting production. So when you look at the, the margins that you saw in South America in our fourth quarter, you look at the margins you saw in the first quarter, a lot of that is more reflected to the speed of the, the negative absorption as we're trying to adjust our production.
Hopefully, I think longer term, you- if you get more managed through the cycle, you can adjust your production, hopefully more timely than the, these, I'll call it, these significant cuts that you saw. When you're cutting 30% in a quarter, it's significantly challenging to your P&L. But ideally, as retail starts to balance more with production levels, as we get into hopefully into the third and likely into the fourth quarter, you should see the margin uplift because you're not getting such a large amount of, of negative absorption there.
Is there a mid-cycle margin for South America that we can think about?
Yeah, what we would expect to see, it's hard to say there's a normal in South America. But what we would like to see is sort of that, you know, that low- to mid-teen, you know, that low- to mid-teens margin is what we've expected in South America.
Perfect. I wanna move on because this is often a question that we get about AGCO, in a broader sense, is really around your, your capital allocation.
Mm-hmm.
Let's first touch on the variable special dividend, $2.50 this year.
Mm.
It's the fourth time that you've done this special dividend. How should investors think about the heuristic around payout? I mean, obviously, we understand, you know, the Trimble acquisition took up some of that cash, but excess free cash flow, ex acquisitions, is there some rule of thumb that we should think about for the special dividend?
Yeah. I think the way that we approach capital allocation is really, I'd say, a hierarchy of our investments. You know, we start with what we need to reinvest back into the business with capital expenditures, R&D, and you've seen us. We've been increasing our capital expenditures as we've unlocked some areas where we've been bottlenecked and things like our CVT transmissions. We've been increasing our capital expenditures. So over the last couple of years, we were up around 20% up until this year, which we've reduced to given the market, but very much focused on inward investments to drive long-term growth. So that's been priority one. Priority two has been the bolt-on acquisitions.
Up until last year with Trimble, you know, it's been a lot of bolt-on acquisitions where we've been able to sort of add to the tech stack and accelerate some of the development. I think we'll still be inquisitive there. Again, I think when you look at Trimble coming in, we've, we've met a big part of our need, but there's always opportunities where maybe someone's a little bit further ahead, and we can accelerate some development by acquiring. But again, I expect those to be mainly bolt-ons. And then whatever's left, we get back to the direct shareholder returns. You know, we do pay our quarterly dividend of $0.29 per year, excuse me, per quarter. But even doing so, we'd still continue to generate significant free cash flow.
As you alluded to, the prior three years, we were paying the special variable dividends. This year, I think we took a little bit more of a balanced approach. Because of the debt we took on with Trimble, as I made the comment earlier, we were under-levered relative to my, my views, and so we thought it was appropriate to still continue to return directly back to the shareholders in the form of a special variable dividend, but at a lower level, just given the incremental debt that I, I took on. So, we try to take a more balanced approach. I think it's important for the investors to also understand that, that because of our shareholder concentration issues, you know, we and our board have made the decision that we use this special variable dividend in lieu of a share repurchase program.
So we only buy back stock, to the extent it's to offset executive or annual dilution. But other than that, we use this as our sort of our means to return surplus, cash back to the shareholders. And we'll look at our cash flows this year, as you alluded to, on the debt repayment, you know, we'll see how we generate cash this year. We also have Grain and Protein under strategic review. So to the extent we elect to monetize that, you know, that would bring a bunch of cash into the company, and we'll see how that goes towards debt repayment and/or, you know, incremental returns directly to the shareholders.
Thank you for touching on that Grain and Protein. That was something I wanted to make sure we also had the opportunity to discuss.
Yeah.
Just remind us all on that final point on Grain & Protein, the margin profile of that business versus the corporate average.
Yeah. It's this year, we would expect the operating margins to be mid to, you know, mid to slightly high, mid-single digits.
Okay.
So again, to the extent we were to divest it, you know, that would also be margin accretive to that, to our 12% mid-cycle margin.
Fantastic. Well, I think we will leave it there then, Damon. Thank you very much for your time today, and thank you everybody for joining us. Enjoy the rest of the conference.
Great. Thank you, Kristin.