Thanks everyone for joining us this morning. I'm Kyle Menges. I'm the U.S. Machinery Analyst here at Citi. Pleased to be joined by the AGCO team. To my direct left, I've got Eric Hansotia, CEO, and then Indira Agarwal, new CFO. Thanks so much for coming to our conference.
Thanks, Kyle.
I think this is the fourth year in a row now.
Yeah.
You guys have been at our tech conference, so appreciate the support. Get to get out and tell your tech story in particular. Maybe to start, Eric, just would be helpful probably to get a quick overview of the company just as it stands today, and maybe discuss some of the key portfolio changes in recent years, and then we can go from there.
Okay, great. Welcome, everybody. AGCO is the largest pure-play farm machinery and technology company in the world. We are focused on farm machines and technology. We do not sell golf equipment or construction equipment or anything else. We are totally focused on the farmer. Over the last five or six years, we built a strategy for the next chapter that we aim to be the most farmer-focused company in the industry. You say, "Well, what does that mean?" Essentially, it has informed our technology strategy, it informed our distribution strategy, and informed our data platform. Kyle, you are asking about portfolio changes. Essentially, out of that came a few portfolio shifts. First of all, we globalized our most premium brand. That is the one that is loaded with technology, that is Fendt. Fendt sits at the very top of the market for the most demanding customers. It used to be European.
Now we have it growing in North America and South America. We can talk about that more later. Secondly, we built out. We aim to be the trusted partner for industry-leading smart farming solutions. Essentially built a tech platform. Over the last several years, we have invested in six M&A acquisitions all around tech. We heavily loaded up on our engineering and on the path, now we see ourselves as the market leader in autonomy and the market leader in precision ag, especially in the retrofit environment. What does that mean? That means we sell technology through a whole separate dealer channel to upgrade an existing piece of machinery with new capability, automate a given function. That was the second one, build out our technology. Third one, as we did that, we sold off our Grain & P rotein business. That was our lowest growth, lowest margin business.
Finally, we exited a relationship with TAFE that was problematic for a number of years and constrained us on capital allocation. In addition to those portfolio changes, we launched FarmerCore, which is a redesign of the distribution approach. The whole industry operates on a very brick-and-mortar approach, where the farmer has to come to the dealer to research the machine, buy the machine, get their parts, get their service. We flipped that 180 degrees and said, "We want to be the most farmer-focused. We are going to come to the farm and do the work." In just the last couple of years since we have rolled it out, our dealers now are at 65% of the work being done on-farm instead of at the shop, and our leading dealers are at 75%.
When these dealers do that, they have a 4.5 point higher Net Promoter Score and 1.5 points more market share. Farmers like it. Finally, something called Project Reimagine. That is self-help, taking our own cost structure and shrinking it. We had about $1 billion in overhead. We took $200 million out of that through offshoring, outsourcing, automating. That is a quick flyby of the big changes over the last few years.
Awesome. Great overview. Before we get more into the tech story, let's get Indira into the mix early here. Indira, you're new CFO. I know it's only been a few weeks since you stepped into the role, but maybe just talk about some of your key focus areas to start and just how you're thinking about capital allocation as we look into 2027.
Kyle, I would like to say new CFO, but not new to AGCO. I joined AGCO two and a half years ago in the chief accounting officer role, but it was more than always a chief accounting officer role. It was more than accounting, reporting, and controls. I was intimately part of FP&A, the M&A space, as well as the Project Reimagine transformation that Eric's talked about. So been part of the AGCO journey, part of the AGCO strategy. For me, even though we say it's a new CFO, it's a continuation of the journey. It's all about disciplined, focused execution. Capital allocation, I think I would want to say it right outset that the capital allocation strategy remains unchanged.
We've always had a very balanced capital allocation structure where we invest in our business, we protect our engineering investments, we maintain an investment-grade balance sheet, and we pursue targeted technology capability and opportunities, and we return capital to shareholders. In the second quarter, we completed $345 million in share repurchase, which included $50 million of TAFE participation. Eric talked about it. Having put the TAFE story behind us gives us a lot of operational flexibility in terms of capital allocation. It doesn't change the financial discipline, but it does give us that flexibility. When we think about M&A, I would say we have a bias in pursuing technology opportunities that help us either accelerate that precision ag roadmap or strengthen our data and our software layer. Between that and share buyback, it's not mutually exclusive.
We will assess, and we will pace based on what is cash generation, liquidity, operating needs, leverage, and we will assess what is the value of the opportunity set that is out there. We take a lot of pride in maintaining our investment-grade balance sheet because that's very core to how we can invest as well as navigate any downturn in an ag cycle. Very balanced, and we'll stay very disciplined.
Turning back to the precision ag story for AGCO, it would be great to hear your guys' thoughts on what differentiates AGCO's precision ag offering versus peers, and maybe highlight some recent innovations as well.
There's probably three things that are different about our innovation. Number one, we have the broadest portfolio. We have solutions all the way around the cropping cycle, from analyzing soil properties automatically. Planting, we are the planter experts. Targeted spraying, AI solutions that can see the difference between a weed and a plant and just spray the weed. Harvesting solutions, data platform, leader in autonomy, water management solutions, a lot of stuff. So broadest platform. Number two, open and mixed fleet. Essentially when we look at the market, we see every farmer as somebody we want to serve, not just going back to the brand of people who bought from us in the past. So we will sell on a competitive piece of equipment, an upgrade, could be a five-year-old piece of machinery, seven-year-old piece of machinery, give that machine new life, new capability through automating a function.
Same thing with our data platform. We're the only ones that can ingest data from any brand of equipment, have the farmer analyze it, and send task files and requirements back to any brand of equipment. So that's the third thing. So retrofit, open, and broad platform are the three big differentiators.
It's been about two and a half years since you acquired Trimble, at least the ag side of it.
Yeah.
Maybe just talk about how you think that's going in this PTx portfolio, just relative to your initial expectations. Curious what scorecard you would give yourself so far on the integration and maybe synergy realization on the Trimble ag business.
Yeah, when you think of the tech business, that's what this is. It is a tech innovation business and a tech channel. You would say, well, what are the things that matter? First of all is talent, and we have been able to retain the talent, and the team is working very well together. Number two is it an innovation engine? Is it working well? Both of those I would rate very high. The innovation engine kicked out 14 new products last year, well ahead of our expected pace. This year, we are going to launch another 12. That is a lot of new, fresh features coming to market, solving the farmer's toughest problems. The one that is the toughest has been the industry. When we bought it, the industry kind of fell away from us, and so being able to scale and realize the returns is probably the biggest negative.
In the middle there is the channel. We talked about the innovation muscle, creating new features. The other half of that is having a dealer channel, which is separate from our machinery channel. We are the only ones who are building out a tech-only channel. This group does not sell tractors or combines or sprayers. They only retrofit technology on machines. Building that out, we knew it was going to be a challenge, and it is a challenge. But it is also our secret sauce. It is the differentiators, the moat around the business. We are two years in. We have got a little over half the market converted to what we call elite tech dealers. Elite means they cover the entire portfolio. The whole market is covered by either former Precision Planting dealers or Trimble. That is already covered. But we do not want to have to have the customer go to two different dealers.
We want to melt those together and have one full line tech dealer that covers the whole thing, and we are about half the market covered with that. We will have a little more like 60% by the end of this year. But we have got another year or two of channel build-out in front of us.
That's a maybe good segue into my next questions. I think the PTx revenue this year might be just shy of $900 million. You've got a stated target out there of $2 billion in revenue by 2029. Maybe just talk about what you need to do, what you need to see in the market to get you from just shy of $900 million this year to that $2 billion target in 2029.
Yeah. Three things. First of all, market recovery. North America is at about 70% of the historical average or mid-cycle, so we need the market to come back to recovery, which we expect we will, especially now with grain prices coming back up. That $900 million, just with market recovery, would be closer to like $1.1 billion, $1.2 billion. We're at the bottom of the S-curve on all these new product launches. We just launched them, so they need to be able to mature. Same thing with the channel. The channel is just learning about how to sell this full portfolio. So we've got establishing the coverage, but then delivering the penetration. Those would be the three things, market recovery, maturing in the channel, and letting those products mature through the S-curve.
Got it. Market recovery, do you think North America would need to be closer to kind of a mid-cycle type of level to get to that $2 billion?
Exactly.
Yeah.
All our future projections on revenue are always pegged to mid-cycle. So we assume at that level that all markets are back to 100%, and we expect that over that timeframe, that most likely they will be.
Yeah. On the data platform roadmap as well, I think you're kind of wrapping up phase two of this data platform roadmap, which is consolidating features to a common platform. Phase three is completing the farm operations experience. That should be executed in 2027. Maybe talk a little bit about how that's going, what that's going to look like, and then really final steps to getting that fully integrated tech stack.
I talked about one of the things I'm happy about with our PTx team is how the innovation engine's working. Inside of the whole portfolio of all those solutions I talked about, the data platform's probably the best. It melted together really, really well. It was former AGCO team members, former Trimble team members on their data platform, and then we actually bought another company, another acquisition that was only a data platform. We brought all those. Now they're all wearing one hat, all working on a common data platform, and that's progressing very, very well. We've got FarmENGAGE. That is our machinery fleet management. How do you manage mixed fleet of all the machinery working?
Panorama is our agronomic data platform that allows the farmer to manage all the planted data, sprayed data, harvested data, be able to make farm insights based on what's going on with their crops. One for machinery, one for crops. Over time, those will merge. Even just in Farm Progress Show, we launched the AI assistant sitting on top of Panorama. That allows voice interaction to be able to capture the insights. So you can just talk to the data platform and have it be able to query and understand what insights are buried inside that data. That's one of the big complaints farmers have is, like, "I've got all these smart machines.
They're generating a lot of data, but I can't figure out what to do with all of this." Turning that into voice, using AI, allows us to really zero in on where are the variations in their farm, where do they have untapped potential, and what should they change in their operation, what farming activity should they change, to be able to capture that opportunity? So we're really excited about that coming to life, and we got a lot of positive reaction from our farmers on the AI assistant.
Yeah. I know you touched on the elite dealers. Sounds like you are going to be still adding those in 2027. I am curious just how that has been kind of pacing and once it is ramped up, what is that target look like for number of elite dealers?
Yeah. So we have got about high 80s number right now globally. Our target is to get to 120 by the end of this year, and that will get us to about 60% of the industry being covered. Essentially what is happening is you say, "Well, what is the deal? Why do not you just have it all done on day one?" We have a whole Trimble dealer network that covered the globe. We had a whole Precision Planting dealer network that covered the globe, but they were not lined up. It was like two puzzles laying on top of each other. In each area, you have to go in, and these are all independent business people. You have to have a conversation with them and say, "Would you folks like to merge? Does one want to buy each other? Do you want to partner?
How do you want to come together?" It is a bespoke recipe in each area that is based on what their inherent interests are and their succession plans and all of that. So one by one, we have to kind of help that conclusion come to life. We expect it will probably take another year or two for us to mature out to be 90% of the market covered, and that is baked into that $2 billion growth platform in terms of revenue.
Got it. I get questions from time to time from investors on autonomy, and you do have some exciting autonomy offerings. I am curious just your latest progress, and when do you think that could start to become more of a meaningful part of farm operations? What do you see as maybe the main hurdle, more on the technology side or maybe customer adaptability side? I am sure it will be on full display at your Tech Days as well in a month, so looking-
Yes.
forward to seeing that again.
We show it at our Tech Days every year. We also show it at our Farm Progress Show. We are also selling it. We see ourselves as the leader in autonomy. These are kits that you put on an existing machine to make that machine be able to operate without a driver in the cab. The first launch was on harvesting, where the combine is harvesting through the crop. It summons the tractor. Tractor has no driver in it. The tractor comes around, finds the combine. They are driving parallel path. The combine unloads the grain into the grain cart. When it is empty, the combine releases the tractor, the tractor drives off, and either waits to be filled again, or if it is full, goes off to the side of the road to be unloaded. So now instead of two operators, you have one. Second task to complete was tillage.
Farmer brings the tractor to the field. The tractor already knows the boundary of that field and any waterways or obstacles in the middle. It calculates its optimal path plan, just like your navigation in your car. The farmer arms the system, gets off, and then the tractor will just till that field. It could be through the night, but it does it all on its own. These are two great ones because harvesting and planting are when there is the peak labor demand. A lot of things going on at the same time, and usually that is when the weather window is crunching things. Those would be our first two. Next comes a spreader application. We have tasks lined up one after another, and our commitment is by 2030, which is not far away, we are going to have applications all the way around the cropping cycle to be autonomous.
You said, what is the gating feature? Our technology is largely common. The hardware stack that you buy is common for these tasks. What we are developing is the software each time to do that. The gating feature, I think, is really getting number of tasks completed so that the farmer, when they buy the system, that they are getting a number of things done. If it can only do one task, like, well, I am investing for only one thing. But if I am investing and it can do three or four things, or five or six things, it is like, okay, now I see a lot more value in my operation. We are already selling them to people who are getting enough value out of the one task. Our job is now to fill out the portfolio and have the system do many things for the farmer.
We think that we're going to start seeing meaningful sales by already 2030 and it start moving up the vertical part of the S-curve by around 2035.
When you say more tasks, does that mean just addressing more aspects of the crop cycle? Is that what you mean by that?
Exactly. Today we can do harvesting of combine to the grain cart. We took it down to Brazil, same thing with sugar. That task is completed. Tillage, that task is completed. Now we want to do fertilizer spreading. That task will be completed. Planting will be on the horizon, and spraying will be on the horizon. As the farmer looks at all of the things they do with their machinery, we want to be able to say, we can do more and more and ultimately all of these things autonomously.
Got it. Curious just how the conversation with farmers and dealers too has evolved regarding the appetite for technology in recent years, and how are you thinking about monetizing technology, just broadly across your portfolio?
Yeah. There's an equation out there where the farmers have to grow a lot more grain. There's movement from 8 billion people to 10 billion people. There's a lot more demand for biofuels, which is a second demand generator, and the third is as diets eat more and more meat, it's a multiplier for grain. So we have to generate a lot more output. The inputs are all being managed tightly, so farmers want to use less fertilizer, especially now fertilizer price is going up, less diesel, less herbicide, all of the inputs. The only way to make that equation work is technology and to be more precise, and farmers are absolutely clear on that. An additional one is labor. We hear a lot about labor, our solution for that is autonomy. We hear a lot about input cost savings.
Our solution for that we have in the market is our AI targeted spraying. Then a lot about managing complexity of data, and that's our data platform, mixed fleet data platform. The reason why we're doing technology is because we're solving hard farmer problems and the ones that they talk about all the time, and being the most farmer-focused company, we want to make sure that we're prioritizing those that add value. Our mission is with our PTx business that anytime we sell a solution, it has a one or maximum two-year payback. That what the farmer pays for, they get a return on either the input cost savings or higher yields so that they pay for that quickly. We were able to monetize all of the stuff. Sometimes we sell a system, so there's kind of like a sale, a one-time sale.
But then there's also ongoing recurring revenue and subscriptions on increased guidance subscription and those types of thing. Anything that's new, data platforms, autonomy, things that can change over time and continue to get better with software upgrades, farmers are willing to pay for a subscription opportunity. So, there's a number of different ways to monetize it, and we're trying to figure out what is most farmer-friendly and fitting with their operation.
Awesome. In the last five minutes or so, I'd have to ask on some of the trends across the end markets as well. So maybe, starting with the U.S., given we just had the Farm Progress Show last week, I think, or two weeks ago.
Yeah.
I'd say that the U.S. outlook at least sounds slightly more upbeat. I don't want to put words in your mouth, but you were down there meeting with a lot of customers, I'm sure, meeting with dealers. Would love to hear just your thoughts on the pulse of the market from those conversations at Farm Progress Show.
Yeah. It was so exciting and refreshing. For a number of years, we've been coming down the industry cycle. This is the first point where we saw real excitement and energy. With the grain prices coming up, this market is able to spot sell into the higher priced market if any grain they had left over from last year, and then future contract and lock in prices for grain for next year above their breakeven point so they can lock in some profitability. Two years ago, we had maybe 40 farmers that came to a pre-launch. This year, we had over 300, and closed a lot of deals right at the show, which is very unusual. Usually, we don't do that. There was a lot of upbeat sentiment by farmers directly, and then dealers starting to talk about planning for growth, and we've been really managing down inventory.
That's been the whole conversation over the last two or three years. Now we're talking about how do we make sure we're ready for growth. So the sentiment in North America is probably the brightest of any of the markets right now.
I'm curious from also from your conversations, just how are farmers maybe feeling about the input cost side of things, especially with the changing situation in the Middle East and-
Yeah.
maybe their access to fertilizer or fertilizer prices as we get into fall application could be challenged. Just how are they thinking about that and potential impact?
It's a clear frustration for farmers. They are feeling that high input cost pressure. Diesel and fertilizer are the two that get the most attention, because they were spiked up because of the Strait of Hormuz closing. So much so that I think globally, less fertilizer was put down than normal over last year, which will probably put some downward pressure on grain production. That's a good thing in terms of price support because as there's less grain out there, the price goes up, so that's probably a net positive. Availability of fertilizer in the North American market isn't really so much an issue. It's more of a price thing. In some markets, it is more of a concern. Then diesel, and diesel actually cuts both ways. Farmers do not like a high diesel bill, for sure. So that's crystal clear.
On the other hand, as diesel prices are high, that's what gets compared. Energy prices and fuel prices are what creates room for ethanol to also be in high demand. What we're seeing is, although there's a negative in terms of diesel cost, there's also more demand for ethanol, and ethanol consumes about 40% of the U.S. corn crop, and so as there's more and more support for ethanol, there's more and more support for the top-line pricing for grain. So that one's a bit of a mixed story.
Got it. I also understand you've gained some share in North America in recent years. I think your target is to double your business in North America over time. Curious, in your mind, what are going to be the key drivers of that further share gain over time?
Yeah, I talked about we're bringing Fendt as our premium brand, our technology leader. It's the most high-tech, most productive machines for the most demanding farmers who want the best of the best. We're bringing that into the market over the last five years or so. So we feel excellent about our product. These are the best performing products in the market. Everybody is clear about that. Second was establishing the channel, and we've got the market covered now with market coverage. We're really helping our dealers do FarmerCore. The more that they do this on-farm work, and combined with the great products, the more they do on-farm support of farmers, Net Promoter Score of the farmer's view of the experience goes way up, 4.5 points higher, and then market share goes up. So that's a contributor.
There's a great product, so that's what people think about first. Second is the distribution strategy, and then third is the data platform. We actually had a gap, until a couple of years ago, with farmers think about, "Well, I want a great product. I want to make sure I have great support, and I've got to manage all this data coming off my smart machines." We had a gap on that data platform thing. Now with Panorama and FarmENGAGE, we've closed that gap and, in fact, created a unique feature in the marketplace where we can handle the mixed fleet better than anybody else. So great products, unique distribution strategy, and a data platform that works with the mixed fleet is the reason why we've grown from, we didn't exist in this market a few years ago with Fendt.
We're already up to 11% market share for large ag, and our aspiration is to get to 20% in the next few years.
I think we have time for one more question, so I'll maybe put my last two questions into one. Just ask a general question on just trends you're seeing across Europe and Brazil and how you're thinking about those markets as we look into 2027 and what we need to see to maybe drive an inflection in those markets.
The biggest drumbeat you watch in agriculture is grain prices. It is a global thing that is going on with grain prices going up, farmers all over. I was talking to our European team, and prices are now above breakeven. That is a good thing for everybody. There is something holding back the South America farmer, and that is the uncertainty of the election coming up because you have somewhat of a far left and somewhat of a far right candidate, and you do not know who is going to win. So far, there is uncertainty baked into that, combined with pretty high interest rates, and a fair bit of debt load. I think South America will probably be the slowest to turn around because of those two things. North America feels like it is already starting to move, and Europe will be in the middle.
They are a little bit more sensitive to the higher energy costs. They harvested earlier, so this rise in grain prices happened after they did a lot of their harvest. I think that they are going to be able to capture some of that a little bit later.
Well, I think we will wrap it up there. Eric and Indira, thanks so much for doing the conference this year again, and we will wrap it up there. Thank you.
Thank you.
Appreciate it, Kyle. Thanks a lot.
Thank you.