AGCO Corporation Stock

All right. Good morning, everybody. I think we're going here. So let's kick this off on Day 2 of the Industrials Conference, the Jefferies Industrials Conference. Welcome on behalf of Jefferies. I'm Steve Volkmann. I cover sort of a wide swath of industrial companies now. I guess that's what we do here.

We're very pleased to kick off Day 2 by welcoming AGCO to the dais. And so have Eric Hansotia, who is the CEO; Indira Agarwal is the CFO, fairly newly minted, so we go easy on her today, and very pleased to welcome them. Greg Peterson is here as well to that clean up, if necessary. And we're going to run this like a fireside chat. So we'll have a bit of a sort of an interview process here, I guess. And we would welcome very much any questions from the field here. So if anybody has one, I'll come up for air in 10 or 15 minutes and give you an opportunity to chime in.

So with that, welcome. Thank you guys for coming.

Thanks, Steve.

Thank you.

So let's maybe kick it off. There seems to be a general improvement in attitude around agriculture generally. We had a couple of other companies here yesterday, I can't quite remember who they were, but they seem to be fairly upbeat relative to this sort of cycle bottoming trend. So maybe let's just start off, Eric. I mean, what's your view of the cycle and where we are?

Yes. We talked last year even that a lot of the fundamentals were setting themselves up to establish a bottom. And we're actually even expecting a little bit of recovery this year with the Iran war, the bottom extended. But when you look at the -- what do we look at? We look at the age of the existing fleet in farmers' hands. It's as old as it's been. We've got the dealer inventories in used equipment down to target levels. So the pipeline is cleaned out. And now we're starting to see recovery in commodity prices for grains. And so there was a tension in the system of farmers wanting to buy, but they needed to have some profitability come back into the system. Now the grain price is recovering, there's profitability.

And I was just at Farm Progress Show last week talking to a number -- several hundred farmers and dealers and the enthusiasm was like we haven't seen in several years. They were excited to be able to come back into the market. Excited about a lot of the new technology that we've got either on our products of Fendt and Massey or our Precision Technology business, PTx. So -- now we also think that it's predominantly a North America situation right now. It's much less positive in Brazil and kind of Europe is in the middle. And Brazil has got some headwinds of high interest rates and then the uncertainty around election coming up with kind of polar opposite candidates and uncertainty who's going to win. And Europe's in the middle.

We don't have those polar opposites here. So that's...

Fortunately for the U.S.

So maybe digging a little deeper, though, it seems like a lot of the improvement in crop prices, especially has been driven by lower yields globally, which pose an -- excuse me, an interesting question, right, because they're going to get less volume, but they're going to get more price. But you believe the net is a positive outcome in that scenario?

Yes, especially in the U.S. market just because of the way the financial model works. The government contribution toward farming shows up mostly in subsidized crop insurance. And so most farmers have crop insurance. And that means that if I have a bad crop year, I've got crop insurance as a safety net below me, and I'll have an average or an okay outcome. If my -- someone a little ways away from me has a good year, they're able to recognize the higher prices and good profitability. So safety net for the losers, essentially, if you want to call that, and the winners get to participate. So North America with their high participation rate in crop insurance really makes the most out of a market like this.

Okay. So there's a lot of questions and focus right now on what we might call early order programs or next season ordering, whatever you'd like to call it. Any updates for us relative to what you're seeing there?

Very early days on our early order programs. And relative to our competition, we don't have as many customers that sign up for early order programs. So it's not as great of an indicator for us. But some of our competitors have spoken about what they're seeing and our trends are similar. So we're seeing stronger early order programs, and we think that's just one more signal that in the U.S. market, there's enthusiasm in the marketplace. And then the Purdue Index went up just a few days ago as well, which is a sentiment index of farmers' view of the future health of the industry. So a lot of indicators are all pointing in the same direction.

And I'm sure you saw the USDA up the farm income number yesterday, albeit slightly, but at least it's going in the right direction.

That's right. And that -- and there's still the potential for another demand driver from biofuels. So E15 all year round would be a really big stimulant that's in the farm bill. If and when that passes, that could be a big boost or tailwind for farmers.

Good. So we're webcast here. I just want to give you an opportunity. Anything interesting that has come up since the second quarter call that you'd like to call out? Or how are we doing on third quarter outlook?

Indira, would you like to say?

Yes. I would say, as Eric alluded, we were at the Farm Progress Show. So the positive sentiment in North America, we haven't seen it in a couple of years. So we had a pre-VIP event. There were 300 people. We closed deals. So there is positivity in North America. The optimism is good. Brazil is a wait and watch. Farmers are waiting for that certainty out of the elections. They want to see more on farmer economics. They want to see some trade policy. And Europe is in the middle. So the grain rally, the timing of the grain rally and where the European farmers sold their harvest was before the grain rally. So -- there's also a little bit of farmer sentiment, cautious sentiment from the diesel and the fertilizer prices. So the way we talked about it in our second quarter earnings call in terms of Europe being flat, North America large ag being 15% lower and Brazil 5% to 10% lower is still the right way to think about this. But there's optimism in North America region, so it's kind of a mixed bag.

Okay. All right. Good. And I think you alluded to the second quarter, you saw some weakness, I think, specifically in Germany, which maybe you hadn't expected. Has that proved to be sort of temporary? Or is there more to it?

So in the second quarter, we saw Germany industry decline of 15%, even though AGCO, we grew market share. But the third quarter is mostly a European shutdown for us with the production shutdown, dealers, farmers, like it's kind of the Europe market comes to a standstill. So we'll find more in September. So we'll provide a better update with the third quarter earnings call.

Okay. All right. Good. So let's maybe zoom out a little bit and talk about some of the things you can control. So you've been focused on a number of growth initiatives that sort of are above and beyond the market. Maybe just for this group, if you want to kind of highlight those and we'll dig in a little bit as you do.

Do you want to start?

Yes. So we've been on a transformation journey with our cost efficiency. So from $1 billion of SG&A, we've been trying -- we've been working hard to rewire the business and the trough was the best time to do it to take cost out. So by the time we exit 2026, we'll be upwards of $200 million in cost efficiency savings. So that significantly improves our operating profitability leverage as we navigate and we get prepared for the up cycle.

On the other hand, as tariff uncertainties are fluid these days, we are also laser-focused on finding cost actions in terms of our sourcing, in terms of our manufacturing footprint, manufacturing efficiencies, logistics. So we are looking forward to all of this. These are all of the controllable actions, and we started ahead and we are poised right for recovery.

Yes. And so that's a lot of hard work on the bottom line, while at the same time, we're doing a lot of hard work on the top line. So we've got our 3 growth levers that we've been talking about for several years, making progress on all 3 of them. The first one was taking our premium brand, Fendt, which is the best of the best products for the most demanding customers in the market, taking that from a European business to a global business, bringing it largely into North and South America, gaining a lot of share again in North America this year.

Our large ag portfolio is now up to 11%. We didn't even exist in the market 5 or 6 years ago. And so making good sustainable progress in that growth vector through a few things, great products. We've got the best products in the marketplace, highest technology, best support. We've got the best support package in that we have a 3-year bumper-to-bumper warranty. And our distribution model has been redesigned. We call it FarmerCore. And so instead of having a brick-and-mortar model where the farmer has to come to a dealership to research the machine, get their parts get their service, we turn that 180 degrees and say, we're going to remotely monitor all the equipment. We're going to provide digital connectivity in terms of being able to order parts online, service online, research a machine online, things like that. But then anything that we see in the farm, either maintenance or repairs, we proactively call the customer and say, how about we take care of that for you?

And next Tuesday, it's going to rain, let's come out Tuesday. And they say, "Great. We come out. We do all the work on the farm." And then once we maintain or repair our machine, we ask the farmer, "What else can we help you with?" And we can do about 85% of the maintenance and repairs on all the competitive equipment on that farm. So instead of the farmer coming to brick-and-mortar, we come to them. Instead of maintaining and repairing the product, we are maintaining and repairing the farm. And so it's a fundamentally different strategy than our competitors. And those dealers that -- our average dealer in North America is already 65% of their work has been on the farm, not at the shop.

Our best dealers are at 75%. We want to keep pushing that. We've only been -- we've only had this out 2 years. Those dealers that are on the front edge of this have a Net Promoter Score, which is our customers' feedback on how they like the experience, 4.5 points higher than the others. And our dealers have 1.5 points market share than those that haven't been adopting as much. So customers like it, dealers like it. They're adopting it aggressively. I talked about the North American numbers. South America is just the same from 2024 to 2025. South America service truck adoption went up almost 30%. By the end of '26, it will be off that base, it will be up about 40%. So both dealer organizations are moving forward quickly. The customers, once they experience this whole different way of working, really appreciate it. So that's topic number one of growing our Fendt business through products and a different distribution.

Number two is our PTx business, Precision Technologies multiplied. We are the largest precision ag business in the world, about $900 million in revenue today. We've had about 6 acquisitions we put together. And once again, we're doing this business differently than anybody else. There's a part where we put that technology on our machines, and that's all completed. There's a part where we sell to other OEMs. We have about 100 other OEMs that buy directly from us, the technology and they put it on their machines. But then the real difference is on what we call retrofit, where we have a whole separate dealer channel that these dealers don't sell tractors and combines and sprayers. They only sell retrofit technology. And what that means is they'll go out to a farmer who's got a 5-year-old competitive planter of one brand or a 7-year-old competitive sprayer of another brand and upgrade that machine with new automated feature and giving that existing machine, new life, new capability, ability to do something in a smart way. So that whole retrofit business is a payback for the farmer about 1 to 2 years. It's a way lower cost way to get the latest technology than buying a new machine, high growth, high margin and one that is less cyclical. We see that only dropping about 1/3 as much as the regular OEM business. So that's number two.

And then our third one is parts and service business, moving that from a reactive to a proactive business. And anticipating when the customers are going to need through remote monitoring, rapidly growing our e-commerce business and so on. So those three growth drivers are also all hitting nicely and driving a higher margin business where our margins in this business cycle are twice what they were in the last business cycle. Our business at the trough now is performing like the last cycle at the peak. And we've made commitments to get to 14% to 15% margins by 2029 through these growth levers and the cost savings that Indira talked about.

Great. So maybe let's dig in a little bit to those. When you talk about the FarmerCore project, when we talk about that with some other players in the industry, they say, well, we have trucks too. Like, what's the big deal? So what's the big deal?

Well, the big deal is what's the priority? What's the focus? So all dealers had some remote service fleets, but they had -- their predominant asset base was fixed brick-and-mortar assets and the predominant mode was bringing the customer to the dealership. Our predominant mode is to do all the work on the farm. These are heavy service trucks that can pull an engine, do a transmission, do all the electronic diagnostics. They can do everything. They can weld, they can do everything out on the farm. And so our whole mindset is everything gets done on the farm.

And the other piece is mixed fleet. Our competitors just do not operate that way. Our technology strategy is mixed fleet. Our distribution support strategy is mixed fleet. And our data platform, which we maybe will talk about later, is mixed fleet. So the ability to take data off of all these machines from any brand, have the farmer analyze their farm and then send data back -- a task file back to any of the machines regardless of brand. So the whole business is set up in kind of a symbiotic way where we're managing the entire farm regardless of how it's constructed across the mixed fleet, which is fundamentally different than how our -- the rest of the industry operates.

Okay. Fair enough. I guess, less capital intensity for the dealer as well, right?

Way more flexible. They love -- a brick-and-mortar operation is very fixed. It's a fixed cost and it's a fixed location, it's fixed everything. Whereas trucks, if the west side of the territory is hot for these couple of years, you focus over there. If the east side then becomes hot later on, you can bias over there. You can flex up and down more easily. The technicians like it because they can operate right out of their home. They don't have to come into the office every day. And so it's something that customers really like. Dealers like the asset efficiency, and we like it because of the strategic differentiation.

So where are we with coverage now? Do you have enough trucks? Do you have enough dealers? Is there still work to do there?

Coverage is good. We have our large ag coverage in North America is over 80%, same thing in South America. We're really working on penetration. And so one of the things we did this year is -- we worked with our biggest dealers and said, "You've got to step up your game in terms of performance." We've invested heavily in redesigning all of these products for Fendt, and you've got the best of the best products now. Then we invested over $2 billion in our tech business to give you a data platform that's a mixed fleet and cutting-edge technology, that's in place. And we've invested in the service parts business where we've got the top performing better than any other competitor on parts fill rate. When you want a part, it's there for you.

All of these investments are done, they're working. And in some of our big dealers, they had still low market share. And so we said, this is a line in the sand time. You have got to step up your game and actually, you're going to lose some of your territory. Depending on how you react to this conversation, you're going to lose a little bit or you're going to lose a lot. And so they all had to come up with a plan about increasing the number of salespeople they had and trucks and parts dropboxes and all these types of things to increase their training and they all react. They said, "This is something we don't want to lose." And so they lost a little bit of their territory. We gave that to the adjacent dealers that were performing better. So it's kind of a -- we all got to perform higher now that we've been making these investments, we've got to make them pay off.

Great. Let's switch to PTx because you mentioned that the aftermarket piece of that business is kind of the sharp end of the spear. And given sort of the weakness in the cycle, what are you seeing specifically there?

Well, we're investing right down through the -- as this market has been cooling off, we've been going full speed ahead on innovation. So we launched 12 -- 14 products last year, 12 products this year. The innovation engine is really cranking. And what you think about first is modules, tech modules that go on to an existing machine to make it -- have new capability. That's the core of our business. But the other big investment is on data platform. We call it -- there's two of them. FarmENGAGE for machinery management and Panorama to manage a farmer's agronomic data, like as planted, as sprayed, what their harvest data is, those types of things. And those two data platforms work with any brand of equipment, inbound or outbound data.

So the innovation engine is going very well. The -- probably the long pole in the tent is building out this unique channel. We've said that we're creating -- unlike any other competitor, we're creating this set of dealers that that's all they do is sell retrofit technology. And that takes some time because what we inherited was a whole coverage of global dealers for Precision Planting and a whole coverage of global dealers for Trimble. They laid on top of each other, but they didn't have -- the puzzles didn't line up. And so you have to go in area by area and have conversations with a few different business people to say, "Hey, what can we do in this area? How do we merge you together so that you become what we call a PTx Elite dealer?" And the Elite dealer has the full portfolio, everything that Precision Planting used to have, everything that Trimble used to have. They have it under one roof and selling it all and supporting it all very, very well.

We've got about almost 90 of those in place now. That's about 50% of the global market covered. Our aim by the end of this year is to have about 120 of them established, that will be about 60% of the market cover. We had about another year or 2 to get that up above -- in the 80% to 90% of the market covered range because we can't just snap our fingers. We've got to work through step by step. And every situation is different about who wants to grow, who may want to sell, who wants to merge all that kind of stuff. And so it will take a little bit of time. But once it's done, we've got this innovation engine that's cranking out solutions to the toughest problems, all the way to full autonomy solutions. Combined with our own tech channel that's unique in the marketplace and a data platform to support it, it's going to be a very strong moat business that will grow to $2 billion. We've committed to growing this business to $2 billion by 2029.

Okay. Good. One question I get a lot. We'll use the boiler plate from the 10-K is, some of your competitors are bigger and have more resources than you do. How do you sort of stay neck and neck from a technology perspective? And do you feel like you are?

Well, I mean, if you just take a look over the last 10, 15 years, this question comes up often. And you'd say, "Well, what's the result been?" It's not so much what goes in the pipe, what comes out the pipe that matters. And I put our innovation team up against any in the industry. I think our team is more -- we've committed with our strategy to say, "We're the most farmer-focused company in the industry. We spend more time right at the farm understanding the pain points and innovating solutions, whether it be in product or data or in support to solve those solutions." So our mindset is very farmer focused instead of being a product-focused company.

And if you look at the results in ways of measuring innovations, first of all, we cover -- we're upgrading, refreshing. We've got the best tractors. We are the planter expert. So our products have stayed fresh. And then when you look at the innovations, AE50 is the one in North America. We routinely win the most of those each year. We're the leader over the last 5 years, we've got the most awards of AE50.

Same thing in AGRITECHNICA. One of the competitors that spends multiples of what we spend has gotten 0 to 1 or 2 of awards, and we get more like 5 to 8 awards each year. So the industry recognizes the innovation muscle that we have and just the DNA inherent in the company, and that's what gives us so much confidence. We continue to invest. In PTx we're investing 12% of sales on innovation. It's a tech company. So we're investing in it like a tech company. So I have no concerns about our ability to out-innovate our competitors, and solve the biggest problems.

And you have a new executive in charge of that business now with whom most of us are familiar. What are his marching orders here? What's going to delineate success from failure for him?

Yes. So if you take a look, Damon Audia, who used to be the CFO, one of the brightest guys I've ever worked with, we've moved him into a business role. And we've been planning to do something like this for quite some time. And that's why it was such an easy transition with Indira, because Indira has been getting ready for stepping into this role and is a natural absolute great fit for being our next CFO.

But Damon's mission is to deliver on the strategy. So there's no hard right or hard left turn. It's accelerating progress. So the innovation engine is going well, keep fostering that. The talent we've retained keep inspiring and firing them up, and then accelerate the development on the channel. Grow our OEM partner base, but really make progress on closing out these Elite dealer conversions.

Okay. Good. And deliver?

The bottom line is deliver a high-margin business that's in the mid-20% operating margin. It's over 50% gross margin business, mid- to high 20% with a $2 billion top line by 2029.

And the top line today is?

A little under $900 million. But we're at 85% of the mid-cycle -- that $2 billion is a mid-cycle number. So we're a little bit apples and oranges there. If we are at mid-cycle with today's business, we'd be over $1.1 billion, $1.1 billion, $1.2 billion.

Got it. Okay. Good. So let's take a moment here as anyone have a question from the field. It is early. All right. Insufficient caffeination, I guess, but I can keep going.

Let's switch, again, a lot of focus on inventory levels, both new and used. Can you just kind of take us around your key markets and let us know what you think the situation is?

Indira, do you want to jump here?

So since the start of the year, we've done a lot of work in managing our inventory levels down to our target sequentially. So if we look at North America, our target is 6. And at the end of second quarter, we were below 7. So we've made a lot of progress. One thing to highlight is our dealer inventory levels are forward-looking on 12 months of supply. So as the industry comes down, we are working harder to make sure the dealer inventory levels are at target.

When we talk about Brazil, South America, our target is 3 months, and we are at about 3.5 months. One important thing to note there is when we started the year the dealer inventory levels were more skewed on aged, older equipment. So -- and that was on the non-tractor side, so the combines, sprayers, planters. So we had to work through the year providing incentive programs that were targeted to help our dealers move that inventory. So as we've gone through the year, the dealer inventory levels have -- are getting to the normal level. But as we get closer to our targets, that pricing leverage improves for us because those discounts will start to moderate.

Then we shift to Europe. Europe is where we talked about Germany as well. So this is where it was accumulation of dealer sentiment, cautious dealer sentiment, cautious farmer sentiment. So our target is 4 months. Our dealer inventory level was 3.5 months. So we were much below target. So that shows that there's a healthy dealer channel level. So in the mid- to long term, that will help us with improvement with kind of absorption once the industry is ready, once demand will pull through. So overall, we've done a lot of work. One of the things we want to highlight, too, is because this is a forward-looking number. Sequentially, if we look at units, we've made a lot of improvement in units like I would call North America.

North America, just in second quarter, in terms of units that was a 7% reduction in units, and that was largely led by large ag. So a lot of work, and we continue to stay very disciplined with our dealer inventory. We've grown North America share. We've protected our pricing while normalizing our dealer inventory level. So that shows to the strength of that we sell on value, the farmers see value of our offering. And it's not as if we are loading the dealer channels or discounting. So we are working our way through, and we've made substantial progress in '26.

So what's your current view on production in the sort of end of this year relative to retail demand? Are you back to kind of even there?

So as we work through this year, so North America, we were underproducing to retail by approximately 10%. We were underproducing in Brazil by about 15%. So as those dealer inventory levels work to those target levels, the idea would be -- the plan would be to produce to retail as we start '27.

Okay. So what do you think the full 2026 underproduction is?

I think in the ballpark, it will be in the ballpark of the 10%, 15% for the full year.

Okay. So if '27 were flat sequentially, you'd have that tailwind...

We will have the tailwind. So it's just not that industry lifting on us that producing to retail will give us better volumes, will give us better absorption and with some of the market share gains we've had and protecting pricing and mix, all of this will give us -- will set us up constructively in a different point for entry into '27, as compared to when we entered '26. So even if industry stays flat, there's more upside in terms of leverage for where we are.

Great. So you mentioned pricing a couple of times in that answer. So let's dig in there as well. You have a global footprint and one that's a little different than others. Maybe first, just talk about how tariffs are impacting you?

So tariffs on a full year gross basis, it's -- about $115 million is what our tariffs were. In the second quarter, we did get refunds of approximately $20 million on IEEPA. So net fiscal year '26 was about $95 million was our tariff headwind. And look forward, I would say, given the tariff environment now, we are watching 301. We are watching Canadian tariffs, I would say, $100 million is still the baseline for us to look forward. So one of the things that we do have to remind ourselves is we've done a lot of work on the tariffs, as I mentioned before, we are not looking to pass all of the tariffs to our farmers. That's not the prudent way to do it. This is where we go back to our cost base to say, what are we doing in terms of sourcing and manufacturing efficiency, logistics, supply chain and layer it all over all of the OpEx efficiency work that we've done.

Great. All right. One more chance from the field, anybody? All right. Great. There's a mic, so just hold on one second.

[indiscernible]

I'll just repeat it for the webcast. The question is how do you view competition from China, especially at the low end?

Yes. Two different answers. Is it here yet today not so strong? Are we paying a lot of attention to it? Absolutely, yes. So we feel like Brazil is probably the most likely entry point. If you look at -- if you go down to Brazil and you look around and how much -- how many Chinese cars are already there, it's a market that's comfortable with that. And it's a focus area, it feels like from the Chinese competition. But we're also seeing them trying to get into Europe as well. So we're paying a lot of attention to that, looking at what we need to do with our cost structure and our value proposition to make sure that we shore up the position where they are most likely to enter. The typical playbook that we see companies like that using are coming at a much lower cost but not much lower performance. So still has a fair number of feature set. The challenge they're going to have to work through is in farming, it's a high-trust environment. So what's the support network? Do you have on-site parts and those types of things. And what we've seen so far is that's their biggest struggle.

The product will get there over time, but it's the rest of the infrastructure that is -- as challenging as it is to take our Fendt brand that is well known and bring it into North America and South America and grow. And we have a full parts network, a full dealer organization, all of that to bring a brand-new brand into a new market with no supply base, no parts network, no dealer organization, no support capabilities, it's not automatic. So this will take some time, but we're not discounting it either. We're taking it very seriously.

Great. Anyone else? All right. We have 3 minutes left, so this might not be fair, but there's been some change in your ownership structure and that's allowed you to be more aggressive with share repurchases. So I guess the meat of the question is share repurchase versus M&A. How are you thinking about capital allocation?

So in the second quarter, we did approximately $345 million in share repurchase. So ownership structure, you're referring to, the [ pain ] in our neck, which was TAFE, who is also an activist shareholder, our largest shareholder. We've been able to come to an amicable settlement now when we do a share repurchase. They're required to proportionately participate. So out of the $345 million, $50 million was TAFE.

So when we think about capital allocation, it's always been a balanced framework for us. We want to continue to invest in our business to support that long-term growth and competitiveness. We want to be able to pursue targeted technology capabilities. Investment-grade balance sheet is important for us because it helps us navigate the down cycle, while we can strategically invest when the opportunity shows up and return of capital to shareholders.

So when it comes to M&A, we are more biased towards technology capabilities that will help us accelerate the PTx road map that Eric talked about and help us strengthen the data or the software layer. So we look at M&A and share repurchases not being mutually exclusive. It's the value of the opportunity set, and we'll continue to assess based on cash generation, liquidity, operating needs and what leverage is. So it's balanced, and we'll stay tuned.

All right. Good. Well, with that, maybe we'll wrap up then. Thank you guys so much. Appreciate the insights as always. And thanks, everyone, for your attention.

Thank you.

Thank you, Steve.

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 the row now, you guys have been at our tech conference. So appreciate the support. Good to get out and tell your tech story in particular. But 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. So 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 don't sell golf equipment or construction equipment or anything else, we're totally focused on the farmer. Over the last 5 or 6 years, we built a strategy for the next chapter that we aim to be the most farmer-focused company in the industry.

And what does that mean? Essentially, it informed our technology strategy, informed our distribution strategy and informed our data platform. So Kyle, you're asking about portfolio changes. Essentially, out of that came a few portfolio shifts. First of all, we globalized our most premium brand. That's the one that's loaded with technology that's Fendt. Fendt sits at the very top of the market for the most demanding customers.

And it used to be European. Now we've got 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. So essentially built a tech platform. And over the last several years, we've invested in 6 M&A acquisitions, all around tech. We heavily loaded up on our engineering. And on the path, now we're there.

We see ourselves as the market leader in autonomy and the market leader in Precision Ag, especially in the retrofit environment. So 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. So that was the second one, build out our technology. Third one, as we did that, we sold off our grain and protein business as our lowest growth, lowest margin business.

And 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. Instead of -- the whole industry operates on a very brick-and-mortar approach, where the farmer has to come to the dealer to get their research the machine, buy the machine, get their parts, get their service. We flipped that 180 degrees and so we want to be the most farmer-focused.

We're going to come to the farm and do the work. And in just the last couple of years since we've 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%. And when these dealers do that, they have a 4.5 point higher Net Promoter Score and 1.5 points more market share. So farmers like it. And then finally, it's something called Reimagine. That's 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. So that's a quick flyby of the big changes over the last few years.

Awesome. Great overview. And before we get more into the tech story, let's get Indira into the mix early here. Indira, you are a 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.

So Kyle, I would like to say new CFO, but not new to AGCO. So I joined AGCO 2.5 years ago in the Chief Accounting Officer role, but it was more than always the Chief Accounting Officer role. So it was more than accounting, reporting and controls. I was intimately part of FP&A, the M&A space as well as the reimagined transformation that Eric talked about. So been part of the AGCO journey, part of the AGCO strategy. So 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. So capital allocation, I think I would want to say it right outset that the capital allocation strategy remains unchanged. So 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.

So in the second quarter, we completed $345 million in share repurchase, which included $50 million of TAFE participation. So 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. So when we think about M&A, I would say we have a bias in pursuing technology opportunities that help us either accelerate the Precision Ag road map or strengthen our data and our software layer.

So 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. And 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. So very balanced, and we'll stay very disciplined.

And turning back to the Precision Ag story for AGCO, 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.

Okay. There's probably 3 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 the 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. So 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 and upgrade could be a 5-year-old piece of machinery, 7-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 the -- 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. And then -- so retrofit, open and broad platform are the 3 big differentiators.

And it's been about 2.5 years since you acquired Trimble, the Ag side of it. Maybe just talk about how you think that's going in this now PTx portfolio, just relative to your initial expectations, curious what scorecard you'd give yourself so far on the integration and maybe synergy realization on the Trimble Ag business?

When you think of the tech business, that's what this is. It's a tech innovation business and a tech channel. You'd say, well, what are the things that matter? First of all, is talent, and we've been able to retain the talent and the team is working very well together. Number two is, is it an innovation engine? Is it working well? That -- both of those at rate very high. The innovation engine kicked out 14 new products last year, well ahead of our expected pace. This year, we're going to launch another 12.

That's a lot of new fresh features coming to market solving the farmers' toughest problems. The one that's 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. And 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're the only ones who are building out a tech-only channel. This group doesn't sell tractors or [ combines ] or sprayers. They only retrofit technology on machine. Building that out is -- we knew it was going to be a challenge, and it is a challenge. But it's also our secret sauce. It's the differentiator, it's the moat around the business. We're 2 years in, we've 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 form of Precision Planting dealers or Trimble.

That's already covered. But we don't have to have the customer go to 2 different dealers. We want to melt those together and have one full-line tech dealer that covers the whole thing. And we're about half the market covered with that. We'll have a little more like 60% by the end of this year. But we've got another year or 2 of channel build-out in front of us.

That's a maybe a good segue into my next question. 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.

Yes. 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. So that $900 million, just with market recovery will be closer to like $1.1 billion, $1.2 billion. And then 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. And 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. And so those would be the 3 things: market recovery, maturing in the channel and letting those products mature through the S curve.

Got it. And 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. 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 time frame that most likely they will be.

Yes. And then on the data platform road map as well, I think you're kind of wrapping up Phase 2 of this data platform road map, which is consolidating features to a common platform. And then Phase 3 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.

Yes. I talked about, one of the things I'm happy about with our PTx team is how the innovation engine is working inside of the whole portfolio of all those solutions I talked about, the data platform is 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.

And then we've got FarmENGAGE that is our machinery fleet management, how you manage mixed fleet of all the machinery working. And then Panorama is our agronomic data platform that allows the farmer to manage all the planted data, spray 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. But 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 insight. 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 what should -- where are the variations in their farm, where do they have an untapped potential and what should they change in their operation, what farming activities 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 system.

And then I know you touched on the Elite dealers. It sounds like you're going to be still adding those in 2027. I'm curious just how that's been kind of pacing? And what's the kind of once it's ramped up, what does that target look like for a number of Elite dealers?

Yes. So we've 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. And essentially, what's happening is you say, well, what's the deal? Why don't 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 weren't lined up. It was like 2 puzzles laying on top of each other. And so 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 guys like -- 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?

And so it's a bespoke recipe in each area that's 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 2 for us to mature out to be 90% of the market covered, and that's baked into that $2 billion growth platform in terms of revenue.

Got it. And I get questions from time to time from investors on autonomy, and you do have some exciting autonomy offerings. I'm 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? And I'm sure it will be on full display at your tech days as well in a month. So look forward to seeing that again.

So we show it at our tech days every year. We also showed our Farm Progress Show, but we're also selling it. So the -- we see ourselves as a 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 harvesting through the crop, it summon the tractor, tractor has no driver in it. The tractor comes around, finds the combine, they're driving parallel path. The combine unloads the grain into the grain cart. When it's empty, the combine releases the tractor, the tractor drives off and either waits to be filled again or if it's full, goes off the side of the road to be unloaded.

All -- so now instead of 2 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, could be through the night, but it does it all on its own. And these are 2 great ones because harvesting and planting are when there's the peak labor demand.

A lot of things going on at the same time. And usually, that's when the weather window is crunching things. So those would be our first 2. 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're going to have applications all the way around the cropping cycle to be autonomous. You said, what's the gating feature. Our technology is largely common.

The hardware stack that you buy is common for these tasks. What we're developing is the software each time to do that. And the gating feature, I think, is really getting a number of tasks completed so that the farmer when they buy the system that they're getting a number of things done. If it can only do one task, like, well, I'm investing for only one thing.

But if I'm investing and they can do 3 or 4 things or 5 or 6 things, it's like, okay, now I see a lot more value in my operation. We're 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 around 2035.

And when you say more tasks, does that mean just addressing more aspects of the crop cycle. Is that what you mean by that?

Exactly. So today, we can do harvesting of combines the grain cart. We took it down to Brazil, same thing with sugar. So 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. So 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. And 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 technologies just broadly across your portfolio?

Yes. It's -- there's an equation out there where the farmers have to grow a lot more grain. There's moving 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 guys eat more and more meat, it's a multiplier for grain. So you have -- we have to generate a lot more output. The inputs are all being managed tightly.

So farmers want to use less fertilizer, especially fertilizer prices going up, less diesel, less herbicide, all of the inputs. So 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.

So we hear a lot about labor, but that's our solution for that is autonomy. We hear a lot about input cost savings. Our solution for that, that we have in the market is our AI targeted spring. And then a lot of managing complexity of data, and that's our data platform, mixed fleet data platform.

So 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 any time we sell a solution, it has a one or maximum 2-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 this stuff, we -- sometimes we sell a system, so there's kind of like a sale, a onetime sale. But then there's also ongoing recurring revenue and subscriptions, and guidance, increased guidance subscription and those sort of things. Our 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 opportunities.

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. And in the last 5 minutes or so, I have to ask on some of the trends across the end markets as well. So maybe starting with the U.S., given we were just -- we just had the Farm Progress Show last week, I think, or 2 weeks ago. I mean, I'd say 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 that Farm Progress.

Yes. 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 a 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.

So farmers -- 2 years ago, we had maybe 40 farmers that came to a prelaunch. This time, we had over 300 and closed a lot of deals right at the show, which is very unusual. Usually, we don't do that. So there is a lot of upbeat sentiment by farmers directly, and then dealers starting to talk about planning for growth. And that's not a -- we've been really managing down inventory. That's been the whole conversation over the last 2 or 3 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.

And I'm curious also from your conversations, just how are farmers may be feeling about the input cost side of things, especially with the changing situation in the Middle East and 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 the potential impact?

It's a clear frustration for farmers. They are feeling that high input cost pressure, diesel and fertilizer are the 2 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 the last year, which will probably put some downward pressure on grain production.

Now 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 America market isn't really so much an issue. It's more of a price thing. In some markets, there's more of a concern. And then diesel -- and diesel actually cuts both ways.

Farmers do not like a high diesel bill for sure. So that's crystal clear. But 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. And so what we're seeing is, although there's a negative in terms of diesel cost, there's also more demand for ethanol, and that's -- 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 1 is 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 the key -- going to be the key drivers of that further share gain over time?

Yes, 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. And we're bringing that into the market over the last 5 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, and we're really helping our dealers do FarmerCore. The more that they do this on farm work and combine it with the great products, the more they do farm support our 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 the farmers think about, well, I want a great product. I want to make sure I have great support, and I 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.

And 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 the 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?

I mean the biggest drumbeat you watch in agriculture is grain prices. And so it's a global thing that's going on with grain prices going up, farmers all over. I was talking to our European team and prices are now above breakeven. So that's a good thing for everybody.

There's something holding back to South America farmer, and that's the uncertainty of the election coming up because you've got somewhat of a far left and somewhat of a far right candidate, and you don't know who's going to win, so far, there's uncertainty baked into that, combined with pretty high interest rates and a fair bit of debt load. So I think South America will probably the slowest to turn around because of those two things.

North America feels like it's already starting to move and Europe will be in the middle. They're a little bit more sensitive to the higher energy costs, and they harvested earlier. So this rise in grain prices happened after they did a lot of their harvest. So I think that they're going to be able to capture some of that a little bit later.

Awesome. I think we'll wrap it up there. And Eric and Indira, thanks so much for doing the conference this year again, and we'll wrap it up there. Thank you.

Thank you.

Appreciate it, Kyle. Thanks a lot.

Thank you.

Good day, and welcome to the AGCO 2026 Quarter 2 Earnings Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations. Please go ahead.

Thanks, and good morning. Welcome to those of you joining us for AGCO's Second Quarter 2026 Earnings Call. We will refer to a slide presentation this morning that's posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of that presentation. We'll make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as their financial impacts.

We'll also discuss demand, product development and capital expenditure plans and timing of those plans and our expectations concerning the costs and benefits of those plans and timing of those benefits. We'll also cover future revenue, crop production, farm income production levels, price levels, margins, earnings, operating income, cash flow, engineering expenses, tax rates and other financial metrics. All of these forward-looking statements are subject to risks that could cause actual results to differ materially from those suggested by the statements.

These risks are further described in the safe harbor included on Slide 2 in the accompanying presentation. Actual results could differ materially from those suggested in these statements. Further information concerning these and other risks is included in AGCO's filings with the SEC, including its Form 10-K for the year ended December 31, 2025, and subsequent Form 10-Q filings. AGCO disclaims any obligations to update any forward-looking statements, except as required by law. We will make a replay of this call available on our corporate website later today.

On the call with me this morning is Eric Hansotia, our Chairman, President and Chief Executive Officer; and Damon Audia, Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead.

Thank you, Greg. Good morning, everyone, and thank you for joining us. AGCO's second quarter results reflect our continued focus on delivering products and technologies that make farmers more productive and profitable while driving efficiencies across our business. and also improve AGCO's profitability through the cycle. While sales in Europe and Latin America progressed below our expectations and farmers were increasingly cautious amid current market dynamics, we acted decisively to align production with retail demand, manage dealer inventory and maintain strong discipline on operating expenses and working capital.

Net sales for the quarter were approximately $2.6 billion, 1% lower year-over-year. Our teams executed well and maintained consistent performance throughout the quarter, gaining market share in key regions. This is reflected in our adjusted earnings per share of $1.43, an increase of $0.08 over the prior year.

Operating income was $140.7 million for the quarter, a decrease of 14% year-over-year with reported operating margins decreasing by 80 basis points to 5.4%. On an adjusted basis, operating margin decreased 170 basis points to 6.6% and driven primarily by lower sales and production volumes and higher input costs, including tariffs. Those were partially offset by solid pricing the benefit of certain EPA tariff refunds recognized during the period and ongoing benefits from our business optimization initiatives.

Our results demonstrate the resilience of our operating model in a dynamic environment as we managed moderating demand, higher input costs and regional variability, while continuing to deliver consistent results and maintain a strong financial position. Conditions in the broader industry remain complex. Weather continues to play a significant role as elevated temperatures and drought conditions persist across parts of Europe, along with ongoing weather variability in North and South America.

These factors are influencing crop development yield expectations and ultimately, farmers decision-making. At the same time, financing costs remain elevated and trade policy developments are adding another layer of complexity. While commodity prices have improved recently, farmers around the world have a heightened focus on maximizing net farm income. This environment is increasing demand for solutions that help manage costs improve efficiency and protect yields. That focus aligns well with AGCO's portfolio, particularly our precision agricultural solutions, which help farmers boost productivity and often deliver payback in 1 to 2 years for our retrofit customers.

In this environment, our priorities are clear: to stay centered on being the most farmer-focused company in the industry, delivering high-quality innovations to solve farmers' toughest problems, also to maintain discipline across the business to preserve operational flexibility and adjust production and cost levers as conditions evolve. Over the past several quarters, we have taken meaningful steps to simplify operations, improve efficiency and strengthen execution. Those actions are helping us manage through the current environment and sustain a solid level of performance even as volumes fluctuate at the trough of the cycle.

We are also continuing to invest in areas that matter most to our customers. Particularly smart farming and digital solutions that help improve productivity and reduce input costs that I'll talk more about in a moment. Slide 4 provides an overview of industry unit retail sales by region on a year-to-date basis through June. Across many markets, demand remain measured, reflecting affordability considerations elevated input costs and a focus on near-term returns. Farmers have experienced double-digit increases on inputs like fuel and fertilizer prices. These elevated input costs continue to pressure farmer economics and are contributing to a cautious approach toward fertilizer and equipment purchasing decisions. It is unlikely that farmers will see meaningful relief on these input costs in the near term, which will likely result in many farmers staying conservative on their spending and applying less fertilizer, and that increases my optimism for 2027.

In North America, industry demand remained soft year-over-year with continued weakness in higher horsepower equipment as farmers defer larger capital purchases. We're also seeing softer demand in lower horsepower segments, reflecting the rural lifestyle customers focused on affordability in the current environment. In Western Europe, industry conditions were mixed as input costs, demand and capital allocation considerations influenced equipment purchases. Tractor demand showed relative stability year-to-date compared to prior year levels, but weakened during the second quarter. Combined demand remained more cautious as farmers consider financing conditions and capital allocation priorities.

In Brazil, industry demand remained under pressure. Higher production costs and interest rates tire credit availability and currency dynamics continue to impact demand, with the greatest effect seen in larger equipment categories. Demand for smaller and mid-range equipment has been more resilient compared to larger equipment categories. Across all regions, we continue to see farmers taking a disciplined and selective approach to equipment investment, prioritizing solutions that deliver clear productivity and efficiency benefits. This environment reinforces the importance of aligning production with retail demand and maintaining flexibility in how we operate the business. While we face several near-term challenges, a number of factors could create a more supportive backdrop for commodity prices and farm economics over time.

Elevated input costs, reduced fertilizer application and drought conditions in parts of the world are pressure in crop production and this is before the potential effects of the super El Nino. At the same time, there continue to be increased discussions on accelerating demand drivers such as expanded ethanol with year-round E15 in the U.S. and renewable diesel and sustainable aviation fuel usage in the U.S., Brazil and Europe. All of these could support demand for key crops. Combined with aging equipment fleets and the ongoing need for productivity gains, these dynamics reinforce our confidence in the fundamentals of agriculture.

As the geopolitical environment stabilizes and in costs eventually moderate, we'd expect farm economics to improve and farmers will be better positioned to invest in fleet replacement and productivity-enhancing technologies. AGCO's factory production hours are shown on Slide 5. On a year-to-date basis through June, production hours were up approximately 6% compared to the prior year, reflecting a significant increase in the first quarter off a low production base in early 2025, effectively in Europe.

In the second quarter, production hours were slightly lower year-over-year as we deliberately moderated output to align with our operating plan and current retail demand. Full year 2026 production hours are now expected to be slightly lower versus 2025. As the year has progressed, we have taken a more measured approach to production, including modest reductions in the second half to better align output with the end market demand, particularly in Latin America and Western Europe. This reflects our continued focus on matching production to demand, and maintaining disciplined cost control and our cost structure.

Turning to regional inventories. Dealer inventory management remained a positive contributor to execution during the quarter as we saw lower dealer inventory levels in all 3 major regions. In Europe, dealer inventory months of supply were around 3.5 months compared to just under 4 months in the first quarter, remaining well aligned with our 4-month target range. Inventory levels across our brands continue to reflect disciplined channel management and healthy market positioning, providing flexibility to support customer demand while maintaining a focus on margin quality and mix optimization in our largest and most profitable region.

In Latin America, dealer inventories moved to approximately 3.5 months of supply down from 4 months at the end of the first quarter. Units were down approximately 5% as dealers continue to work through aged inventory, especially non-tractor products. The reduction reflects continued progress toward our 3-month target level despite our current industry outlook in the region. In North America, dealer inventories improved modestly to just below 7 months of supply, moving closer to our 6-month target. Units were down around 7% in the quarter as we continue to rightsize dealer inventory levels.

Reductions were led by the large agriculture segment, reflecting continued execution of our production and shipment plans designed to support channel health and align field inventories with retail demand. Overall, we are pleased with the progress we are making with our dealers around the world, which increases our confidence of producing in line with retail demand next year. Slide 6 reinforces how we're executing against our strategy to drive higher quality growth and expand margins over time toward our 14% to 15% mid-cycle target. That strategy has not changed with fluctuating market conditions. It continues to guide where we invest, how we innovate and how we create value for farmers and shareholders through the cycle.

In the current environment, what is most important is how our 3 high-margin growth levers are performing. High-margin products continue to support mix. Our technology portfolio is driving differentiated value for customers and our aftermarket business is providing a more stable and recurring revenue stream. Together, these three levers are helping to offset softer industry demand and reinforcing a business model that is less dependent on volume and more anchored in value and customer outcomes. You can see this playing out in our performance, where disciplined execution and a more balanced revenue mix are supporting margins and cash generation relative to the last cycle despite a more tempered demand backdrop.

This gives us confidence that structural improvements that we've made position us well to navigate the cycle while continuing to invest in the business and deliver consistent long-term returns. Turning to Slide 7. Beyond the quarter's financial results, we continue to convert our Farmer first strategy into tangible wins from premium brand experiences to precision ag expansion and scaling AI, in our machinery brands, Fendt continued its strong momentum. The Fendt 800 series equipped with an AGCO Power core engine set an absolute new record in its class for fuel efficiency in the independent DLG power mix efficiency test with rising operating costs, especially diesel fuel, every liter of fuel saved counts. And Fendt continues to set the bar high across the industry and fuel efficiency. We also celebrated the 50,000 Fendt 900 variable, a flagship high horsepower tractor that matters not only in Europe but across the world.

Fendt value proposition is resonating, especially with North American farmers, and we're seeing that translate into meaningful market share gains. Our precision ag and autonomy portfolio also moved into new ground. We launched outrun, our mixed fleet retrofit autonomy solution in Brazil to a very strong early customer feedback, extending automation into sugarcane. Latin America and Argentina, in particular, continues to be a proving ground for our AI-enabled planting and sprayer technology across both our own dealer network and our OEM customers. We view this as a tremendous growth opportunity as these large technologies seeking farmers see the power and the productivity of our technologies and we continue to advance AI as a core enabler.

But with a sharper focus, rather than spending efforts across many experiments, we're concentrating on the areas where AI delivers the most value and can scale across the business, including product development, customer acquisition and supply chain. On the factory floor, AI-based vision and inspection and our Fed transmission and tractor plants in Germany are lifting quality and throughput. In the field, AI-enabled tools and customer and dealer support are reducing downtime. We're deploying these responsibly with human oversight, applying AI where it drives both efficiency and growth. This is what Farmer First looks like in practice. Better machines, smarter, higher-margin technology and focused innovation that help farmers perform better while making AGCO stronger.

With that, I'll turn it over to Damon to walk through the financial results.

Thank you, Eric, and good morning, everyone. Slide 8 provides an overview of regional net sales performance in the second quarter and first half of 2026. On a constant currency basis, the second quarter net sales were 4% lower year-over-year. For the first 6 months of the year, net sales increased approximately 6% on a reported basis and were essentially flat, excluding the benefit of foreign currency translation.

By region, Net sales in the Europe, Middle East region were approximately 5% lower during the second quarter of 2026 compared to the same period in 2025 on a constant currency basis. Most European markets remained restrained during the quarter, while good performance in Germany and the United Kingdom helped offset a portion of the decline in countries like France. North America net sales increased approximately 20% over the second quarter of 2025, excluding currency impacts. The increase was driven primarily by stronger unit volumes led by high horsepower tractors and hay tools and market share gains on many products.

Net sales in Latin America were 25% lower compared to the second quarter of 2025 on a constant currency basis. Industry demand remained challenged across the region, resulting in lower sales across all major product categories. However, pricing was effectively flat year-over-year in the quarter, which was encouraging. Asia Pacific Africa net sales were more than 6% lower, excluding favorable currency impacts.

Higher sales in Australia helped offset lower sales across several Asian and African markets. Consolidated replacement part sales were $516 million in the quarter, up about 3% on a reported basis and essentially flat excluding favorable currency translation. Parts demand remained stable during the quarter as farmers continue to prioritize maintenance of existing equipment fleets amid a disciplined spending environment. Activity levels varied by region, while overall demand remained consistent with our expectations and reflected the ongoing importance of aftermarket support across our installed base.

Turning to Slide 9. Adjusted operating margin was 6.6% in the second quarter, 170 basis points lower than the prior year. This primarily reflects the current demand environment in Latin America, which continued to impact volumes and absorption. By region, Europe, Middle East operating income was essentially unchanged from the prior year despite lower sales and increased engineering investment. Cost optimization and positive pricing contributed to the stable operating margins year-over-year. North America operating results were generally in line with the prior year, including a benefit of approximately $22 million from certain EPA tariff refunds.

Results continue to reflect tariff-related costs as well as factory absorption associated with our demand aligned production approach. Latin America operating income was approximately $49 million lower year-over-year, with the region continuing to progress towards breakeven. Lower sales volumes and higher engineering expense were the primary drivers of the change. Asia Pacific Africa operating income was approximately flat compared to the second quarter of 2025.

Turning to Slide 10. Year-to-date free cash flow use was approximately $347 million compared to positive free cash flow of $63 million in the first half of 2025. As discussed earlier, production levels were higher in the first half of '16 than the prior period. As a result, inventory investment and working capital requirements were also higher, contributing to the year-over-year change in free cash flow. While cash usage was higher through the first 6 months, the results remain consistent with our expectations and support our full year target of generating free cash flow equal to approximately 75% to 100% of adjusted net income. Our capital allocation priorities remain unchanged.

We'll continue to invest in the business, maintain an investment-grade balance sheet, pursue targeted technology acquisitions and return excess capital to shareholders. Consistent with that approach, we repurchased approximately $345 million of AGCO shares during the quarter which include $293 million associated with the April $350 million share repurchase announcement and $52 million in shares from tape associated with repurchase announcement from 2025.

In addition, we recently declared our regular quarterly dividend of $0.30 per share. Slide 11 summarizes our updated 2026 industry outlook on our major markets. Overall, agricultural equipment demand remains below historical mid-cycle levels as farmers continue to evaluate equipment purchases against uneven crop economics elevated ownership costs and broader macroeconomic dynamics. We continue to see healthy long-term fundamentals supported by [indiscernible] equipment fleets and the need for productivity-enhancing technology as well as increased discussions related to renewable fuels.

In North America, we continue to expect large agricultural equipment to be down approximately 15% below 2025 levels. We now expect the small ag segment to be down 0% to 5% compared to 2025, reflecting a more measured outlook from the rural lifestyle customers as higher financing costs and broader economic uncertainty weigh on discretionary equipment purchases. We continue to work with our dealers as well to ensure that they remain focused on managing their inventory levels.

In Western Europe, we are updating our outlook for modest growth to approximately flat year-over-year. While certain markets continue to perform well, overall demand has moderated relative to our expectations entering the year. Higher input costs hot and dry weather and ongoing policy and regulatory developments have resulted in a more measured demand environment. In Brazil, we are updating our forecast from 5% below 2025 levels to 5% to 10% lower. Industry demand has remained more cautious than expected, reflecting continued influence from financing costs, tighter credit availability and ongoing farmer profitability considerations.

Brazil's government just recently activated its subsidized loan program last week, but the late start has further pressured the industry outlook. Despite near-term conditions, we continue to view Brazil as one of the world's most attractive long-term agricultural markets, supported by expanding crop production, rising global food demand and favorable long-term fundamentals. While these market revisions are relatively modest, we have updated our full year financial expectations, which are summarized on the next slide.

While global industry demand remains at a low level, operating at around 85% of mid-cycle demand, we continue to expect AGCO to outperform underlying markets through market share gains and the strength of our portfolio. Our outlook now assumes pricing realization of 2% to 2.5% updated from 2% to 3%. Favorable currency translation of 2% revised from positive 3% and continued market share gains in key regions. Our pricing outlook has moderated modestly since the beginning of the year, reflecting the current industry environment, especially in Latin America and Europe, Middle East.

Inventory management remains a top priority, particularly in North America and Latin America as we continue aligning production with retail demand and dealer inventory requirements. Our outlook reflects the current tariff environment and the mitigation actions we have implemented through pricing, sourcing and cost initiatives. Based on current policies and recent developments related to IEFA, Section 301, Section 232 and Section 122 tariffs we now expect gross tariff-related costs of approximately $115 million in 2026, we recorded $22 million of certain EPA tariff refunds in the second quarter, reducing our net tariff impact to $95 million for the year. This represents an increase of $50 million compared to last year and does not assume any potential benefits related to future AIBA refunds. These estimates are aligned with current policy and trade conditions, which we may update as conditions evolve during the year.

Engineering investment remains a strategic priority, with spending expected to be approximately 5% of sales. Production hours are now expected to be slightly lower than 2025 levels as we continue to align our output with retail demand and support dealer inventory objectives through the balance of the year. Operational efficiency initiatives are expected to deliver $60 million to $70 million of benefits in 2026, reinforcing ongoing transformation progress. Together, these assumptions support an adjusted operating margin of approximately 7.5% for 2026, reflecting our updated volumes and pricing inputs, partially offset by operational efficiencies and continued cost discipline. Finally, we continue to expect our full year effective tax rate to be between 31% and 33%.

Moving to Slide 13. Based on our updated market outlook, we now expect full year net sales to be between $10.1 billion and $10.2 billion. This reflects current lower demand expectations in Western Europe, Brazil and North American small ag along with more modest contributions from pricing and foreign currency translation than previously planned, primarily within the Europe and Middle East segment. Adjusted earnings per share are now expected to be in the range of $5.50 to $5.75 per share. The revised outlook reflects our updated volume assumptions partially offset by focused cost management, current tariff policies, operational efficiencies initiatives and share repurchase activity completed during the year.

Given the current industry environment, capital expenditures are now expected to be in the range of $300 million to $325 million, driven by project timing and execution efficiencies while maintaining our current commitments to strategic growth initiatives and manufacturing capabilities. We continue to target free cash flow conversion of 75% to 100% of adjusted net income, supported by disciplined working capital management and inventory control. Third quarter net sales are targeted between $2.3 billion and $2.4 billion. The third quarter earnings per share are targeted between $0.85 and $0.90, and reflecting the alignment of production and demand, especially in Latin America and Europe, Middle East, cost execution and timing efficiencies as well.

The third quarter EPS target excludes any impact from potential additional AIBA tariff refunds. The sale of our equity interest in the AGCO Finance U.S. and Canadian joint ventures generated a $20 million benefit in other income expense during the second quarter. As mentioned last quarter, this benefit represents the upfront recognition of earnings that otherwise would have been recognized through equity and earnings of unconsolidated affiliates, which we expect to be lower in the back half of the year.

Before opening the call for questions, I'd like to remind everyone of two events. First, our meeting at Farm Progress Show in Boon Iowa at 10 a.m. on September 1. And second is our 2026 Tech Days event near Chicago this October. This event will include a strategic business update as well as live demonstrations of our precision agriculture technologies and farmer core capabilities. We look forward to hosting many of you at these events. With that, I'll turn the call over to the operator to begin our Q&A.

[Operator Instructions]. Our first question comes from Mike Shlisky with D.A. Davidson.

I guess I want to start off asking about the market share that you noted, the gains in share. It looks like you certainly gained some share in North America. Can you share a little bit about the 2% increase that you saw overall beside market share on just the pricing in North America? And also the mix, was there any additional attachment of PTX or other or higher horsepower, et cetera. Is there anything we should we should isolate there besides the share gains that might have driven the upside in North America?

Yes. I think, Mike, as you touched on, the share gains continue to have good momentum here in North America, especially in the high horsepower segment. Again, we're seeing very good traction both with the Fendt brand, as you know, which is our premier brand, but also with Massey Ferguson and the high horsepower there, coupled with their affiliation with hay, all of that did quite well in the quarter. Pricing in North America was exceptionally strong for us, almost around 3.5% in the quarter.

So not only have we gained share, but also a strong pricing discipline there, which helped us deliver of over 2% for the company in the quarter. And again, I think it goes back to some of the prior conversations we've had with the market share last year and the momentum this year that you're seeing great product quality, great product performance. But dovetailing that with our farmer core initiative where our dealers are really servicing the farmers in a different way and being on the farm, helping them do it in a much more convenient way. And when you put that alongside the product performance, we feel we've got great momentum, and the team in North America had a great quarter here.

I will just build on that. This is Eric. Then when you look at the data on farmer core, the dealers that are performing the best on farmer core have 4.5 points higher Net Promoter Score and 1.5 points higher market share. And we continue to get more and more on-farm service capacity. We're up to 65% now in North America and the Brazil fleet grew 25% in the last year. So this is a very fast-moving adoption by our dealers and well received by the farmers.

Great. My follow-up question is also on market share. Can you maybe just -- maybe it's a 2-part question. One, any progress you made in combined market share. I'd love to hear about that. And then secondly, just taking us around the world. Any other regions where you think you may have gained a bit of share so far?

Yes. I think combines overall, Mike, as you know, we're a very small player really no significant traction. This time of the year, still early in the season, especially in the Northern Hemisphere. So no real meaningful movements there. When I think about share in other parts of the world, Europe, we were kind of a mixed bag here. So the industry in Germany shrunk quite a bit relative to our expectations, but we gained share in Germany, lost a little share in France. So Europe overall is kind of a mixed bag in South America had a modest for us.

And Mike, in South America, I think we -- as we talked on the previous call, we've introduced into Argentina. So we've seen, as we're picking up sales there, we're obviously picking up market share in Argentina with the Fendt brand.

Yes. I think our combined share is going to grow here in the near term over the next year or 2 for a couple of reasons. One, Net Promoter Score for combines in South America jumped by more than any other product in our portfolio. Same thing in Europe. So farmers are really liking the latest features that we've launched and the quality that's coming out with those products.

And then secondly, we've had some dealers in North America convert from a competitor brand to our brand. And so whether it's product performance or channel support and alignment, I think both of those bode well for our combined business going forward.

Our next question comes from Tami Zakaria with JPMorgan.

Good morning. I hope you can hear me well. I'm on the road. So a question on farmer income or the health of the farm economics, if input costs don't see a relief in the near term, like you said, how are you preparing for demand in the next 6, 12 months across your key regions. In your outlook, is there a scenario that equipment demand could remain weak at least through the first half of next year, and if so, what would be the strategy in case of -- in terms of production versus retail demand?

Yes. I think, Tami, we're -- as you would expect, we're doing a lot of different scenario planning right now as to how the back half of this year and early '27 and '27 overall could play out. I think the way to think about this is over the last 18 months or so, we've been cutting production significantly, in different parts of the world to different degrees, but especially here in North America, along with South America trying to rightsize those dealer inventories.

And as we sit here today, going around the world, Europe, we're actually a little bit below where we want to be. We're sitting at just around 3.5 months. We want to get those dealers more along the lines of 4 months. Latin America, we're at 3.5%. We want to get them down to 3. So we're under producing quite a bit. In the quarter, we underproduced in South America by around 30 -- hours were down around 30% and year-over-year. So we're continuing to cut production quite heavily there. Our dealers are doing a great job with our team really moving through a lot of that aged inventory that's on their yards.

And again, coming off that peak, there was combined sprayers planters, A lot of that is what they're moving through to track their inventories quite healthy at the dealer level, but you're moving through a lot of this other equipment that is aged, and I think we'll be in a good position to get through that this year. And so as we look at what that means next year, even if the industry is flat in South America, we're going to be producing at a much higher level, and we're not going to be giving those levels of discounts that we're currently partnering with our dealers move that aged inventory.

So South America, we feel very good. When we look at North America, we brought the into dealers inventory now is just below 7 months. So a little bit of work to do there. But again, the team is making good progress. So as we grow the share that you heard on the prior question, we'll continue to watch the production of what we're making. But again, similar to South America, we should be in a better position as the dealer inventory gets healthier to be more aligned. But we're going to watch the outlook. We're going to look at our analytical models, and we're going to make sure that we don't put too much into the dealer inventory until we get more visibility on the retail demand coming here.

That's a great summary on the wholesale business. Maybe I'll talk a little bit about retail as well. So you're asking about farmer profitability. The biggest pressure has been for liver and fuel over the last little while, and that's largely tied to the Strait of Hormuz. So that one is an unknown. And who knows how long that will last. But there's other elements of the farmer equation. So the top line in terms of demand generation, we see a lot of things either implemented or brewing that could help the farmer. Brazil has already implemented their fuel of the future, and that's driving ethanol growth from 27% to 35%. And we're seeing a lot more ethanol demand in Brazil, which is consuming the corn crop in addition to trigger.

Europe refuel Aviation is already implemented, and that's to grow sustainable aviation fuel from 2% of the market to 6% by 2030. So that 1 is implemented. The big one that is a new one that we think is more likely to happen than that is E15 all year round in the U.S. That will consume -- today, ethanol represents about 36% of the corn crop that could drive it all the way up to 50% of [indiscernible], significant demand generator and then renewable diesel and sustainable aviation fuel in North America could grow to as much as 40% of the U.S. corn crop. So -- I'm sorry, soybean crop. So -- and then there's one more about renewable fuel going into ocean-going vessels act that's working its way through Congress, which would be another big generator of soybean demand. So those are all demand generators for top line. We're already seeing green prices move up. Those would all make those -- move up a lot more to offset some of the cost impacts -- and we've got the aged fleet.

The fleet is aged as it's been. And we expect that because of the high fertilizer prices, farmers have put down less fertilizer. And so we could see an impact to green production coming into the back of this year if that has materialized. So a lot of moving parts there, but there are several reasons to be positive about what could be coming for farmer economics, even if their cost situation doesn't relieve itself in the short term, which is tied to the street.

Understood. That's all very helpful. And just to clarify, I may have missed it. But under the updated guidance, what would be your under production percentage versus retail demand in North and South America as you exit this year.

So the underproduction relative to retail demand in South America, family is going to be probably 15% or so relative to retail. Under production relative to North America will be a little bit less. And again, I think, Tami, remember, what we make in North America are the track tractors, the sprayers, the planters, the leaner combine, so that production is quite low. What we're seeing is great momentum in market share on the tractor part of the portfolio, which is coming from Europe.

And so that's probably a little bit of a disconnect there because when you look at our revenue and our sales again, coming from a little bit more of our imported products, but we will continue to underproduce those products relative that we make in North America relative to retail demand.

Our next question comes from Jamie Cook with Truist.

I guess two questions. One, Damon, just on Europe, I'm not surprised you're low in guidance for the back half of the year. I guess I was a little surprised by the second quarter. So was there anything other than France or company-specific that resulted in the softer results and EM relative to your expectations? And then just because Europe is so important to your company as a percent of earnings, how are you thinking about margins in the back half for the EM region?

And then my second question I think you said the third quarter is going to be like $0.85 to $0.95. So I'm just trying to understand the bridge third quarter to fourth quarter, that would make the fourth quarter up so much anything other than -- I mean you talked about production being down, but I'm wondering if there's anything else positively coming in, in the fourth quarter to hit the full year

Yes. So I think, Jamie, if I think about the second quarter and as we said in our pre-scripted remarks, it was a surprise to us Europe has been doing quite well in delivering on their forecast. So the miss was a big surprise. When we unpack sort of where the surprises were. I'd tell you, it was really two pieces. One of that was sitting in Germany. As you know, when you look at our dominant market share in that country and the size of that market being one of the largest markets, the European -- sorry, the German market was significantly softer than what we had anticipated when we gave our Q2 outlook. The market was down probably about 15% more than what we had anticipated.

And again, given our market share, even though we grew share in Germany in the quarter, that market contraction relative to what we had expected was a big driver to the earnings of Europe. The second one was the dealer inventories, again, given the uncertainty in the marketplace right now, as Eric was talking about with fuel costs, fertilizer costs a lot of uncertainty sitting in the -- at the farmer level. That, obviously, as you would expect, has rippled over to our dealers, not wanting to take on inventory. And so when you look at our dealer inventories last month, last quarter, excuse me, we were just at around 4 months in Europe. We're down to around 3 month 3.5 months. that's a couple of hundred million dollars of a change of sell-in versus sellout.

And again, I don't think -- we were not anticipating that level of dealer decline, but just given the macro backdrop, the CMA indicators really falling down in the quarter. All of those things drove the decline in Europe versus what we had expected. So that was sort of, I'll call it, the surprises that we've experienced here in the in the quarter related to Europe. If I think about the second half, the margins we are going to see the European margins drop again, they're at 15% this quarter. They're going to drop in the third quarter. That's not uncommon given the normal summer shutdown. But again, given the industry outlook that we have now being relatively flat, we're going to take out some incremental days out of production in Europe.

So I would expect to see the European margins kind of be in that low double digits, so call that 11%, 12% range. And then as we come out of that summer shutdown, we really start to pick up production. We have our strongest selling season, our strongest selling quarter in the fourth quarter in Europe. So we should see that revenue growth year-over-year. coupled with the increased production, we'll get those margins back up into the high teens that should bring us more to a better balance for the full year.

Right. And then just anything other than production on the bridge fourth quarter to third quarter?

It's going to be revenue. We're going to see a significant growth. I would put revenues in Europe, Jamie, probably around 1.3 or so 1.4 in the third quarter, and we'll see that because, again, that's taking production out. So we're not going to be selling a lot and then going north of $2 billion in Q4.

And then, Jamie, also our pricing, our new model year pricing, we'll see more of that in the fourth quarter than the third. So pricing is also part of the equation.

Our next question comes from Kristen Owen with Oppenheimer.

I appreciate all the color on the 2Q sort of Europe, what happened. I'm wondering if you can talk to us a little bit about what you're seeing in terms of order velocity now in Europe. Commodities have actually come up quite a good bid since the close of the quarter, especially wheat. Fertilizer prices have kind of corrected. So I guess I'm just trying to tease out how much of your Europe comments are, hey, we just had a cautious surprise in 2Q, and so we want to roll that forward, what's actually reflected in your orders?

Yes. So Kristen, I think right now, again, remember, Europe sort of has this August holiday and the velocity of orders are not there yet, a lot of our dealers and many companies are sort of shutting down here for the month of August. But if you look at our order board, right now, we're still sitting at around 3 months of orders in Europe. So not bad. Now we're down a little bit, if you remember last quarter, I said we were around 3 to 4 months. So we're seeing a little bit of softening I think we've got to sort of get through this August and let's see how as the farmers, the dealers start to come back in, start to think about the balance of the year where commodity prices are I think we're more optimistic that we see that pick up really in the September time frame and then into the fourth quarter.

Okay. That's super helpful. And then I wanted to follow up on the North America comments. Really strong large ag in the quarter. Can you just help us understand how much of that is selling versus sell-through. And then when we think about the impact of that high horsepower mix on margins, I mean, Damon, you mentioned in one of the prior questions, that's more imported form factors. How do we think about that mix effect factoring into the margins in the second half of the year?

Yes. So I would tell you, Kristen, mainly effectively -- it was sell-through. When you look at the dealer inventories, again, they came down a little bit, but we actually reduced the number of units on the dealers a lot in North America by around 6% sequentially. So we're gaining share and it's a sell-through to the dealers here -- or sorry, to the farmers. So good momentum on growing the high horsepower share at the retail level, not just putting it at the dealer level. When we think about the mix here. Again, as you would expect, those tractors, high-horsepower relatively good mix. And as we think about the balance of the year here for North America, you're going to be a little bit of a seasonality effect here with the third quarter we should see some improvements in the margins sequentially as well as year-over-year as we have a little bit of a stronger quarter on the sales and then likely it dips back down a little bit as we move into the fourth quarter, pending something significant happening here in the U.S. market related to subsidies or anything like that, that may trigger farmers sort of ramping up other purchases here at the end of the year.

Our next question comes from Judah Arnovitz with UBS.

I'm on for Steve Fisher. The first question is about Brazil. The updated market outlook seems to imply kind of improvement in the second half relative to the first half. found that a bit surprising just given where the market is now. So I guess what's driving the improvement in the second half? And I guess how reliant is this outlook on government stimulus or other factors later in the year?

Yes, Judah. So we do expect the second half to be a lot stronger or in the industry, and part of it is, as you alluded to, the subsidized financing programs the Brazilian government has announced two different programs. One was the normal name funding that information came out a little while ago. It was about 1% lower interest rates this year versus last year, and then they had a special program that the government had announced earlier this year, that was around BRL 10 billion that has an interest rate of just over 9%.

So that information was public, but there was no details for farmers and dealers to begin to access that. And that's what you heard in my scripted comment, is that just came out late last week, that was announced. So a little bit delayed versus the historical release of that information. And so that normally is a good stimulus for farmers because now they can get the subsidized rates relative to the normal borrowing rates in Brazil. So we see that as a catalyst for the back half of the year.

The other thing is, as you know, there is an election in Brazil coming up here later on this year. And historically, during those election years, you see a lot of incentives or things to help spur the ag economy as we go through that election cycle. So now that the [ Finame ] information and accessible by farmers, coupled with some of the -- with the election, we feel that there should be a pickup in demand here as we go into the back half of the year.

Okay. That's helpful. And then just a question on price cost. You lowered the price range and the tariff impact is a bit lower. But do you expect it to be price cost neutral on a dollar basis this year? And then could you help us think about the margin bridge from '26 to '27. There are a lot of moving pieces in '26. So I guess what are the key items to keep in mind for next year price/cost, regional or product mix, diesel cost.

Yes. So if I look at price cost, if I look at just price versus traditional inflationary headwinds that we would normally talk so excluding tariffs, even in the 2% to 2.5% range, we would be price/cost positive. Now when I factor in the tariffs and including the EPA rebate, as I said, that's around a $50 million headwind year-over-year. With that -- with tariffs inclusive I will not cover all of that at the 2% to 2.5% range will be negative when you include tariffs. But operationally, we'll cover this year. It's just that tariff headwind, assuming no incremental rebates will likely be negative.

As I think about '27, it's obviously with the uncertainty we're dealing with, it's a little too early to tell. If I think about what some of the big blocks are that we should expect to see in '27. We'll see some carryover of our savings. So the organizational restructuring that we've been talking about, that $60 million to $70 million that we're going to monetize this year, things that are being put in place this year, there will be a little bit of a carryover next year. So we think that will be an opportunity.

As I said on some of the prior questions, production relative to retail, we should be producing closer to retail. So that would be a positive for us in several markets. And then we've got to figure out where price versus inflationary costs are going to be and what the industry is going to look like. So we should have a couple of positive building blocks going into '27, but it's still going to be heavily influenced by what that industry is going to look like next year.

Our next question comes from Jerry Revich with Wells Fargo.

Eric, Damon, I'm wondering if you could just talk about what the demand cadence has been for the short-cycle precision ag business, the GPS kits, how has that fared as we've gone through the year? And can you just talk about the broader precision ag performance this year. Any revisions with the broader top line revisions that you folks laid out?

Yes, Jerry. I'll start and then Eric can maybe give his view. He's close to the PTX organization. I think overall, PTX as a group did fairly well in the quarter, I think, very close in line with our expectations. Remember, there's three components to that. There is the PTX products that we're selling to the ADCO factories. That continues to have a very high penetration rate fluctuating, as you would expect, based on the industry. We have the other OEMs. So there's 100-plus OEMs that we're selling to.

Again, have not lost any of those customers continue to do well with them. But as the industry is weakening around the world, we're seeing that sort of slowdown not due to share loss but more due to industry then the retrofit channel has continued to stay relatively strong comparative to the overall OEM industry. So again, good quarter relative to our expectations. Relative -- I'd say relatively flat year-over-year despite the industry being down. And for the full year, we still think that we'll be flat to maybe modestly up versus the $860 million that we did last year. So overall, the team is doing quite well in delivering. Eric, anything you want to add?

Yes, we're staying on track. If you take a step back and say strategically, what are we trying to achieve with the business and we're trying to drive innovation on the one hand and channel development on the other. And so innovation, we launched 14 products last year. We're on track to launch another 12 this year. So we feel really good about the innovation pipeline, solving a lot of the farmers toughest problems. And then in the channel as Damon talked about, there's various types of channels.

There's the retrofit channel and then the AGCO dealer channel. The AGCO channel, we're up to 320 dealers now that we've got armed to sell PTX as part of their business. And then the broader tech channel that they sell the entire portfolio of all the solutions. It's this combination of former Trimble dealers and former Precision Planting dealers, we call those elite dealers, and we're up to 85 dealers now, about 50% of the market is covered by those. Over 90% of the market is covered by APT. What we're just trying to do is melt those together into elite dealers, and so that continues to be on track. So the structural investments and changes are all moving forward like we expect them to just need some farmer profitability to be able to embrace the new technologies that we're delivering.

Hopefully, Eric gives us some help there. And then in terms of the outlook for precision planting heading into next year. Eric, can you comment on whether you have any initial indication of interest on how the demand cadence for your planters, first fit or retrofit wherever you have visibility for the next planting season might look like? And then heading into your Tech Day, you mentioned 12 new products. Any one or two that you think will really move the needle for AGCO into next year that you'd like us to focus on as we head into the event?

Yes, a couple of things. I would say it's -- so you had a few parts of the question real quickly, it's too early for ordering for next year yet on things like planters. But strategically, if you had to say what is most likely to happen planters and combines have been down more than the rest of the market. And so as we start seeing recovery in '27, I would expect those to feel more of that recovery. So we're bullish on that for overall industry demand. Relative to technologies, hitting the bottom line, the biggest thing is our targeted Spring Symphony system. We're up 35% in sales this year compared to last, really getting a lot of [indiscernible] were sold out, a lot of positive reaction to that. In terms of an interesting topic that probably won't hit the bottom line in the short term is our autonomy system called outrun. We just showed that to customers in Brazil.

First one is to launch into Brazil and both in crops and now in sugarcane and overwhelmingly positive reaction to the outrun system to make the machine autonomous, both our brands and competitive brands. So those are of interest, but we're at the very bottom of the curve on that one further up the curve on the targeted spring.

This concludes our question-and-answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks.

Well, I'd just like to say thank you for joining us today and your continued interest in AGCO. The second quarter reflected a more challenging demand environment but also demonstrated the discipline and resilience we're building into the company. We're aligning production with retail demand, managing inventory, controlling costs and protecting cash generation while continuing to advance our Farmer First strategy.

That strategy is showing up in tangible ways. Fendt is gaining ground in North America, precision and autonomies expanding into new applications and AI is being deployed where it can improve quality, uptime, efficiency and growth. For farmers, that means practical innovation that helps improve productivity, efficiency and profitability. For shareholders, it means disciplined capital deployment continued investment in strategic growth areas and meaningful share repurchases while maintaining our commitment to long-term value creation.

While the near-term environment remains challenging, the long-term fundamentals of agriculture remains strong structural demand for key crops, aging equipment fleets, the need for productivity enhancing technologies and growth in precision agriculture, all give us confidence in the industry and AGCO's ability to create value through the cycle. As we move through the balance of the year, we will stay focused on what we can control: production alignment, cost discipline, working capital management, market growth and continued investment in the technologies and brands that position AGCO to outperform through the cycle.

Thank you for your continued support in AGCO. We appreciate your partnership and look forward to updating you on our progress.

Thank you for joining the AGCO earnings call. The call has now concluded. Have a nice day.

Supporting the maiden voyage here at Wells. Thank you for being here.

To start the conversation, Damon, I just want to go back to the 2024 Analyst Day where you folks laid out key growth targets. You spoke about the Fendt opportunity in North America. You spoke about product and technology offensive and building the brand. Fast forward to today, where do we stand on progress towards those pillars that you laid out?

Yes. So Jerry, thanks. I think overall, we feel very good about what we're seeing against all 3 of the pillars here. We're seeing some real tangible results in our market share. Fendt gained share both in North and South America last year. So farmers continue to see the value of the benefit of the most fuel-efficient products out there, along with the warranty and our new FarmerCore initiative of servicing them.

So if I break it down a couple of the components that you touched on here with the distribution, the dealer footprint for us in North and South America over the last couple of years, we've been rolling out these Fendt dealers here in the North American market and our Latin American market. Today, we're just over 80% of the white space covered. So we have a dealer presence. We've enhanced that through our FarmerCore initiative.

And if you remember, that's not having a brick-and-mortar store every 25 miles or every 40 kilometers, but rather having a smaller store for the dealer and then enhancing that with mobile trucks. And those mobile trucks can do 85%, 90% of the work on the farm. And what this allows is our farmers to get serviced more how they want to be serviced. It allows them to have work done on the farm in addition to what the dealer is there to service, but do other work on the farm that helps them become more productive. Our dealers love this because their breakeven cost goes down.

So instead of building these large brick-and-mortar stores with 10 or 12 bays, you build a smaller store, 3 or 4 bays, you add your mobile trucks, so you're able to cover more white space, you're able to shift your resources to where the demand is in your territory. And for AGCO, we love it because our farmers Net Promoter Score was an all-time high last year. Farmers are getting served how they want. We're able to better connect with them through telemetry and other information we're getting off the machines to help our dealers service them. So farmers are happy. Our dealers are happy because they're getting usually a higher attachment point, and we're happy with better parts and service revenue.

So the Fendt dealership rollout with FarmerCore has been extremely successful. We see that momentum continuing. Product technology, we continue to see great performance with the new introductions of our Fendt brand here in North America, new introductions in South America along with Europe. So overall, we have good momentum here in the North American market. Industry is challenged, as we know, no surprise, but we're gaining share here and optimistic that as we see the markets recover, we'll start to see that drop to the bottom line here.

And I'm wondering if we could just double-click on progress on Fendt. What's the revenue footprint for Fendt in the Americas today? How does that compare to where the Challenger brand was before you folks made this transition?

Yes. With the large ag being so cyclical right now, and we know again, before I go through the details here, if you remember, the industry for AGCO, we're sitting at around 85% of mid-cycle right now. Go back a couple of years as a company, we were sitting at around 109% of mid-cycle. So we've come down 20 -- almost 25%.

If I look at North America -- so in large ag this year, North America, we will be in the 70s, so 72% of mid-cycle. So we are sub-trough from what we would normally have talked about for our North American market. South America has been equally challenged. Even though the industry as a whole is sitting at around 85% of mid-cycle, when you start to look at some of those products like combines, high horsepower tractors, they're significantly below that 85%. That 85% has been buoyed by medium to low horsepower.

So Fendt in 2024 in North and South America was around $1.4 billion. With the industries coming down in both of those regions, we were just under $1 billion last year, and we'll probably be a little bit lower than that this year because the industry is contracting both here in North America and in the Latin American region for the high horsepower. So sub-$1 billion right now.

And then, Damon, you mentioned 80% covered today. What's the time line to get to 100% covered?

So we'll never get to 100%. I'd say our goal is to get into the low to mid-90s, and you'll see that more over the next several years. Again, it's very important that as we pick the dealer, we have more demand to be a Fendt dealer than what we have an appetite because every dealer has got to go through a qualification process. He or she has to have the political -- or -- sorry, the capital to be able to invest in loaner machines. They have to have the ability to invest in the right type of technicians. They've got to demonstrate the ability to do FarmerCore.

And so for us, we want to make sure that whatever dealer we pick to represent Fendt, the stores that they're putting in place and the dealer themselves can represent that premium brand. So we're very selective. We're just not going to put a dealer in everywhere. We want to make sure that where we put it, it fits the needs. But at the same time, that dealer can service us as our key ambassador. At the end of the day, they're our face to our customer in a lot of ways, and we want to make sure that when they go on the farm and they bring Fendt to that farm, it helps that farmer understand they're getting the best of the best.

And what proportion of your distribution is through Caterpillar dealers? Did you transition the Challenger dealers to Fendt?

Yes. In the North American market, I would say the majority of our revenues in the North America still are coming from a Cat-affiliated type dealer. So our largest dealers here in North America would be Ziegler and Butler here in the Midwest part of the country, and both of them have a strong cat business still.

Very nice. So that part of the Challenger transition worked really well. And then how does the Fendt brand work in South America? You have Valtra, you have Massey. How does Fendt fit in South America?

Yes. So when you look at Fendt in South America, again, think of that targeting more of those large professional growers in the Mato Grosso region. So Massey Ferguson has its own distribution channel. And then for Fendt, it's usually complementing to Valtra. And so you'll have a Fendt Valtra dealer when you -- I was just in South -- I was just in Brazil a couple of weeks ago.

When you walk into these large dealerships in the Mato Grosso region, you turn to the right and it's all Fendt, you turn to the left and it's Valtra. So that dealer is sort of servicing 2 different types of farmers. You have the large professional growers who are tech seeking, looking for maximum fuel efficiency. They're going to appeal to Fendt.

And then when you look at the ones who are a little bit more value-orientated or more sugarcane-orientated where Valtra has a really strong history and legacy there, they're going to -- that dealer is going to service them with Valtra. But think of Massey as one channel and then Fendt Valtra as a complementary channel.

And then what has played out from a market share standpoint in South America? Deere has spoken about gaining share over time? What's been the shift in the industry from an AGCO standpoint?

Yes. So again, I think we've been growing share with Fendt in the region, but the industry has been shrinking. So when you look at the number of units being sold, we're selling fewer units. But when we look at that high horsepower segment where the Fendt tractors play, we've gained share. When we look at the Momentum planter, best planter in the industry. It's got the articulated frame.

And if you look at the topography in the Mato Grosso region, that frame flexes around the landscape there. So that Fendt tractor and the Momentum planter, our South American team calls it the combo deal, where the Momentum is driving a purchase of the Fendt tractor. We've seen good share growth in both of those. Sprayers, we've got some good momentum with our RoGator there. And combines, with our IDEAL combine that we make down there, we've grown as well.

Again, all of these are getting good momentum just in an industry that's been very challenged. The exciting part for us is we were at the Argentinian fair a couple of weeks ago, and we announced we're bringing Fendt into Argentina. So again, Fendt had historically been going solely into Brazil. So with the momentum we're seeing there, we've now announced our plans to bring that brand to Argentina.

I can tell you the farmers were ecstatic because there are a lot of tech-seeking -- large tech-seeking farmers in Argentina and now they have the ability to access the premium Fendt brand is really exciting for them. So we're excited. It's not a huge market for us. If you think about South America or Latin America, 80% sits in Brazil, 10% is around Argentina, 10% is the other parts of South America. So not a huge market in units, but a good profitable market that we're excited to bring the Fendt brand to.

And unfortunately, ANFAVEA stopped giving us market share numbers maybe 6, 7 years ago. If we were to pull up the data, so AGCO is gaining share at the high end, Deere is gaining share, that implies Case New Holland is losing share. Is that what the data would show?

Well, there's always a mix. Again, I think in isolation, every one of us can point to winning and someone is going to point to someone losing. But I think when you look at the revenue growth of what we had seen in Fendt, again, I go back a couple of years, there was little to no revenue from Fendt in South America.

As I said, 2024, we topped out at $1.4 billion, and I think that was around $500 million or so coming from Fendt. That had to come from somewhere, Jerry. And so for us, we're penetrating these large farms. We're giving them an alternative to the competitors out there. We feel good about the share we're gaining, and we feel good about the opportunity to continue to gain share where a farmer picks what they choose to trade in, again, we'll leave it for them.

And Jerry, also in Brazil, there's kind of 2 segments of the market. There's the southern part of the country where historically most of the farming was done. So I think smaller, midsized farms. The real opportunity in Brazil is the Midwest part of the country. We have historically been under-indexed there. But since we brought Fendt 4 or 5 years ago, that's where our share gain has happened. So again, depending on where you are in the country and what segments you're talking about, for us, it's been in the Mato Grosso region.

Really interesting perspective. And then in terms of the overall profitability of Fendt in North America and South America, can we just spend a minute? Unfortunately, tariffs were not helpful to AGCO. If we were to peel back Fendt economics in North America, what would that look like compared to the other product lines?

Yes. So I think there's a couple of layers to the question. I think if I think about the Fendt wheel tractors, generally speaking, the price point of a Fendt wheel tractor in the industry is it prices above the competitors. So even here in North America, the Fendt wheel tractors are the most expensive products out there. They price above the competition because they deliver significantly more value, whether that's fuel efficiency, better warranty. There's an array of things we could talk to as to why a farmer is willing to pay more for that Fendt product versus the competitors.

Now there's been 2 challenges when I think about the North American. One is the tariffs. So those wheel tractors are imported from Germany. The combines is imported from Italy. And so that has put pressure on the margins, if I look at that. So when I look at North America this year, we will not make money given the level of tariffs that we're dealing with.

But also when you look at some of the other products, Fendt products, so our track tractors, we make here in Jackson, Minnesota, our sprayer, we make in Jackson, Minnesota, our IDEAL -- or sorry, our Momentum planter, we make in Beloit, Kansas. So we make a lot of the Fendt products here in North America. The challenge is the industry has been so low. Those factories are running at very low levels of utilization right now.

So when I look at the profitability, it's hard to give you a -- how is the profitability of Fendt looking right now because you're dealing with factories that are running at around 30% utilization, and that is putting a lot of incremental cost in the North American P&L that's not getting absorbed by units. So when I look at the price point, though, of what we're selling these products, I feel good about the price that we're selling them at relative to the competition. We just need to get the volume flowing through to get those factories better utilized to get that -- to get the overall profitability of North America up.

And what's interesting in our field work, even Deere dealers talk about how strong the Fendt tractor is. Can we just spend a minute in terms of your R&D budget is far smaller than Deere's R&D budget, yet you have a phenomenal tractor. Can you just talk about how you folks are able to continue to drive the level of outperformance for your tractor specifically with the Fendt brand?

Yes. I mean, I think it's beyond just Fendt tractors. I think our innovation engine is the most farmer-focused innovation engine in the industry. Again, when you look at what we do, we spend around 4% of sales on R&D. But you look at the results, go back and look at the AE50 awards here over the last several years.

I think AGCO in most years has won as many or more than the other 2. When you look at the awards from Agritechnica, Tractor of the Year, I mean, AGCO continues to deliver award-winning innovation, not only on the equipment side, but also in PTx, the Davidson award for our Trimble -- or sorry, for our autonomous grain cart, autonomous tillage 2 years in a row, we won the Davidson award. So the team is focused on farmer value and innovations which contribute to the farmer.

And I think you're seeing that in the marketplace with the awards that we're being given, and it's sort of a recognition that we're the right way versus spending more broadly. We're very concentrated where we're spending dollars and the innovations are delivering for the farmers.

And if we were to essentially apply normal operating leverage to your business in North America from 72% of normal to in line with normal. I think that would imply North America margins in the mid-single-digit range. Is that how you're thinking about normalized margins in North America at this point? And where would Fendt be relative to that?

Yes. It's a little bit hard with tariffs embedded in the numbers right now, it's a little bit hard to sort of understand what's permanent versus what may change longer term. But fair to think about as we get those revenues up into the low 2s. Today, I would tell you with tariffs, we probably got to get into around $2.2 billion, $2.3 billion of revenue to get to be around breakeven, maybe a little bit less with some of the recent pronouncements on tariffs last week and this week.

But I think if those are more permanent cost structure, you're sort of seeing in the low upper-digit single margins. Ideally, we'd like to get all of our regions into that double-digit margin range. But with the North American market being burdened by a high level of tariff cost right now, that's definitely a little bit more challenging.

Fendt overall, again, you got an array of product in the portfolio there between all of the wheel tractors, the sprayer, the combine, the track tractor. I'd say the profitability ranges depending on the product type and again, where we are from a share standpoint. But I think generally, the way to think about this is Fendt is our highest margin equipment brand, usually significantly above the company average, and it sits up there, not as high as our parts or our PTx margins. But from an equipment standpoint, it's above the corporate average.

And then in terms of -- on the tariff point, as you alluded to, favorable for AGCO, the recent changes. I think the tariff headwind that you had guided to was about $130 million. Just mathematically, it feels like you've got about a $60 million, $65 million tailwind relative to that number on an annualized basis, recognizing that you paid full tariffs before that. But on a run rate basis, is that right? Or are there any carve-outs that we should know about as we look at the decline from 25% to 15% rate on farm equipment?

Yes. So not exactly that much. So a couple of pieces to take into consideration. So we said the full year tariff impact this year was around $135 million. With the recent change in the 232 going down to 15%, that would reduce my annual tariff cost by about $50 million or so right now. If I think about what that means for 2026, that will take it down by around $20 million based on what came out.

Now yesterday, there were some new HTS codes that were published that could take it down further. So we've got to run that through our machines, see how that affects us. And then we're still waiting. There are still 301 tariffs pending. So I think if we just look in isolation, we're $20 million better than what we said at our Q1 call for '26 will be about $50 million better run rate if nothing changes, but we've got to factor in potentially some positives on the HTS codes and potentially some negatives on the 301s.

And again, just to remember, in North America, about 35% of our revenue is imported into the country. Of the North American revenue, 25% of that's coming from Western Europe. So that's the Fendt tractors, that's the Massey Ferguson high horsepower coming out of France, IDEAL combine coming out of Italy. So those are that 15%, give or take. But we also import around 10% of our revenue from other countries for more of that medium to low horsepower.

So we have supply coming in from Japan, Indonesia, India, Brazil to a certain degree. So depending on those 301s and what country is and what the rate may be, that could potentially be an incremental headwind. So we've got to see how these things sort of come together over the next couple of months. We'll give a more -- a better outlook when we get on our Q2 call. But at least right now, the last couple of weeks have been a positive relative to what we had communicated in Q1.

And Jerry, just to be clear in terms of our guidance, we have not assumed any benefits that Damon is addressing here nor did we include any of the refunds that we're set up to receive. So we're -- our guidance today, I would say, includes that full $135 million that Damon talked about.

You're right. We did not book a reserve for the IEPA refunds, although we've submitted $30 million as part of Phase 1. We have received some cash already back, but none of that has been embedded in our outlook, as Greg said.

Well, a great recap of trade policy. That was super. And then in terms of thinking about the trends in the cycle. So over the past couple of months as corn emergence has unfortunately been ahead of 5-year average, corn prices have been pretty tough in May. We saw used equipment inventories for large ag in North America move in the wrong direction. Are you seeing higher farmer anxiety today versus 3 months ago in North America, given the move in the wrong direction for soft commodity prices?

I think we're seeing higher anxiety from farmers around the world today versus 3 months ago given the war. Again, when you look at where we're sitting with diesel fuel cost increases, the fertilizer cost increases that farmers are potentially dealing with, it's created a tremendous amount of uncertainty.

And if you just look at some of the health indexes or the barometers here in the U.S., we look at that Purdue ag barometer. And you've seen that tick down over the last couple of months. So we know there's a lot of anxiety. The good news is for farmers, at least right now, most of them had procured their spring fertilizer in advance of the war. So they really weren't dealing with the significant increase in prices that they went into spring planting.

Now they have their mid-season passes and more importantly, they start to think about locking in their '27 fertilizer, what's the cost they're going to pay here in the fall? And will they buy the same amount at a higher price? Are they going to have to rotate some of their crops to less nitrogen-intensive crops? Or are they going to buy less fertilizer to try to keep their cost level low, which will then compromise '27 yield. We're going to have to see -- I think there's a lot of anxiety what does each farmer do and how does that affect his or her growing pattern next year. So there's a lot of uncertainty more forward-looking.

In the near term, though, I think what we're seeing is a lot of farmers monetizing the yields that they had last year. If you remember, last year was a great harvest here in North America, very strong yields. Corn prices were not that great a year ago. So a lot of farmers stored their grain. So with corn sitting in the $4.80s or so, you're seeing a lot of those farmers right now taking advantage of that price and getting some cash into their bank accounts. So a little bit of a short-term benefit, but a lot of uncertainty as they look forward here as to what are they going to be forced to pay as they go into the back half or the end of the calendar year.

And then you mentioned capacity utilization for large ag in North America, 30% for you folks, very similar numbers across the industry and used values are now improving. What's the level of confidence that we'll produce at a higher level than 30% in 2027 based on the improvement in used values? How would you weigh that against the uncertainty that farmers are seeing?

Yes. I think -- well, it's hard to forecast what the industry is going to look like. But if we look at the data, the age of the fleet is at a record high in North America. And we normally average the age of the fleet at around 6.5 years. We're closer to 8.5 right now because when we went through the supply chain, we went through the peak in '22, '23 and early '24, the industry because of supply chain challenges, we could only get the age of the fleet in the farm from old to average. We never got it young.

And then end of '24 into '25 and '26, we've seen the downturn now. And so that age of the fleet has creeped back up. So we know the age of the fleet is high. We know that if we look at, again, all the decisions farmers are going to have to make on a crop rotation, potentially less fertilizer will likely result in less yield in '27. And as that starts to trickle through some of the USDA and others estimates for '27, we'll see corn futures rise. That could be a windfall for farmers as we get into the harvest of '27. So there's lots of reasons to think that the industry could be in a much better position next year.

As we look at our production, if that industry starts to pick up or even stays flat, we're going to see higher levels of production either way because today, we're underproducing relative to retail demand. We're still trying to work our dealer inventory down. We're sitting at around 7 months right now. We want to get that down to 6, but we were up in the 9s a couple of quarters ago. And so we've been underproducing that retail demand, trying to bring that dealer inventory to the right level. So as that sort of stabilizes here over the next quarter or 2, even if that industry doesn't pick up, you're still going to see a higher level of production flowing through our factories because we'll be producing more in line with retail.

And then in Europe, you folks are executing phenomenally well, and we're seeing record margins or near record margins out of your business. Given the pressure on farmer economics, how do you view the risk to your European business, especially given your orientation very heavy in Germany? What implications does that mean for the business over the next 12 months given all the moving pieces?

Yes. Again, I think similar to North America, there's a lot of uncertainty for those -- for the European farmers. If you look at the SIMA index, which again is another European barometer, that had been sort of circling in that growth category for probably around 15 months, really hadn't moved. And if you look at post the start of the war, that index has sort of started to tick down a little bit.

So again, a very similar dynamic that we talked about for North America is farmers are going to have to make some decisions as they come into the fall. Now a little bit different in Europe. You have a lot of winter wheat there. So that's harvested here in the early summer. You have a little bit more crop diversity. Farmers tend to carry a little bit more livestock and dairy on their farms, more grain diversity there. And so you have a little bit more variability, but that farmer is going to have to go through the same decision. Do they rotate their crops? Do they buy less fertilizer? Do they buy the same at the same cost or at a higher cost? So they're going to go through all those dynamics.

The good news for us and the good news in Western Europe is you still have a high percentage of those farmers' income comes from government subsidies. So in Western Europe, close to 50% of their income comes from subsidies, and that tends to be relatively consistent. So you have less variability from an order pattern there. Our industry in Europe usually flexes from around 90 to 110. So it doesn't usually get too high, but it doesn't get too low like we see here in North America or in South America. So you have better crop diversity, better stability from subsidies.

We look at the dealer inventory, we're sitting at around just under 4 months. So we're very -- in a very healthy position there. We haven't had to go through a significant level of destocking. When we look at the order boards, we're sitting with in the 3- to 4-month range for our European business. So we have pretty good visibility based on historical standards.

So again, a lot of uncertainty, but the teams have done a really good job staying at the farm table, talking to the farmers, new product introductions coming out that are driving better fuel efficiency, better innovation coming out of Fendt along with Valtra and Massey. So again, it's uncertain, but I think overall, we're -- Europe is in a relatively good position.

And then on your mid-cycle framework, can you remind me, is that a 7-year average? And where is Europe relative to 90:1 average?

Yes. We look at the 10-year average and Europe is sitting at around 90% of the 10-year average, and that's usually the low point that we sit at in the European market.

Very interesting. And Germany has done better, I believe, is that right?

Germany has done well the last couple of years. France has been a little bit weaker this year. So the 2 biggest markets in Europe are Germany and France, where Fendt -- where our AGCO has great market share between Fendt, Massey and Valtra. Fendt has done well in gaining share in both of those markets the last couple of years. German market has been stronger this year. French market has been a little bit weaker for the industry, though.

Got it. And then on the Precision Ag side, so your planters, especially in aftermarket business, really phenomenal position in the industry. Can you talk about what demand looks like this year? Obviously, planting season is over. What were the results for AGCO? How did the business perform?

Yes. So we're still in the second quarter. So we'll give you a little bit more information on that at the second quarter call. But if you look at our PTx portfolio, again, one of those unique differentiators that AGCO offers is that we have 3 different channels in the PTx business. We have -- last year, that business was $860 million. We said this year, it will be around $860 million to $900 million.

And then you can break that down into the 3 primary channels, about 1/3 of that goes to AGCO. So that's PTx technology getting into the factory floor for a Fendt product, the Massey product or a Valtra product. So think of that AGCO OEM direct, about 1/3 goes there. That's going to cycle with the overall ag industry. We have about -- we also sell to 100-plus OEMs. Again, between Precision Planting and PTx Trimble, we pretty much sell to every OEM other than the big one.

Look at the back of a planter from competitors, see Precision Planting, guidance systems from major companies using PTx Trimble. So we have 100-plus OEMs that we're selling to. That's around another $300 million directionally. And again, that's going to follow the overall industry cycle.

The third part is that unique part about AGCO, where we have that separate retrofit channel. So these are independent technology dealers. These are usually not the equipment dealers who are selling a new tractor, a new sprayer or a new combine. They're selling seeds, they're selling agronomy. They're on the farm driving technology. That business is around $300 million as well, so about 1/3, 1/3, 1/3. That business has been a lot less cyclical. So it's usually about 1/3 the cyclicality of what we see from the new equipment business.

And so again, that's because as farmers have been more challenged from a net farm income standpoint, they're still looking to reduce their input cost or drive higher yields, and you can get a much faster payback at a much lower entry point. So our whole PTx portfolio targeted at retrofit first, and it's allowing those farmers to keep their old traditional iron, but upgrade it, make it smarter, make it more productive by bolting on these PTx pieces of equipment that generally yield a 1-year maximum 2-year payback for them.

So if they're looking to reduce their fertilizer, there's options on their planters. You look at the targeted spraying, again, reducing the herbicide use because now you're bolting on our vision system and our nozzles to your existing sprayer. You don't need to buy a brand-new sprayer, but you can buy the camera system and the nozzles and you can put that on your old sprayer. So giving them a lot better, giving them the efficacy, the lower input cost at a much lower price point.

And then you look at our autonomous systems. So we have autonomous for the grain cart. We have autonomous for tillage. We're coming out with autonomous for fertilizer. For that farmer, he or she's buying the system for their John Deere tractor or their Fendt tractor and they own that piece of equipment and they can then buy the hours for tillage or grain cart when they want it.

And so again, it gives them a lot more flexibility. They're not having to buy a brand-new tractor. They're literally just buying the system and bolting on to their existing tractor, giving them a lot more flexibility to test out this new technology without having to make a massive investment on a brand-new tractor because we know times are tough, but yield, efficiency, labor shortages, this is a time where they can get a lot better payback with some of this technology without having to make those large upfront investments.

And then Deere rolled out on a subscription basis, the GPS kits and you folks have a phenomenal position in that business. Are you doing it on a subscription basis as well? So they've got good traction -- $4,500 upfront, $4,500 a year. Do you have a matching product? Is that how you're taking them on market?

No. We're trying to -- as we talk to the farmers, again, in these times, when net farm income is low, adding subscriptions to them for the basic necessities, they tend to run into a lot of resistance with that. And so we've tried to serve the farmers how they want to be serviced where they see the incremental value for the subscription.

So again, the way I would look at like our -- if you look at our guidance systems, you own the hardware, you have a small annual subscription. If you look at our autonomous system, you own the hardware, but then you buy the hours that you want or need. So if you want to buy hours for autonomous tillage, you buy those hours or autonomous grain cart, you buy those hours.

And then if I look at like our targeted spraying system, that's yours. You buy that equipment upfront. So if you want to go into the field 1 time, 2 times, 3 times, it doesn't cost you anything different from AGCO. You've already owned the equipment. It's just your labor, your diesel fuel for your sprayer, but we try to sort of service them how they want to be serviced.

Super. Well, thank you so much, gentlemen, for joining us, Damon and Greg. I appreciate you...

Good morning, everyone. This is Tami Zakaria, Head of Machinery, Engineering and Construction Equity Research at JPMorgan. It is my pleasure to welcome the AGCO team. We have CFO, Damon Audia; and we have Brian Sorbe, Head of PTx.

So I'm going to start off with Damon. Can you provide a brief overview of AGCO and your objectives in Precision Ag technologies to frame the discussion for a more tech-oriented investor base that we have here today?

Yes, sure. Good morning, good afternoon. So for those of you who aren't familiar with us, AGCO is the largest pure-play tech -- agriculture technology company. combines an array of world-class equipment brands, along with the industry's leading most comprehensive mixed-fleet technology platform under the PTx portfolio. So for total company in 2025, we had revenues just over $10 billion, and we operate globally with operations in Asia, Europe, North America and South America with just around 60% of our overall portfolio in revenues coming from the European market.

So our portfolio spans from the equipment brands. We have our Fendt brand, which is our premium brand. Think of that as the best of the best around the world. And then we have two more volume-oriented brands called Massey Ferguson and Valtra. Those 3 create our equipment brands of how we go to the market. And then we have a separate technology platform that we call PTx or Precision Technologies multiplied. And that PTx portfolio that Brian will talk about a little bit later, really has two sub-brands. One is the legacy Precision Planting group that we acquired in 2018, and the other one is PTx Trimble, which is an 85%-15% joint venture we have with Trimble, which we acquired in 2024. And so together, we have them under the PTx portfolio.

If I look at the company over the last couple of years, we've done a lot to really reshape the company and how we approach both the technology side of the market and the equipment. With the PTx Trimble acquisition or joint venture, we also made the decision to divest our grain and protein business in 2024, really allowing the company to hone its focus on technology and equipment moving away from the grain storage business. So all of our R&D and the technology that we're investing in is on equipment and ag technology-related investment going forward. And as a result of that investment and the divestiture, we've really become a much more resilient company. As we've chosen to play in certain areas in the market, mixing up our portfolio into more performing products or higher-margin products, we've become a much more financially resilient company. And when you look at last year, we were at around 85% of mid-cycle, so at a fairly low level. Our operating margins last year were around 7.7%, which were almost double where we were the last time the industry was at that level of mid-cycle. So a significantly more profitable company and a more resilient company through the trough based on a lot of the actions that we've done.

And if I look at the Precision Ag portfolio, and again, Brian will elaborate on this. Last year, we were just around $850 million in revenue. Our 2029 target is to take that to $2 billion. And we'll do that through an array of new product introductions, geographic expansion and really harnessing the mixed fleet retrofit channel that is very unique to AGCO. And so together, that's sort of what makes us unique in our industry and a differentiator with this PTx retrofit channel that we have.

Perfect. So in your last earnings call about a month ago, you mentioned PTx revenues are expected to be flat this year. Can you remind us where we are now in terms of revenues versus the last cycle peak of 2023 for both the legacy Precision Planting business and also the assets you bought from Trimble?

Yes. So we -- in 2023, our PTx or our Precision Planting portfolio was around $750 million in revenue. When we acquired the Trimble part of the business, Trimble was a little bit bigger or a different portfolio at that point in time. The revenue at that point was a little bit over $500 million. But if you remember, Trimble used to sell directly to CNH OEM, and we knew that, that business was unwinding. So there was around 20-plus percent of that business that was going directly to CNH as they were moving to their own internal supplier. And then there was a portion to the CNH channel, we knew that, that would shrink. So -- but when you look at the two numbers together, it was around $500 million for Trimble, inclusive of all of those sales to CNH and CNH dealers, and around $750 million for our Precision Planting. Last year, we were around $850 million. This year, we'll be $850 million to $860 million to a little bit closer to $900 million depending on the industry. And as you break that down and Brian will elaborate here, we have the OE channel. So the AGCO OE, which is fluctuating with industry. We have the other OE, so another 100-plus OEMs we sell to affected by the industry. And then you have that retrofit channel that's less cyclical, and we expect to shrink less than the overall industry.

Remind us what's the mix of that own OE versus third-party OE versus retrofit within that mix?

Yes. The best way to split is about 1/3, 1/3, 1/3. So 1/3 to AGCO, so direct sales into our factories; 1/3 to those other 100-plus OEMs and then 1/3 or so to the retrofit channel.

And how has that 1/3 that's in the retrofit channel trended as this downturn unfolded?

Yes. So it's about 1/3 the level of cyclicality that we see with the traditional OEM business. So it is down a little bit last year, but it was down about 1/3 of what our overall industry was down.

Understood. And at your last Investor Day, you talked about -- you just mentioned also $2 billion-plus revenues for PTx. And you're now targeting more like $860 million to $900 million. Help us bridge this over $1 billion of increment over the next few years.

I can comment on that. Good morning, everybody. So yes, we're holding our expectations for 2026 to be mostly flat, slightly above 2025. We do have a plan to bridge the gap from here to $2 billion. It's a multipronged approach, you might say. First and foremost, activating our channel is the most important piece to this is that when we combine the companies together and unified PTx, we obviously have a large channel that needs to be activated, meaning cross-selling across all the different brands, et cetera, in order to maximize that revenue.

Obviously, we also have a certain amount of the business, as Damon just covered with having our AGCO OEM channel as well as our third-party OEM channel. Those are still closely tied to machine volumes. So a return to mid-cycle performance is going to give us a boost in those other categories as well. Also, we have a really aggressive innovation flywheel. So developing new technologies and constantly staying ahead of that curve from an innovation standpoint is also another part of our bridge strategy. So things like cloud services, autonomy, sensor development, et cetera, keep us ahead of that cycle. And then obviously, we want to have deeper partnerships with OEMs, not only AGCO but also our third-party OEMs that need more market penetration with technology. We want to be a full stack provider for this.

Perfect. And when we think about that $2 billion revenue potential, how does that compare to the total addressable market as you see by 2029? Meaning what market share do you expect to be when you have that $2 billion?

Sure, sure. So broadly speaking, we consider the total addressable market for Precision technology to be around $150 billion. But it's important to note, inside of there, there's several nuances how we go to market. So it's difficult to say there's one way to go acquire market share because we have a diversified portfolio. So we have to break that market up into pieces. So first is our core business, which is very hardware-centric. We would call that our retrofit business. We're selling in-cab displays, GNSS receivers, advanced controllers, things like this. And that's been the core of the business for many years prior to the acquisitions and the unification of PTx.

The second layer is software and connectivity, and that's a whole another approach to the market. You got data services in there. These -- it's still underpenetrated. We're still in sort of an adoption increase when it comes to data. But farmers are more and more increasingly recognizing ROI in this space, and we're very well positioned for that.

The third one is our autonomy endeavors. So much like technologies that are now considered mature, like autosteering and some of these things, 15 years ago, faced the exact same adoption curve that we're seeing with autonomy. And so when it comes to the size of the lever for maximum market penetration, we think autonomy, when that becomes widespread usage is going to be another lever that allows us to gain more market share as well.

Understood. And we've heard you talk about fully autonomous crop care solution by 2030. Remind us what do you have so far? And what else remains to be done? And what would be the time line of the launching of the ones that are remaining?

So the way we're approaching autonomy, I would call it a pragmatic approach, meaning we are effectively identifying farming functions or field functions, say, we came to market with a grain cart solution was our first launch in autonomy space. We've now notified the market that we are doing tillage, which is another farming or field function. We'll be launching fertilizer application here shortly. And we're just moving systematically across these functions in a logical pattern where we can create ROI for the farmer, value perception right away. The long-term ambition, though is to fill the crop cycle of the farmer. So when the farmer looks at all of his field functions or farming functions across the year, you start to identify other things, spraying, spreading, mowing, these all of -- and they start to get a pretty long list. So what we do is we take a look at a target segment of the market. So for example, we would look at a segment like broad acre farming, large grain. And we would identify what that crop circle looks like for that farmer. And then we would systematically develop those functions one at a time until we complete that crop cycle. And at that point, he becomes a fully autonomous farm. Farmers are not alike, so you have to move region by region strategically and cross balance that with where we think the adoption curve is going to come up first. So wherever labor is a problem, wherever cost sensitivity is an issue, that's where we focus on.

As a follow-up to that, any specific regions where you're seeing a higher uptake of some of these stuff like automated grain cart and then you talked about tillage. Any specific regions seeing more adoption?

I would say that from a farmer interest level, this broad acre segment, say, right in the center of the United States or in Western Europe, the interest level amongst farmers is probably the highest in those areas. But the adoption, the actual placement of the technology in use on the farm is still moving fairly slow. So that's encouraging, but it doesn't give us that immediate adoption that we need to ride. So other more unique segments we're seeing a lot of tangible buying activity is happening in, say, sugarcane in Brazil would be an example. And there are several of these pockets. Specialty crop farmers tend to have a sincere interest in autonomy solutions because they have the most labor problems in their immediate market. So there's a balance between broad acre farming, which would be a much larger segment versus these niche markets or segments like sugarcane and specialty crops, et cetera. So we evaluate each one of those on a case-by-case basis, if that gives you some idea.

It does. And how has your view on monetization changed for some of these? I know in the past, some of your competitors talked about SaaS and then it kind of got rolled back because farmers are not necessarily very open to SaaS sort of revenue sharing or payment system. So from your perspective, what does monetization look like? What does profitability look like versus the traditional offerings you have?

So to give you an idea, if you look at the legacy business that's tied to retrofit and hardware, that has always historically been a capital purchase by the farmer, just an outright purchase. He owns the equipment and can use it in an unlimited fashion. But there have always been some little add-on subscriptions in that space, like correction services, how accurate he wants his GPS to be, sometimes as a subscription, and we still notice a large uptick in correction services subscriptions.

So while farmers historically have had a certain amount of skepticism and, let's say, resistance to subscription models. It's not because of the subscription itself. What it is, is about ROI. And so we've proven time and time again that when you can deliver return on investment to the farmer and put money either to his top line or to his bottom line, he doesn't mind paying for a subscription. And they're actually increasing that interest now because these -- if you look at, say, models like targeted spraying and autonomy, we start to be able to have very creative pricing models. So for example, with our OutRun autonomy solution, it's a combination. You can acquire the hardware in a capital purchase, just like a traditional piece of precision technology. But then the subscription model instead of being an annual subscription, it's actually a subscription to the use case that you want to use it for and for however long you want to use it for.

So if you want to use your autonomy solution to go do tillage, you can actually subscribe for that tillage service, and then you can go get a subscription for fertilizer application, spraying, mowing, all of those different use cases that I covered before. We're seeing a lot of positive response amongst our target audience with those kinds of models as well.

So I'm going to come back to PTx in a bit, but maybe one question for you, Damon. As you think about your margin performance, you have a target of 14% to 15% mid-cycle margin. And help us understand you're going to end this year at probably 8-ish if I remember correctly, that's the guide. How do you get from 8% to 14% to 15%? What needs to happen?

Yes. So there's a couple of pieces that we've got to work through here, but we'll look at our guide right now at 7.5% to 8% as a guide. So let's use 8% now because you moved me to that point. We're sitting at around 85% of mid-cycle today. And so the first step is we've got to normalize that 8% up to mid-cycle, so moving from 85% to 100%. The volume associated with that is about 1.5 (sic) [ 150 ] basis points. So 150 basis points will come from that 85% to mid-cycle level. Then there's three things that are unique to AGCO that will move us up to that 14% to 15%. Two of the three are effectively already done.

One is the portfolio transformation that we did in 2024. So when we put that guide out there, we were in the midst of divesting Grain & Protein. So that was a very low growth, single-digit margin business, and we were in the midst of acquiring PTx Trimble, which was a high-growth, high-margin business. You don't see that reflected in the numbers today just because of the cost structure sitting with PTx Trimble and the incrementals and decrementals. And you don't see it with the elimination of Grain & Protein because it was a single-digit margin business. But as we move to mid-cycle, that adds around 150 basis points of portfolio mix to our numbers. So that's done. We just need to see the industry come back.

The second lever is the restructuring actions. As AGCO is a company that's been built through acquisitions over the last 35, 36 years, we've never gone through the process of creating that common skeleton. So as we were going into this downturn, it was a tremendous opportunity for us to look to standardize tasks, centralize them where appropriate and then either offshore them or outsource them where we could. So we've gone through this evolution with our internal processes coupled with a lot of AI investment on top of that, where we're taking out around $200 million. We said at the end, we were hoping to run rate between $175 million to $200 million of cost savings by the end of this year.

Based on our cost actions, we'll be run rating over $200 million by the end of this year. And again, this is not sort of pruning due to the economy. This is sort of offshoring, outsourcing, really transforming how we do work. How we make the work for our farmers better, how we make the work for our teams more efficient. So structural costs coming out of the system. So we're pretty much done with that. There'll still be around $60 million to $70 million of savings that hits the bottom line this year. But from a run rate standpoint, we feel good that we're already hitting north of that $200 million. That's around 150 basis points of margin improvement as well. So as we come back to mid-cycle, that will start to continue to flow through our P&L.

And then the third is our three growth levers. So between portfolio, cost and then our three growth levers, which are growing our Fendt, North and South American businesses. We want to get that to $1.7 billion by 2029. We want to get the PTx business that's just under $900 million this year to $2 billion. And then growing our parts and service revenue, which is around $1.9 billion this year, up to $2.3 billion. Those three portfolio, those three growth engines will contribute about 150 to 200 basis points of margin. So when you put that together, we're at about 14%, a little over 14%. And this year, we're at a low point because we're -- of the tariff cost. So we're sort of not covering inflation this year, which is a little bit below, but we expect to recover that hopefully over time. And that will put us in the middle of that 14% to 15% range.

That's very helpful. And since we are talking about the ag cycle, so maybe it's a good time to ask you the question. I think you're saying low 80s is where overall the industry would be this year in terms of -- versus the mid-cycle. Can you remind us what that means by region? And any thoughts on 2027, given grain prices are moving up again and there's a lot happening with RVOs and E15, the possibility of E15. So any thoughts?

Sure. So if we look at -- so as for AGCO, we would say we're around 85% of mid-cycle right now. And the way we calculate is the dollar value of all of the units that are sold in the industry, and it's not a unit calculation. It's a dollarized value of all of those units, and we look at the 10-year average. And then it's geographically weighted based on our portfolio. So when we say at 85%, it's based on our geographic mix. If I unpack that by regions, Europe is the strongest right now. Europe tends to be the least cyclical of the three major regions we sell in because of the level of subsidies that Western European farmers get. You normally see the European cycle trend somewhere from 90% to about 110%. So it never really gets too high, never really gets too low. Europe is sitting at right around 90%, low 90s right now. So it's at a low point for its relative mid-cycle convention.

North America is in a trough. Normally, I would have told you that North America doesn't dip below 80%. This year, we're seeing it around 72% right now. So it is probably as far back from we can track at least 3 decades is the last time we've seen something that low. Some analysts have said, it's gone even lower than that. But to give you a perspective, North America is at a very low point, well below what we would have thought from a mid-cycle level, sitting at around the 72% mark.

South America or Brazil is kind of in the middle, it's around 85%, low 80s right now. So a little bit above. That's usually the most volatile, usually flexes from around 70% to 130%. So still low, but a little bit better than North America. So that together weights us around 85%.

When we look at all of our models when we look at the age of the fleet here in North America, the age of the fleet in Europe, it's back up to an all-time high. Because when we went through the supply chain challenges coming out of '22, '23 and early '24, the industry could not meet the demand from the farmers who are trying to refresh their equipment. So the age of the fleets in most countries only went from old to average. It never got young. And then in '24, '25, the industry downturn hit. So the age of the fleet has gone back up.

So when you look at the age of the fleet, when you look at the industry downturn here, we start to see this being the trough year and then an improvement next year. To your point, grain prices are ticking up, we know farmers, especially here in North America, had some record yields. A lot of them stored their grain. So starting to monetize corn in the [ mid-480s ] right now relative to where it was earlier this year is not too bad for them. The big question mark on the speed of the recovery, I think right now is sort of sitting with the backdrop of what's going on with the war, how that's affecting fuel prices for the farmers, how it's affecting fertilizer prices for them who are going to have to buy coming up in the back half of the year? What decisions do they make? So do they incur more cost to buy the same amount of fertilizer? Do they reduce the fertilizer purchase, which likely compromises yield, which may then drive prices up even further in 2027. So a little bit more uncertainty in the back half of the year. But all of this in theory trending positively for grain prices and hopefully, the industry starting to recover as we move into 2027.

And when we look at some of the sentiment indices coming out of Europe, given milk prices are down double-digit percent, fuel prices up there. Sentiment indices show the community is not very hopeful about the medium term. So given you said Europe is still in the low 90s, what are the odds that it can move lower before it goes back up again?

Yes. If you look at the CEMA index, which is a fairly good barometer for farmers' views, it's been -- for the long time, it was sort of stable in the category. It's trended back a little bit over the last couple of months. And again, a lot of that has to do with the fuel prices that they're currently dealing with. But also the uncertainty of what they may be forced to deal with when it comes to fertilizer purchases later on this year. So I think right now, there's a little bit of that uncertainty or that doubt is weighing on their current sentiment. But when you look forward or you look at the underlying fundamentals in Europe, it's a very strong market. Generally speaking, Western European farmers around 50% of their income come through subsidies. So those maintain relatively consistent throughout the years. You have much better crop diversity there. So whether it's grain crop diversity or a higher concentration of livestock and dairy, which tend to be a little bit more inversely correlated to grain, you have a much better diversity for the farmers in Western Europe. So when you look at those couple of things together, it tends to create a more resilient market.

When we look at the industry, our dealer inventory is at 4 months, which is the optimal level. It's been there for well over a year. So you're not seeing us as a company have to underproduce. There's not excessive discounting to move aged equipment on the dealer inventory. Our order boards in Europe are out 3 to 4 months. So despite everything you're sort of seeing at the macro level with this uncertainty in the CEMA index, the fundamentals still sound and feel very solid. And we still have the Western European market up sort of in the range of 0% to 5% this year.

Understood. And before I move back to PTx, how do you -- what is your expectation of being able to produce to demand in North America and South America? At what point during this year do you plan to produce to demand? Or is it going to be not until next year that you'd be able to achieve that?

Yes. So I think right now, again, for us, when we talk about dealers' inventory, their month of supply, ours, it's always based on a 12-month forward-looking look. And so if the industries were to pan out as we have currently forecasted them, we should be producing in line with retail before the end of the year here. If I look at North America, ideally, we would like our dealer inventories at around 6 months. We finished at the end of the first quarter at 7. We did reduce the number of large ag units on hand at the dealer. So we took that down. But because of the seasonal selling season, the low ag, this is the time of year where farmers come in, and they buy the equipment and they take it off the dealer yard. So we saw the small ag tick up. That's more seasonal. So we're making good progress there, but we've got about 1 month to go. So I feel good. We'll be underproducing a little bit to get that in line here in the next quarter or 2.

South America, we were -- we came down 1 month. We reduced the number of units around 10%. But because our industry outlook dipped from our original outlook to the first quarter, that month of supply is still sitting around 1 month. So we'll underproduce here in South America in the second quarter, 20% or 30% and we'll underproduce again likely in the third quarter. And then it will be a little bit more for what does the '27 industry look like, but I think we should be in good shape if the industry doesn't continue to deteriorate there as well.

Understood. That's very helpful. So going back to PTx, can you remind us who are the main competitors? Are you competing with John Deere and the big, big players? Or is it more in the local smaller innovators and providers?

It's a little bit of all of that. So certainly, in -- as far as the traditional business and in some cases, even our cloud services and our future autonomy stack, you would say that the OEM-centric ecosystems, the John Deere and the CNH of the world would be our principal competitor there. But inside of each one of those buckets, you're also dealing with technology start-ups. Now in there, you sometimes have leading-edge innovators that you're competing in certain segmented markets, certain geographies or certain segments of farming in general practices. You also have some stand-alone cloud services providers that are trying to serve data analytics, decision support tools to farmers. So it's actually a wide variety of competitors.

PTx is unique in the sense that we're not only serving farmers through traditional technologies like GNSS, auto guidance, things like that. We also have a lot of investment and activity going on in the autonomy space, which is arguably the future. We also have a data portfolio or a platform that overlays all of that precision technology that keeps data flowing regardless of the color of the machine. And so I think that gives us a unique position from a product standpoint. I think we also have a unique position because of our distribution strategy as well. So those large OEM-centric companies sell their technology through their own dealer network. So while we do that as well through AGCO dealers, we also have an independent tech channel. And that's a huge lever for us in the market because those are the best of the best. They are 100% dedicated to Precision Technology. They might even have agronomy services baked into them. And so what that does for the farmer, and it's a big part of even AGCO strategy is we meet the farmer where they're at on the farm. And we not only give them great service and support through a local AGCO dealer, but for the higher degree of technology solutions, the ones that are more complicated, we double that down on that with an actual tech channel that can support that equipment.

So I want to ask you about FarmerCore, the farming ops platform that you launched recently. If I'm a farmer who largely operates green or red equipment, how would you make me adopt FarmerCore and not something that one of those other guys are providing?

FarmENGAGE.

Sorry, FarmENGAGE, yes.

Yes. So -- well, there are similarities to both of those, actually, but specifically around FarmENGAGE, what we're trying to do is we're trying to ease the pain points that farmers have by switching platforms. So farmers are naturally reluctant. Once they have entered into an ecosystem of some kind or another to hit a light switch and switch over to somebody else's platform. We very intentionally designed that out of FarmENGAGE. And so the way we're positioning that product is we leverage obviously the multi-brand brand-agnostic approach to the market, so mixed fleet. So data from effectively anywhere flows into FarmENGAGE. So we do a better job of collecting the data out in the field from basically any technology provider and get it into one central location.

Now on top of that, we offer value-added user experience tools. So user interfaces, reports, visualizations, analytics, all those things you would expect from the platform. However, we don't require that the farmer fully uses all of those services. He can use FarmENGAGE just to collect that data and still output that data to another platform that he is currently using. So it's a -- it's more of an ease in than it is really a dramatic shift. So our approach is start getting your data in one location, take it to wherever you want if you're comfortable with another tool. But slowly, but surely, the stickiness of the product starts to gravitate them back into FarmENGAGE and then they're living inside of our ecosystem with almost no disruption to their operation.

So a question on AI. I get this question a lot from investors who worry that enabled by AI compute capabilities and maybe a few cameras, any innovator could come in and create a planter or a sprayer or an implement they can make, which can basically democratize Precision Ag. What is your take on that? And what is your moat against disruptors like that?

I think what it boils down to for stand-alone AI solutions, I think that that's largely true. The cost of technology is lowering. Sensors compute power, all of those costs are lowering. And so you fully expect innovators to enter the market and attempt to disrupt some of the larger players like us. However, the real unlock for AI and really AI is only as good as the data that it sits on top of and that it can actually extract and manipulate for the benefit of the farmer. That's where the real value unlock is, and there's only so many providers, us included, that are sitting on that kind of quality data. It's not easy getting data out of the field. It's a wide variety of data types from a lot of different sources. We've spent an incredible amount of our engineering and R&D dollars solving that equation because we believe when -- as we continue to develop AI into our solutions, not just the ones that are in the cab and on the machine, but also living in the cloud and such having access to the largest, most robust pool of data is going to unlock more value for the grower than any stand-alone technology could.

Got it. So we have about a minute left. Maybe the last question for you, Damon, on capital allocation. You started a buyback, and I think you sold your stake in one of the fincos. What's next? Should we expect buyback to be a core and continuing strategy here on? What else is there?

Yes. So I think the -- with the resolution that we had with our largest shareholder late last year, they've now agreed to participate pro rata in any future share repurchases. So last year, this time, our Board approved $1 billion. We have now announced $650 million of use of that $1 billion. So we're in the market right now for the second tranche, which is the $350 million. I think you'll continue to see us as a company generate free cash flow in the range of 75% to 100% of adjusted net income. We always prioritize reinvesting back in our business first, capital requirements. You see we're at around $350 million. We then look at targeted acquisitions. So tuck-in or bolt-ons, heavily focused on the technology space. I don't see anything significant or big now that we've acquired or done the Trimble acquisition, but always opportunities to accelerate some of this innovation that Brian has been talking about.

Outside of that, it's then returning it back to the shareholders. And again, with that settlement with TAFE, we're now more focused on share repurchases. The agreement that we did with Rabobank to sell our entities, again, it was just another incremental opportunity for us to generate some capital in the market, not compromise our relationship with Rabobank. Nothing changes for our farmers or our dealers. Those will continue to be serviced by AGCO Finance as our primary lender, but it was a capital opportunity for us to monetize that without compromising quality to the dealers and the farmers.

Perfect. I think that's all the time we had. Thank you so much, Damon and Brian. Thanks, everyone.

Good day, and welcome to the AGCO 2026 Q1 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations. Please go ahead.

Thanks, and good morning. Welcome to those of you joining us for AGCO's First Quarter 2026 Earnings Call. We will refer to a slide presentation this morning that is posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of the presentation. .

We'll make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts. We'll address demand, product development and capital expenditure plans and timing of those plans, and our expectations concerning the costs and benefits of those plans and timing of those benefits.

We'll also cover future revenue, crop production and farm income production levels, price levels, margins, earnings, operating income, cash flow, engineering expense, tax rates and other financial metrics. All of these forward-looking statements are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks are further described in the safe harbor included on Slide 2 in the accompanying presentation.

Actual results could differ materially from those suggested in these statements. Further information concerning these and other risks is included in AGCO's filings with the SEC, including its Form 10-K for the year ended December 31, 2025, and subsequent Form 10-Q filings.

AGCO disclaims any obligation to update any forward-looking statements, except as required by law. We will make a replay of this call available on our corporate website later today. On the call with me this morning is Eric Hansotia, our Chairman, President and Chief Executive Officer; as well as Damon Audia, Senior Vice President and Chief Financial Officer.

With that, Eric, please go ahead.

Thank you, Greg, and good morning, everyone. AGCO delivered very solid results in the first quarter, reflecting effective execution against our strategy and the growing impact of the actions we've taken over the recent years to streamline our cost structure. Net sales were approximately $2.3 billion, up 14% year-over-year. driven primarily by stronger performance in [indiscernible] compared to the challenging prior year period.

With differing industry conditions across regions, the year-over-year improvement highlights our ability to perform consistently and deliver solid results across varied demand environments. Operating income increased more than 60% year-over-year to $80.7 million with reported operating margin expanding 100 basis points to 3.4%. On an adjusted basis, operating margin improved 50 basis points to 4.6% driven by better volume leverage and ongoing benefits from business optimization initiatives, partially offset by higher cost inputs, including tariffs.

These results underscore the pragmatic focused manner in which we are operating the business. Over the past 2 years, we have taken deliberate actions to simplify and focus our operations and sharpened execution, including a leaner cost structure, more disciplined production planning and improved channel alignment. The performance delivered this quarter supports the increased durability and resilience of our earnings model. While near-term demand remains uneven across regions, we continue to believe the business is operating around the trough of the cycle, with inventories normalizing and underlying conditions beginning to set the stage for the next phase of recovery.

Adjusted operating income increased nearly 30% and adjusting EPS more than doubled year-over-year to $0.94, highlighting the operating leverage inherent in the business from lower cycle levels as well as a lower adjusted tax rate in the quarter. We also continue to emphasize structured working capital management and inventory alignment. Dealer inventories improved in the first quarter. positioning us in a more balanced position to support customers while maintaining better operational stability through the remainder of the year.

We are encouraged by the progress delivered this quarter and remain fully focused on executing our plans to drive sustainable margin enhancement, cash generation and long-term value creation. Slide 4 details industry unit retail sales by region for the first quarter. While fleet ages continue to increase, farmer purchasing activity reflects a measured and thoughtful approach shaped by the current macro environment, trade policy dynamics, higher interest rates and input costs tighter credit conditions and currency volatility are influencing buying decisions globally, particularly for larger equipment.

In North America, overall industry tractor volumes trended lower relative to the prior year with the most pronounced weakness in higher horsepower tractors. Farmers continue to defend more capital-intensive purchases amid current farmer economics, evolving grain export demand and elevated input costs. In Western Europe, industry tractor sales increased compared to softer prior year period with growth across most of Western European markets. Combined demand; however, remain cautious as farmers wave financing conditions and capital allocation decisions.

In Brazil, industry retail demand moderated across both tractors and combines with larger equipment most affected by higher interest rates, credit availability and currency effects, while demand for smaller and midsize equipment remain relatively more resilient. Against the evolving macro backdrop, farmer purchasing decisions remain deliberate with customers balancing operational requirements, alongside financing costs and broader economic conditions. Investment activity continues to prioritize solutions that deliver clear productivity gains and cost benefits, including precision agriculture and technology upgrades while larger equipment replacement decisions are sequenced thoughtfully. This environment continues to support disciplined production planning and inventory alignment across the industry.

AGCO's factory production hours are shown on Slide 5. First quarter production hours increased 15% year-over-year, reflecting a lower level of production in the first quarter of 2025. The year-over-year increase was driven primarily by Europe, where production levels rebounded from a particularly reduced first quarter 2025 base. Importantly, first quarter 2026 production was aligned with our operating plan and reflected intentional timing and product mix rather than a change in underlying demand trends. Full year 2026 production hours are still planned to be broadly flat to modestly lower than 2025.

We are executing a deliberate and measured step down in production as the year progresses. This approach reflects our continued focus on inventory optimization in North America and Latin America, active support of dealer destocking and close alignment of output and market demand. Turning to regional inventories. In Europe, dealer inventory months of supply improved modestly to just under 4 months aligned with our target. This reflects effective execution across the channel with sent operating below the regional average in MessyFerguson Valter modestly above. This well-balanced position provides operational flexibility across product categories and supports continued focus on margin quality and mix optimization in our largest and most profitable region.

In Latin America, dealer inventories moved to 4 months of supply from 5 months at year-end, continuing progress toward our 3-month target. Dealer inventory units declined approximately 10% during the quarter, reflecting disciplined coordination of shipments and production with a slightly softer industry outlook. In North America, dealer inventories closed the quarter at approximately 7 months of supply, consistent with our year-end levels and slightly above our 6-month target. Large egg units decreased sequentially and but were offset by the normal increase in the low horsepower segment this quarter in anticipation of the spring retail selling season.

Production continues to be managed intentionally with a clear priority on channel health, and long-term stability. Slide 6 highlights our strategy to outpace the market and drive margin improvement to our adjusted operating margin target of 14% to 15% at mid-cycle over time. What is increasingly evident is that AGCO is delivering stronger and more resilient financial outcomes across a range of demand conditions compared to prior cycles. The structural actions implemented over recent years are translating into a more durable margins, improved earnings stability and higher quality cash generation, demonstrating the effectiveness of our evolved operating model.

Our 3 growth levers: high-margin products, technology-driven differentiation and a growing higher-value aftermarket business continue to provide meaningful support in the current environment. each lever contributes distinct value and together, they reinforce a business model that is less reliant on unit volumes and more centered on value creation. This foundation underpins our ability to consistently deliver mid-cycle adjusted operating margins in the 14% to 15% range over time. It reflects a structurally improved AGCO more focused on higher-value revenue streams, more disciplined on costs and investment and increasingly driven by technology solutions and services. Importantly, this operating model also supports strong cash generation with free cash flow conversions of approximately 75% to 100% through the cycle.

That financial flexibility enables continued investment in innovation and business advancement, while supporting capital returns to shareholders as evidenced by our recent increased dividend and share repurchase announcements. Taken together, these elements highlight why AGCO is operating today from a more favorable and resilient position and why our business is well positioned to deliver consistent performance across future market cycles. Turning to Slide 7. We are seeing a series of tangible strategy wins as we execute against our farmers first priorities. These actions demonstrate how we're building a durable competitive advantage by combining engineering leadership with increasingly advanced digital and enabled capabilities.

Our approach reflects a focus on prioritizing growth while also delivering efficiency, as we apply AI where it delivers measurable value for farmers and strengthens business performance through better decisions and execution. AI is increasingly becoming a significant enabler in that road map and across the organization to support long-term value creation and differentiation. AI solutions on the farm and in our products are designed to help farmers to achieve more with fewer inputs such as land, labor, fuel and chemicals. Solutions, including Symphony Vision use intelligent cameras intended to optimize precision application in real time, improving effectiveness and helping to reduce waste.

At our PTX Winter Conference, we introduced AI-enabled innovations, including Symphony Vision Dual and AROTube to advance real-time precision applications and automated seed placement. These innovations reinforce our position in high-value technology-enabled solutions. We use AI in customer support and service to connect machine data, customer needs and AGCO expertise to reduce downtime and strengthen long-term customer relationships. It is transforming how we work with thousands of parts leads generated for dealers and tools like product information assistant to more closely connect dealers and farmers.

And third, AI inside AGCO is improving efficiency, quality, cost and speed. Use cases range from AI-powered financial forecasting to AI-driven market analytics that automate used equipment price analysis and free up experts to focus on more value-driven actions. These capabilities are being deployed in a structured and purposeful manner to support margin expansion and growth. We are seeing strong and growing demand from our employees to leverage and deploy VVI solutions to better support our dealers and farmers. We view this momentum, along with our project reimagine run rate cost savings as a clear opportunity to drive measurable efficiency gains and productivity improvements across the organization over time.

In short, we are taking an enterprise view with AI using human in the loop oversight and aligning with the evolving regulatory frameworks to support trusted, responsible and scalable usage. On Slide 8, we also continue to see strong external validation of our innovation and technology leadership. Our outrun mixed fleet retrofit technology are in the prestigious Davidson Prize for the second consecutive year. This time for them is tillage, reflecting our step-by-step progress towards our ambition for full firm autonomy by 2030.

Our AGCO Parts shop received the Digital Engineering Award for a next-generation unified B2B platform that improves dealer efficiency, order accuracy and visibility at scale, which supports aftermarket growth and reinforces our farmer first focus on uptime. As EGCOPower's Core [indiscernible] 0 was named Diesel Engine of the Year, reinforcing our continued leadership in efficient powertrain innovation. The family of core engines were designed to run on an array of fuel options, helping them deliver the performance our farmers' demand around the world.

I want to recognize and thank the teams across AGCO whose work continues to set a high bar for our industry. With that, I'll turn it over to Damon to walk through the financial results for the quarter.

Thank you, Eric, and good morning, everyone. Slide 9 provides an overview of regional net sales performance for the first quarter. Net sales increased approximately 5% in the first quarter compared to the prior year period, excluding the favorable impact of currency translation. By region, the Europe/Middle East segment delivered a 9% increase in net sales on a constant currency basis, higher sales resulted from increased unit volumes compared to the first quarter of 2025, which included dealer inventory destocking.

Sales growth in Germany and the United Kingdom was partially offset by lower activity in Turkey and France. The increase was driven by strong growth in high horsepower tractor sales. North American net sales also increased 9%, excluding currency impacts. Higher unit sales compared to the prior year, together with positive share growth supported the increase. The most significant gains were in high-horsepower tractors, hay equipment and sprayers highlighting continued customer investment in productivity-enhancing solutions. Net sales in Latin America were 30% lower on a constant currency basis, reflecting very measured purchasing activity across virtually all product categories as the environment in Brazil and Argentina remain challenging in the quarter.

Asia Pacific Africa net sales increased more than 20%, excluding currency impacts, driven by higher sales in Australia and South Africa partially offset by lower sales across most Asian markets. Consolidated replacement part sales were approximately $447 million in the first quarter, increasing 3% year-over-year on a reported basis and down nearly 6%, excluding favorable currency translation. Results reflected wet weather in Europe early in the quarter that limited parts consumption. And in North America, where dealers remain focused on inventory optimization amid continued cautious farmer sentiment.

Turning to Slide 10. Adjusted operating margin was 4.6% in the first quarter, an improvement of 50 basis points year-over-year. This reflects strong execution in the Europe, Middle East region, once again, combined with continued operational and cost discipline across the broader organization. By region, Europe, Middle East income from operations increased by over $104 million compared to the first quarter of 2025 with operating margins exceeding 16%. These strong results were driven by sales growth, a richer mix and increased production compared to the prior period. North America income from operations reflected an approximately $27 million year-over-year reduction with operating margins remaining below breakeven.

Results heavily reflect the year-over-year impact of tariff-related costs along with factory under absorption associated with our disciplined approach to reduce production levels. Latin America operating income decreased roughly $47 million year-over-year with results below breakeven, driven by several factors, including significantly lower sales volume and negative pricing. Asia Pacific Africa operating income increased about $7 million in the first quarter, supported by higher sales and increased production during the quarter.

Slide 11 outlines our first quarter cash performance and full year estimated free cash flow. Free cash flow represents cash used and are provided by operating activities less purchases of property, plant and equipment. Free cash flow conversion is defined as free cash flow divided by adjusted net income. We used $455 million of cash in the first quarter of 2026 reflecting the normal seasonal inventory build, consistent with our operating cadence. The prior year quarter reflected unusually low production levels, mainly in Europe that limited inventory investment and reduced cash usage.

Our 2026 production schedule reflects a return to our typical seasonal patterns, resulting in higher inventory investment and cash usage early in the year. This profile was fully aligned with our plan and remains consistent with achieving free cash flow in a targeted range of 75% to 100% of adjusted net income for the full year. Our approach to capital allocation remains disciplined and consistent, prioritizing reinvestment in the business, maintaining an investment-grade balance sheet, pursuing targeted acquisitions that accelerate technology adoption and returning capital to shareholders. This framework continues to guide both our decision-making and the sequencing of capital deployment.

As part of this approach today, we announced that we are evolving our long-standing AGCO Finance U.S. and Canadian joint ventures to better align with increasing regulatory and compliance requirements on enhancing capital efficiency. On April 30, the company executed various agreements with wholly owned subsidiaries of Rabobank to sell AGCO's 49% equity interest in its U.S. and Canadian joint ventures for approximately $190 million, while establishing new financing framework agreements that are intended to strengthen the strategic and commercial benefits of these partnerships. AGCO Finance remains the predominant financing partner for AGCO and our customers. This structural evolution strengthens AGCO's farm refer strategy by ensuring continued access to competitive finance offerings.

These actions optimize regulatory capital deployment, strengthen our commitment to providing competitive financing solutions to our farmers and dealers and bolster our financial flexibility. The proceeds from these transactions are incremental to free cash flow and are being used to support capital returns to shareholders. Building on both our record free cash flow generation in 2025 and these proceeds AGCO has increased our capacity to return capital to shareholders. We continue to execute share repurchases under our $1 billion authorization. Following the initial $300 million announcement in October last year, we are initiating an additional $350 million in repurchases during the second quarter of 2026.

In addition, the Board of Directors also improved an increase in our regular quarterly dividend to $0.30 per share, up from $0.29. At this rate, annualized dividends would total [ $1.20 ] per common share. Collectively, these actions demonstrate a continued focus on disciplined capital deployment, balancing enhancing near-term shareholder returns with long-term financial flexibility. Turning to Slide 12, which summarizes our 2026 market outlook across our 3 major regions. Global agricultural markets entered 2026, reflecting conservative purchasing behavior shaped by high borrowing costs, extended margin compression and evolving policy and trade dynamics.

Recently, geopolitical developments have contributed to higher fertilizer and fuel costs, reinforcing cautious behaviors across the industry. Current conditions point to a gradual and uneven recovery, rather than a near-term rebound. We are maintaining our forecast for North America and Western Europe and adjusting our Latin American forecast from flat to down modestly in 2026. In North America, farm income dynamics and increased input costs continue to shape demand, particularly for large equipment. Deal activity continues to focus on managing used inventories and limiting new commitments, which is weighing on large tractors and combined purchases.

Higher fertilizer and diesel cost tied to recent geopolitical developments have added to grower caution heading into the planting season, further limiting discretionary capital spending. Smaller equipment continues to demonstrate relatively stable demand compared to large ag supported by livestock and hay related demand. While performance has improved year-over-year, early year activity has been more modest than anticipated amid recent macro events, reinforcing our views that upside remains limited for the remainder of the year.

Overall, we expect the North American large ag equipment market to be down around 15% below 2025 levels with the small ag segment modestly higher. In Western Europe, near-term demand has demonstrated select areas of strength. At the same time, confident remains fragile. Farmer profitability challenges, increased input costs evolving regulatory uncertainty and prudent capital spending behavior continue to weigh on sentiment. Recent geopolitical developments, including the development in the Middle East have added to this environment, particularly around energy cost despite near-term demand strengths.

Subsidy frameworks and relatively favorable interest rate dynamics continue to provide a stabilizing foundation for the region. Taken together, we still expect Western Europe to be up modestly in 2026. In Brazil, in broader Latin American region, interest rates and tighter credit conditions continue to influence purchasing patterns, particularly for large machinery. Increasing input costs and financing dynamics are guiding investment decisions, contributing to equipment demand variability.

Brazilian retail tractor volumes in '26 are now projected modestly below 2025 levels, but with long-term fundamentals remaining relatively constructive. Overall, the agricultural equipment cycle in '26 reflects discipline, selective purchasing and delayed replacement activity. As financing conditions normalize, input cost pressures moderate and grain prices improve, the aging fleet and structural foundation supporting recovery remain in place with regional timing varying by market and segment.

Slide 13, highlights the key elements underlying our full year 2026 outlook. Global industry demand in 2026 is now positioned in line with prior year levels, operating at approximately 86% of mid-cycle demand, consistent with the stabilization phase of the cycle. Our sales plan reflects continued market share gains, pricing in the range of 2% to 3% and roughly a 3% foreign currency benefit. While pricing helped moderate the impact of material inflation and tariff-related costs, the incremental increases in these pressures from events in the first quarter will now more than offset pricing actions resulting in margin dilution and lower profitability in 2026.

Inventory management remains a priority in 2026, particularly in North America and Latin America, supporting our ongoing dealer inventory alignment and a balanced demand-driven go-to-market approach. Our outlook reflects the current tariff environment and our established mitigation actions, including cost initiatives and pricing. Since the fourth quarter earnings call, the tariff environment has evolved with the Supreme Court ruling related to EPA tariffs as well as new guidance on the calculation methodology related to Section 232 tariffs.

We now expect tariff costs of approximately $135 million in 2026, which is around $90 million increase from 2025 and $25 million higher than our previous estimate. These estimates could change as things evolve during the year. Our adjusted operating margin and earnings per share outlook do not assume any refunds related to the [ EPA ] tariff. We are currently evaluating the impact to our business and the ultimate timing and amount of any potential refunds remain uncertain. We are prepared to adjust our outlook should tariff or trade policy conditions change.

Engineering expense is planned at around 5% of sales in 2026, representing an increase of nearly $40 million year-over-year, supporting innovation across the portfolio while maintaining investment discipline. Operational efficiency initiatives are increasing and we now expect them to deliver approximately $60 million to $70 million of benefit in 2026, up from $40 million to $60 million, reinforcing our ongoing transformation progress. Production hours in 2026 are expected to be flat to slightly down compared to 2025 with a measured step down as the year progresses to support inventory normalization and demand alignment.

Based on these assumptions, adjusted operating margin is still targeted in the range of 7.5% to 8% reflecting structural portfolio improvements and cost actions, partially offset by price cost pressures, increased tariff costs as well as increased freight costs. Finally, although our effective tax rate was 24% in the first quarter, we still expect our effective tax rate for 2026 to be in the range of 31% to 33%. Turning to Slide 14 for 2026 outlook. We have modestly tightened our full year net sales outlook to $10.5 billion to $10.7 billion, reflecting improved performance in certain regions slightly higher foreign exchange effects and continued execution, partially offset by ongoing market volatility.

Adjusted earnings per share are targeted at approximately $6 supported by continued strong cost discipline and execution consistency. This revised outlook reflects our strong first quarter performance, along with the incremental tariff costs and other cost headwinds I mentioned previously. The current earnings per share outlook also assumes approximately $0.15 per share benefit associated with the share repurchase announced today. Capital expenditures are planned at around $350 million, positioning the company for future demand while preserving investment discipline.

Free cash flow conversion remains targeted at 75% to 100% of adjusted net income, supported by strong working capital management and ongoing inventory efficiency. Second quarter net sales are targeted between $2.7 billion and $2.8 billion. Second quarter earnings per share are targeted between $1.35 and $1.40, reflecting the alignment of production with demand cost execution and timing of efficiency initiatives. The second quarter EPS target excludes any impact from the potential [ IEP ] tariff refunds or the sale of our equity interest in the AGCO Finance U.S. and Canadian joint ventures.

The AGCO Finance transaction in North America will accelerate cash flows from the existing portfolio and result in a second quarter earnings lift. However, for the full year, we do not expect a meaningful change in the portfolio's earnings contribution. Slide 15 outlines the details for our 2026 tech data be held near Chicago, Illinois. A strategic business update will be held on October 6, followed by a live field demonstration of our precision agricultural stack and farmer core initiative on October 7. We look forward to hosting you just outside of Chicago.

With that, I will turn the call over to the operator to begin the Q&A.

[Operator Instructions] The first question is from Jamie Cook with Truist.

I guess 2 questions. Damian, just unpacking how we think about -- I mean we had losses in North America and in Latin America in the first quarter. Just trying to understand, in particular, it was like the restatement with Mexico, how do we think about the full year potential loss in cadence, I guess, of earnings throughout the year, I guess, would be my first question.

And then my second question, can you just dig a little deeper on some of the pricing commentary that you referred to like by region. You know what I mean, I guess I was impressed that we actually held the 2% to 3% price increase.

Sure. So I think if we look at the cadence here with the incremental tariff costs that we alluded to in the scripted remarks, we're going to see North America sort of stay at this sort of the mid-teens margin loss for the balance of the year here. despite the solid pricing, that incremental $25 million is going to really be concentrated in North America, as you would expect. It will fluctuate a little bit in the quarter with volume here. But generally, you're looking at sort of an earnings kind of in that negative 10%, negative 12% for the full year.

South America, we had a challenging first quarter -- or at -- excuse me, we had a challenging first quarter see that sort of rolling into the second quarter here with a slight breakeven, the slight loss likely in Q2. And then as we hopefully see the industry recover, we've talked about the election year some of the incentives as we get to the FINAME funding in the middle of the year, we see that turning certain positive. I think net for the full year, when you look at the first half headwinds second half opportunities probably closer to a breakeven business for Latin America as we look at the full year.

I think, Jamie, on the second question on pricing, again, we did reaffirm the 2% to 3%. When I look at how pricing panned out in the first quarter, overall, I would say total company, it was modestly a little bit better than what we had expected. Now we saw stronger performance in pricing in North America and in Europe and then we saw a significantly weaker pricing in the Latin American region. So for total company, again, I still feel good that we're in that 2% to 3% range. But as I look at how things are unfolding, so far, I would say it's going to be a little bit stronger coming from North America and Europe and a little bit weaker coming out of the Latin American region, at least to start the year.

Next question is from Kristen Owen with Oppenheimer.

Damon, you walked through a lot of puts and takes on the guidance. It's easy to look at it and say, okay, you beat by $0.50 in the first quarter, so we're going to raise the guidance by $0.50. But it sounds like there's a lot more to it than that. So maybe just help us with the bridge on the updated guidance, what got better, what got worse? And then I have a follow-up on some of the cost-related items.

Yes. Sure, Kristen. So I think if you look at our prior guidance, we were $5.50 to $6. So we'll use the midpoint there. We rolled through the $0.50 beat in the first quarter. I alluded on the call, tariffs are around a $25 million incremental headwind, so call that around $0.25 of a headwind. Kristen, we tweaked our volumes, our industry outlook for South for Latin America and a little bit, I would say, in Eastern Europe, Turkey mainly. So the industry being a little bit softer for the balance of the year, that's around a $0.20 headwind. We've had incremental freight costs as we look at diesel fuel, ocean freight charges, other costs that we're seeing given the Middle East conflict, that's around a $0.20 headwind flowing into our cost of goods sold.

To offset that, we included the share repurchase. We've estimated that at around $0.15 of a positive for the full year. And then we've also increased our restructuring savings outlook, which was $40 million to $60 million. We now have that at $60 to $70 million. So that, coupled with a little bit of other cost of goods sold savings opportunities, that's around a $0.20 positive relative to our original outlook. And so when you put those together, you get around $6.

Fantastic. So the restructuring savings then the $40 million to $60 million now, $60 million to $70 million. In some of the prepared remarks, you talked about some of the internal initiatives. Can you maybe help us understand how much of that is just an acceleration or maybe a pull forward of the bridge that gets us to 14% to 16% by the end of the decade? Or how much of that is sort of incremental upside that maybe gives you greater confidence in that mid-cycle margin target?

Yes. So I'd say, Kristen, it's probably about 50-50. So we did have some savings that was planned more into the Q3, Q4 time frame. Given the industry, we've been able to pull as we did a little bit last year, we pulled some of that ahead. So if you remember on the fourth quarter call, we said we were run rating at around $190 million. I would tell you now after the end of the first quarter, we're run rating just a little bit over $200 million. So part of that was pulling some things ahead. But in this environment, as we leverage technology, more of the teams are seeing more opportunities. So there is some incremental long-term savings.

So again, for this year, I would say it's kind of split between a pull ahead and an incremental. So that will carry over to some incremental savings as we get into 2027 given the annualization. But generally, I'd say we're run rating a little bit north of $200 million now.

The next question is from Mig Dobre with Baird.

This is Peter Kalanarian on for Mig this morning. I guess I have one on Europe here. How confident are you in the relative strength in Europe holding through the remainder of the year? It's my understanding that EU farmers maybe don't preorder their inputs to the same extent as we see in North America. So could you maybe help me understand the dynamics there, what you're seeing in terms of farmer health? And then second part of the question on margin progression for Europe, I believe it's previously been a pretty steady mid-teens through the year. Is there any change there that we should be aware of?

Yes, I'll start off with that answer. So if you think about the crops that are planted in Europe, the biggest crop planted is wheat, and it's often -- it's a winter wheat predominantly. So that's planted in the fall. It starts growing over the winter and then it continues to grow in the spring and in the summer and is harvested early summer. So the cycle is a little different than what we think about in North America of most of the planting happening in the spring because of the mix of grains that they put in. So that's one dimension. They still do prebuy a fair amount, not quite as much as North America, but a fair amount. And so I think it really comes down to how long is this war going to last and how big of an impact is the increase in cost for fertilizer.

Fertilizer is up somewhere between 35% and 50%, but it all depends on if that lasts through the rest of the year. Most predictions right now, of course, this is unpredictable, but many folks are using the assumption that this war is not going to last in terms of quarters, it's going to last in terms of several more weeks in terms of cutting off the street. So if that's true, then flow can normalize in time for the next big use of fertilizer in the Northern Hemisphere, which is more weighted toward the fall.

And then, Peter, if I -- in answer to your second question about the European margins and the cadence, again, Europe continues to be very strong for us if I think about the margins. generally speaking, likely in the mid-teens for each of the remaining 3 quarters, a little bit lower here in the second quarter as we'll have some of that incremental engineering expense. Remember, we have a high concentration of engineering expense in Europe. I'd say probably closer to flat to last year's margins and then picking up modestly here in the back half of the year as we introduce some new products and some of that new product pricing kicks in. But generally speaking, kind of in those mid-teens here for the balance of the year.

Awesome. And then a quick follow-up here on Latin America. How many -- do you have the pricing in place you feel to clear the channel here in the next couple of quarters? Or do you think that price will have to come down even further -- and I guess, tangential to that question, how many quarters of destock do you think we have left before inventory can get down to that target level of, call it, 3-ish months?

Yes. I think, Peter, for us, we're always looking market back from a pricing standpoint and our relative value to the farmers and also relative to the competition. I don't see a significant change in pricing, but again, subject to market conditions. I think we're trying to be much more proactive on our side. We will have inventory -- production will come down probably around 20% year-over-year in Q2 as we look to better adjust the production schedule. We made great progress on the dealer inventories this last quarter. As I mentioned in my part of the remarks, units were down around 10% -- so we are taking the units out.

We're reducing the production here. We'll reduce it again another 20%, trying to get closer to that 3-month target here, hopefully by the end of the second quarter. But again, remember, for us, when we give you the dealers' month of supply, that's a 12-month forward look. So as that industry is changing either positively or negatively, that 12-month forward calculation can also influence even though the units may come down. So I feel good about what the team is doing in managing a very challenging situation. We know South America is likely the most susceptible to the diesel fuel cost, the fertilizer increases that Eric just alluded to.

So the team is doing a good job sort of managing the production schedule to try to keep the retail and production as closely aligned as possible, but at the same time, getting the dealer inventory levels down, but still servicing the demand we're seeing. So a lot of work down there, but we feel good about how the team is managing it.

Maybe one more thing on Brazil. It's a very, very tight presidential race. And last week was AgrShow. There was a lot of talk at AgrShow about favorable terms coming into the market from the government. Unfortunately, there's no detail on what those terms are going to be, but certainly a lot of talk about they're coming. And so farmers, I think, to some degree, are a bit on hold until they get clarity on what that environment will be. But if you anticipate the chapter we're in right before an election is probably going to be something positive for farmers. Just don't have any clarity on it yet.

The next question is from Steve Volkmann with Jefferies.

I apologize if I missed this, Damon. I think you said that '26 production hours are going to be flat to slightly down, but it sounds like they're going to be down quite a bit in the second quarter, and you obviously reduced inventory in the first. So is the cadence that we're going to have like some big increases in the second half? Just how does that sort of play out?

Yes, Steve. So we had the big increase here in the first quarter. It was heavily in Europe because of the year-over-year comparison. It wasn't that we were running in excess. If you remember last year, we had a slow start as we were sort of destocking a little bit in Europe. If I look at Q2 here, you're looking at North America is likely going to be relatively flat to year-over-year.

The big change will be the South American market. We'll be slowing production there in Q2 and likely in Q3 based on the current industry outlook. But as Eric just alluded to, such a volatile market or uncertain market there, we manage it one quarter at a time. But at least our outlook right now, this flat to down guide assumes more underproduction in the Latin American region, but relatively stable production in Europe and in North America for the balance of the year.

Okay. I see. And then just anything to call out relative to your view of kind of how Precision ag sales kind of flow this year? Is there any upside or downside to your views there?

I don't think there's any upside or downside. Again, the first quarter was very much in line with our expectations. I think the sales for PTX as a whole were relatively flat year-over-year. So I think, Steve, when you look at the industry being down here in North America, down in the challenge in South America, the fact that PTX delivered relatively flat sales year-over-year is a testament to the retrofit market and how well that business is doing. For the full year, we still expect it to be flat to modestly up for the full year.

The next question is from Joel Jackson with BMO Capital Markets.

I wonder if you can provide any -- like we're talking about traversing the bottom here, things getting better as the year progresses. Do you have any updated views on what you think this cycle will look like in the next year or 2 as we get back into growth and maybe compare that to prior cycles?

Yes, it's a pretty uncertain environment we're in, but I would say we expect that -- you look at what are the drivers of cycles. And the primary one I'd look at is the age of the existing fleet in the farm. And in all of our regions, it's at peak levels. So when the farmer looks out into their machine shed, they see old equipment and they see a lot of technology coming into the market. And so there's a draw or replacement demand. that's going to happen. And there's other turbochargers that could happen and could boost that. Brazil is putting a lot more of their corn into ethanol. The U.S. ethanol blend may move from 10% to 15% may move to year around.

I don't know yet, but that's under a heavy discussion. Biofuel policy and sustainable aviation fuel are getting a lot of attention right now. There's more protein demand with Li and the GLP drugs. So you combine all of those things, and those all give us -- those are the ones we've been talking about for several years. Those are natural tailwinds for this industry to recover tactically because of the fleet age and more strategically because of these macro drivers. And we see all of those as playing for the farmer. They need some more certainty. They need the straight to open up. They need their cost to settle back down and they need the trade flows to open up, which is a relatively short-term thing.

Once that happens, I think the cycle will progress like it usually does. We've been 2 to 3 years now at the bottom, and then it usually works its way back up. It's depending on the situation, 7- to 10-year overall cycle. So we expect a migration back up to mid-cycle volumes and then hopefully above mid-cycle after that.

Going in the background. I apologize for the noise. And just my second question, the buyback less announced, would that be very upfront like the buyback last year or more spare?

Yes, normally, we do the buyback in the form of an ASR. There is a portion that is directly done with TaFI, our largest shareholder. So you can assume that 85% of it directionally is done through the form of an ASR and then the balance comes from Tafi at a later date.

The next question is from Kyle Menges with Citigroup.

This is Randy on for Kyle. It would just be great to get some more color on some of the changing tariff dynamics as it relates to your outlook, maybe bifurcating between impacts from the IEPA overturn, the new Section 232 ruling. And then any color on how you're thinking about what potential Section 301 impacts could be would be helpful.

Yes, Randy. So with the IEPA ruling, we have now taken that out of our guidance and factored in the new cost calculation for 232. When we look at the net of those 2, that's around a $24 million headwind relative to our prior guidance. And so that's sort of been factored into our outlook. as I mentioned in my pre-scripted remarks, we've not assumed any refund or anything related to the IEPA in our current EPS outlook. If something was to be monetized, that would be incremental. As it relates to the pending 301 tariffs, again, we have not assumed anything beyond what's currently in place today into our outlook.

I think it's important to remember, though, as if there is something that comes as a result of 301, the question of when do those take effect when do they hit our inventory and then when does that flow through cost of goods sold. So as we think about something maybe coming this summer, the reality of that hitting 2026 is quite low, just given the flow of inventory and finding its time to our cost of goods sold. So again, we're monitoring the situation. The teams are doing a great job in trying to mitigate these tariffs, looking for offsets or ways to ship directly to Canada, which historically we would have flown those European products into the U.S. and then up to Canada.

So looking for ways to avoid some of these where possible to limit the impact on our dealers and our farmers. But overall, as I said, around $25 million is the net headwind this year.

The next question is from Kevin from Wells Fargo.

Can you talk about what you're seeing in terms of used inventory destocking in North America during the quarter? And what do you expect in terms of the pace going forward?

Yes, Kevin, I think overall, we don't have as much visibility as maybe some of our competitors do on the used. But overall, generally speaking, it's not as big of an issue for our dealers versus the new. We're probably directionally about maybe a month in a better position than we are in the news in the new. So overall, not a huge issue, but something that we're watching closely.

Got it. And then maybe switching gears, how should we think about the sales of the stake in the joint ventures in terms of the impact on the equity income line on a go-forward basis?

Yes. I think the -- so Kevin, thanks for asking the question. I guess the way to think about this is the $190 million of cash that I mentioned is reflective of the equity value and the cash flow considerations of the existing portfolio as of April 30. So if you think about that, the transaction, it's going to accelerate the cash flows from the existing portfolio, and that's what's going to result in this Q2 earnings benefit. But on the full year basis, the contribution from the portfolio hasn't really changed. So that's the way to think about it here in 2026.

As I think about '27 and beyond, what's happened that equity and earnings is now going to disappear for those 2 entities, and you're going to see that show up at a smaller percentage, but show up as a reduction in sales discount. So it will be slightly accretive to the operating margin and a little bit negative from an earnings per share perspective.

The next question is from Angel Castillo with Morgan Stanley.

This is Esther on for Angel. I just had a question around North America market share. Can you unpack a bit more about what you're seeing in North America and just provide a little bit more color on the market share gains? Also curious to know if farmers are telling you anything that's driving the switch of brands and whether there are any particular regions in the U.S. where you're seeing this?

Yes, I'll take that one. So globally, we had our highest market share. We grew again market share in quarter 1. We've now got our all-time record highest market share for the company globally. And a big driver of that is North America. We're getting market share gains in both of our brands, Massey Ferguson and Fendt in terms of machinery brands. And essentially, we've gone through a few phases here. The first phase was getting our parts and service performing at a record level, and that's been done for several years now. Then getting our product portfolio to the best in the industry. We've got that in place solidly. And now we're working with our dealers to really raise their performance. That's the focus of this chapter, working with all of our dealers to implement farmer Core, which is a changing of the distribution model where they do the work on the farm.

They move from reactive to proactive, monitoring the machinery on the farm and doing everything proactively instead of having the customer having to come to the brick-and-mortar store, we come to the farmer, way more convenient, way more proactive. So this establishment of the world's best products has been done. Now we're working on the world's best distribution and service support that can be delivered to the farmers. And we're seeing once farmers experience that. They love it. They love the convenience of having everything done with them and on their location.

So that's the primary thing. It's more of a large ag focus. You asked kind of where is it happening? It's more large ag than small ag because it's -- that's the focus of Farmer core. But it's geographically, I wouldn't say that there's a specific area in the country. Did I capture all your points? Or was there anything...

Just like a quick follow-up. Just like what you laid out, is there any concerns about any like aggressive pricing from competition just due to the market share gains that you're seeing?

Well, we always have to keep our eyes on that. But in general, I think we're all public companies, disciplined players and working on generating value as opposed to trying to take margin hits to go after price discounts. We've not seen that in the past on any kind of broad scale, not saying it can't ever happen, but we haven't seen it in the past, and we're not seeing it now.

The final question today is from John Peter with Bernstein.

This is filling in for Chad. Can we double-click on your order book by region, please?

Yes, sure. I'll take care of that. So for North America, our order board is kind of in the range of 2 to 4 months depending on the product type. I would say for the lifestyle or the rural lifestyle, so the lower horsepower, we're about 2 months. As I mentioned in my remarks, we're into the spring selling season right now, so very customary to see the order board at the low point. For Fendt, we're probably closer to 4 months. In Europe, we're at 3 to 4 months, so relatively consistent to where we've been for the last several quarters.

And in Latin America, if you remember, we only opened the order board up 1 quarter in advance. And so we're sitting at around 3 months of orders in South America. So again, fairly consistent as to where we've been in the last few months -- last few quarters, excuse me.

This concludes our question-and-answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks.

Thank you for joining us today for our continued -- and your continued interest in AGCO. The first quarter highlights our continued progress in building a more focused and resilient AGCO, executing with discipline and staying anchored to what we control while advancing our Farmer First strategy. The performance delivered this quarter reflects the effectiveness of actions taken over several years, including portfolio sharpening, execution enhancement and improved earnings durability. We remain focused on delivering for all of our stakeholders.

For our farmers, we continue to invest in practical innovation spanning precision agriculture and AI-enabled solutions, service and uptime. -- all designed to help them operate more productively and profitably. We've achieved the highest Net Promoter Score for quarter 1 in the history of our company and have a record high market share globally with big gains in North America. For shareholders, our record 2025 cash generation enables balanced capital deployment, including increased dividends and ongoing share repurchases alongside continued investment.

Looking ahead, we remain focused on cost management, production alignment, technology advancement and market share growth, positioning the company to perform effectively through the current environment and capture opportunity as demand grows over time. Thank you for your continued support for AGCO. We value your partnership and look forward to building long-term value together.

Thank you for joining the AGCO earnings call. The call has concluded. Have a nice day.

Thank you, everyone, for coming. I'm Michael Feniger, the machinery, engineering and construction analyst in the U.S. And I'm happy to host AGCO. Greg and I were talking. We've been doing this for over a decade, and the rooms just keep getting bigger. So credit to you guys. So really happy to have AGCO here at the conference and to host them. They're one of the leaders in the farm equipment space, which is a little different for a lot of the European investors relative to what you see in the capital goods space in Europe.

So with that said, I'm going to actually pass it off to Greg, and they'll introduce themselves, and we'll jump into some Q&A. So Greg?

Great. So Greg Peterson, I handle Investor Relations for AGCO, have done for almost 20 years. Prior to that, other Investor Relations roles outside of our industry.

Well, good morning. I'm Damon Audia, the Chief Financial Officer for AGCO, and I'm coming up on 4 years in the position here.

Great. Thank you for being here.

Yes, of course.

Well, maybe just to kick it off and bring everyone online and in person on the same page. When you think of the farm equipment space, Deere is usually the first name that comes to mind, particularly in the U.S. For investors that are new to the space, new to AGCO, where does AGCO fit in into the ecosystem when you think of the global farm equipment industry?

Yes, sure. Maybe I'll give a little bit of a backdrop here. So AGCO is the largest pure-play agricultural equipment company in the world. Unlike our 2 other global competitors, we don't play in the construction business. So we are purely focused on ag. We go to market on the equipment side under 3 primary equipment brands. So Fendt, which is our premium brand and then Massey Ferguson and Valtra, and those play more in volume-orientated segments of the market. So those 3 on the equipment side. And then with our strategic joint venture with Trimble that we did in 2024, where we own 85%, we combine that with our other technology businesses under a technology umbrella called PTx, so Precision Technologies multiplied. And that basically covers all of our technology that we sell to our AGCO OEM equipment part, but we also sell to 100 other OEMs, and we sell in a unique differentiated retrofit channel, and we take that technology straight to the farmers first through this differentiated channel, and we'll touch on that.

And when you look at those brands in the PTx Trimble or the PTx umbrella, last year, we delivered revenues just over $10 billion. And sitting in the trough of our industry last year, we delivered adjusted operating margins of 7.7%, which were almost double what they were the last time the industry was at this level. And we did that through an array of strategic changes in how our CEO has transformed this company, where we have really focused on bringing our Fendt brand into North and South America. We've doubled down on our parts business, so leveraging things like e-commerce, having the industry-leading fill rates in North America and in Europe, but then also growing our technology stack.

As I mentioned, bringing on the Trimble joint venture, growing our Precision Planting business, all of those things, improving the profitability of our business while at the same time, driving incremental growth. And if I look at last year, in addition to the adjusted operating margins, we generated record free cash flow of $740 million. So really positioning ourselves in a much more profitable position than we were the last time the industry was at this level back in 2016.

Perfect, Damon. Look, the world is as uncertain as ever. You were formerly the CFO of Kennametal. A lot of members in the audience will know Kennametal well as a peer to Sandvik. Obviously, that's short cycle. That's PMIs, it's industrial production type of stock and sentiment. I'm just -- if you could help everyone for AGCO, what is mostly tied to those farmer purchases? What are the drivers of farmer equipment purchases that we should keep an eye out for as we've gone through an upswing. And now obviously, we've been in more of a downturn in the last few years.

Yes. Well, at the highest level, net farm income is the biggest driver to a farmer willingness to engage in upgrading his or her equipment. But it's important that when you hear the profitability or the net farm income, you've got to unpack it because depending on how that's driven, in many ways, in many parts of the world can influence the farmer's desire or willingness to purchase. And so when we look at it, what we would say is commodity prices are by far the most important thing because that's what's giving the farmer confidence or comfort as he or she sells their grain into the market.

So the biggest part is going to be what are the commodity prices, which can be influenced by stock-to-use ratios, weather events, global trade dynamics. But you look at commodity prices first and then you look at your input cost second. Obviously, a lot going on in the world right now. You've heard a lot about fertilizer prices going up, but they've been going up for a while. Seed prices have been going up. And so when that farmer looks at what he or she is selling their grain at versus what their input costs are creating that net farm income is really the catalyst for reinvestment.

Now here in Europe, farmers get a lot of subsidies from their government. Those are fairly stable and consistent. So their order patterns tend to be more consistent because they have a base that they can rely heavily on. When you look at the U.S. farmers, the subsidies tend to be more infrequent. And so even in the U.S., you've heard about some of the subsidies given to the U.S. farmers. But because those are not consistent, the farmers are less willing to invest that money into equipment, but using those sort of subsidies because they're onetime in nature to pay down their debt, buy their seeds, do the things they have to do rather than upgrading their equipment, which they'd like to do. And so that can fluctuate, can improve the net farm income, but it doesn't necessarily translate into equipment demand.

So we've got to see commodity prices strong, input costs, hopefully stable or lower driving net farm income. And then you get to some of the secondary things about the age of their equipment, interest rates can influence that because as a farmer is trading in a piece of equipment, he or she is likely going to be borrowing some money. And so interest rates can influence that. But those are much more secondary effects versus that net farm income.

And I'm curious, obviously, it's been a volatile to weak period. When we think of some of these moving pieces, obviously, with the Iran war and the conflict, you're seeing really outsized moves. You're seeing outsized moves when it comes to certain chemicals, certain fertilizers. Obviously, it also depends on the timing in terms of harvest and planting. Just when we sit here today, when we see soybeans have had a nice move higher, corn is actually breaking out a little bit, it looks like, but also see these inputs, how should we put that all together to think about what are the farmers sticking and watching right now?

Yes. Well, I think the global environment we're operating in creates a lot of uncertainty. And generally speaking, when there's uncertainty, that's reasons for farmers to pause in making large investments. We saw that in the U.S. last year during the trade dynamics between the U.S. and China. Again, farmer's sort of conservatism in waiting to see what had happened. And whenever you see an event like this happen, and we'll talk about some of the near-term and medium-term effects, that just creates another reason to pause to see what's going to happen. So what are my costs going to be, who's going to buy my grain and when will they buy my grain. So all of that uncertainty creates reasons to hesitate.

If I look at the events themselves, obviously, the nearest-term issue for the farmer is dealing with are diesel cost. With the event in Iran and how that's affected the gas prices or diesel prices, farmers are going to be paying a little bit more for running their operations right now. In the grand scheme of the farmer's cost, it's probably not going to make a decision to buy or not buy. But it's one more thing when we think about that net farm income. If fuel costs have gone up by, pick a number, 10%, that reduces or compresses his or her net farm income and thus their willingness to have excess cash to invest elsewhere. So that's the near term, and that's going to affect most farmers around the world.

The bigger issue is going to be fertilizer. Again, you've probably read fertilizer costs have gone up. As we look at farmers probably here in the Northern Hemisphere, probably not as big of an effect on most of them. Most of them have probably already purchased what they'll need for the season. There may be a couple that have to deal with spot purchases. But that's more of a medium-term effect if these prices stay elevated for the longer term.

Now you do have a lot of farmers down in Brazil, which have a different planting season. They're going to be effectively having to look at those costs and manage that as part of their overall net farm income because those input costs that they don't come down here in the near term will affect what they're purchasing. So you're going to sort of see that fertilizer costs have an effect here in the medium term. And again, to the extent that this is a new level, that will affect farmers a little bit more in the longer term as they have to buy their fertilizer for the following year.

So it would see -- when we see these charts of what's happening in fertilizer, it's going to hit probably the Brazil farmer first. As you just said, the northern farmers kind of have locked in their costs for basically the season. Is that correct?

Most likely, most of them have.

And is that going to change, you think, just because we're on this, I'll pull a thread, does it change any planting expectations or any rotation crop? Because while this is happening, we're also seeing soybean prices starting to go up a little bit, and that might be some disruption to the Brazilian farmer at that point in time. Some of it might be just oils going up and maybe some biofuel displacement. But I'm just kind of curious how we should kind of think of this as its impact in Brazil to the U.S. farmer.

Yes. I mean, on the margin, you may see some changes. But generally speaking, the farmers have the rotation that they go through, whether they're planting soy in certain fields or whether they're planting corn in certain fields. There's always a little bit of variability that they [indiscernible]. But short-term changes like this are not likely to have a significant deviation on their long-term plans.

And again, if you look back and you're seeing corn, as you touched on, corn has ticked up, soy has ticked up. A lot of farmers stored their grain last year because if you remember, commodity prices were quite low. They were below the breakeven point. You heard about the storage, a lot of farmers just sort of holding that grain. So as that's now coming out into circulation, they're getting that value. Now does that change? If they sold their soy, do they plant more. If they sold their corn, do they sow more? So again, I think in the grand scheme of things, you probably won't see a significant change on what they're planting. But on the edges, each farmer is going to look at what he or she could do maybe modestly to see if they can pick up a little bit of incremental value.

Mike, the flip side of that would be that if there is less fertilizer used this year and even next year, that probably means yields go down, which should result in higher commodity prices. So it might be a negative in the medium term, could be a positive as you get out maybe beyond that first harvest.

I see. And I think just to go back -- circle back to what you were saying prior is it just feels like the last 2 years, for farmers going into their early order season, when they're starting to place those orders. It seems like there's always some macro event hitting them. And one of them, obviously, as you referenced, was the trade war. I'm curious, is this something that you think farmers are watching because we're months away before they start placing orders for next year. Is this, do you think, one of the single most things that the farmers are keeping their eye on because they did lock in their costs, so their costs aren't really that high yet. Is that something that you think is making people look at their earlier [indiscernible] for next year?

Yes. Obviously, they're watching who is going to buy their grain. Again, we have the agreement between the U.S. and China where they've said they're going to purchase 25 million metric tons of soybeans. To the extent that comes to fruition as planned and the farmers see that, that demand actually translate into their -- or for them, that will rebuild confidence. And as Greg said, as whether it's lower fertilizer uses, whether it's increasing demand, at least here in the U.S., they talk a little bit more about changing the policies on things like ethanol, looking at more on renewable fuels, which if they do, make any changes to renewable fuels for renewable diesel, that could consume a very large percentage of the U.S. soybean crops. And to the extent that, that is incremental demand, you will see the prices of those commodities pick back up. You'll see the farmers' net farm income improving, again, because it's coming from a commodity price, builds more confidence for them, knowing that they need to change out their fleet.

When we look at the age of the fleet in the U.S., unfortunately, the way our industry works because of the cyclicality, normally, the fleet goes from old to average to young. And when we went through the last peak in '22 and '23, there was the supply chain challenges that our industry was dealing with. So the fleet in the U.S. only went from old to average. And then in '24, '25 and '26 now, because we're below this mid-cycle, the age of the fleet is now creeping back up to being at the peak or what historical high levels. So farmers know they need to upgrade their equipment. The technology, the fuel efficiency, there's a lot of value in bringing on a new piece of equipment onto the farm. But if you're not profitable, there's that ability to defer. And that's what we're seeing right now. So as that commodity price comes up, as that farmer feels that's more stable or sustainable, he or she gets the confidence to then start to reinvest into their equipment and bring on the latest technology.

And maybe just to help put this in full context for everyone because you mentioned there was a peak in 2022, '23, and we've been in this downturn, and many are hoping and calling that '26 is going to be the bottom that we're going to start to stabilize at this bottom. I mean, how far below on units are we from peak to trough to mid-cycle? Just to give everyone context of like where are we on the cycle, if we are bumping along the bottom to start to look at, what does this look like on a mid-cycle basis or what the next peak looks like?

Yes. Let me take a shot at that, Mike. So Damon mentioned that commodity prices and farm income tend to be the biggest or most highly correlated demand driver for the industries. Now if you look across the 3 major markets, so for us, that's North America, South America and Europe, the consistency of that farm income tends to be the most stable in Europe.

So not surprisingly, the cycle in Europe tends to be more muted. So we would say between maybe 90% and 110% of what we call mid-cycle. So as we saw last year, we ended the year, I think, right around high 80s, almost 90% of mid-cycle. This year, we're calling for that to improve 1% or 2%, so low 90s in 2026.

In South America, that's kind of at the opposite end of the spectrum. Income tends to fluctuate more significantly in Brazil. There's not as much subsidies. And so farmers' income tends to fluctuate. So in Brazil, the normal cycle, I would say, would run from maybe 70% to 125%, 130%. This cycle has been a little bit different. Last year, Brazil was in the mid- to upper 80s. This year, we're saying it doesn't change much. So maybe up 1% or something. So upper 80s for Brazil.

And then lastly, North America tends to be kind of in the middle. So normal cycle in North America tends to go from maybe 85% to 110% or something. This year, though, North America is going to be in the upper 70s. So we're in a very unusual place. And if you look at demand for big equipment in North America, we are bumping up against times that are into the 70s and 80s kind of to go back to find the kind of volumes we're looking at for 2026 in North America. So this year, we're going to be below 80% in North America. So very unusual. Damon touched on Asia fleet. So that is really creeping up and ultimately will be a demand driver for us here.

So below 80% of what we would typically look at as like replacement demand and mid-cycle, just to give some context.

And look, you guys are a global manufacturer. You touched on a lot of the reasons. Just -- the other news was Supreme Court decision. I know tariffs has been a headwind for you guys. Maybe you can just update everyone on the tariff impact that you guys faced in 2025, what you're kind of guiding for 2026 and how we should look at some of the -- basically policy changes that we're starting to see after the Supreme Court decision and where ultimately you guys are kind of ending up?

Yes, sure. So last year, we incurred right around $40 million or so of tariffs in our P&L. Again, pre-Supreme Court ruling, what we had said is this year, there would be about another $65 million of headwinds rolling through our P&L. So put the total tariff cost somewhere in the range of $105 million, $110 million of total cost.

With the Supreme Court ruling related to the IEEPA tariffs and now the new 10% tariff in place, we're still working through the calculation. There's also been a couple of other rulings on the 232s and how they're calculated. And so we're sort of bringing all of that together, refining our number. We'll get probably a more concrete update on our first quarter call. The general answer is I don't expect a significant move between the 232 changes and the IEEPA tariffs coming off with the 10% coming in. So we still expect to be directionally in that $65 million of an incremental headwind, but we'll work through that, and we'll give a more refined number in Q1.

The way that we've tried to address this, again, if you think about the cost of the tariffs are really centered in our North American operation, and that's really challenged the profitability there. Working to mitigate it where we can. So wherever there's dual suppliers that we can mitigate or reduce the level of tariff shifting to supplier 2 instead of supplier 1, trying to find ways to minimize the overall cost. To the extent we can't do that, and at least based on our forecast, we've not been able to offset those costs, we've tried to handle our pricing more globally.

So even though the costs are centered in North America, our products are positioned relative to our competitors in a relative value position. So we know that our Fendt products usually price at around 105% of one of our competitors. And to the extent that pricing dynamic needs to sort of stay in that environment, if we're not able to push through the full cost, we're now looking to push that more horizontally across the globe. So where do we have stronger positions, where maybe there'll be an opportunity to pass an incremental 0.5% in a region that may not be subject to the tariffs.

And so the way that we've approached our outlook this year is we have our pricing at around 2% to 3%. And what we've said on the call was if we were to hit the full 3%, that would cover our inflationary headwinds and our tariff costs on a dollar basis. So it would still be margin dilutive for us. But from a dollar standpoint, we would cover. And if we were at 2.5%, which is the midpoint of our outlook, we would be negative from a margin standpoint and from an EPS standpoint. But really looking to try to spread that pricing across the globe where we can to try to mitigate that for the total company.

That makes sense. I mean you talked about Fendt, which is the product in Europe. It is that premium product. And what was interesting, Greg, when you were giving the -- where we are globally by cycle, Europe is right now in one of the best positions. It kind of feels like it anchor really to your earnings. It's such a big part of your profitability. Can you just help everyone understand why has Europe been more steady relative to North America, Brazil? What are you seeing to start Europe? People look at the SEMA index. It came back, it looks like a little bit. So what would kind of surprise that European market positively? What would maybe make you start to be a little bit more concerned on the durability about that region?

Yes. So for us, again, the European market is -- for those who are not familiar, it's about 2/3 of our overall business comes here out of the European market. Europe tends to be the most stable region for a couple of points. One is you have the highest level of government subsidies. So generally speaking, in Western Europe, a farmer around 50% of his or her income comes from government subsidies, and those tend to be very consistent.

In addition to that, you have much better crop diversity for these farmers here. So they're not completely focused on soy or corn, but you see much better crop diversity, and you also see a higher percentage of livestock here in Western Europe than you would see in the U.S. farmers. And so livestock and dairy tend to be somewhat inversely correlated. So as grain prices are low, livestock and dairy farmers are doing well. And so because you have a much better diversity of what's being grown here, coupled with those subsidies, it tends to result in a much more consistent order pattern. As Greg said, as we think about relative to mid-cycle here, Europe usually fluctuates in the 90% to 110% range. And so a much stronger, more consistent order pattern for our farmers here.

Now the team in Europe has done exceptionally well. If I look at all of the volatility, whether that's been the Russian-Ukraine war, the supply chain challenges in '22, '23 and just the general uncertainty around the world, our European team has excelled. We've grown market share. Despite the strength of Fendt, they've actually grown share in the last couple of years with some of their new product introductions. The profitability has stayed exceptionally strong. And our Massey Ferguson and Valtra teams have also done very well in introducing new products, improving the quality of those products, improving the delivery to the dealers and doing quite well and improving their share as well. So the team in Europe has done an exceptional job in really maintaining a very strong margin profile while continuing to introduce new products that set the standard for the latest technology coming out of Fendt.

Perfect. And we just talked about Europe, which if you look, really has given you guys a steadiness to your earnings. And the torque one could say is like North America, where if you look back at North America, you guys were doing near a 13% operating margin just 2023. Now the business is loss-making given the deep downturn and what you were talking about with tariff costs. Just curious, how far below when you look at that U.S. market, Greg gave us where we are at mid-cycle, just where do you feel like, Damon, is the breakeven level where we start to see these volumes come back and you laid out what could be the driver of that. How much do we need that market to come back to get back to breakeven? Can we get to be more profitable on a lower unit number relative to where we were last cycle?

Yes. So I think if I had looked -- if I asked this or answered this question pre-tariffs, I would have told you we needed to be around $2 billion. That's about the breakeven point for our North American business. Obviously, with the current situation with tariffs rolling in, we would have to be a couple of hundred million above that. Now we're working through that. Again, that North American industry, as Greg touched on, is extremely low right now, and our dealer inventories are a little bit above where we want them. So we've been underproducing significantly now for the last 6 or 7 quarters in North America.

When you look at the level of our factory utilization in North America right now, it's down around 70% versus 2024 levels. So you hear us talk about 50% year-over-year, but we started underproducing even in '24. So you're running these large factories in North America at around 30% utilization. So you can imagine the cost and the inefficiency rolling through those factories right now as we try to rightsize dealer inventory relative to retail demand.

So when we think about the long-term run rates for all of our regions, ideally, we see them all in that mid-teens sort of range. So call it, 13% to 16%. South America was higher at the peak. We saw that hitting 18% to 20%. You alluded to North America. So the potential for our businesses are there. But again, given what we do in manufacturing large piece of equipment, when the industries are low, that absorption is quite punitive to us.

So when we think about the long-term run rate, we can definitely get back into the double-digit margins in North America. When you look at what we've done, 2 things with adding PTx, the Trimble business into the portfolio, that's running -- at the time when the markets were stronger, that was running at around a 30% operating margin or EBITDA margin. We see no reason that business can't go back to that. The gross margins continue to be strong. It's just that the industry has gotten so weak that, that business carries very high incrementals and decrementals. So as we see that business coming back, we see huge opportunity there.

The other thing that we did is we sold off our Grain & Protein business, Michael, and you remember that, that was sort of an ancillary business heavily centered in North America. It was a low growth, single-digit margin perspective. And so when we look at just the acquisition of Trimble, PTx Trimble into our portfolio, the divestment of Grain & Protein, moving us back up to mid-cycle, that alone adds around 150 basis points to the total company's business, just that portfolio change. So significant opportunities for us to improve our profitability, but significantly in North America where PTx Trimble has good margin profile and there was a heavy weight of Grain & Protein there.

That was really helpful. I'd like to actually bring that to another big conversation that was happening after your Q4 results, where in Q4, you hit what a lot of like cap goods analysts would say is kind of like the trifecta where you got inventories down, you got better-than-expected pricing and you were able to gain share. And I think the question I got from investors was how is that possible? And is that sustainable? And I know there's a lot of moving pieces there. But like you said, you guys are taking inventory out. We're trying to get pricing because of tariffs and you're even gaining share. Can you kind of walk through what you were able to accomplish in Q4 and how that kind of sets you up of being able to pull on all those different levers as we think of 2026 since we are in a very dynamic environment right now?

Yes. So again, the team in North America did an exceptional job last year, and it's kind of a culmination of several things. There's not one variable. Last year, we had great market share performance. North America had its best market share gain ever in our history. And when I unpack the market share gain, it wasn't one brand. It was both Massey Ferguson and Fendt. And it wasn't even one product. It was across the portfolio. So tractors did well, sprayers did well, combines did well.

And so when we step back and say, well, what are the drivers that are leading to that? It's a couple of things. And there's a few things. One is we've worked to be the most farmer-focused company in the industry. And so what does that mean? It means trying to deliver the products that the farmers want, but also delivering in a way that's advantageous to them. So we talk about our Net Promoter Score hit the highest level we've ever had in the company. So that means -- for the Net Promoter Score, that means the farmers like what you're doing. But it's making sure the products are ready for them. It's making sure they're ready to receive those products. It's making sure that our dealers know what they need to do to help them come up to speed. So it's been a very concerted effort to make sure that between us, our dealers and our farmers, they know what they're getting, they know how to use it, they know how to operate it, they go through the training, and we've really seen that Net Promoter Score step up.

The other thing that we do in North America, which is unique to AGCO, is we have what we launched is called FarmerCore. So FarmerCore, because we're really building out the Fendt brand in North America, we've been able to leverage mobile fleets, the connected machines much more effectively than maybe others who have a very strong established brick-and-mortar distribution network. So our dealers now, as we roll out FarmerCore, they're doing 85-plus percent of the work on the farm. So you think about the old days when you and I grew up, we used to go shopping at the mall. We used to go get everything there. Well, today, you and I shop on Amazon, everything comes to us.

FarmerCore is the equivalent of Amazon, where based on those connected machines, that dealer is going on to your farm, doing the work there, doing the service, potentially doing other work. So that farmer, he or she, is getting a lot of that work done at a time which is convenient for him or her. They're getting usually more work done, which is great for the farmer. They love it. Our independent dealers like it because now they're building smaller brick-and-mortar stores. Instead of these big 10 or 12 base stores, they're building 3 or 4 base stores, putting mobile trucks in, so they're covering a lot more white space with their trucks, their investment costs go down. So their payback is -- their investment cost is lower. Their payback is better. Their absorption through parts and service is better. So they're generally more profitable. And ADCO is better because we have a happier farmer, and we're getting better parts and service revenue because those dealers are using our parts to really drive the parts and service.

So it's really worked out well. And when you explain that to the farmer between FarmerCore, the quality of the products and how we are explaining the value of what we're bringing, that's really translating into a lot of that share gain that we've been able to see here in the North American market. So we feel good about what we're doing. Again, if it was one new product, you may wonder whether it's sustainable. But when you see it across both brands and across all the products, and you know things like FarmerCore are really gaining traction in the industry, those give us a lot of confidence that we can sustain this and continue to grow.

That's great. And an area that always gets a lot of focus when we talk about growth is Brazil, and you guys have good share there as well. Greg, what are we seeing in Brazil? Because it feels like structurally, that is where there's going to be a lot of growth. You can harvest twice. It feels like that is the next ag super power in terms of regions. But it's been in kind of a tough spot, and the data looks like it's been a little tough to start the year. So as you kind of shed light on what we should be looking at in Brazil over the next few quarters to get us comfortable for turning?

Sure. So Brazil is one of the few places in the world where there's actually new farmland being put into production. So that's quite unique. So that's in the Mato Grosso region, the Midwestern part of Brazil. Historically, most of the farming has been done in the southern part of the country where all 3 of the major players have very established dealer networks and where a lot of the smaller, midsized farms are. Well, over the last decade, a lot of resources have been put into developing massive farms using the latest and greatest farm techniques. And Brazil has become leaders in -- if not the leader, one of the leaders in most of the major agricultural categories.

They've stepped up -- while the trade conflict has been going on between China and the U.S., Brazil has stepped up and has kind of filled the void, especially for soybeans. So they're quite productive. Farming down there has been very important to their local economy. Normally, the governments are very supportive. This is an election year. We're expecting to see support from the government in advance of the election in order to maybe help them with the election. Typically, that happens during election years. So just because of the infrastructure build that's gone on because of the real fertile land in that Mato Grosso region, that's a very important area for farm investment. And we're expecting, I guess, as we get through this kind of drought condition as we've seen an inflection in commodity prices to see demand pick up in that region.

Makes sense. And Damon, I do want to touch on this because it's usually saved for last is capital allocation. Yet there has been an inflection when we think of AGCO and the capital allocation priorities, it feels like. Obviously, there was a big shareholder and you guys came to agreement. I think this is important because it is a little bit of a step function change for AGCO and how they think about. You generate a lot of cash, how you think about that cash. So just for the audience and everyone online, can you kind of give everyone an update of -- this has been a priority for you, like since you've come here, the change that has been played and how that's kind of inflecting your view on how you guys allocate capital for shareholders going forward?

Yes, sure. So again, I'll elaborate in a second here, but it's a huge opportunity. As I said, last year, we generated record free cash flow of $740 million. And when I think about uses of our cash here, first priority is going to be for us to reinvest in our business. As we said, we're growing. We see huge opportunities to grow our PTx business. We want to get that up to $2 billion. So we're going to continue to focus on capital. We're going to continue to focus on R&D back into the business. I think what you should expect to see for us is an engineering and R&D budget around 4% of sales.

So as we grow, we're going to continue to invest for those new innovative products coming out of our equipment side, but also PTx. So that will be, first and foremost, will be reinvesting back in the business. Want to retain my investment-grade balance sheet. So again, we sit here today as an investment-grade company, both by S&P and Moody's. Hopefully, we don't see any changes with that, but I want to make sure I preserve that for access to capital.

Third is going to be tuck-in acquisitions. We did the large joint venture where we own 85% of the JV with Trimble. But if you look at -- we did 5 or 6 other smaller tuck-in type acquisitions. We'll continue to be active in that front. Again, as the industry continues to evolve, as we start to bring more and more technology to the market, whether that's autonomy, things like targeted spraying, there's a lot of small companies out there who struggle to commercialize that. And there are things that we may be building internally where if I can buy that technology and accelerate my access to market by 1 year or 2, that buy versus build may make sense to buy. So we'll continue to be active looking in areas like that. I would expect we would use free cash flow for -- there's nothing big out there, but most generally would be free cash flow to acquire those tuck-in type acquisitions.

And then we get back to our shareholder returns directly to shareholders. As you alluded to, we were in a period with our largest shareholder who was not interested in selling their shares as part of a broader repurchase. And so given the ownership structure and some of the history of that shareholder showing an activist tendencies at that time, we had opted out for special variable dividends to pay these once a year. With the agreement that we reached with them, they are now willing to participate pro rata in our share repurchases. And so we announced middle of last year a $1 billion share repurchase authorization from our Board. In the fourth quarter, we did a $250 million ASR. TAFE will deliver their $50 million of that here in the first half of the year. So we'll have about $300 million done, and we will focus our free cash flow more on that.

We'll still do our quarterly dividends. We normally reassess our capital allocation to shareholders in the second quarter, and so we'll decide whether we change the quarterly dividend at that point. And then we'll also present to our Board of Directors our recommendations for any incremental share repurchases under that $1 billion authorization. But as we look forward here, again, you should expect to see us with our strong free cash flow generation, really directing more of that into the repurchases. And if I look at the outlook that we've given this year, we've assumed nothing related to share repurchases. So any announcements would be accretive to the earnings per share outlook that we've given for the year.

Perfect. All right. Gentlemen, thank you. Thanks, AGCO.

Thanks, everyone.

Excellent. Good morning, Brian, Damon, great to see you both. Thanks for being here. We've got Damon Audia, Chief Financial Officer of AGCO; Brian Sorbe, President of PTx.

Maybe I'll start with you, Damon. For those newer to AGCO, maybe just share a little bit about what the company does, a little bit of the transition to where you guys are today and talk about how technology is central to the strategy going forward.

Yes. Sure, Joe. So AGCO is the largest pure-play ag company in the industry. Last year, we did just over $10 billion in revenue. We go to market really on the equipment side under 3 primary brands. We have our Fendt brand, which is the premium or the best of the best, and then we have 2 more volume-orientated brands under the Massey Ferguson and Valtra brands.

And then on the technology side that Brian will elaborate on, our PTx portfolio, which has really grown significantly with the acquisition or the joint venture that we did with Trimble a couple of years ago through that technology stack that we sell to AGCO. We sell to other OEMs, but also through a complete independent retrofit channel have really allowed us as a company to focus on growing equipment and technology.

And over the last couple of years, we've done a couple of significant things to really hone our focus on equipment and technology. That was the joint venture with Trimble that we did in 2024 and at the same time, allowed us to divest our grain and protein business, which was a low-margin, low-growth business. So as we finish those 2 transactions, which is sort of the cornerstones of our refresh of our strategy, you started to see our financial performance transform significantly versus the prior downturn.

So if I look at last year, we were at the low point of our industry. We're a very cyclical industry. Last year, we finished at around 85% or 86% of mid-cycle. We delivered an adjusted operating margin last year of 7.7%, which was almost double what we delivered the prior downturn. So a significant change in our profitability long term, making ourselves more -- less cyclical, more profitable through the cycle. We also generated record free cash flow last year, 188% free cash flow conversion.

So the strategy of being the most farmer-focused company has delivered benefits to our farmer with record market share last year, record Net Promoter Score, but also delivering significant value to our investors given the financial profitability at the trough, coupled with the strong free cash flow.

Excellent. Thanks, Damon. Brian, you're relatively new to AGCO, but you've been in the industry and on the technology side of the industry for a really long time. Talk a little bit about Precision Ag in general and how it's become just an increasing area of importance and focus over the years and talk about how that applies to AGCO, in particular around the farmer first retrofit mixed fleet strategy that the company has.

Sure, sure. Yes. I've been in Precision Ag for about 30 years. When it started, it was really unknown territory. This thought of putting a GPS receiver on the cab of a tractor or a combine or something like that was relatively unheard of. Since then, it's morphed into a sophisticated industry, still young in the grand scheme of things. But what became very obvious is farmers have more and more increased pressure to create a profit for themselves. Both their input costs are high. Commodity prices are depressed. That margin is smaller and smaller for a farmer.

And so to create those efficiencies to be able to get higher yields, lower input costs, it became very clear within the last 15, 20 years that technology was maybe that one thing that could unlock those margins for a farmer. So these pieces of equipment, combines, the sprayers, the tractors that are running around inside of the fields are no longer just large chunks of iron. They're very sophisticated pieces of equipment.

And really here in the last 5 to 7 years, we're seeing an exponential growth in the sophistication of the technology that are on these machines. And so cloud services, data platforms, AI, low-cost sensor technologies, these are all now prevalent inside of this industry.

So it's been exciting to watch. I think from an AGCO perspective and with the PTx strategy, what we're putting together here is, I think, one of the most compelling value propositions for farmers. Most of that is because we're openly embracing a mixed fleet strategy, which means that we don't care if you have an AGCO piece of machinery, if you have a John Deere or a Case New Holland, it really doesn't matter to us. We're going to put the best and the latest and greatest technology on that machine really even if it's an older piece of equipment as well, so that farmers now can have access to all of the benefit, all of the ROI that Precision Ag offers without potentially having that large capital expenditure of a new piece of equipment.

Got it. Excellent. Damon, maybe back to you. A lot of the strategy was predicated on the the Trimble JV, which you guys closed in 2024. Talk a little bit about that, both from a strategic standpoint, talk about the integration, talk about sort of the interplay of the transaction with the broader mixed fleet strategy that you guys are employing?

Yes. So maybe I'll touch on the thesis of the acquisition, and then maybe I'll let Brian talk about how the elite dealer channel is really coming together. But when we looked at what we had prior to the joint venture with Trimble, we had a very strong retrofit mindset with our Precision Planting business. So again, a cornerstone for our technology, as Brian alluded to, very much mixed fleet retrofit separate channel. And we looked at that brand and we looked out throughout the industry about what other technologies were out there that we felt we needed to have as connectivity was becoming more and more relevant.

If you think about autonomy and how that was evolving, we felt that we needed to have that sort of service provider. Trimble brought one of the most well-known mixed fleet retrofit brands outside of Precision Planting. So bringing those 2 together really gave us a powerhouse of retrofit brands and retrofit technologies that really allowed us to accelerate our development.

And so when we brought that under the fold here, there was a couple of things that we wanted to focus on. One was synergies, both from a culture, from a product standpoint and then from a growth standpoint. And if I think about where we are a year, 1.5 years into the joint venture here, I would say, culturally, the teams have done exceptionally well in coming together. From the Trimble group, you took what was an ag company in a tech business, and you've transformed that and put a tech business in an ag company. And so as that group of engineers have joined our fold and they hear us talk about being farmer first, boots on the ground, they have really embraced the culture of being farmer first. So we've seen a lot of good cultural synergy between the two.

When I look at the technologies, again, we were introducing 5 products or so a year. We had a target to try to be a little bit more than that last year, 14 products that the PTx group came together, and we can talk about some of those as Brian can elaborate. But that engine, that flywheel of innovation is definitely going even faster than what we had thought.

From a cost synergy standpoint, when we announced the acquisition of the joint venture, we said we would have about $100 million of synergies after the third full year, about 1/3 of that coming from cost, 2/3 coming from revenue. Cost synergies, we are ahead of schedule. Given the industry has declined much more rapidly than we thought, it's really forced us as a company to revisit our cost structure. So by the end of this year, we should be in good shape of delivering that $33 million or so of cost savings.

Revenue synergies, we said we'd get about 2/3, so $60-some million of that coming through bringing this Precision Planting dealer network, coupled with Trimble's Vantage dealers together under what we now call Elite dealers. And so that's bringing the full suite of technologies together. We've made great progress in building those Elite dealers out. So last year, this time, we were around 40. We finished the end of the year just over 70. We'll add about another 50% to that this year. That is growing.

So we feel like we're in a good position. Industry is not helping us right now given where we are. When we look at the synergy opportunity in revenue, we still feel good on our path to $2 billion here by 2029.

Brian, you mentioned data. Can you talk a little bit about how important data is in the broader ag ecosystem, how you guys use data, where you're sort of at on that journey? Maybe tie it back to the data you got as part of the Trimble transaction as well?

Yes. Ultimately, data plays a critical part in Precision Ag and maybe more so than ever for a lot of different reasons. It's all about making decisions on the farm management decisions, agronomic decisions for the following year, sometimes in real time. So where Precision Ag started was really an automation play. It was about taking an operator in a cab and doing more with the machine in an automated fashion. In the process of doing that, when you automate a process even in the field, you generate a lot of data points just by doing that. It didn't take very long for the industry to realize that the data that was coming off of these machines could actually be leveraged for management decisions either later that year, that season or even the following year. And so that value unlock was almost immediate.

So the more the systems become sophisticated, the more sensors that are deployed on the machinery, the more data points that you're actually gathering. Now if you start to bring in more of a modern twist on precision ag data, you have the opportunity to implement AI. And when you start to do that, now you can actually prompt the user or the farmer in even a more sophisticated way, a better decision faster, gain even more efficiency, not only out of the machine, but out of the ground, out of the soil that he has.

And so for us, data is not only critical, but we also felt from a strategic standpoint, we needed to democratize it for farmers. So following along with that mixed fleet approach, we wanted to make sure that our data could effectively create value for all farmers regardless of what blend or colors of machinery that they had on the farm.

So we released this last fall, a product called FarmENGAGE. FarmENGAGE is our data platform that we got through the PTx Trimble JV. It's effectively task management and data acquisition through all platforms. So not only with PTx equipment, but if you have a John Deere tractor or a combine, even if you're a user of the John Deere op center, FarmENGAGE now can be that top layer of data management over the entire farm, aggregate that data from all those different sources and present that back to the user in a meaningful way so that decisions can be made.

You mentioned autonomy. Talk a little bit about where autonomy sits in the ecosystem of ag and kind of where we're at from just an evolution of having fully autonomous equipment in the field?

Yes. I think in many ways, autonomy when it comes to the operator is the end game. So we're all on some sort of trajectory towards fully autonomous our machinery. Another core technology that we picked up in the PTx Trimble JV was some of that platform approach towards autonomy.

Now we've released our OutRun product, which is our autonomy solution. It's a retrofit autonomy solution, which means that you can fit it up to not only an AGCO piece of machinery, but you can fit it up to a Deere or anybody else's. What that does is that automatically puts you on a trajectory towards autonomous operation with the machine itself. That only tells one piece of the story. I mean the obvious benefit is labor savings. You can run that machinery now 24/7. It doesn't have any of the constraints that labor would have in operation.

But for PTx in general, it's -- or PTx specifically, it has a different piece to the strategy. When you look at Precision Planting, we have the most highly automated, most equipped planters in the world, a market-leading technology on the planters, the implement that's pulled behind the tractor. Now we've released our SymphonyVision and our Symphony Dual products for sprayers, similar, lots of cameras, sensors, AI, all deployed on the machine. When you take implement technology like that, that's so sophisticated and so highly automated and you couple it with a driverless tractor, you now have unlocked the full capability of an autonomous platform.

So rather than just having a self-driving tractor that just runs around the field, you're actually unlocking the entire ecosystem. So it's a differentiator, especially when you couple it with the fact that we do it in a retrofit approach, mixed fleet, all of those things that are core to PTx, you can see how important autonomy is in the future and why the PTx Trimble JV was strategically so important for AGCO to do.

Go ahead, Damon.

So Joe, if we look back at our long-term goal is our goal is to have an autonomous offering around the crop cycle by 2030. And so as Brian alluded to, our outrun system today commercially available for the grain cart system. We also have in early stage the Tillage, which will become commercializable this year and fertilization.

So further ahead, I know one of our competitors also has a target of autonomy around the crop cycle by 2030. They have Tillage out. They've demoed Tillage. Third one, I think, is still working on it. So again, a lot of investment, as Brian said, bringing Trimble, coupled together with our JCA business, coupled with our Precision Planting business, really a lot of advancements in the autonomous cycle with at least 3 already sort of shown out to the world already.

So Damon, let's just maybe translate that strategy to sort of what does it do for AGCO maybe by the end of this decade and kind of financial target-wise. How do you think about the overall technology portfolio as a percentage of AGCO's overall revenue base or whatever metrics you're sort of guiding towards?

Yes. So if I think about it today, as I mentioned, we're just over $10 billion in revenue last year. If I look at the Precision Ag portion of the revenue, we would account about just under $900 million of PTx or technology-orientated revenue. Now there's 3 components in that, and Brian alluded to, we look at -- we have about 1/3 of that technology is what PTx sells to AGCO. So that's going on to a Fendt tractor or a Massey Ferguson or a Valtra product coming out of our factory. We sell to 100 other OEMs around the world. So that technology, as Brian said, we want the best technology on the farms regardless of what color equipment that farmer is using.

So we have a second channel. About 1/3 of that is going to other OEMs and then being sold into the dealers. And then we have this third channel, which is our retrofit channel. And again, that's putting on that latest technology onto a piece of equipment that's already on to the field. That is a huge growth opportunity because the addressable market there is much larger.

And as Brian alluded to, as we bring our technology into the marketplace, we bring it there first. We want those farmers to get comfortable with the technology. That market shrunk less than our other 2 technology or OEM channels given the industry, smaller investment for the farmers, faster payback for him or her. And so as they're dealing with challenging net farm incomes, it gives them the ability to invest a lower price point, get a faster payback, improve their yield or lower their input costs.

So big opportunity for us, and that's where we see the growth coming. If I think about 2029, which is where we have our 14% to 15% adjusted operating margin target, that will come through a couple of different things, the portfolio translation or transition that we've already done with Grain & Protein and the Trimble JV coming in, our restructuring actions, which by the end of this year, we'll be run rate is about $175 million to $200 million.

And then our 3 portfolio drivers. One is our Fendt business growing in North and South America. Two is -- and that's growing from just under $1 billion a year ago to $1.7 billion. Our parts business really leveraging farmer core, e-commerce growing from around about $1.9 billion to $2.3 billion. And then more importantly, this PTx business that Brian is running, going from just under $80 million -- just under $900 million last year growing to $2 billion.

So when we think about where we are in the cycle, again, today, it's single-digit percentage of our business. As we think about hitting that $2 billion at mid-cycle, you can start to think about that becoming sort of low to mid-teens revenue, again, depending on where we are in the equipment cycle, but becoming a much larger percentage of our business. And the mix of that business probably transitioning a little bit more from basic hardware sales to a larger percentage of that also having a little bit more of a recurring revenue stream because of the autonomy where the farmers are buying hours, some of the soil sampling, some of the FarmENGAGE farm management system, which have more reoccurring revenues attached to them. So that mix growing as well within that PTx portfolio of revenue.

I presume the margin profile of that $2 billion in the future is materially higher than the original equipment side. Is that how you think about it?

Yes, absolutely. When we think about the PTx business overall, again, the gross margin on those products are significantly higher than the corporate average today, given the industry cycle because the incrementals and decrementals on those businesses are quite high. It's not where we want it to be today because you have a large cost structure. But as we think about the revenue opportunities and the margin, it's a huge part of our growth driver.

We said going from where we are today to that 2029 target, those 3 growth drivers of parts, PTx and Fendt should add somewhere in the range of 150 to 200 basis points of margin growth to us.

That's great. Brian, maybe back to you. You talked about it's been a challenging time for farmers. Obviously, we've been in a multiyear down cycle. Commodity prices haven't helped. So I'd say farmers globally are somewhat compressed at the moment. Talk about adoption rates and willingness from farmers to invest in what has been a really tough market for them. Where are you seeing that happen? Is it on the new equipment side? Is it on the retrofit? How do you think about adoption of the retrofit product offering?

Typically, what we see is during a down cycle like we've been in here lately in the trough, so to speak, on the capital equipment side of things, usually won't suffer nearly as much of a setback on the retrofit side of the business. The farmer is faced with a decision to say, I could basically do nothing with my equipment. I could retrofit my existing equipment even if it is 2, 3 years old. and get that ROI there, which maybe stretches him for another 2 or 3 years' worth of productivity before he decides to ultimately trade for a new piece of equipment.

And I think what farmers are looking at is they're seeing the benefit finally of Precision Ag. 7, 8, 10 years ago, it was difficult for farmers to put a real tangible ROI on Precision Ag because the yield gains and some of the input savings were not as recognizable. A lot of that is data. Our ability to actually expose to the farmer the benefits through yield gains, et cetera, now all of a sudden prove the promise that Precision Ag has had for many years.

So I think from a willingness to invest, I think, is at an all-time high for farmers. It's just whether or not they can. It's the mechanics of making that investment. And in years like we're having right now, that's a tough decision to make. That's why I think the retrofit mixed fleet approach is really important for us as it does actually democratize data autonomy, highly sophisticated automation, et cetera, all for farmers everywhere, which when you look at it from an addressable market standpoint, we're a little bit different in the fact that we're actually trying to serve all farmers. It's a much larger pool of farmers globally that we're trying to reach into with the technologies that we have.

And we're seeing some positive returns on that. And I think what we're seeing when we're comparing that to whole goods machinery sales, it's proving that out that we're seeing the retrofit have a wider appeal.

Damon, maybe one for you on the competitive landscape. Obviously, you've got some big competitors out there that have a full suite of technology solutions. Talk about how you think about the PTx portfolio vis-a-vis what Deere is doing or CNH and how you think about your competitive position in the market?

Yes. And I'll ask Brian to maybe elaborate given he's living it every day. But again, when I look at some of the unique differentiators of what we're offering versus the competition, PTx is a clear unique opportunity of us versus the other 2. I mean all of us are driving technology. We're all pushing and we could go around the crop cycle where we're maybe a step ahead, others are maybe a step ahead. But generally speaking, we have the full suite of offering. I think the things that are unique, and Brian has elaborated on this is when we talk about technology, we talk about the best performing technology for the farmer regardless of what he or she color of iron they're using.

And so we really focus on that farmer first. We take our newest technology into that retrofit channel first. We don't try to perfect it before it goes on our new piece of equipment. We start in the field with some very progressive farmers who are looking to maximize their efficiency, drive improved yields or lower input costs, work on the field with them, perfecting that product. And then a year or so later, we bring that into our new equipment channel. So a very different approach than how the competitors are doing it.

The second one is the channel. Again, some of our competitors are using the term retrofit a lot more frequently than maybe what they did 5 years ago. It's important when they use the term retrofit, retrofit for them is usually a newer vintage product, and it's usually their product, and it's usually sold or it is sold through the exact same channel as the new piece of equipment.

So if you're looking at a retrofit for a planter, that dealer, as he or she's trying to make a sale to a farmer is deciding, do I sell a brand-new planter to that farmer or do I sell him or her a much lower price point retrofit product to enhance their existing planter. Because we have our new equipment channel going, doing one thing and this PTx Elite dealer channel doing something different, that elite dealer is focused on productivity. It's usually a seed salesperson, agronomist, a co-op who's closer to the farm, trying to maximize the productivity for that farmer, not necessarily trying to push a new piece of equipment.

And so because we have that different channel where they're out there selling the best technology, again, they're giving those farmers a better opportunity, and it really creates a unique differentiator of us versus the competition. And as Brian said, it opens up a much larger addressable market for us to get that technology into the hands of the farmers that the competitors don't necessarily have the option to do today.

I think in many ways, the AGCO PTx message is a breath of fresh air at the right time. Farmers don't like to be siloed. They don't like to be forced into any sort of decision. They like to have this freedom to farm. And I think what's happened here in the last several years as some of the competition strategy, which has been effective, trying to keep farmers inside of an ecosystem that is all one particular color when they don't feel like they have any other options has largely worked.

Enter AGCO PTx here in the last year or 2, a much different message, farm the way you want to farm, buy the equipment that you want to buy. We'd love for you to buy a brand-new Fendt tractor from us. But in the meantime, we're going to take care of you, not just in terms of technology, but even our FarmerCore strategy where we meet the farmer where he is. That's a real important part of the message. We'll come to the farm to service your tractor regardless if you bought it from us or not. That's different than having the farmer go try to find a brick-and-mortar store to go transact business with, get his equipment serviced. We're going out there and meeting them exactly where he's at.

At the same time, we also can upgrade all of his equipment even though he didn't buy it from us. And I think that's a very refreshing message in the marketplace. And I think farmers are real hungry for that kind of option as they make some very difficult decisions with their CapEx and OpEx choices.

Yes. Damon, one thing we haven't talked about, obviously, tariffs have had a big impact, I'd say, both on your side of the business and the demand side from a farmer selling their crop standpoint. How are you thinking about the tariff environment? How are you making decisions with all the uncertainty that exists out there today?

Yes. So I think quite dynamic landscape, even with the ruling a couple of weeks ago and how it's sort of transformed sort of what was in place and versus what's currently in place. We're digesting all the new news with the Supreme Court ruling. I think, generally speaking, as I look at the cost to us, probably not a material change from what we communicated to our investors here on our fourth quarter call.

So if I look at our absolute tariff costs, in 2026, we're probably looking at somewhere in the range of $105 million to $110 million of tariff cost. That's around $65 million of incremental cost this year versus last year. We're working through, again, if any changes, but sort of how we're managing that. We've tried to minimize that cost to the farmers where we can. So where we have alternative suppliers, where we've been able to do things to minimize the tariff costs, we've tried to do that.

As we think about opportunities, we've been trying to spread our pricing as globally as possible. So if we think about the tariff cost, it is very much centralized here in North America. We understand the farmers in North America have been very challenged. And so as we look at trying to offset that with price, we've tried to take a much more holistic approach around the world, seeing where do we have a stronger position where maybe we as a total company can offset that even if it can't be done here in the region where the cost is.

So when you look at our guide for 2026, our pricing outlook is somewhere in the range of 2% to 3%. What we've said is if we hit the 3% mark, we will cover our inflationary headwinds and our incremental tariff costs on a dollar basis. So still margin dilutive, but we'll cover it on a dollar basis. If we only get the midpoint, it's about $50 million negative. But again, that would come more holistically across our 4 major -- 4 regions versus doing it here in North America, just given the current position in the North American market.

Great. Brian, one more as we sort of get towards the end here. Obviously, you're, what, 6 months in the job? Is that -- 7 months. Okay. How do you think about the milestones which define success for the Trimble joint venture over the next 24 months or so?

For me, it really is 3 things. There's -- first and foremost, it's innovation. So you've got some great technologies that we picked up and we control through that JV, both from Trimble as well as from Precision Planting. So I think it's finding leverage in our innovation pipeline, taking the best of the best of all these technologies, trying to put them into something that creates a lot of value for the farmer. And so that farmer-first philosophy that we have trickle into that innovation pipeline.

So for me, that's critical. Maybe on equal par with that is actually leveraging our distribution channel. So obviously, we picked up a lot of dealers from the Trimble JV.We also have a lot of dealers from Precision Planting. It's about empowering that distribution layer to create even more value for the farmer as well, get across more technology, sell more across the whole portfolio, become experts at the technology on the leading edge. That elite dealer channel is really critical to our success, not only in terms of covering white space on the map.

We've got 82% of arable acres covered already in our Elite dealer network, which is great. But you really have to measure the penetration of that market as well, which is another metric for us that we watch very closely. We want to make sure those Elite dealers are the best of the best. They're on the farm every single day. They're the trusted adviser to the farmer. We want that technology value proposition to carry along with an advice for seed, whatever it happens to be.

And then finally, it's all about culture. And you have very different companies coming together under one umbrella in PTx to be able to unify that culture, get everybody on one singular mission moving forward in order to leverage even the team.

We have some of the most talented people inside of PTx. There's a certain leverage that you get when everybody realizes that the opportunity we have together is so much greater than they ever had in their respective companies where they grew up. When that aha moment happens culturally inside of the organization, that's when you really see innovation, sales activity, marketing, messaging, all of these things really manifest. And so those are the 3 things I would say are critical to PTx success moving forward and certainly an area of focus for me.

Excellent. Fantastic. We're at time. So a great one to end on. Thank you, guys. Really appreciate it.

Okay. Thanks, everyone. We're moving along here. So happy to have the guys from AGCO with us today. Directly to my left, Damon Audia, who's the CFO. To his left, Greg Peterson, who's run IR for -- who does a great job running IR.

So maybe just -- we'll start kind of more high level, Damon, and set the stage on AGCO being it founded as effectively a roll-up of a number of tractor brands with a heavy presence in Europe. Some of the household names in the U.S. are 150-plus year-old companies. AGCO is a 35-year-old company, so maybe not on as many radars. So maybe just start at a high level in terms of how the company has grown over time and what you see as the -- we'll start there in terms of where the company sits.

Sure, no problem. So as you said, Tim, AGCO is a 35-year-old company. We are the largest pure-play ag company in the industry. So last year, we did just over $10 billion in ag revenue. We go to market from an equipment side under 3 primary brands. So we have our Fendt brand, which is our premium or think of that as the best of the best. And then we have 2 more volume-orientated brands under Valtra and Massey Ferguson.

So we have 3 major equipment brands. And then we have a technology portfolio, which we sell both to 100-plus other OEMs as well as through a separate distribution channel, a retrofit channel, and we go to that market under the PTx brands. So Precision Technologies multiplied, which would include both the legacy Precision Planting brand as well as our joint venture with Trimble called PTx Trimble, so under those equipment brands in that technology brand, last year, we delivered an operating margin of around 7.7% with an industry is around 85% of the mid-cycle.

We delivered 7.7%, which was about double or almost double the last time we were at that point in the cycle. And we did that through an array of portfolio changes and a change in our strategy, which is really based on 3 cornerstones: one, which is growing our Fendt business in North and South America. So we've created a full line in the Fendt brand, which legacy was just more of a tractor portfolio. So added a combine, added a sprayer, added a planter, and we've begun to bring that into North America and South America and roll that out through an array of dealer networks.

And we've seen good growth in market share with Fendt in both of those regions, and we had our largest market share growth ever in North America last year across our portfolio, and we'll touch on that maybe a little bit later. But we have Fendt becoming a global brand. We have that PTx portfolio I touched on. So with the joint venture with Trimble, last year, we had around $860 million in revenue under the PTx technology. We see that growing to around $2 billion by 2029 between both the OEM sales as well as that retrofit channel sales.

And then we have our parts business, which has been enhanced by farmer core, and we'll probably touch on that a little bit later, but we see our parts business growing from around $1.9 billion up to $2.3 billion by 2029. So all 3 of those together have really been delivering the mid-cycle margins improvement. Last year, that [ 7.7 ], driven by all of those performing exceptionally well. And longer term, we see those 3 growth engines, coupled with our cost savings initiatives, coupled with the portfolio changes that we've made, delivering a mid-cycle operating margin of somewhere in the range of 14% to 15% by 2029.

And as you think about the kind of the regional contribution and getting to those margins, can you maybe just give us some help in terms of the competitive positioning of AGCO, Europe being your largest market, but maybe talk to the regional dynamics that give rise to the margin dynamics in those 3 regions. I assume market share being a big contributor, but maybe just talk to your competitor positioning?

Yes, sure, absolutely. So as you allude to, so about 60% of our business comes from Europe. That is by far our strongest market. It's where we have the best share. Our 3 brands there, Fendt is an industry leader, largest share in many parts of Western Europe, but also very strong presence with our Valtra brand as well as our Massey Ferguson brand.

Europe is a critical market for us in a lot of different ways. A, it's because of our base and our strong market share, but also from a stability standpoint. Again, when you look at the 3 major regions that we play in, Europe tends to be the most stable. Western European farmers usually get around 50% of their income through subsidies. Those farmers usually have better crop diversity, so grain diversity, and there's also a higher percentage of livestock and dairy in the European farm base.

And so because of that crop diversity and the mixture between livestock and dairy coupled with subsidies, you tend to see that market less volatile. So the order patterns tend to be more consistent there. When you look at our business, our European region has usually delivered mid-teens margins even last year, well below mid-cycle. Europe delivered around a 15% margin. So we see that market staying relatively stable. We still see good growth opportunities.

Fendt has done quite well in growing share in Europe despite its already strong presence. But that's sort of the innovation engine for us from an equipment standpoint is what you see coming out of Fendt starting in Europe and then moving into other parts of the world. So a strong part of our business, very stable part of our business. Our growth opportunities sit more here in North America and South America.

So if I start with South America, more of an emerging market. As I said, it's around a little under 15% of our business there. We see tremendous growth potential heavily in Fendt. So we've had a strong presence in South America for years with Massey Ferguson and Valtra. But as that CERRADO region or the Mato Grosso part of the state in Brazil has really started to grow, and if you recall, Cerrado does 2 to 3 plantings per year. And so you have a very high use, high big farms there, and that's where Fendt plays quite well because Fendt is the most efficient tractors in the market.

The Momentum planter does infield adjustments versus the competitors. So really allowing the farmers to maximize their productivity and maximize their efficiencies. So Fendt plays very well in that Cerrado region, and we're seeing good growth there as we start to roll the Fendt brand out there. So today, the market share for AGCO overall is good, say, around 30% from a tractor standpoint. But if I look about Fendt and Cerrado, we see significant opportunities to grow the brand there.

That market right now is probably -- is a little bit more challenged than the rest. There's not a lot of subsidies that go into the Brazilian market. And so farmers there are driven more by commodity costs. Currency, the real versus the dollar and how trade dynamics are affecting them as a global exporter. And so what we've seen in the South American market last year is that large ag part of the market really has not performed well because of all the trade uncertainty, because of low commodity prices, you haven't quite seen that international demand for Brazil yet.

Longer term, we know they're continuing to grow. They're the only -- really the only country that's adding arable land. And as grain demand continues to increase longer term, we know that Brazil is a critical market to help service those needs. So lots of opportunity, lots of optimism for us for South America long term, but current industry environment is a little bit lower, but hopefully recovering in the back half of the year as we start to see the election and some of the stimulus that we would expect to occur during an election year.

North America is also a tremendous opportunity for us. As again, we said as we're bringing Fendt into this market. We're rolling out our dealer network here. It's of the 3 regions, it's the area we have the lowest level of large ag market share. When we think about bringing the Fendt products, coupled with our Massey Ferguson products here, we see significant opportunity to grow share. As I mentioned in my opening comments, we had our largest share growth ever in North America last year, and it's really facilitated by several things.

One is we talk about the Fendt products. So better-performing products, more fuel efficient than the competitors. So farmers who are looking at minimizing their outflows, Fendt products run at -- have better fuel efficiency. So you're saving on diesel fuel. We offer the best warranty in the industry. We call it the Gold Star warranty here in North America. So that's 3 years bumper to bumper. So if anything goes wrong with that tractor, that combine, that dealer is going to bring you a loaner and we cover it for 3 years versus the industry of 2.

Industry-leading parts and service fill rates in North America and in Europe by third-party measurement. So again, if that machine goes down, you have the best fill rates in the industry, hopefully getting you back up and running. And then one thing that we introduced last year, which is different than our competitors is FarmerCore. So FarmerCore think of that as the old philosophy of the mall where you used to have to go to the mall, these big bays. FarmerCore is more like Amazon. So how do we bring the service to you? And with our dealer network that we're rolling out in North America, we've shown them with our own company how FarmerCore where we can do 85% of the parts and service or 85% of the service on the farm.

So for that farmer who no longer has to bring his or her combine to the dealership, we're out there with a mobile truck, with the crane doing 85% of the work on the farm, making it easier for the farmer, better for that dealer because their absorption costs have gone down because they're building a smaller store. They're covering more white space with those mobile trucks, and it's better for AGCO because with those connected machines, we're getting better parts revenue for that dealer to do the service on the farm.

So we've seen great traction with that. And when you look at FarmerCore, the quality of the products, we saw the highest Net Promoter Score we've ever had. So how likely are you to vote for in that case, we've seen the highest level. And when we look at that Net Promoter Score FarmerCore, the products that Fendt has brought to the table, coupled with the strength of our Massey Ferguson brand, we feel very good about the traction that we've gained here in North America.

When I looked at that market share, it was both Massey and Fendt, and it was across the portfolio. It wasn't like it was one product. It was planters, sprayers, tractors. So we're seeing good momentum between Net Promoter with what we're doing with the dealers, how we're helping the farmers and what we're bringing to the table, coupled with FarmerCore to really, I think, create a differentiated value proposition for the farmers here in North America.

So the FarmerCore is almost like -- I think of the legacy dealer base, a lot of the bigger, stronger AGCO dealers were and/or are Cat dealers. And a lot of those, you see a lot of Cat service shops running around on wheels, a similar concept. It's something that they're certainly [indiscernible].

Yes, very similar concept. And what it allows us as we're rolling out the Fendt brand specifically is rather than building new stores, how do you leverage parts depots and mobile trucks to cover a larger white space -- rather than having to have an infrastructure, a large store every 45 miles, how do you have them 100 miles apart and let this mobile truck cover the white space more effectively. That way, if you need all of your service trucks on the east side of your store or the west side, you're able to cover a larger area.

And more importantly, for that dealer is it takes their investment cost down. So you're looking at this market here in North America that dealer is trying to manage his or her absorption through parts and service. And with the FarmerCore model, we've shown them they can deliver higher absorption with the FarmerCore model versus the more historical larger brick-and-mortar stores, which helps improve their profitability, especially in these down years.

Just sticking on North America, what do you make of your -- the largest -- by far, the largest player in the industry have recently cited some green shoots. I'm not sure that view is shared by everyone, but what's your kind of thoughts or perspective on that in terms of large ag green shoots?

So we've been -- we communicated, I think, like the others that we do believe '26 will be the trough year here in North America. We have the industry down -- large ag down around 15%. So it will be another challenging year. I think the way I would look at it is things are not getting worse. If we look at 2025, every quarter, there was a new surprise, things tend to get a little bit worse. When we look at our dealer inventories in the fourth quarter, we were able to reduce the level of dealer inventories.

Pricing in North America was better than what I had expected and what we had communicated. Market share came in stronger. So we're seeing some good momentum. Order boards look good for North America. I think at this point, we're sort of seeing things stabilize. I'm not sure I would say they're getting significantly better. They're just not getting worse in relative to how we've been over the last year. That's probably not a bad place to be right now.

Yes. One more, just more kind of cycle question. If you look -- if you pull up a long-term chart in Europe, just look at tractor registration -- high horsepower tractor sales over time, the line is just steadily lower. I think underneath that, though, there's been ongoing growth in terms of just amount of horsepower tied to farm consolidation. So maybe talk to the market from a unit, but also underlying profitability. Meaning does the market necessarily get -- as you see those the tractor and just horsepower increase, kind of speak to what that means from a profitability standpoint, kind of 2 separate points.

Yes. So I -- you are seeing the number of units come down over time as farms tend to consolidate. Now Europe, you generally have more family. You generally have smaller farms versus the U.S. or versus Europe or versus South America, excuse me. That will likely continue to be the case, but you are sort of seeing the size of the farms grow there. For us, though, it's offsetting that with technology.

When you look at the average price of a tractor today versus, say, 5 or 10 years ago, given the level of technology that we've added, that's in theory, sort of helping offset some of that volume decline that you would just see as the farms become larger and farmers tend to upgrade to larger equipment. The other strength for AGCO is we usually do much better from a profitability standpoint with the larger equipment versus that medium or that low horsepower type equipment.

Fendt market share as you move higher up becomes...

Yes, Fendt's done exceptionally well the last couple of years with its new product introductions, gaining share in some of the Western European markets and has done quite well over last several years with the new Fendt 700, which we introduced 1.5 years ago, again, for those farmers who are looking for productivity, had a smaller engine. So it gave them better fuel efficiency, but didn't compromise on the power or the torque.

So it let them do all the same things they need to do, but with a smaller engine, so driving better profitability to them without compromising the quality of the work product they were getting with that tractor. So again, Fendt tends to be an innovation leader from a technology standpoint, and it just continues each generation of products come out, push it to a new level for there.

Yes. Maybe one more then before we move on, just on Brazil. You're calling for kind of a flattish market in '26. I think some of your peers are maybe a little bit more cautious. Maybe just highlight there in terms of what you're seeing and hearing from dealers.

Sure. I think we have the industry being flat. I think as we tried to elaborate on our call, we do see the first half of the year being quite challenged. When we look at sort of what we view the industry versus maybe the competitors, we've looked at our data analytics models. And historically, in the year that there is an election, there's usually stimulus that is put into the ag market to drive sort of favorable outcomes in the election.

So our flat assumes that there is some sort of a stimulus in the back half of the year. As we've talked to the teams down in South America, we expect interest rates to start coming down, hopefully here in March, some sort of a stimulus in the back half of the year. And I think if we listen to the competitors who said they've taken a very conservative view of the world, I'm not sure they've necessarily reflected that stimulus. So I think that's probably the delta between our outlook and theirs is whether something does happen or not.

Yes. But needless to say, a market that can move and often does move on a dime relative to the other...

Yes, it can move very quickly here. And obviously, between currency, commodity prices, global demand, things can move quite quickly in Brazil.

Yes. Maybe shift to margins. It's been a good story for AGCO in recent years. And you outlined a mid-cycle margin target of getting to kind of 14%, 15%. You've gotten to that level in absolute terms once before. So I think there's some skepticism that we've heard from investors. So maybe speak to what some of the key drivers are in terms of driving that higher structural profitability.

Yes, we feel good. I mean our target is 14% to 15% adjusted operating margin by 2029. And maybe I'll just walk you through the different components here. So if I look at our -- I'll use our outlook right now, I'll use that 7.5% to 8% adjusted operating margin. So I'll use 8% because the math is easier for me. So we're sitting at around 85%, 86% on mid-cycle. The 29% is a mid-cycle target. So to go from 85% to mid-cycle, that would add around 150 basis points just from the overall industry lift.

So that's the industry dynamic. It's not anything unique to AGCO, it's all of us will get that. Then there's 3 specific things that we're doing or have done that will take us up to that 14% to 15%. One is the portfolio change that we've already executed. So in the last 1.5 years, there's been 2 significant changes to our portfolio.

One is we did the joint venture with Trimble. So we now have PTx Trimble where we've acquired 85% of that. When you look at that business, it runs at around a 30% EBITDA margin. And so when that moves back up to mid-cycle that's accretive to our margins. At the same time, we divested our Grain & Protein business late last year. So that was a single-digit margin business, relatively low growth. So when you look at us at mid-cycle, those 2 together, the addition of PTx Trimble, the elimination of Grain & Protein, that adds around 150 basis points to our margin at mid-cycle.

So those 2 are already done. We just need the industry to sort of pick it up, pick back up to mid-cycle, and that will deliver margin enhancement there. The second one is the restructuring actions that we've done. So for the last year, 1.5 years, we've been talking about significant headcount restructuring, offshoring some of our work, outsourcing some of our work and really pushing AI throughout our portfolio of products, both in customer and revenue generation, but also in cost and productivity.

When you look at those things together, we said by the end of '26, we would be run rate savings somewhere in the range of $175 million to $200 million of cost savings. At the end of 2025, I said we were already run rating $190 million. So we're very much in line with what our plan was. This year, we'll save around $40 million to $60 million of incremental savings year-over-year, but because a lot of that cost started in the fourth quarter, the run rate will probably be around $200 million.

So I'm very good in delivering my cost savings. Most of this is coming out of SG&A. So think about $200 million of cost savings run rating by the end of this year that delivers about another 150 basis points of margin enhancement at mid-cycle. And then the third bucket is those 3 growth initiatives. So Fendt going up to about $1.7 billion by 2029, parts growing from $1.9 billion to $2.3 billion and then the PTx portfolio getting to around $2 billion by 2029. Those 3 growth levers together will deliver another 150 basis points to 200 basis points of margin. So when you stack those 3 on top of the industry, you kind of get into that 14% to 15% range.

Got it. Got it. Certainly not impacting the longer term. But in more near term, given the tariffs being a significant factor for you, obviously, a lot of potentially moving pieces there. What are you seeing? What -- did the IEEPA ruling, is that something that you can potentially go after refunds? Where do you sit on that?

Yes. So the ruling a couple of weeks ago has definitely created a little bit more of a dynamic situation. We'll need to see whether we're able to recover any of that. Obviously, we're still going through the analysis of the new 15% global tariff, the rollback of the IEEPA tariffs and what that means for us. I think, generally speaking, I don't see a significant change to what we gave our investors as our outlook on the fourth quarter call.

So what we have said is total tariffs for us are in the range of $105 million to $110 million. It may fluctuate a little bit, but generally speaking, of the total tariffs, incremental -- [ '26 ] is around $65 million of incremental tariffs this year versus last year. So that is flowing into our cost of goods sold, it will be heavily weighted here in the first half, and then we'll start to lap some of those tariffs in Q3 and then by Q4, we'll have lapped that.

So when I look at that from a total cost standpoint, plus inflation, we've said that our pricing this year will be in the range of 2% to 3%. And at 3%, we would be offsetting our inflationary cost and the tariff cost on a dollar basis. So it will be 0 from a dollar basis. It will be margin dilutive to us if we're at 3% because I'm only covering on a dollar basis. And if we hit the midpoint, it would be negative margin and negative EPS.

But generally speaking, we feel good when we look at that. Now we got to see how this new -- how the new world is and whether there's any opportunity for us. But I think today, at least we're still in that $65 million-ish range of incremental tariffs this year.

Okay. On the pricing guide of 2% to 3%, how would you frame that in terms of -- are there certainly -- dynamics are different as you look across the key markets. Where do you see kind of maybe the most risk to that? Or where do you feel more versus least confident...?

Yes. So if I think of the 2% to 3%, so I feel okay. We had about -- just over 1% carryover pricing from last year flowing into this year. And if I look at what we did in the fourth quarter, pricing came in better than what we had expected coupled with market share being better and dealer inventories coming down. So I feel pretty good with the carryover.

If I look at the 2% to 3%, I would say North America is above the midpoint in our outlook here. Europe is kind of at slightly below the midpoint and South America is in between. From an industry standpoint, confidence level, Europe, again, given the stability of the market, we feel pretty good about that. North America is where dealing with the highest cost related to those tariffs. But overall, given the strength of that market of what we saw in the fourth quarter, still feel fairly good.

But again, we watch what the competitors are saying, and we understand in our industry, it's often a relative gain. So if we think about that Fendt product and it's being compared to a competitor, we've got to make sure from a pricing standpoint that, that value proposition that we're offering to the farmer is in alignment with what that price delta may be. So depending on what the industry does, we've got to stay dynamic to keep our pricing competitive. But overall, we still feel good to be in that 2% to 3% as we start the year.

Okay. Yes. On the Precision side, I spent time with a number of your dealers back in January at a dealer event. And it was notable in terms of the -- just the mood and the sentiment that they have in terms of what AGCO has done in terms of delivering more products and just they have more products to sell. And so they definitely felt like a lot more -- had definitely more of a spring in their step despite what is a really soft market.

So maybe just speak to that. That's a North American comment, but just speak to the Precision, this is a long answer, but what you've done globally to really improve the competitive position there?

Yes. PTx is -- it's phenomenal for us. It's a unique opportunity for us to differentiate versus the competitors. I think all of us are progressing on the technology stack. We're all driving technology. I think there's a couple of us who are probably leading in many aspects of the industry from a technology, whether that's targeted spraying, whether that's autonomy, all of us are pushing and some of us are pushing harder than others.

But when I think about what's unique about AGCO is we have this unique retrofit channel where we service the mixed fleet. We talk about being the most farmer-focused company in the industry, and we want to give farmers the technology regardless of the color of iron that they're using. And we bring all of our new technology into this retrofit channel. And it's a completely separate channel than the new equipment. So these aren't usually new equipment salespeople. These are seed salespeople, agronomists, people who are more on the farm trying to drive productivity.

And so we bring that technology there first, and it's all done in a retrofit mindset where you can bolt that on to your existing equipment. So you look at our targeted spraying application. Farmers for years have done broadcast spraying because they can't afford the risk of a weed escape. Well, now a couple of us have offered targeted spraying and you're telling a farmer, trust me that this machine can go through with AI and identify a crop versus a weed and it can reduce amount of pesticide that you're being spread, which sounds really appealing to that farmer because it reduces his or her input cost.

Well, for us, though, you buy that hardware. So if for some reason, it didn't meet all of your needs, you can go back into that field 2 or 3 times and you're only paying for your fuel for your -- and your time, you're not paying for that targeted spraying every time. So we're trying to give them ways to experiment with the technology at a lower upfront cost. When we offer these products in our retrofit market, it's usually 1-year maximum 2-year payback for them.

And so they can sort of experiment that as they get more and more comfortable with the technology, hopefully, they roll over into a new piece of equipment that has it with the Fendt brand or a Massey brand here in North America. So really trying to target technology for farmers to help drive them either incremental productivity or reduce their input costs, trying to drive their net farm income up. And so for us, it's been a unique opportunity for us to connect with farmers of different makes who use different types of equipment to drive the technology for them.

And if I look at how that business performed last year, again, Precision or PTx was flat year-over-year, and there is the AGCO channel. There's the other OEM channel. Both of those were down with the industry, but the retrofit channel was down a lot less because for those farmers, it's a much slower entry point, much lower cost point, and they're able to either drive better yield or lower input costs.

And so we see that channel performing better than the new equipment channel, and that's a big part of the growth engine for us as we bring more new products coupled with -- because of the PTx joint venture. Last year, we introduced 14 new products into the market. You saw at winter conference several new products like ArrowTube, so improving the yield to getting that seed. Targeting done the right way, so you get the right seed placement for better yield on the farm, coupled with a couple of the other innovations.

So we see new product innovations being a huge part of our growth and then also the geographic rollout because we have a strong presence in North America with Precision Planting. PTx Trimble was in Europe, bringing those 2 together, cross-pollinating the portfolio and then the big growth coming in South America longer term.

Yes. All right. I think we hit it. There's a breakout session after if anyone has any questions that we want to touch on. But thank you, Damon, and thank you, Greg.

All right. I'm Kyle Menges, I'm the U.S. Machinery analyst at Citi. I'm joined by the AGCO team. I've got Damon Audia, CFO; and Greg Peterson from IR. Thanks for being here with us today, guys.

Yes. I mean, maybe to kick off, a lot has been going on with AGCO over the last several years, some transformative things I think that you guys have been doing. But yes, maybe talk about the key brands, product portfolio, how that's transformed over time and the cycle-over-cycle improvement that you've driven as well in the last several years?

Yes, sure. So I agree a lot has happened. Maybe for those who are less familiar with AGCO, we are the largest pure-play ag company. Last year, we delivered revenues just over $10 billion. We go to market from an equipment side with 3 major brands, our Fendt brand, which is premium, the best of the best. And then we have 2 more volume-orientated brands called Massey Ferguson and Valtra. And then we have our technology stack, which is the PTx umbrella, which includes our former Precision Planting brand, along with the PTx Trimble joint venture and then a few other smaller acquisitions that we've done, but consider that our tech stack.

Over the last couple of years, we've made a couple of significant changes that have really allowed us to focus ourselves on the equipment and the technology space. So one was the joint venture with Trimble. So we did an 85%, 15% joint venture with Trimble, where we now control all of their Ag business. That was part of our PTx portfolio.

At the same time, when we did the acquisition of the joint venture, it allowed us to divest or go through the process of divesting our Grain & Protein business. And so with the divestiture of that in 2024, it's really allowed us to hone our business now to be solely focused on equipment and technology. And when I look at how we've transformed the business over the last several years, last year, we finished in 2025 when our industry was just over 85% of mid-cycle. So relative to the 10-year average, last year was around 85% of that 10-year average. So it's at the lowest point we've seen.

The last time that the industry was at that level was 2016. We delivered 7.7% margin last year, which is almost double what we did in 2016. So we look at how we've transformed the business, driving improved profitability of our core business and growing our high-margin core businesses like Fendt, PTx and our parts business, we've really transformed the business to make it more profitable and I think more importantly, more resilience on the downside, which really gives us a lot of confidence as we talk about where we want to go longer term and getting those operating margins up to that 14% to 15% level as we get closer as we get to the mid-cycle levels.

Awesome. And then maybe we can talk about the Precision Ag piece of the business a little bit. It's been an increasing area of focus over the last few years, driven by your Farmer-First retrofit mixed fleet approach. Maybe you can elaborate a little bit on that strategy, how you think this positions you to win in what's become a competitive precision in that market?

Yes, sure. I think for us, the PTx portfolio and our approach on technology, it's an evolving industry. Technology is becoming more and more prevalent around the world. All of our competitors are heavily focused on it as well. But there's a couple of things about AGCO and our approach to technology, which differentiates us versus the competitors. I think first is, technology for us starts in the retrofit market.

So when you think about the new technologies that we're bringing, we bring them into the retrofit market. We have a mixed fleet mindset. So when you think about what is being sold through our PTx portfolio, our views are that, that technology goes on any make, and farmers are getting the level of productivity that they need, whether they're using an AGCO piece of equipment or a competitive piece of equipment. So that's sort of one unique differentiator.

Two is how we approach that market is through a stand-alone distribution channel. And we are the only ones in the industry that have 2 different channels. We have our new equipment channel, and we have this sort of PTx channel, which is usually think of them as seed salesmen, agronomists, people that are more on the farm, trying to drive productivity, trying to drive yield enhancements and using technology to drive that.

And because we have that unique go-to-market philosophy, it creates an opportunity for us to get the technology out sooner. It allows the farmers to explore that technology at a much lower price point than what he or she may have to do in buying a branded piece of equipment. And so for us, we think that opens up a much larger percentage of the market. So we think the addressable market for us is much larger than others because of that separate channel, because of that mixed fleet mindset.

Now we hear our competitors talk about retrofit. I think a little bit unique is when they think about the term retrofit, it's more akin to their products, usually akin to newer generations of their products versus ours being all makes and having a much longer vintage that it can serve. And then secondly, when they use the term retrofit, a lot of times that is sold through their new equipment channel versus ours, which is a separate independent channel.

So if you put yourself as a dealer who's looking to sell a planter, do you sell a brand-new planter to that farmer or are you willing to sell him or her an upgrade kit at a much lower price point, creating a little bit of a conflict for that individual making the sale because we have 2 separate channels, 2 different people attacking the problem in 2 different ways on that firm.

Yes. That's helpful. Maybe that's a good segue into the PTx business and talk a little bit about the Trimble JV, what merits you saw in the deal, how that integration is going, what inning we're in, in that integration? What are really the key focus areas you're looking at now and the near term, too?

Yes. The overall PTx portfolio is incredibly strong, and we have the most technology offerings in a retrofit versus anyone else in the industry. So we're very excited about what we have underneath the PTx umbrella. If I look at PTx Trimble and how that's gone, obviously, we bought it at the peak of the cycle. But when we looked at what we were getting, it was imperative for us longer term as we think about things like autonomy to be able to have that technology in-house versus having to get it from a third-party provider.

If I look at the different components and how they're going, I would say, culture and people have gone exceptionally well. We really haven't lost any of the talent because you took an ag group in a technology company and you brought them and made them the tech group in an ag company. And as they got to see and hear our Farmer-First mindset being on farm, solving the problems, I would tell you the culture has gone exceptionally well. The team that we've kept together has gone really well.

I look at the innovation, the flywheel is better than we had expected. We had been thinking 4 or 5 new products. Last year, we introduced 14 new products under the PTX umbrella, and we've already introduced several more at our winter conference in January. So technology flywheel hitting on all cylinders right now. I would say the cost area, we said when we announced the transaction, we'd see around $33 million of cost savings by the third full year. Given the industry environment, we're feeling pretty good. We've pulled a lot of that ahead.

So I feel like we'll get those numbers before the third year. The last part is the dealer channels. We've talked about synergies, bringing PTx Trimble portfolio alongside Precision Planting, and we have this embedded under what we call these Elite dealers. So again, it's not that new equipment channel. This is a separate dealer channel who's selling the full suite of technology offerings. So things from guidance to planting equipment to spraying equipment to water management, bringing those dealers who Trimble had and what we had, bringing them together under this Elite dealer.

In '25, we went from around 40 Elite dealers to over 70. This year, we'll grow that by another 50%. So I think that's going okay. Obviously, we want to go faster, but we've got to get them to a level of education where they can sell that whole suite of offerings. So I think the excitement is there. The dealers are very excited about what they're seeing with the portfolio. It's just continuing to ramp up that Elite dealers and letting them penetrate more on the farms with the full suite of offerings versus maybe what they have sold legacy, which may have been more Trimble orientated or more Precision Planting orientated.

So I think overall, we're -- I'd say, we're sort of in the middle innings in total, but really building a strong foundation with those Elite dealers to grow as the industry starts to pick up hopefully next year.

And you mentioned that distribution work going okay. Is it the numbers -- how are the numbers of you signed up -- you went from 40 to 70 last year, targeting a 50% increase this year. Are the numbers on track with your initial expectations? Or is just developing that channel taking a little bit longer?

I think overall, the numbers are fairly close to what we had thought. If you look at the PTx dealers, you have a couple of different components. You have the base dealers and think of those, there was the CNH dealers who we were partnering with under the old Trimble. We have over 200 CNH dealers. We have several hundred Massey Ferguson, Valtra and Fendt dealers signed up. Those are selling more of the base products.

That's gone incredibly well. I'd say, very much in line with what we were hoping to achieve. The Elite dealers that are selling the full portfolio of technology. That's sort of gone maybe a little bit slower because of the industry. There's not that pull because as the industry has been slowing down, farmers are a little bit hesitant in investing in things that maybe are yield enhancing. And so getting those dealers up to speed on all of the technology has taken us a little bit longer. Good momentum.

But the key for us is more now that they have it, how do you penetrate your areas and grow your share in these respective markets. And it's not conquesting share, but it's just getting on to the farms and showing these farmers what is the technology available for them to either reduce their input cost or to drive improved yield from what they have today.

Yes. That's helpful. Could we talk a little bit about the performance of the PTx business, just how it's performed in the down cycle? Additionally, you had commented on the fourth quarter earnings call, you expect PTx revenues, I think, to be flattish roughly in 2026, I believe. Just what are some of the key assumptions in that outlook? And then I was also thinking maybe why wouldn't it be growing more just given the momentum you're seeing in that distribution channel signing up more of those Elite dealers?

Yes. So I think there's a couple of components to unpack. Last year, the PTx revenues were right around $860 million, we said flat. So modestly up this year. But when you break it down, there's really 3 components in the PTx revenue stream. First component is what we sell to AGCO. So we were -- when we give you that $860 million, that would include PTx sales to Fendt, Massey and Vault for OE. So directionally, 1/3 of that is going into my equipment.

The second bucket is the other OEMs. So we have relationships with over 100 different other OEMs. So another 1/3 of that bucket is sort of a non-AGCO OEM sale. And then your third bucket is this retrofit channel. Those first 2 are being heavily influenced by the industry. So those 2, we see the industry overall being relatively flat, obviously, down significantly here in North America. The third channel, the retrofit channel is actually growing. And so you're really seeing the net of those 3 channels delivering that flat to modest growth.

But to your point, we are seeing the retrofit because farmer net income is limited this year. We know it will be challenged. They're looking for ways to drive improved yields or lower input costs, and they're able to do that at a much lower entry point by using this retrofit type of equipment, where generally our philosophy is a 1-year, maximum 2-year payback. So if you're a farmer knowing your net farm income is going to be limited this year, but there's opportunities to reduce your input cost and you know you got a 1-year, worst case 2 years, that's an easier value sell for him or her right now than trying to convince them for a 2- or 3-year payback.

Yes. I mean that's good to hear. And I think you had said on the earnings call, the retrofit channel actually was kind of flattish last year and you're targeting growth this year. So flattish in a down year last year, growth in a flattish year for the market. Okay. Got it.

Yes. And we view that to be a less cyclical. Again, it's still cyclical, but significantly less cyclical than the new equipment market. And as we look at that growing as part of our overall portfolio to get the Precision Ag or, the PTx revenue up to $2 billion and you couple that with our parts business, which is generally growing every year, those 2 together create a much more stable base for us for our earnings as we continue to deal with the volatility of the new equipment sales longer term.

Yes. Yes. Makes sense. I would like to focus then on the PTx, the FarmENGAGE platform you rolled out last year, which from my understanding is being integrated into all model year '26 machines. Your road map suggests that you're in Phase 2 of the data platform this year, focusing on consolidating features to the common platform. What should we be thinking about in terms of incremental value as you go from Phase II to Phase III that you're bringing to customers? And in your mind, just how do you think FarmENGAGE stacks up against some of the peers' platforms?

Yes. So FarmENGAGE in many ways for us was a little bit of the missing link as we talk about penetrating and growing the market -- Fendt market share here in North and South America. So FarmENGAGE is available on model year '26 on Fendt and Massey products here in North America, not necessarily available in other parts of the world, generally speaking.

But what it does is, again, similar to that retrofit mindset, mixed fleet mindset, FarmENGAGE is that farm management system that caters to the mixed fleet. And so as we think about Fendt growing and really penetrating competitive farms, oftentimes forcing that farmer to create a mixed fleet in his or her fleet to bring a Fendt product in or maybe a Massey product, the data was always one of the challenges because they were using a competitor system, and it was not always easy to connect and do the task management, some of the planning for the farm with the competitive data management system or farm management system and a Fendt product.

With FarmENGAGE, that now sits on top of any of the legacy systems, and it allows that farmer to still use his or her legacy system for data or the data repository. But if you think about task management and all of the planning that you have to do on the farm, you can now do that in FarmENGAGE and you can do that for an AGCO piece of equipment or a competitive piece of equipment, and the information coming off of the system can now be shared with that legacy system, and it allows that farmer to not have to go through a whole transformation of how he or she's looking at their data, but it sort of allows you to have a mixed fleet, get the best product you need for that task and not have to worry or compromise the quality of that product or that service because of data.

So now we've created that seamless connection for that farmer who maybe has a legacy system that he or she can now look at it and still use it, but can do all of their task planning that they need regardless of the color of tractor or plants or spray that they want to use.

And then Phase III and just incremental...

Yes. I mean what you'll see over time is more product and services being offered, better user interface, better efficiency of using the leveraging the data itself and becoming that as your primary repository as we start to rewire. So the first one was the single sign-on. We got that done faster. Now we've kind of created the common user interface, but you still sort of have historical pipes behind the scenes as we revamp with the Trimble Ag system, coupled with our Fendt One, coupled with other technologies we want to bring, it's sort of redoing it from the ground up in Phase III, offering for the farmers better, different -- better services, more services and hopefully a better user interface.

Great. And maybe we can touch on your third growth pillar as well, your parts growth strategy, it seems to be centered around this unique farmer core strategy. So it would be great to hear about that. I've certainly heard good feedback from your farmers and dealers on that, how that's going. So yes, I mean, we would love to hear more about the strategy and just adoption and feedback you're seeing from the dealers and customers as well.

Yes. So as part of our 3 growth pillars, we touched on PTx, we may talk about Fendt North and South American market share growth. Parts is the third growth pillar, growing from around $1.9 billion last year up to around $2.3 billion by 2029. A lot of that is done by 2 things. One is parts and service fill rate. So AGCO by third-party standards has the highest fill rates here in North America and in Europe. So that's a critical part because when that farmer makes the call to the dealer, does he or she have it? And when the dealer makes a call, does AGCO have it?

So we have the highest fill rates in parts and service, which is important to us. What we do, which is unique and different than the industry is we brought in over the last year, FarmerCore. And FarmerCore is doing a lot more of the service on the farm versus the historical brick-and-mortar models. And so if you think about what that does, there's sort of a triple win in many ways because for the dealer, as we're rolling Fendt out in North and South America, we're able to show the dealer the cost benefit from an absorption standpoint of having a smaller brick-and-mortar store and then leveraging these mobile trucks to do a lot more of the service on the farm.

And what it does for the dealer is it reduces their investment upfront. So they're not building these big giant stores with 12 days. They have a much smaller service center, but they're putting mobile trucks out in the field so their white space of what they're covering is bigger. And for AGCO, who's rolling out our dealership network, we're not dealing with conflicting dealers right now. We're able to cover more white space with that one dealer. So he or she's able to shift those trucks where they need to be covering more geography, lower upfront investment for them.

So much better from an absorption standpoint for the dealers. For the farmer, it's like Amazon now. Instead of going to the mall the way many of us grew up, the dealers coming to you like Amazon, doing the work on the farm. And with our FarmerCore, our dealers are doing over 85% of the service on the farm. So much more convenient for the farmer. He or she is able to schedule it when they need it. A lot of times, they get other work done because you've got a technician on the farm and maybe they were there to do the service interval on the tractors. But if you need your planter seals change, that technician can do that as well.

So the farmers are getting a lot more service done in the time that they want it done. So we're seeing a lot of receptivity to that. And I think that's part of what's driving this market share growth that we're seeing in North America because we look at all the different things we're doing on the products, then you layer on how we're servicing the farmer with better dealer sort of relationships and how we're helping them, we're seeing significant growth.

So big opportunity here in North America, also in South America. Europe, where we have a fairly mature dealer network. I would say that's probably a little bit longer term as we start to think about rolling FarmerCore out there, but definitely big opportunities here for us in North America and South America. And again, because we don't have that legacy dealerships the way maybe others do, our dealers are able to cover more white space with these mobile trucks without sort of overlapping one of their other stores or a competitor store.

Great. Maybe we can touch on the -- what's, I think, the second growth pillar is Fendt market penetration globally too. Just talk about how that's gone so far, what inning we're in now, what the key opportunities are left for Fendt for further penetration?

Yes. So if I think about Fendt, it is our premium brand, best of the best and obviously, they've done exceptionally well in Europe and continue the team -- the Fendt European team has done incredibly well, continuing to gain share even last year, continuing to deliver profitability, new product introductions last year with the new 800, they continue to excel. Even in Europe where they already have a very strong presence and continuing to deliver strong profitability, the team there continues to execute incredibly well for us and very appreciative of what they've done.

The opportunity, though, is more in North and South America, where we're still a relatively new entrant with that premium product in these 2 markets. And when I look at North America and you look at these farms about AGCO wanting to grow and you look at the Fendt products, performance-wise, they're, in many ways, better than the competition. I look at the Fendt tractors and the fuel efficiency of these tractors, depending on your use are anywhere from 10% to 20% more fuel efficient.

So if you're a farmer who's especially a high-use farmer like an onion farmer who's using the tractor a lot, if you're getting 10% to 20% fuel efficiency, that's meaningful. When you look at the Momentum Planter, doing the infield adjustments, talking about maximizing your yield, the product quality and the product technology in many ways is better than what the competitor.

So we've got -- for that farmer who's looking at making a switch, you got better technology, better product performance. You then look at the parts and service fill rate, AGCO has the best parts and service fill rate in North America -- North America and Europe for sure. So if that machine goes down, you've got the best fill rate. You then layer on farmer core that says that dealer is going to be on your farm doing the work for you versus you having to take that big tractor to the dealership.

So better parts and service, better FarmerCore on-farm delivery, better product. The last piece that we were missing to a certain degree was that data. So that farmer may have loved the product quality, the product technology or the warranty, sorry, 3-year bumper to bumper warranty for us, what we call Gold Star. Industry is usually at 2.

So you're a farmer, you got a Fendt tractor that has 10%, 20% better fuel efficiency, best parts and service in the industry, 3-year warranty versus a 2-year in the competitors, farmers, dealers doing your work on the farm, all of that feels great. Now I got this data piece. Well, if I like my Fendt tractor, but I can't integrate it with my legacy products, FarmENGAGE has now taken that off the table.

So when we put all that together, we're very excited. And I think a lot of that's what's helped us deliver the market share growth that we saw in North America. All of those things coming together to really help the farmers give them an alternative to deliver high-quality products to them and ultimately hopefully improve their bottom line.

That's a good segue into my next question. You did call out that 2025, you turned in the highest global market share in AGCO's history. Maybe what do you think you can attribute to the market share gain? Yes, I mean, how much more room do you see in front of you to continue to gain share, especially in North America and South America?

Yes. I don't think there's one thing that we did different. I mean we talk about being the most farmer-focused company in the industry. And I think that goes a long way on trying to introduce technologies that help farmers become more profitable. Again, I look at what our teams in Europe have done with the awards they're winning at AGRITECHNICA. I look at the AE50 awards here in the U.S. and the number of awards that we're winning.

It shows that we're innovating, and we're innovating in ways, I think, that are driving better performance and better profitability for the farmers, and you're seeing that in the market share gains that we're seeing in many parts of the world. I'd also look at it and I sort of layer in some of the other things that we're doing different than the others in the industry. And we've delivered the highest Net Promoter Score ever in our company last year. So despite the industry being down, we saw the highest level of Net Promoter Score.

Now part of that is the equipment, but part of it is also what we're doing to make sure that when the farmer receives his or her equipment, they're going through the right training. They're getting the right education on what these machines can do for them. We're making sure that our dealer understands what they need to do either on the initial handoff and delivery with the follow-ups, leveraging farmer core, leveraging the connected machines, all the information. And so when we look at what we would call the fundamentals of how we prepare the equipment, the dealer, the farmer, we're seeing significant improvements with that as well.

And so when you put these little pieces together, probably not one of them in isolation is making the difference, but between FarmerCore, how we're preparing the dealers with that Net Promoter Score being the highest it is, quality of our products, the innovation of our products coming together, all of that's delivering a very strong value proposition, delivered great results to us relative to -- from a performance standpoint last year relative to where we were last time in the industry at that point. And it gives us a lot of confidence as we go into this year to continue the momentum.

In your 2026 guide, you do assume 2% to 3% price realization, which is a bit more than some of your competitors. I guess what gives you confidence that you can achieve that pricing while also gaining share and work down dealer inventories?

Yes. Well, we did that in the fourth quarter. So our pricing was a lot better than what I had expected it to be. Our dealer inventories came down in most parts of the world, and we gained share. So we've got some strong -- the value proposition of the products that we're offering are definitely showed through in Q4. I look at that 2% to 3%. We have just over 1% carryover pricing going into 2026.

And so as I look at around the world of what we have, the new products we're introducing, the value of the brands and sort of the stability of what we saw in the fourth quarter, we feel comfortable with that range. Obviously, it's a dynamic environment. We have 2 great competitors out there who have given their outlooks for pricing as well. And part of this when you talk to a farmer, it's the products performance. It's the whole perspective of what he or she is getting when they look at a Fendt tractor or a Massey tractor, but it's also a relative game.

And so we've got to make sure that we're staying competitive and that we want that price point of our Fendt product relative to the competitors to be in the right range. And so depending on how the environment shapes out, we'll stay nimble on that. But overall, we feel good with our outlook right now for the 2% to 3%.

Great. And in Brazil, it did sound like last year, there was some pricing competition. Has that largely subsided? And maybe a higher-level question on Brazil. Just how do you think AGCO is competitively positioned? And what are the opportunities you see in that market long term?

Yes. So I think right now, that market is by far the most challenging from a volatility standpoint. I mean it's been the most volatile market since I started 30 years ago in industrial companies, and it will probably be the most volatile when I retire at some point. But it started the year last year with a strong mid-cycle and low horsepower segments related to coffee, citrus, dairy areas. High horsepower large ag really didn't gain traction last year. There was so much uncertainty on the political trade dynamics we see in the U.S. and China. Commodity prices have stayed low. So we really haven't seen the large ag part of the market pick up.

Going to the back half of last year, tariffs on orange juice, tariffs on coffee really started to compress that market. Those have sort of been addressed here. When we look forward here, there's still a lot of uncertainty. Interest rates are still very high in South America, which is a big influencer because they don't have the level of subsidies that you see in Europe. They don't have the level of subsidies even that you see here in the U.S. So interest rates are continuing to be an issue for them.

Commodity prices continue to be challenging for them. And a lot of that is creating a lot of uncertainty. So we definitely see that market to be challenged here in the first half of the year. Now when you move into the back half, our outlook had assumed that there would be some sort of a stimulus related to the presidential election. If we look back in history, generally in an election year, there's some sort of stimulus, whether that's in the form of lower rates or more money through [indiscernible] or other things that they do.

We do hope that there's some sort of stimulus that comes in the back half of the year that helps pick up the Brazilian economy. So we'll see. Our outlook is relatively modest, generally speaking. The competitors are a little bit worse. But again, I think it depends on how you assume the back half and the election is probably the difference between us and the other 2. When I think about AGCO though longer term, that Cerrado region, the Mato Grosso is ideal for Fendt.

So you are looking at these huge farms up there, professional growers with hundreds of thousands of hectares that are doing 2 to 3 plantings per year. So you go back to that fuel efficiency example I gave you with Fendt. If you're running those tractors 2x or 3x what maybe a North American farmer is doing with that level of fuel efficiency or if you look at that Momentum Planter with the hinge frame and you think about the topography up in the Cerrado region, that being able to manage the topography doing the infield adjustments, these professional growers are looking for maximum ROI and they're big and they're willing to invest if they see that, and that's where Fendt fits in exceptionally well.

So we're growing there. We're rolling out our dealer network there. We're still at around 80%, maybe 85% of the white space covered from a dealer rollout, but that's where FarmerCore can come into play, getting on those mega farms more remotely for them versus having them to come into the shop. So we see a lot of opportunity. It just so happens that market right now is very challenged in that Cerrado region with the large ag farmers, but tremendous potential to grow share, especially Fendt.

Got it. This is a good stopping point if there's any questions from the audience. All right. We can keep going on.

You sounded most confident about Western Europe market, that market growing in 2026 versus some of the other major markets. Just maybe what's informing your bullish view? Maybe bullish is a little too strong, but just what's informing that view on the market in 2026? And what are you hearing and seeing from customers?

Yes. I'm not sure I would use the term bullish. It's all relative. We have -- I think we have our European -- our Western European markets up 0% to 5%. But I guess it's all relative to the other 2. There's a couple of things going on. When you look at the European market, first, fundamentally, it's the most stable market because, generally speaking, Western European farmers around 50% of their income comes from government subsidies. That's continuing. And so you generally see a much better stable order pattern. You have better crop diversity in Europe than what you see in the other major markets.

And as we look at the profitability in 2025, overall, dairy livestock farmers did fairly well. Grain farmers did okay, and that usually lends to better purchasing in 2026. And when we look at the age of the equipment, it's starting to bump up to the higher level of when we look at the prior downturn. So the age of the equipment is up. The CEMA index, which is that barometer of health is still in the growth category. It hasn't really moved much. It's sort of been in the same quadrant for the last 15 months or so, but it's still in that growth category.

So the backdrop lends itself to a solid environment. When I look at our dealer inventory, we're sitting at 4 months, so right where we want it to be. So we're not having to stock up or destock. So you're not going to see those sort of variable swings like we are in some of the other markets. And I looked at our order board, we finished the year with 3 months of orders. So not too far off where we normally are. So we had a great fourth quarter.

I said on the call, volumes exceeded my expectations. So we didn't pull ahead any sales there. I'm still sitting with 3 months of orders. I'm still sitting with 4 months of the dealer inventory. But overall, the macro backdrop, coupled with what's unique to us in dealer and order boards feels good, and we feel confident in maintaining the margins in Europe and hopefully seeing the industry grow in that low single digit this year.

Great. And you mean margins, in particular, have held up really well, which is good to see. Just how should we think about further runway for margin expansion from here from that 15% that you're guiding for roughly in 2026?

Yes. Again, I think it's a credit to the team in Europe have done an exceptionally good job in introducing new products, gaining share and staying diligent on overall pricing. And Europe had a great year last year, both -- Fendt, Massey and Valtra, all 3 of them did exceptionally well. As I look forward into '26, I think it's more of another year of stability. I don't see -- given the environment, again, we have our industry up sort of 0% to 5%.

We talked about pricing being likely a challenging environment, even though we're guiding to this 2% to 3%. We know it's a competitive environment. So when I look at that and I look at sort of the opportunities for a little bit higher production, we still feel good about the mid-cycle -- or we still feel good about the margins being right around that 15%. I think a little bit will be geographic mix, a little bit of be product mix. Fendt did well last year.

If Massey and Valtra performed a little bit better than Fendt, that has a little bit of a negative mix to us. And then if you look at the regional mix, Eastern Europe versus Western Europe, again, our outlook is a Western Europe. But if you see a country like Turkey outpace the growth, that has a little bit of a negative mix to us as well. So when we put it all together, sort of how we got comfortable with the team sort of still doing well this year, but the net margins being relatively flat.

Got it. And beyond 2026, just opportunities to drive further margin expansion there?

Well, again, we're always -- again, I don't want to -- the team is always looking to grow margins. I mean, that's sort of -- we want to grow market share, profitable market share. We want to grow our margins, and we want to enhance the value of what we bring to the farmers on the farm. And I think if you look at PTx, it doesn't have a real strong part of the business. For PTx, Europe is not a real strong part of the business yet.

There's huge opportunities as those farmers are looking for productivity. If you look about some of the technologies that we're offering like [Aero-Tube], the targeted spring, which is obviously going to be very critical in Europe, big opportunities to grow the PTx part of the portfolio there. Now how big does it have to get to become a big difference in our European portfolio? I think that's the -- you're talking about a business that's just under $7 billion in revenue. So it's fairly sizable.

So if PTx grows 3x, it will help, but it's not going to move the margins massively, even though it's a really high-margin, high-growth business, but it's just such a big part of our AGCO portfolio there that, that growth is -- may get a little bit overshadowed by the equipment sales right now.

Yes. Makes sense. And then I guess, when does North America return to profitability? And just what are you seeing in that market in particular?

Yes. I mean that market continues to be very challenged. We've seen it the last couple of years. I think all 3 of the major players have the large ag market being down again fairly significantly. When we talk as a company, what we say is our percentage of mid-cycle as a company, we were around 85%, 86% last year. If I was to look at it by region, North America last year was around 78% of mid-cycle. And this year, they're probably closer to 74% of mid-cycle. So a significantly challenged environment.

We're underproducing to retail demand in our U.S. factories, trying to rightsize that dealer inventory. So you're going to deal with some underproduction likely here in the first half of the year. To get to profitability, what I would have told you pre-tariffs, we probably needed to be around $2 billion in revenue to get to be profitable. I think with the tariff environment that we have right now and the cost that we're incurring for some of the products that we're bringing in from overseas, we probably need to see revenues sort of in those low 2s to be able to get to more of a breakeven profitable business.

And timing of that, we'll see. I think all of us publicly have said that we think that this is the -- at least in North America, the trough year. And hopefully, next year, we start to see a recovery. All of our data analytics, all of our models are showing that. But net farm income will be challenging this year. We know that here in North America. Obviously, there are some of the subsidies coming in, I think, hitting the farmers' bank accounts later on this year.

Generally, we don't see that spur new equipment. Generally, that's paying down debt, buying the things that have to buy, seeds, maybe some fertilizer or herbicides, not necessarily going to lend itself to new equipment purchases, but we'll see how the demand from China plays out for soybeans and how the overall macro environment plays out for farmers this year. But we definitely see this being our most challenged market around the world. But hopefully, we'll see things start to improve in the back half of the year and into next.

And I am curious in North America or U.S. in particular, just do you think that there's anything in the pipeline that the U.S. government could potentially do to help farmer income, grain demand? Yes, I'm curious just what's the latest going on in D.C. that you guys are paying attention to?

Yes. Well, I think there's things that they can do. Trade is the biggest one. The more stability that the farmers have in who's going to buy the green, I think gives them the highest level of confidence to reinvest back into their business and new equipment. So trade is a big thing. If that can help drive the pricing, that's the second thing that helps improve their net farm income. And then there's the third of what they've been doing on the subsidies.

But again, I think the subsidies because they're temporary, they don't have confidence that they're reoccurring, they're going to try to focus that on things that they have to spend on, debt repayment, securing things like seeds. That's likely not because you don't know if it's going to be there next year. You're not likely going to roll that into a large piece of equipment purchase. So I would say, let's focus more on the trade dynamics and try to get as much demand for U.S. farmer grain as possible because that will help build a stable base for them to feel confident to reinvest and upgrade their equipment on.

All right. Great. Well, we'll leave it there. It looks like we're up on time. Thanks for joining us, Damon and Greg.

Thank you.

Thank you.

Good day, and welcome to the AGCO 2025 Fourth Quarter Earnings Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations. Please go ahead.

Thanks, and good morning. Welcome to those of you joining us for AGCO's Fourth Quarter 2025 Earnings Call. We will refer to a slide presentation this morning is posted on our website at www.agcocorp.com.

The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of the presentation. We will make forward-looking statements this morning, including statements about our strategic plans and initiatives, as well as our financial impacts, demand, product development and capital expenditure plans and timing of those plans and our expectations concerning the costs and benefits of those plans and timing of those benefits. We will also cover future revenue, crop production, farm income, production levels, price levels, margins, earnings, operating income, cash flow, engineering expense, tax rates and other financial metrics.

All of these forward-looking statements are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks are further described in the safe harbor included on Slide 2 and in the accompanying presentation. Actual results could differ materially from those suggested in these statements. Further information concerning these and other risks is included in AGCO's filings with the SEC, including its Form 10-K and subsequent Form 10-Q filings. AGCO disclaims any obligation to update any forward-looking statements, except as required by law.

We will make a replay of this call available on our corporate website later today. On the call with me this morning is Eric Hansotia, our Chairman, President and Chief Executive Officer; as well as Damon Audia, our Senior Vice President and Chief Financial Officer.

With that, Eric, please go ahead.

Thanks, Greg, and good morning to everyone joining us today. We closed the year with another strong quarter, delivering an adjusted operating margin of 10.1% and fourth quarter net sales of $2.9 billion, which were up 1% year-over-year or up nearly 4%, excluding the Grain & Protein divestiture. EME continued to be a powerful driver, delivering 8% growth and extending its multi-quarter record of strong performance. On a full year basis, we delivered a 7.7% adjusted operating margin. Adjusted earnings per share were $5.28 and on sales of $10.1 billion, reflecting a 13.5% decrease versus 2024 or just 7%, excluding the divested Grain & Protein business.

These results highlight the disciplined execution of our global teams, driven by our 3 high-margin growth levers, sustained cost discipline and the positive impact of our multiyear structural transformation. We operated at intentionally low production levels. And despite a soft market environment that weighed on industry demand, we ended the year with significantly lower company and dealer inventories compared to 2024, a favorable outcome that strengthens our position and demonstrates meaningful progress.

Our adjusted operating margins are among the best in AGCO's history and the strongest we've ever delivered at this point in the cycle. We have nearly doubled our adjusted operating margins from prior troughs and are close to prior industry peaks, clear evidence that AGCO has structurally changed to a higher performing and more profitable company.

I want to thank the AGCO team for their disciplined commitment and impressive execution throughout the year. Their agility allowed us to maintain solid performance, repeatedly exceed our expectations and continue advancing our farmer first priorities.

Building on the transformational actions taken in 2024, including the formation of the PTx business and the divestiture of the majority of Grain & Protein business, 2025 was a year focused on advancing our strategic ambitions in agriculture machinery and precision technology. Our redefined portfolio and focus are where AGCO wants to be, poised to continue serving farmers and investors better than anyone else when demand strengthens.

Our PTx brand continued to gain significant momentum. During 2025, we introduced 14 new products across the crop cycle expanding the industry's most comprehensive retrofit precision ag portfolio. We also made substantial progress expanding our dealer network, ending the year with more than 70 global PTx elite dealers, more than doubling the amount from the start of the year. These dealers sell both precision planting and PTx Trimble products, enabling us to broaden product coverage and deepen customer engagement.

This independent retrofit network focused on the mix fleet remains an absolute clear differentiator, providing the comprehensive product expertise and the broad equipment compatibility that today's farmers require. These PTx elite dealers are supported by more than 300 Fendt, Massey Ferguson, Valtra equipment dealers, 200 CNH dealers, alongside continued sales to more than 100 OEM customers. This expanding footprint is strengthening our global market presence, increasing the number of farmers we can reach with our industry-leading smart farming solutions.

Fendt delivered a standout year of market performance in almost every region. In North America, we gained large ag market share, underscoring the strength of Fendt portfolio and the power of our team of experts and dealers. With some of our largest dealers switching to the [indiscernible] last year is further emphasize the strength of the Fendt full line product offering and our ability to accelerate our performance when North American large ag begins to recover.

Our parts and service business continued to perform well across challenging market conditions. The FarmerCore model, combined with digital engagement, 24/7 online parts access, machine configuration tools, servicing capabilities and industry-leading parts fill rates continue to support this high-margin growth lever and drive meaningful progress.

Strong execution also drove meaningful cost actions in 2025 and resulting in a $65 million bottom line savings through continued operating efficiency across the organization, reflecting a real focus on performance improvement. We anticipate a further $40 million to $60 million of incremental savings in 2026. Our overall confidence in the business is reflected in $250 million of share repurchases in the fourth quarter, part of our $1 billion capital return program announced last year.

As we look at 2026, we will continue to navigate a dynamic phase of the industry cycle. Trade patterns and record global crop production continue to compress farm margins with corn, soybean and wheat prices near breakeven levels. Despite this environment, our operational discipline positions us well for continued progress. Over time, we continue to expect increased adoption of precision ag technologies as farmers constantly look for ways to profitably increase yields. Entering 2026, current market conditions continue to moderate demand across most equipment categories, yet we remain able to advance our technology strategy and expect long-term positive industry progress.

Slide 4 details industry unit retail sales by region for 2025. Industry retail sales across all major regions were lower in 2025 as the market adjusted following several years of elevated demand. In North America, industry retail tractor sales were 10% lower compared to 2024, with larger horsepower categories accounting for a greater portion of the change as the year progressed. Combined unit sales were 27% lower year-over-year. Current farm income dynamics, evolving green export demand and elevated input costs continue to guide purchasing behavior, particularly for larger equipment heading into 2026.

In Western Europe, industry retail tractor sales were 7% lower than 2024, with most major markets experiencing double-digit percentage movements. Looking at 2026, relatively stable farm income levels and an aging equipment fleet are expected to support industry volumes growing modestly above the 2025 loans.

In Brazil, industry retail tractor sales were 2% lower than the prior year. Growth in smaller and midsized equipment partially offset the modernization in larger tractor categories. While crop production remains healthy and certain trade developments provided opportunities for farmers, demand for larger equipment has not yet shown renewed growth. As in prior cycles, industry demand is expected to recover over time. While farmers are currently prioritizing productivity improvements across their existing fleets, the need to increase yields and meet global agricultural demand remains unchanged. Precision Agriculture plays a critical role in enabling that productivity and our award-winning portfolio positions AGCO well to capitalize on that long-term opportunity.

AGCO's factory production hours for 2025 are shown on Slide 5. To ensure year-over-year comparability, Grain & Protein production hours have been excluded from the 2024 baseline. Fourth quarter production hours were modestly higher than 2024 as increases in Europe and South America more than offset the significant production declines in North America. For the full year, total production hours were down 12% versus 2024, with North America accounting for the largest portion of that adjustment reinforcing our disciplined approach to balancing output and market needs.

For 2026, we expect production hours to be broadly flat year-over-year with a modest lift in the first half reflecting easier year-over-year comparisons and a modest decline in the second half. This cadence ensures production remains well aligned with retail demand and supports ongoing dealer inventory normalization.

Turning to regional inventories. In Europe, we ended 2025 with dealer inventories at approximately 4 months of supply, aligned with our target levels. Being at these inventory levels in our largest and most profitable region is an important positive, especially with the industry projected to grow in 2026.

In South America, dealer inventories increased modestly to about 5 months [indiscernible] our 3-month target. This reflects adjustments to lower forward sales expectations as industry conditions evolved during the fourth quarter. However, year-end dealer inventory units were down modestly from the third quarter levels.

In North America, we achieved another quarter of sequential progress in inventory management, ending the year at 7 months of supply compared to 8 months at the end of the third quarter. While still above our 6-month target, we reduced dealer inventory units by over 9% during the quarter, and by more than 30% for the full year.

We have significantly strengthened the quality of our channel inventory heading into 2026, and we will continue to adjust production to better align dealer inventory levels.

Slide 6 summarizes how our strategy continues to deliver even in a muted demand environment. Over the past several years, we've reshaped AGCO into a more resilient, higher-performing company, one that generates stronger margins at the trough and greater earnings power through the cycle. The results we delivered in 2025 are clear proof of that. Our 3 growth levers, high-margin products, technology-driven differentiation and a world-class aftermarket business, continue to perform well this year. Each of them contributed meaningfully despite the softer industry backdrop demonstrating that our model scales regardless of where we are in the cycle.

This framework is also what positions us and gives us confidence to consistently deliver mid-cycle adjusted operating margins in the 14% to 15% range. It's a structurally different AGCO, more focused on innovation, more disciplined on costs and investments and increasingly driven by high-value revenue streams. Finally, the strength of this model supports 75% to 100% free cash flow conversion. That financial capacity allows us to keep investing in innovation, advancing our go-to-market transformation and returning capital to shareholders, all while maintaining disciplined operational execution.

Taken together, these levers explain why AGCO is executing at a higher level today than ever before at this point in the cycle and why we're well positioned to outperform as the cycle normalizes.

Slide 7 highlights key takeaways from our premier precision ag event, PTx' 2026 Winter Conference. It's an event that brings together thousands of farmers and dealers on site and virtually, and this year was the first showing of the full breadth and depth of the PTx portfolio. More than 4,000 farmers most under enormous pressures currently focused on learning practical solutions and strategies with technologies that can be implemented immediately to improve productivity, efficiency and returns, a high-value opportunity in today's market environment. As you would expect, the feedback on the event and new product introductions was exceptional as farmers could clearly see how we are innovating to make them more productive and more profitable.

This year, 3 technologies delivered notable impact. First, SymphonyVision, our vision-based spray technology uses intelligent cameras to continuously adjust application rates based on wheat severity, delivering a 60% chemical and cost savings. This year, we introduced SymphonyVision | Duo, a dual nozzle system that allows farmers to spot spray contact herbicides, while simultaneously variable rate applying residuals, fertilizers or fungicides in a single pass, supporting better input management and higher field efficiency. This is a one-of-a-kind injection system that mixes the solutions not only delivers meaningful cost savings from reduced chemical usage, but also delivers significantly higher uptime for farmers than other systems just can't offer. As with our broader precision planting portfolio, armors own the technology with no per acre recurring fees, reinforcing a strong value proposition.

Second is ArrowTube, a breakthrough seed delivery system designed to improve plant orientation at placement. Conventional systems drop seeds randomly into deferral, which can lead to uneven emergence and leaf alignment. ArrowTube places seeds in an optimal orientation while controlling depth, spacing and singulation, enabling each plant to capture more sunlight and reach its yield potential, a clear productivity advantage. When you think about the significant yield decline for plants that emerge just 48 hours later than the others, the opportunity is huge for our farmers.

Third is FarmENGAGE, launched in 2025, our farmer-facing digital platforms integrate machine connectivity, agronomic insights and task management across brands and platforms. FarmENGAGE brings together functionality from AGCO Connect and Fendt 1 and will be included in all model year 2026 Fendt and Massey Ferguson machines sold in North America, serving as a central hub for day-to-day farm operations.

Each of these innovations reflect how we listen to the farmer to understand the issue, then deliver practical scalable solutions that address real on-farm needs and help farmers operate with greater productivity, efficiency and profitability. I couldn't be more excited about the portfolio of award-winning products we have for our farmers, and I look forward to further introductions later this year. I'm even more confident that we will continue to be the most farmer-focused company in the industry, offering industry-leading smart farming solutions.

With that, I'll turn the call over to Damon to cover the financials in more detail.

Thank you, Eric, and good morning, everyone. Slide 8 provides an overview of regional net sales performance for the fourth quarter and full year. Net sales for the fourth quarter were 3% lower year-over-year, excluding the favorable impact of currency translation. For comparability, we also excluded the $75 million of sales associated with the divested Grain & Protein business in the fourth quarter of 2024.

Breaking fourth quarter net sales down by region. Europe Middle East net sales were 1% lower than the same period in 2024, excluding currency impacts. Lower sales across many Western European markets were partially offset by growth in Germany and the U.K. Lower sales in tractors were partially offset by better performance in hay tools. South America net sales were 9% lower, excluding currency translation. Results reflected moderate industry demand with reduced sales of tractors and implements offset in part by growth in combines. North American net sales were down 9%, excluding currency translation. Results reflected moderated industry demand and our deliberate production discipline to support dealer inventory normalization. Lower sales of sprayers and mid-range tractors accounted for most of the year-over-year change.

Asia Pacific Africa net sales were up 3%, excluding currency translation impacts. Higher sales in Australia were partially offset by lower sales across several Asian markets. Finally, consolidated replacement part sales were $440 million in the fourth quarter, up 5% year-over-year on a reported basis and down 1% excluding favorable currency translation. For the full year, parts revenue was $1.9 billion, reflecting 2% growth on a reported basis and flat growth, excluding favorable currency effects underscoring the strong value and consistent progress of this important growth driver.

Turning to Slide 9. The fourth quarter adjusted operating margin was 10.1%, up 20 basis points from the prior year. The improvement reflects excellent and resilient performance in Europe, Middle East again this quarter and consistent discipline across other parts of our business. Margin performance continue to be shaped by factory under absorption and discounting across the industry. Despite that environment, higher sales and production volumes in Europe and our continued cost discipline supported better total company adjusted operating margins during the quarter.

By region, Europe, Middle East income from operations increased by $57 million compared to the fourth quarter of 2024, with operating margins approaching 17%. Results were driven by effective pricing execution and a favorable sales mix. North America income from operations decreased by $33 million year-over-year and operating margins remain below breakeven. The results reflect lower sales volume and factory under absorption associated with reduced production levels of over 50% aligned with dealer inventory normalization, representing disciplined management of this business.

South America operating income was $21 million lower than the prior year, with margins nearing 3%, reflecting lower sales and higher engineering expense. Asia Pacific Africa delivered relatively flat operating income with operating margins near 8%, supported by effective cost management and lower SG&A expenses.

Slide 10 shows our full year free cash flow for 2024 and 2025. As a reminder, free cash flow represents cash provided by or used in operating activities less purchases of property, plant and equipment. Free cash flow conversion is calculated as free cash flow divided by adjusted net income, offering a clear and consistent measure of performance.

We generated record free cash flow of $740 million in 2025, up more than $440 million versus 2024. This strong improvement was supported by better working capital execution, higher fourth quarter sales and lower capital expenditures year-over-year reflecting effective operational discipline. Our capital allocation priorities remain consistent: reinvest in the business, maintain our investment-grade credit profile, consider acquisitions where we can accelerate technology adoption, and return capital directly to our shareholders, a framework that continues to deliver favorable long-term outcomes.

Following the TAFE resolution last year, we've shifted our philosophy on direct returns to investors with a focus on share repurchases rather than our special variable dividend program. With this focus, we executed a $250 million accelerated share repurchase in Q4 of 2025 under our $1 billion repurchase authorization, demonstrating our commitment to shareholder returns. Given the strong free cash flow generation in 2025, we will evaluate further opportunities during our normal capital allocation review later this year.

We also paid a regular quarterly dividend of $0.29 per share throughout the year, totaling approximately $87 million in dividend payments for 2025, reinforcing a reliable and healthy capital return program. We continue to deploy capital with the discipline to drive long-term shareholder value, supported by the increased flexibility afforded by our repurchase program.

Slide 11 summarizes our 2026 market outlook across 3 major regions: for North America, we forecast large ag industry sales down approximately 15% from 2025's already low levels. The USDA's elevated January crop supply estimates resulted in significant declines in commodity prices and both soybean and corn prices remain below the long-term average. Farmers are delaying new equipment purchases due to elevated input costs and tighter profit margins. The U.S. government's $12 billion farmer bridge assistance program is helping to shore up farmers' balance sheets but is not translated into new equipment purchases at this time.

The North American small tractor segment offers a more positive counterbalances livestock and hay economics remain comparatively resilient in the older fleet points to emerging replacement opportunities in 2026. We expect smaller tractors to be up modestly. In Western Europe, stability from the subsidy framework provides a solid foundation and offset softer wheat prices and geopolitical cross currents.

Early season exports improved. Profitability is expected to rise in '26 and winter seeding conditions have been supportive across many markets. the EU continues to benefit from lower interest rates versus other key ag regions, providing a more favorable operating position. We expect Western European tractor volumes to be up modestly in 2026.

Brazil's crop environment remains constructive, led by a large soybean harvest and healthy export demand. At the same time, interest rates, credit availability, corn margins and weather in select regions will pressure demand in 2026. Our plan assumes relatively flat demand for the year with some pressure early in the year and a stronger second half due to potentially improved government support.

Slide 12 highlights the key assumptions underlying our full year 2026 outlook. We expect global industry demand to remain relatively flat compared to 2025 with the industry increasing from 86% of mid-cycle to around 87% in 2026. Our sales plan assumes share gains, a 2% FX benefit and between 2% and 3% in pricing. At 3%, our pricing is designed to cover material inflation and tariff costs on a dollar basis but will be margin dilutive, even at the high end of the range, impacting our 2026 operating margins and our year-over-year incrementals.

Dealer destocking advanced in 2025. And we continue to prioritize strong channel alignment in 2026, particularly in North America, reinforcing a disciplined and balanced go-to-market approach. Our guidance reflects current tariff regime and mitigation through cost actions and pricing, ensuring a well-managed framework for navigating policy dynamics. We will adjust our outlook if policy actions change.

Engineering expense is planned to increase by almost $50 million year-over-year, representing approximately 5% of sales and ensuring an investment level that fuels supply wheel innovation across the portfolio. As Eric mentioned, we expect further benefits from our restructuring actions of $40 million to $60 million in 2026.

Production hours in '26 are expected to be broadly in line with 2025, maintaining healthy balance between production rates and retail demand to support ongoing inventory discipline. We expect adjusted operating margins between 7.5% and 8%, reflecting positive structural improvements to the portfolio and benefits from our ongoing cost initiatives was muted due to the price versus cost and tariff equation this year as well as higher engineering spend. Our effective tax rate is anticipated to be 32% to 34% for 2026.

Turning to Slide 13 for our 2026 outlook. Our full year net sales outlook is expected to range from $10.4 billion to $10.7 billion. Based on the sales outlook, flat production volumes, continued cost discipline and pricing execution, we are targeting adjusted earnings per share in the range of $5.50 to $6. This assumes no material changes to existing trade measures. Capital expenditures are estimated to be around $350 million, positioning us for future demand inflection while maintaining investment discipline. We continue to target free cash flow conversion of 75% to 100% of adjusted net income, supported by strong working capital management and ongoing inventory efficiency.

For the first quarter of 2026, we expect net sales modestly up year-over-year as we align production with demand and continue to realize the benefits of our cost efficiency initiatives, we anticipate first quarter earnings per share between $0.40 and $0.45. We expect profitability to strengthen as the year progresses, reflecting improved absorption, continued operational execution and the timing of our cost actions.

As Eric noted, 2025 performance demonstrates consistent execution on our strategy in a more resilient, better positioned business through the cycle. We are confident in delivering continued progress across net sales, adjusted operating margin and adjusted EPS while navigating the current industry backdrop.

With that, I'll turn the call over to the operator to begin the Q&A.

[Operator Instructions] And the first question today will come from Stephen Volkmann with Jefferies.

Curious to think about what you're planning relative to inventories in the U.S.? I guess you're still about a month ahead of where you'd like to be. How long does that process take from here?

Steve, so I think as you hit on, we did finish the year a little bit above our 6-month target. So we will have some underproduction here likely in the first half of of the year in North America trying to rightsize the dealer inventories. We'll see how the outlook for the balance of the year goes. But at least right now, I would expect sort of under production probably in the around 10% range, give or take, as we continue to rightsize here.

Overall, as I said in my comments, we did a really good job. We took units down by 9% or so, but just given that 12-month forward outlook we give you, the months didn't really move materially. They only dropped down one month despite the 9% reduction in units.

Understood. Okay. And then, Damon, you mentioned in your prepared comments some discounting and yet you guys are looking for, I think, 2% or 3% price for '26. Just square those 2 for me. What are you seeing in terms of the discounting? And how do you still get that price?

Yes. So Steve, I think overall, we've seen some competitive pressures, especially in certain markets like South America. It was definitely a more aggressive market there. When I look at the team, though, despite that our fourth quarter came in exceptionally strong. If you may recall, I started at the end of the third quarter call, we guided think price in the range of 0% to 1%. We finished the year just north of 1%. So the team gained share took dealer inventories down and had pricing better than our plan coupled with the volume. So the team has done an exceptional job in managing and selling the value of our products relative to the competition.

So when I look at the pricing that we have carryover this year going into 2026, we have north of 1% of that 2% to 3% sort of already embedded into our base here. So overall, as we think about the new product introductions coming, what we see in Europe, we feel comfortable in that 2% to 3% range to at least start the year.

The next question will come from Kristen Owen with Oppenheimer.

I wanted to start here with your outlook for Europe. I mean that has continued to outperform for you guys. Can you just give us a sense of what's happening on the ground there? I mean we've seen a little bit of compression in some of the dairy margins recently. So maybe just give us a sense of like farmer sentiment there, what you're seeing in terms of demand? And maybe ask you to double-click on the pricing acceptance that you're seeing there?

Sure. Yes, I'll take that one, Kristen. And if you take a start -- look at the industry to start off with, and one of the things that we watch is average age of the fleet. And it's been climbing steeply in EME as it's been in North America, but let's stay on EME for now. It's almost back to its record peak age and that's creating just a lot of pent-up demand for new products. And so that's number one. That's kind of where the fleet is.

Farmer sentiment is actually relatively positive. We had a field tech days this fall, spent time at [ Agritechnica ] and spent time with thousands of farmers at Agritechnica, the feedback that we were getting was more positive than we expected. So although the [indiscernible] barometer is kind of just hovering in the same spot, which is one of the prediction models, we're bullish that we think the market is going to be up this year.

And I think, Kristen, if I go to your other questions here, overall, the demand profiles remain relatively strong. Their dealer inventories, as I made in the comments or where Eric made, we were right around 4 months. So we're right where we want to be from a dealer inventory standpoint pricing in Europe finished the year quite strong. We had over 3% pricing in Europe in the fourth quarter on top of that strong volume growth with expectations as well.

And so we have relatively good carryover going into 2026 in Europe pricing as well. And then you layer on the new product introductions that we showed at Agritechnica. We've got some great new products out there, the Fendt 800. It's going to be a hugely successful product coupled with some of the other ones. So again, the European team has continued -- despite the backdrop here, the European team is continuing to hit on all cylinders and doing very well in gaining share holding their margins at exceptionally high levels for us and gives us a lot of confidence as we go into '26 in that market.

That's great. And then my follow-up question just is here on the cost savings actions. I think you called out $65 million bottom line benefit in savings in 2025, another $40 million to $60 million in '26. Can you just remind us where are the big buckets of those cost savings are coming from? And maybe tie that back to what you outlined for the 2029 targets, where you're seeing those cost savings come through?

Yes, sure. Good question, Christian -- Kristen. And geographically, I would say they're very similar to our revenue split. So we're seeing them across all of our 4 regions the vast majority of this is coming through or in the SG&A bucket. So a lot of -- as AGCO is a company that has been built through acquisitions, we spent a lot of time in the last couple of years really trying to standardize and simplify our processes. Once we've done that, how do we move them into lower-cost opportunities, either offshoring them to other AGCO locations or potentially outsourcing them to third-party providers who can do that well for us. And so we've seen a lot of savings coming from that shift. And at the same time, we believe we can even leverage artificial intelligence more and more within the company where we can automate those processes, streamline that, making it easier for our dealers, easier for our customers and easier for our associates. So we're seeing some good momentum on the AI side of the house as well by just streamlining the work and moving it into a more technology advanced product.

You're right, we did about $65 million in savings this year. We have another $40 million to $60 million in savings coming in 2026. As I've mentioned on some prior calls, given the industry downturn, we've been looking to accelerate some of those cost actions that we saw in '26 into 2025 and that was part of the benefit that we saw in the fourth quarter. So as I think about where we are at the end of 2025, the run rate savings is about $190 million. So we're already in line with what we told the investors in December of 2024 as to how we would run rate out of 2026. So we pulled some things in. Now we got a lot of that in the fourth quarter. So you're still going to see the absolute dollars come to the bottom line here in 2026.

But from a run rate savings, we're already at about $190 million. So we'll probably get a little bit north of that $200 million by the end of '26. So very well positioned for that particular bucket on delivering to the 14% to 15% adjusted operating margin at mid-cycle that we talked about at our last Investor Day.

Yes. Maybe I'll just add a little bit on that one. This is a project reimagined that Damon was describing and 700 projects that are all managed very tightly going through the stage gates, that's taking out the $200 million in overhead. What's still in front of us is more work left to do on AI, as Damon talked about. We've got about 160 Agentic AI projects in flight right now, 50 of them completely done. But a lot of them in flight and then shift to low-cost country. That's still in front of us as well. We're aggressively going after that in '26 and '27. Much of our supply base is in high-cost countries, we're aggressively moving that. So overhead kind of towards the tail end and very mature. Now we're going after product cost really aggressively.

[Operator Instructions] The next question will come from Mig Dobre with Baird.

I found your comments on 2025 being the biggest year of share gain to be really interesting. And I'm wondering if you can maybe give us a little more context there as I understood it, it's North America. What's sort of specific to some of the things that you've been doing relative to maybe competitors pulling back from the market if that at all was a factor?

And PTx, can we talk a little bit about how you see that progressing as well? It seems like the market, to some extent, are starting to stabilize here. Do you think PTx can be a source of outgrowth, especially on the retrofitting part of the business as we think about '26 and even '27?

Yes. Thanks, Mig. A few comments. One, overall, AGCO turned in the highest market share in our history in 2025, and that's global. So all over, when you take a look at where farmers are seeing value, they voted with their order book to come to AGCO. What's underneath that? Net Promoter Score, which is our customer feedback to AGCO, hit its all-time high in '25. So the perception of the overall value of the product, the dealer performance, the services, the data management, data platform, all of that is coming together. And we feel like it's fueled for growth. We had a record patent filing in 2025. So we think we've got a great set of innovations continuing to come through. So that's the macro.

Then you drill into North America, it was the largest 1-year gain in market share for large ag in North America. Largely, our portfolio has been what it is. It's now working with the dealers to get the most out of our partnership with our dealers to serve customers. We've got several focus areas. It's not so much about conquering white space. It's largely about penetrating the space that dealers are already in. And so we've been looking at performance by county and getting a very granular work plan together with our major dealers and saying, how do we go change how we're supporting the farmers. About 85% of our big dealers now have adopted FarmerCore, at least the early phases of it. They're showing where their service trucks are and doing much more of the work on farm. So that FarmerCore, combined with detailed work with our dealers, matched up with an industry-leading product portfolio, we think is starting to show the early days. We also made a bit of an org change to even sharpen our focus on North America. So that's kind of the machinery side of the business.

Now if we switch over to PTx, had 14 product launches. There's essentially an innovation and an education side to that business as well. On innovation, we had 14 product launches way ahead of what we would have expected a year or 2 ago. The feedback at Winter Conference, as I talked about, I go to that every single year, super strong. Some of the best farmers in the world. I think it was one of our best winter conferences. So the innovation engine is going strongly. But the bulk of the work now is on channel development and establishing our elite dealers, which is those dealers that carry the full product line. They're the tech dealers. They don't sell tractors and combines, they just sell tech, establishing them. We've grown that to a little over 70 dealers now. We only had about 40 and -- we have added about 40 in 2025. So it's a channel story there as well.

If you look at retrofit, it only is down about 1/3 as much as the overall market. So our thesis all along about serving farmers, serving the mixed fleet, serving every farmer regardless of brand, is playing out as long as you keep innovating. That farmers are thirsty to be, whether they're in a peak or a trough market, they are thirsty to be more productive and profitable.

Appreciate the color. That was really helpful. And then I guess my follow-up, going back to EMEA, can you talk a little bit about how we should think about margins? I mean margin here in '25 surprised, at least relative to our model pretty consistently. Should we be thinking additional margin expansion in '26, especially as maybe volumes here get a little bit better?

Yes. Mig, I think, overall, I think you're going to see the European margins stay relatively consistent here in '26 versus 2025 on an annual basis. It may mix a little bit in quarter depending on production schedules, timing of pricing actions. But generally speaking, I would expect to see Europe right around that 15% operating margin where they finished last year.

The next question will come from Jamie Cook with Truist.

A nice quarter. I guess, Damon, just 2 questions. You just answered the question on margins. Just wondering how we're thinking about margins or sorry, losses in North America in 2026 relative to 2025, given the top line outlook and how -- where we end up in South America with concerns about some of the discounting?

I guess then on the positive, the operating cash flow number was very strong in the fourth quarter for the year. So was there anything unusual in that? Is there any reason to believe free cash flow conversion has opportunities to improve from here?

Jamie, and I think on North America, we're -- as I -- in one of the earlier questions, we will be underproducing relative to retail in the first half of the year. So you're going to see the North American margins are going to be negative, likely for the first 2 to 3 quarters. A little bit too early to see how they play out in the fourth quarter right now given the industry outlook, but I think for us, we'll see Q1 and Q2 will likely be worse than Q1 and Q2 last year given the underproduction and the decline in the large ag market. And then hopefully, we'll start to see the margins improve year-over-year, but still be down in Q3, which is likely a negative for the full year. So -- but we'll see how that fourth quarter starts to pan out.

Fourth quarter free cash flow, again, as I said in my comments, just great performance, record free cash flow for the year. A lot of that was to do with the incremental volume that we saw flow through in North America and the significant volume increase we saw in South -- sorry, in Europe. As you know, Jamie, we sell those receivables to AGCO Finance so that receivable translates into cash for us very quickly. So great results for us there.

As I think about '26, we still feel comfortable in that conversion ratio of 75% to 100% of adjusted net income. So we'll stick with that for 2026. If I think about working capital here for '26, again, I expect us to continue to refine our inventory, but we'll see how the build comes up, as the team has done a really nice job with forecasting and getting the scheduling in our factories better, helping take out some of that working capital in the system. So I'm hopeful that there's a little bit of a modest improvement in working capital in '26 as well.

The next question will come from Jerry Revich with Wells Fargo.

I'm wondering if we could just talk about your precision planning product line specifically, what kind of demand are you anticipating for this planting season? How does '26 versus '25 look for that product on a retrofit and first-fit basis, if you wouldn't mind?

Yes, we're expecting the market in general to be down in North America as the overall market kind of moves in the same direction. But we think that there's going to be enough attention on the retrofit business that it won't move down as much. And there's a lot of interest in ArrowTube. That's the new seed placement launch that we had where it places the seed tip down and at the right orientation. So when it comes out of the ground, it -- perfect emergence and the leaves have more capture of sunlight. That's unique to precision planting. There's nothing else like it in the world, and we think that that's going to generate a lot of attention. But so is the dual boom spray system.

So we're pretty bullish those 2 hardware products, combined with our FarmENGAGE platform. We think that there's a lot of interest in the precision planning market, especially those 2 are predominantly biggest hits for North America.

Yes. And Jerry, just to put some numbers, I know we've had a couple of questions on PTx. So 2025, the PTx team did an exceptional job. They hit their numbers. They finished the year right around $860 million. So credit to the team, they were on forecast or above every quarter, so a little bit better than where we finished 2024. And for 2026, again, as Eric alluded to, we do see the retrofit market doing better than the equipment market. And I would say right now, we see the '26 PTx revenue flat to modestly up versus the [ 860 ] that they finished this year here. So good performance by the team and a lot of new products, as Eric touched on, giving us some good momentum, especially on that retrofit channel.

Well, that's a good year given the backdrop. And in terms of overall cost structure, obviously, you folks have done a lot of work. Can you talk about any incremental opportunities that you're considering, obviously, the tariff headwinds are pretty painful? Do we see more potential opportunities if we think about the cost structure exiting '26 versus starting '26?

I think, Jerry, for us, from the SG&A standpoint, what we've sort of communicated to the -- here for the 60 -- for the $40 million to $60 million of incremental costs. I think we've got a really good visibility on that. Eric alluded to more on the cost of goods sold side. And I wouldn't say that's necessarily connected to the tariff environment. But as we think about how do we make ourselves more efficient without compromising quality to the farmers.

We do think there are some opportunities to evaluate our sourcing. Now that may come to certain -- that may help us from a tariff standpoint. But as we think about that, it's identifying suppliers who can deliver the quality that our farmers demand. But doing it in a way that's lower cost for us and really leveraging the economies of scale that we have with our Massey Ferguson and our Valtra brands globally. And so we see some opportunities for that helping improve the cost of goods sold and helping position the margins for Massey and Valtra more, especially as these volumes start to pick up hopefully in '27 and beyond.

The next question will come from Tami Zakaria with JPMorgan.

I wanted to get some color on how you're thinking about operating margins by the different regions. If you could provide some color there, North America, Brazil, Europe and how to think about as the year progresses like first half versus back half? So any color you can give on regional margins as it relates to first half and back half would be helpful.

Yes, sure. No worries, Tami. I think for -- as Mig asked in the question, I think Europe should stay right around that 15% margin for the full year in similar to what we've seen in the individual quarters as the other question came up on North America. I think you're going to see North America, let's say, directionally down in a loss position probably in that sort of high single, low double-digit range for '26 based on the industry forecast that's going to be worse year-over-year in the first half, given the industry and the underproduction and then probably a little bit better than what we did last year in the back half of the year.

And then South America, that's kind of, as you know, a little bit uncertain right now. Overall, for the full year, I think it will be -- our forecast shows it being modestly better versus 2025 on a full year basis, going to start worse off because we got to do some underproduction here. We've got to get the dealer inventories, and we've got some weaker mix right now and then sort of picking up to be a little bit stronger in the back half of the year, given what we saw here in the back half of 2025. So I'd say margins for the full year relatively flat, maybe a little bit above but more of a shift between first and second half and then Asia being relatively flat relative to last year from an overall margin perspective.

Understood. That's very helpful. And quickly, I think there's been some announcements on Indian tariffs going down. Any thoughts on whether that could be a tailwind for you? And overall, like, could you remind how much of tariff impact is currently baked in? So we can kind of keep track if other tariff rates come down, we can sort of calculate based off of that.

Yes, absolutely. So if we think about the incremental tariff costs that we're going to see in our P&L in 2026 versus '25, and it's just the tariff costs themselves, that's about a $65 million headwind year-over-year. And if I think about what we incurred in our P&L last year, it was around $40 million. So the absolute total tariff cost in '26 will be just around $105 million, $110 million. So we've said around 1% of our sales. So that's sort of directionally where we're at, but about $65 million of that will be incremental to 2020 to 2025. And that's what's compressing our year-over-year margins because when you look at our pricing guide of 2% to 3%, as I said on the call, at 3% when you look at inflation plus tariffs, we're only going to cover that on a dollar basis at the 3%. So that's actually margin dilutive.

And if you look at the midpoint of our pricing guide, we would actually be negative from an earnings standpoint and it would be margin dilutive. So that's sort of what's in the numbers right now based on what we know. If what was communicated related to India does come to fruition, probably not going to have a big effect on us, Tami, it's a couple -- it would be a couple of million dollars of a positive, but not a big mover to that $65 million that I just quoted.

And the last question today will come from Angel Castillo with Morgan Stanley.

This is Esther [indiscernible] on for Angel. Congrats on a good quarter. My question is maybe going back to tariffs, could you maybe give us like kind of the cadence each quarter going to 2026? Do you see more happening in the first half or second half? Or is it kind of equally divvied up?

Yes, Esther. So overall, given the timing of the tariffs last year, again, as I think about that $65 million incremental, it's going to be heavily weighted here in the first half of the year because if you remember the timing of when tariffs rolled in last year, coupled with the level of inventories that we had and our dealers had, we really saw that start to pick up in the third quarter and more into the fourth quarter. So you're sort of looking at probably the majority of that $65 million sitting in the first half and then the balance of it sort of rolling in, in the third quarter and then being somewhat neutral in the fourth quarter.

Okay. And just a follow-up, are there any limiting factors in your ability to underproduce at a greater degree just to kind of fix some of the excess inventory you mentioned in the call today?

So there's no inhibitors for us in reducing our production, but I think you have to understand the complexity of a full portfolio. And as we talk about the industry, the planter industry is different than the combined industry, which is different than a low horsepower, medium horsepower, high horsepower. So depending on which industry is fluctuating and what that dealer has on his or her yard influence our production. So we don't have any take-or-pay contracts with suppliers. We don't have any issues that prohibit us from slowing our production. But it's more as the different types of products have different dynamics that influence them, that's what may adjust the inventory or the months on hand that we then have to try to adjust.

This concludes our question-and-answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks.

Great. So I just want to thank everybody for joining us today and some of the really good questions. 2025 reflects a meaningful progress year that we've made in transferring AGCO into a more resilient, better positioned company. We're executing with discipline and focus on what we can control in a pretty volatile market. And we're always staying focused on our Farmer First strategy that creates purpose for employees.

Our global team delivered a 7.7% adjusted operating margin in 2025. That's a high watermark and notable achievement at this stage of the ag cycle, the best we've ever performed at the trough. I'm really appreciative of the commitment and results of our team and our dealer organization. We remain focused on delivering for all stakeholders.

For our farmers, our innovation flywheel continues to spin fast with solutions designed to solve real on-farm problems. We recorded a record Net Promoter Score and have a record set of patent filings. So farmers like what we've got, and we've got more coming.

For shareholders, we exceeded -- executed a $250 million accelerated share repurchase in quarter 4. That's part of our $1 billion program, and we're in a new chapter in that regard with our ability to do share buybacks. And share buybacks are probably coming more in the future because we had a record free cash flow of $740 million in 2025, all-time high moderate for AGCO.

Our 2026 outlook reflects our ability to keep earnings, earning the trust of farmers and OEMs, transforming our dealer network, gaining market share, driving our higher-margin growth levers and executing structural changes and cost initiatives that will position us well for when demand recovers. 2025 was the bottom of the trough and the fleets in our major markets are at the peak of their age. So we expect that the future looks brighter.

Thanks for everybody's participation today.

Thank you for joining the AGCO earnings call. The call has concluded. Have a nice day.

Okay. Good afternoon. Thanks for coming to this session. I'm Steve Fisher, UBS Machinery Engineering & Construction and the U.S. Building Materials analyst. We are really thrilled to have management of AGCO Corporation with us. We have Damon Audia, CFO. We have Greg Peterson, who runs Investor Relations.

Just one quick disclosure before we get started as a research analyst, I'm required to provide certain disclosures relating to the nature of my relationship and that of UBS with any company on which I express with you on this call today. These disclosures can be found at ubs.com/disclosure. You can reach out to me afterwards, and I can get them to you.

So thank you, Damon, thanks, Greg, for being here. Really appreciate it.

So just to kick it off, we're coming to the end of 2025 here before we talk about '26, I thought maybe I'd like to highlight some of the the key accomplishments and highlights of 2025, the five big strategic shifts that you've been talking about, and then we can get some into the details of each of those along with some of the cyclical dynamics.

Yes. Sure, Steve. I think obviously, the industry dynamics are -- creates a lot of questions as to what's going on. But if I look at underlying what's happening in AGCO, we've gone through a significant amount of transformation over the last year, 1.5 years that have really positioned us well for when the industry recovers. And if I think about what are those five key changes that we've gone through. First is the PTx organization, this umbrella of our technology stack with the joint venture with Trimble Ag, bringing that and pairing that with Precision Planting under this PTx umbrella. We now have the industry leader in mixed fleet retrofit. And that was a significant transformation for us in really building that brand and positioning ourselves to grow that technology stack, both with other OEMs, but also in the retrofit channel. Once we did the announcement of that acquisition, it allowed us to revisit our portfolio when we made the decision to exit our Grain & Protein business. So as you recall, that was a low-margin, low-growth business, really never got the synergies that we had hoped through in that acquisition, but it allowed us to divest that business to focus purely on equipment and technology. So two big portfolio changes. At the same time, we were very aggressive in reducing our costs. We have a restructuring action in place inside, we call it Project Reimagine. In Project Reimagine, by the end of next year, we'll run rate in the range of $175 million to $200 million of structural cost savings. And that's ranging from a combination of us just reducing our overall footprint, but it's also migrating a lot of our services into lower-cost countries or to third-party service providers and then leveraging AI where appropriate to really streamline efficiencies. So this is not really industry-dependent, it's more about a structural change that we've gone through. And again, that will generate somewhere in the range of $175 million to $200 million of run rate savings. So we've got those three from a portfolio and a structural standpoint. The fourth one is what we're doing more with our dealer network is what we call FarmerCore. And if you think about in a simplistic way, FarmerCore is shifting from the old way of doing business, the old mall structure, where the farmers were required to come into these large brick-and-mortar dealerships to being more on the farm, more like Amazon. We're leveraging mobile fleets, our dealers are able to do 85-plus percent of the service, more on the farm and service the farm rather than the piece of equipment that the farmer was looking for. So a real structural shift as to how we're approaching our distribution, and how our dealers are servicing our farmers and seeing a lot of good traction on that. And then the fifth one is some of the changes that we've made more from a governance standpoint with our largest shareholder in the resolution that we brought together with TAFE, which really has allowed us to simplify our strategy of how we're working with our low cost or our low-end tractor supplier with now SDF and TAFE, a little bit of change from a governance standpoint. But most importantly, as part of the structural agreement with TAFE is the ability to change our capital allocation. We now have an agreement with TAFE, where they will participate in share repurchases on a pro rata basis, and that's allowed us to pivot our capital allocation from special variable dividends into share repurchases. And with that announcement, we did announce a $1 billion program, which we expect to commence around $300 million of that here in the fourth quarter. So a lot of structural changes that have positioned us for success deliver those next stage margins that we talk about a 14% to 15% as our industry gets back to that mid-cycle here.

Fantastic. So maybe we can dig into some of the details here on PTx. I think it's roughly $900 million of revenues today, about 10% of where you are at this point in the cycle. Any sort of breakdown you can give in terms of the products and services, and what do you think that mix will be when you hit that kind of $2 billion target that you have? Are there multiple paths to getting to that $2 billion? Maybe you can talk a little bit about that.

Yes. So if we look at the business today, the vast majority, I'd say probably close to 90% of that is products. We do have some service-orientated parts of the business, some SaaS-based revenues, so if I think about some of the programs that we offer, radical agronomics, which is the soil sampling, that is a pay-per-use sort of basis. If we think about some of the autonomy offerings that we have, the operator is buying hours of service. And then if we think about FarmENGAGE, which is our new mixed fleet farm management system, that is a service fee that the customer would pay for on an annual basis. So we see those parts of the business is growing over time in absolute dollars, but 90-plus percent of it is actually products. So -- and I think it will stay at a high percentage for the foreseeable future. As we think about the growth from $900 million -- $850 million to $900 million to $2 billion, it's really going to come through a couple of different ways and break down the $900 million today, and you can sort of look at that as sort of in three different buckets. So about 1/3 of that is products that PTx is putting into AGCO products. So what's going into the Momentum planter, what's going on to the Fendt, Massey Ferguson or Valtra tractors. So about 1/3 of that revenue is sort of intercompany sales. About 1/3 of it is other OEMs. So we have relationships with over 100 different OEMs around the world, pretty much every player outside of the industry, the large industry player. We service every -- almost everyone else in some form of a product that we're selling to them. So we have about 1/3 of our revenues coming from those other 100-plus OEMs. And then we have about 1/3 that we sell through this unique distribution channel that we call the retrofit channel that's focused on the mixed fleets. So this is going in from a separate dealer network. These are not your typical equipment salespeople. These are the seed salespeople, agronomists, people who are more technology-orientated, more on the farm, and they're trying to solve -- they're trying to sell a solution to the farm, helping drive productivity or helping drive improvement in yields, lower input costs, and about 1/3 of our revenue goes through that unique retrofit channel. So that's sort of the basis today. If I think about how we're going to grow to $2 billion, there's a couple of different facets. The largest part of that growth is going to come from that retrofit channel. And it's going to come really in two categories. One is new product introductions. So historically, we've been introducing a couple of products per year as we brought Trimble Ag and Precision Planting together, we had a goal of starting of introducing more products. This year, we're going to introduce over 10 products. And our goal is to try to introduce these high single-digit number of new products per year. And if you look at what's in the marketplace from AGCO today, SymphonyVision, so that's our targeted spring, really starting to ramp that up, which is a huge opportunity for farmers. Autonomy, again, we're the industry leader out there. We've already have autonomous grain carts for sale. We've introduced autonomous tillage, so really starting to ramp up the autonomous offerings around the crop cycle, coupled with some of our core legacy technology products. So when I think about the opportunity for growth, part of it is going to become more of that product introductions. So we've got a lot more in our technology pipeline as we bring those to market here at Winter Conference and then subsequent after that at other events. So we see the portfolio of products growing and a big opportunity to grow the revenue there. And the second one is more the geographic expansion. Again, when we brought together the Trimble Ag business, which had a strong presence in Europe, in Precision Planting, which had a strong business here in the U.S., we saw synergies and growth opportunity of really expanding the two portfolios in those other markets and really expanding both of those products, both in Australia and New Zealand as well as the South American market. So we're going to see some geographic expansion with the full tech stack now being offered around the world. New product expansion will be the two primary growth drivers, facilitating the retrofit. And then we have the other OEM channel. Again, I mentioned over 100 different OEMs. Several of our investors were at our Tech Day in Germany earlier this year, where they got to see the technology firsthand. But what we did the day after that is we had a PTx Tech Day for those other OEMs. We brought them to the same farm. They got to see the same technology. And so these were OEMs, who may have been buying some of the legacy Trimble products, or they may have been buying some of the Precision Planting products. They got to see all of the tech available to them as part of that relationship that we have with them. So we see a lot of opportunity for growing our share of business with those other OEMs, which will be a catalyst for the growth on top of that retrofit channel, and I think those sort of three pieces are really what's going to drive the revenues from the $900 million or so up to $2 billion by 2029.

Great. Yes, I was going to ask you which sort of products within broader Precision Ag, do you think you're going to have the biggest impact on your revenues. It sounds like you would say it's those new products like the SymphonyVision and autonomy, or are those still smaller in the grand scheme of things. It's more just sort of base precision planting...

Yes, so there's probably three that get me the most excited. I'm not sure they're necessary going to be the biggest dollars, but I think about what are the three that are going to really drive in a lot of ways transformational change. SymphonyVision, so the targeted spraying, huge opportunities for the farmers, as they think about their input costs, reducing their chemical spend is huge for them. And what we have -- and again, this is a retrofit application. So we're not asking farmers to buy a new piece of spring equipment. They can buy the Vision system, the nozzles, they can bolt it on to their existing sprayers, so a much lower entry point, and they own that equipment. So if they don't -- if they question the efficacy of the spring, they can go back into the field 2x, 3x, and there's no incremental cost for them other than chemicals and the hours on the spray, they're not paying a per use basis today. So it gives them an opportunity to really test that out in a retrofit application without having to buy a brand-new piece of equipment. So I think SymphonyVision Targeted Spring is a huge opportunity for us. Autonomy, as we hear everywhere we go, I'm talking to a farmer panel on Monday, labor is a challenge for them. And as you get into the harvest, the opportunity to get that crop off the field during the optimal window is critical for them. And as labor is a challenge, the more that they're able to leverage autonomy, the better it's going to be for them. So I think the autonomy offerings as we continue to introduce new offerings around the crop cycle become critical. So I think those are two big ones. The third one, though, I think, which is a little bit different is our FarmENGAGE platform. So that's our farm management system that we introduced at Farm Progress earlier this year, and it's a farm management system for the mixed fleet. And it allows our FarmENGAGE to sit in theory over the top of the other offerings that our competitors have, and it allows the farmers who are using that mixed fleet be able to do the task management that need to collect the data, and it allows them to either extract data from their existing legacy system FarmENGAGE or collect this information off their equipment and send it into their legacy system. So really a complement. So if a farmer was more loyal to a competitor's brand for years and has collected lots of data, with FarmENGAGE, he or she now has that capability to create more of that mixed fleet so to get the best product for what he or she needs and not worry about the data being in two different systems or not talking to other, and FarmENGAGE really sort of complements what they were looking for from a data management standpoint. So I think that's probably not going to drive a lot of revenue growth in PTx, but as an enabler for the equipment growth as I think about how Fendt is growing its market share that really reduces one of the barriers that some of the farmers may have had if they were solely focused as one legacy or had one brand that was managing their entire fleet.

Yes. I was going to ask you about that because I was trying to understand exactly how that was going to be executed. So it sounds like you're not -- if they have a farm management system A or farm management system B, you -- and yours is C, you're not telling to get rid of A or B, you're layering on top basically, absolutely understand it.

Yes. When we think about Fendt penetrating in North America, South America, more often than not, Fendt is creating more of the mixed fleet for the farmer. When you look at the strength of what Fendt is doing, it's got a lot of strengths, but some of that was, well, hesitation from farmers. Is it really better? Will it do all the things I think it can do, but then ultimately at the back end is, well, how do I handle the data coming off of that tractor if I'm using a legacy or a competitor system, what FarmENGAGE is a complement. It allows that farmer to do all of the tasks that he or she needs to do, whether they're running a different green, a red, a blue or a Fendt, they can set their task, collect their data, and it works between the two systems, allowing them to keep their data in their legacy system, or they can convert it all into the new system if they find it easier or more user-friendly. So it's more of a complement or an enhancement rather than a replacement if they don't -- if they want it to be.

Interesting. And what would you say would be the benchmark for successful FarmENGAGE over the next 12 months and then over the next three years, do you have a metric that adoption or anything that we should be keeping in mind?

Yes, it's going to be adoption, right? What is the penetration rate that we're seeing. So the good news for us is, we've announced for model year '26, all Massey Ferguson and Fendt tractors are going to come with a 3-year FarmENGAGE option or offering as part of the initial purchase. So we'll get to see farmers woven theory, will get to experiment with FarmENGAGE upfront. I would tell you when we announced it at Farm Progress, there was a lot of initial excitement by farmers who have been using some of the -- some of our products alongside competitors' products, as it gave them an avenue to start to consolidate data. But I think user activity, the data that we're able to see or the farmers are able to see is going to be a huge variable we'll watch, and how it's penetrating those mixed fleets.

That's very exciting. Maybe to kind of bring this up to a higher level or a different angle on Precision Ag in terms of -- you mentioned before I think around 10% or so of your PTx revenues are around services and SaaS and things like that. Just curious how you view the concept of subscription fees and recurring services as a critical element of the future revenue mix and just the overall -- if the revenue model today is the 90% machines, times, price times volume, is that a sustainable model going forward? Or does the industry have to move to more of a recurring services model.

Yes. So I think it's evolving. We're going through a tremendous amount of transformation from the technology side of the house and probably than we ever have in this industry. I think historically, farmers have been reluctant to sign up for subscriptions. Again, you look at their profitability, generally speaking, when they're profitable, they want to buy a large piece of equipment, they want to pay for all that upfront, be done with it. And then when they go through a downturn like they have the last couple of years, they want to be able to hunker down and reduce their cash outflows. So that's been the historical model. As we've talked with them, they've sort of said I'd rather buy it all upfront. Now what we are seeing here is probably more willingness as technology becomes more and more evident to them and the improvements in technology more of a willingness to things that are more subscription-oriented. And I'll give you a couple of examples. When we think about things like autonomy, there -- in that case, in the way that AGCO has handled it as you buy the equipment or the hardware itself, you pay an upfront price for that, so the farmer likes that. But you buy hours, whether it's you buy per hour, you buy a bundle of hours or unlimited, and that is more on an annual basis. And in that case, the farmers appear to be more willing because they know that there's a lot of system upgrades. You're getting the latest technology or if I just buy a hard piece of equipment one time as we make upgrades to the algorithms of software by paying that reoccurring system, you're getting the latest and greatest. So as we look at things like that, we're seeing more of a willingness because they know they're getting something better. Now we also see others in the industry looking at more SaaS-based systems on things like spraying, and I'd say, we're watching that. We're monitoring it. All of our our targeted spring has the capability to move into that type of pricing module or the type of pricing methodology, but at least right now, we haven't seen the -- I think, the desire to migrate to that, but it's something we'll see how the industry evolves and, again, farmers' willingness to pay for that.

Right. Makes sense. I want to dig into also FarmerCore a little bit more. Can you talk about what differentiates it from other mobile service offerings that are out in the marketplace today?

Yes. I think if you think about FarmerCore, for us, it's a complete redo of how we service the farmers. Our industry for hundreds of years has done very well of forcing the farmers to come to the dealer. Think about when you and I used to grow up, and we shopped at the mall. And if you go to this big giant mall, 12 bays, we had to go do there. The evolution of Amazon. Amazon brings most of the stuff to us. FarmerCore is a derivative of that, right? Leveraging the technology, the connected machines were able to service the farm better on the farm. And so what FarmerCore does, it's sort of servicing the farm through connected machines, leveraging mobile trucks, doing 85-plus percent of the service on the farm at a time when the farmer needs it. And for us, it's working quite well. So as we roll out fence in North and South America, we're training these dealers to use or leverage this FarmerCore process helps improve that for them, for the farmers and for us. And what does it mean for the farmer is, you can see a lot better engagement, Net Promoter Scores with the farmer because they're getting the work done in a time that's more convenient for them. A lot of times when there's a service technician on the farm, he or she is there to service the firm, not just a piece of equipment. So when we look at our retail stores that we own, the first question they ask when they're done servicing the piece of equipment they were theirs, what else can we do for you? And so with that farmer who's already got the technician on his farm or her farm, what else can I get done? Great. I got another highly capable technician who can do more work, making it easier on the farmer. So good engagement for the farmer. He or she is getting a lot more work done. The dealers like it because the investment for them is lower cost. They're usually building a much smaller brick-and-mortar store. They're putting them further apart, and they're adding these mobile trucks and parts depots to cover more white space in between. So as a dealer, your investment cost is lower, you're able to service more white space. So your parts and service or your absorption is a lot better. And because you're sort of servicing the farm, you're usually getting a higher ticket price on the farm, driving better profitability for the dealer. And then for AGCO, again, better connection with the farmer, hopefully, better engagement with him or her and better parts and service because, again, usually that's facilitating more sales for us. So we think it's something we've been doing that at our Ag Revolution stores that we own here in the U.S. now for several years. The team has done great from an absorption standpoint, seeing great traction. And as we start to roll that out in our North and South American dealers seeing good momentum with them as to how the farmers are responding. And once you get used to being serviced on the farm, sort of hard to go back of having to bring your equipment into the dealership versus having them come to you.

And relative to your peers that have some version of this offering as well. Would it be fair to assume that perhaps your trucks are out there being a little more proactive making sales calls to be more little aggressive in trying to take market share with it, or is there any other point of differentiation with it?

No. Again, everyone has the ability to do it. But when you look at the infrastructure. When we look at the Fendt rollout of the dealerships, we're trying to space those brick-and-mortar stores further apart and letting the mobile fleets cover more of the white space. For some of our competitors who have phenomenal dealer networks, part of their strength has been having the proximity to the firms, having them be closer together. Well, as you start to add trucks on top of that, you can service the firm but you still have that 12-bay store that has to be serviced. So if I've added trucks on top of a big store, my cost structure has gone up. So again, not that it can't be done, but it makes it harder from an absorption standpoint, where if I have a smaller store with the parts depot and a couple of trucks, if my investment cost is lower, I can get better absorption. And I think that's kind of the trade-off that we're dealing with as we roll it out. We have more flexibility where if I'm already well established, I have to figure out, do I close a store, do I accept higher cost structure to manage the farm. And it's a trade-off that others will have to debate.

So you have a little more flexibility with it, basically. Got it. Okay. Another pillar of your core strategy is Fendt. And I wanted to ask you about some of the successes you've had with Fendt in North America in the last year or so. And how do you build on that? What lessons have you learned? And can you kind of improve on that to have a bigger impact on this initiative in the next few years?

Yes. So one of our three core growth pillars is growing the Fendt share in North and South America. And again, done quite well in penetrating here. We're gaining share, and when I step back, I think Fendt has got a tremendous opportunity and some of the things that we've done in the last couple of years has really positioned it for tremendous success. And if I sort of step back and again think about what a farmer wants, the first question a farmer asks us he or she's going to switch products, is it better. When you look at the equipment itself, the Fendt products, generally speaking, are better performing products than the competitors. If I look at the Fendt tractors, they're more fuel efficient than the competitive products. So if you're a farmer, looking at this product, I got 20% more fuel efficiency, I got better technology, better cabin comfort. There's a reason to consider the alternative. Second step is, well, what about parts and service or warranty? How is it going to handle? Well, Gold Star Warranty in the U.S. is three years. So the industry is generally two. So as a farmer, I've got a third year bumper-to-bumper AGCO has the best parts and service fill rate in North America and Europe, and that's by third-party standards. So if I'm a farmer, I got a better performing product. I got a better warranty. I have a company backing with the highest parts and service fill rate. So I've got a good position there. Next question is who's going to service it? Do I trust that dealer because I'm walking away from dealer A to move to dealer B, is dealer B going to be there? Well, every Fendt dealer is handpicked, every store that he or she opens got to meet the Fendt qualities, loaner vehicles, technicians, layer on FarmerCore. We just talked about, being on the farm that dealer should turn into being a positive for you because I'm going to be on the farm, servicing your connected machines, 3-year bumper-to-bumper warranty, everything is taken care of, that dealer becomes a positive. The last part that we were dealing with was well, what about the data? Because a lot of time Fendt is creating this mixed fleet. So I've got this legacy farm growing up with competitors' data. I can't use it. I got to create two. But FarmENGAGE now sitting over the top and complementing the existing legacy systems data is no longer an issue. And so when I think about those different pieces that may have given farmers hesitation, whether it was product, dealer or now -- or the data, each of those have been addressed between FarmerCore, FarmENGAGE and just the Fendt product performance. So we feel really good about where we're sitting. Industry is challenged right now in North America. But when I think about what Fendt is doing, gaining the share, I'd tell you, I was at AGRITECHNICA, and I had -- we had 300 Fendt North American farmers and dealers with us in Germany and everyone I talk to raved about the products. They raved about what it was doing, exceeding their expectations. So there's good momentum. We've got to continue to build the brand awareness, and we don't want to compromise any of those three pillars on dealers, technology or the product quality. But I think we're in a good position here as we continue to roll Fendt out in North and South America.

Awesome. One bigger picture question that I've had in looking at how this last cycle has played out. I mean you guys are really rock solid in Europe, and the profitability there has been really very, very steady. North America and South America been much more cyclical and variable scale, I think, is a big element of that. As you kind of focus your resources on how to get to the next cycle and the next level of profitability. Does it make sense to focus more on South America, given that, that is also a structurally growing area relative to North America, or is the reality that if you're going to be a global player, you really have to focus on all regions in the same way. Like you have finite resources, do you put it all in the structurally growing one, or do you have to split them in both?

Yes. Well, I think I'm going to put the Americas in one bucket and Europe in a different bucket. If I think about Europe, all three of our brands have done exceptionally well there. Fendt has grown share. Fendt has introduced new products that generally result in a higher mix. So we've seen great performance by the team -- by the Fendt team in Europe, hands down to them. But at the same time, when you look at the profitability of Europe, over the last several years, what's maybe less visible to our investors is all of the work that Massey and Valtra have done as well. They've grown share, maybe not to the same degree of Fendt. But at the same time, we've been able to commonize a lot of the cost structure of the platform, where 70-plus percent of the products of the components in Massey and Valtra are like. And so that's taken a lot of cost out of the system. The farmers don't necessarily see that because the hood or the bonnet, the cab, the user interfaces, all look and feel different to cater to that Fendt customer -- oh sorry, that Valtra customer versus that Massey customer. But once you get underneath that, the structure very much like automotive, a lot of commonality. So we've taken a lot of cost out of the system between Massey and Valtra, that's really helped stabilize a lot of the margins of what you've seen in Europe. So we need to keep doing those things. We know Europe is a competitive environment, but three strong brands there, keep the innovation going and then we start to layer in the technology aspects of coming out of the PTx Trimble organization and the Precision Planting organization under PTx, we see good opportunities to continue the momentum in Europe. So a little bit of a focus there. South America and North America, I'd say, are more growth-centric. And that's where we look at our share in South America, we're in a good position, but we're under-indexed in the large ag there. And that Cerrado region of that Mato Grosso, we still see a huge opportunity for Fendt to cater to those large professional growers. They're doing two to three plantings per year. Again, you think about the topography in the Cerrado region, it's hilly. That momentum planter is the best of the best. And you couple that with a Fendt tractor. We see huge opportunity. Again, you look at the fuel savings of that product. If you're doing two to three plantings per year, that fuel efficiency of that Fendt tractor versus the competitors is meaningful for those large professional growers, who have hundreds of thousands of acres or hectares that they're farming. So we see significant growth there. And North America, same site. It's a huge market, and our share in large ag is relatively low versus our share in other parts of the market. So we see a huge opportunity to offer these professional farmers an alternative, and we want to be able to do that here in North America. So I'd say we're sort of in a growth mode in those two countries -- or those two regions and more sort of enhancements in the European region.

Makes sense. We have a little time left. We should probably cover the ag cycle, and where we stand there. So on your last conference call, you set some expectations by North America, kind of down mid-single digits before the China soybean deal for we're talking about 2026. Europe up a little bit. South America, somewhere in between. I guess, starting with North America, kind of what gave you the confidence that North America would only be down mid-single digits before that soybean deal. And now that we've heard some other perspectives from other players in the industry, does anything change your view?

Yes, we'll go back and when we looked at -- on the third quarter call when we gave our industry outlook, our data analytics models, we're sort of showing that mid-single-digit declines in North America. Since then, the harvest has come, we've sort of gotten the -- we'll get the data here on the harvest in North America. Obviously, our Indus -- one of the large players in the industry came out with a much more negative view of large ag given that they have a large share in this market that has a big influence. So we'll digest all of that in our updates when we give our '26 outlook here probably in February, we'll revisit that, likely will change our outlook to be a little bit more negative than what we had thought, at least based on what their views are. But nothing specific yet, but if you look at the industry as a whole, it's been down several years now. It's -- we're well below the mid-cycle margins in North America. And so the age of the fleet in North America never got young through the peak of -- because of the supply chain challenges. So when we look at the age of the fleet here in North America, it's already old again. But net farm income for farmers, there's been some challenges for them last year, this year and likely next year. So we've got to factor all that in and see if it makes our outlook for North America a little bit worse than what we had originally thought, but more to come on that.

Any -- in relation to that, I mean, how has the order activity been? Anything that would sort of corroborate what their thinking about and seeing as well?

Nothing significantly different from what we said on the third quarter call. Again, we're seeing the harvest come in. Yields were quite strong, but pricing is -- for commodities has been still relatively weak. And so again, nothing significant positively or negatively. We're working to reduce our dealer inventories while we're trying to continue to focus on retail sales. We're cutting production more than retail, but we're also obviously working with the dealers around the country to spur as much retail activity between now and the end of the year as possible. As I said on the third quarter call, we will not get to our 6-month target by the end of the year. That will require us to do some underproduction in 2026. Now again, with the outlook from one of our competitors being even more negative than what we had thought. Because our dealer inventories are based on the next 12-month sales, if that industry outlook comes down, that will put more pressure on what our dealer month of supply look like. So it may force us to do a little bit more under production, but we'll work through that as we get prepared for our outlook here in February.

And on that point, I mean, do you have a base case of how long it might take to get to your sort of targeted level of inventory?

Well, again, I think it's a lot, it's going to depend on the industry outlook, in '26 and '27, again, because we're looking at 12 months forward. Again, if I look at maybe some of the outlook that our competitor gave their outlook, I think, would put the retail market at levels back in the early 70s. So that's a pretty low level of inventory, a bit low level. That being said, as we reduce our dealer inventories, trying to get to that six months. If you're modeling it at that level, the industry picks up, just say, 10%, that changes the number pretty quickly mathematically. So we've got to manage all of those things, coupled with our lead times for some of our products coming in from Europe, coupled with what we commit to our suppliers. So we're sort of working through that machine right now on sort of what makes sense. But I think net farm income is going to be a big variable for farmers as we go into '26. How are they looking for commodity prices, their input cost, and then ultimately, the demand profile. We heard the agreement with China on soybeans, 25 million metric tons. At least there's some stabilities we think about '26, but we've got to see how that -- how the prices ultimately reflect in that? And what is their input costs as well for next year.

And how would you think about the start of a replacement cycle?

I think it's going to be dependent on farmer confidence, right? If we talk about farmers in North America right now, I think there's just a lot of uncertainty and a lot of hesitation. If commodity prices start to pick up, and they see more predictability for their income, given the age of the fleet, if they think about the technology of the new equipment versus the older equipment. I think there's an inherent desire to upgrade, but if you're not profitable or your net farm income is fairly limited, that's giving you reasons to pause. So again, we think the upturn will come. I'm just not ready to predict whether it's going to be back half of '26 or '27 or some -- or a different date.

And what about Europe and South America, Europe seems to be fairly consensus from the companies that it will be up next year. Is that -- are we still confident in that? And then South America, their competitor forecast was for sort of flat. Is that still in line with what you're thinking?

Yes. Europe, both of us have talked about modest growth in Europe next year. We still feel okay with that. When you look at the Western European farmers, close to 50% of their income is coming from subsidies from government subsidies. So you tend to see a little bit better order pattern there. You have better crop diversity from the farmers. And you have also have a higher percentage of livestock in dairy, in Europe, which tends to be a little bit countercyclical to arable farm or grain farming. And so they've been doing quite well. And so when we look at that, again, that industry usually is on a scale of mid-cycle. We talk about ag going from 85 to 115 of mid-cycle. Europe tends to fluctuate in the 90 to 110 range. And so we feel pretty good that, that market should be up sort of modestly next year. And with that being 60% of our revenue, that's a good story for us as we think about overall portfolio being the geographic weighting there. South America, I'd say, a little bit more of a wildcard for us. We've seen the mid- and low horsepower was doing quite well at the start of this year. Citrus, coffee crops were doing quite well. With 50% tariff from the U.S. that put a little bit of an impact on those sectors with that sort of subsiding or the recent rollback of those tariffs, we'll see how that picks up. And with the stabilization of the trade agreement between U.S. and China, that was some overhang in South America, whether or not those farmers on the row crop side were willing to buy. So we'll see if that sort of helps deliver any improvement in South America. But I sort of put a question mark on that one. We said we sort of expect it to be up modestly. So I think their outlook and our outlook are probably relatively similar right now.

Okay. I wanted to ask you about, and you made reference to it in the beginning about the change in TAFE in your capital allocation. Just one clarification, the wording on the $300 million commencing that, does that mean you -- this $300 million will extend beyond the fourth quarter, or it's you're commencing a $300 million buyback that will be completed in the fourth quarter?

Yes. So as part of the agreement with TAFE, again, they own 16% of the company. As part of the agreement with them, they've agreed to participate in share repurchases in a pro rata format. And so when you look at $300 million of an announcement, they have to remit to us around $50 million. Now the terms of the agreement, they have the inability is to win to sell that. So what you would see is, as I said, commencing, so call it, $250 million of that will be done in the form of an ASR here in the fourth quarter. So that will get taken in theory out of the system this quarter. But as we wrap that up, we then have to go back to TAFE, present to them sort of what certain they have an option to participate at that price, whether they want to remit a certain number of shares, certain period of time after that based on a mathematical price. So we can't determine what they're going to sell it this quarter, or whether they would sell it to us in the first quarter. They will submit or remit their shares to us. The timing of that $50 million directionally is sort of why we've caveated the commencement because I can't predict whether I'll get that $50 versus the $250, which is the ASR.

I see. Last lightning round question price versus cost thoughts next year? Any sort of framework to think about confidence whether you can be price/cost positive or not?

Yes. We don't know yet. I think what we've said on the call is we sort of look at more traditional industry pricing next year, and that's historically in the 1% to 3% range. We haven't given official guidance on what we think we'll do next year. And what I have said on the call, though, as you think about with the tariff, the incremental cost for us related to the tariffs next year, I don't think that we will deliver the traditional incremental. Normally, we have a price cost arbitrage of somewhere in the range of 50 to 100 basis points. I don't see that next year. I think we'll see in our outlook whether we're able to offset it on a dollar basis. So again, TBD on that. But if we are able to offset on a dollar basis, that would be somewhat margin dilutive next year, but we've got to sort of see based on the industry, based on competitive dynamics, what our two major competitors are doing, and what we think we can do based on what we've announced and see how that sort of shapes up relative to the inflationary costs we normally deal with, coupled with the tariff cost here in the U.S. and sort of see how that nets out. But we'll give more clarity on that on our Q4 call.

Terrific. Well, congratulations on all the progress you guys have made on the strategy and best of luck with 2026.

Yes, thank you. We're excited.

Thanks so much. Thank you.

Good day, and welcome to the AGCO Third Quarter 2025 Earnings Call.

[Operator Instructions]

Please note, this event is being recorded.

I would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations. Please go ahead.

Thanks, Gary, and good morning. Welcome to those of you joining us for AGCO's Third Quarter 2025 Earnings Call. We will refer to a slide presentation this morning that's posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP metrics in the appendix of the presentation. We will make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts, demand, product development and capital expenditure plans and timing of those plans and our expectations concerning the costs and benefits of those plans and timing of those benefits.

We'll also cover future revenue, crop production, farm income production levels, price levels, margins, earnings, operating income, cash flow, engineering expense tax rates and other financial metrics. All of these forward-looking statements are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks are further described in the safe harbor included on Slide 2 in the accompanying presentation. Actual results could differ materially from those suggested in these statements.

Further information concerning these and other risks is included in AGCO's filings with the SEC, including its Form 10-K for the year ended December 31, 2024, and subsequent Form 10-Q filings. AGCO disclaims any obligation to update any forward-looking statements, except as required by law.

We'll make a replay of this call available on our corporate website later today.

On the call with me this morning is Eric Hansotia, our Chairman, President and Chief Executive Officer; and Damon Audia, our Senior Vice President and Chief Financial Officer.

With that, Eric, please go ahead.

Thanks, Greg, and good morning to everyone joining the call today. We delivered a strong third quarter performance, underscoring the effectiveness of our strategic execution and the resilience of our global team. While macro conditions continue to be volatile, we benefited from a more favorable regional mix and stayed laser focused on what we can control. Our disciplined approach to production and cost management continues to position us well in this environment. Thank you to the entire AGCO team for their continued focus in these 2 areas where we remain agile in the face of a complex and evolving landscape. And our people have been instrumental in helping us navigate this uncertainty, maintaining our momentum and continuing to put Farmer-First.

Net sales were $2.5 billion, down approximately 5% year-over-year, or up nearly 6% when excluding Grain & Protein business divested last year. Strong growth in EAME led the quarter, which continues to be our largest, most stable and most profitable region. Near record global crop production in 2025 is leading to an elevated grain inventories and putting pressure on commodity prices. While farm income is being supported by increased government systems in the U.S. crop margins are still tight, and farmers around the globe remain cautious on capital spend.

During this industry downturn, we are staying focused on executing our strategy, supporting our dealers and customers and investing in technologies that will drive long-term growth. We also continue to look for every opportunity to limit the impact of tariffs on our farmers. We are closely monitoring evolving tariff policies and government support programs around the world while continuing to engage with suppliers and adjust our supply chain. We continue to assess and implement price increases where appropriate and feasible.

For the quarter, consolidated operating margins were 6.1% on a reported basis and 7.5% on an adjusted basis. Our results reflect strong execution by our teams. We maintained solid margins through disciplined operational performance, a favorable regional mix and continued progress on our restructuring initiatives. This consistency underscores the effectiveness of our strategy and our commitment to delivering long-term value. Notably, we achieved these margins despite another quarter of significant production cuts in North America as part of our ongoing efforts to destock the dealer channel. When comparing third quarter of 2025 to the same period last year, production was down nearly 50% in North America.

Production levels are actually down nearly 70% from 2023. In addition to making further progress on reducing dealer inventories, we've also decreased company inventories. This continued discipline is reflected in our working capital improvements and free cash flow generation during the 9 months of the year, which was approximately $453 million up compared to the same period in 2024.

Slide 4 provides an overview of industry unit retail sales by region for the first 9 months of 2025. The global farm equipment market continues to face significant headwinds. Brazil remains slightly up compared to the third quarter of 2024, driven primarily by demand for smaller and midsized tractors coupled with favorable trade dynamics. Despite record soybean harvest and potential trade benefits, demand for larger equipment has yet to show meaningful improvement. High financing costs and political uncertainty are expected to continue constraining demand in 2025, but the early signs of recovery going to a modest increase in 2026.

In North America, tractor sales declined 10% in the first 9 months of 2025 compared to the same period in 2024 with the steepest drops occurring in the high horsepower categories. Driving this behavior is the significantly lower grain export demand, global trade uncertainty and continued high input costs. We expect these pressures to persist, particularly with the demand for larger equipment. Recent announcements of government support are expected to support net farm income, which may help unlock future equipment investments. There are also potential upside if further progress can be made on top of the trade agreement that was announced earlier this week between the U.S. and China.

For Western Europe, tractor sales were down 8% during the first 9 months of 2025 compared to the same period 1 year ago. The industry experienced double-digit percentage decreases across most markets. Demand and mix are expected to remain soft through the remainder of the year as lower income levels weigh on arable farmers and correspondingly large tractors. As AGCO's largest and most strategically important region, Europe continues to deliver stable demand that is less cyclical than other markets with strong and consistent operating margins. This performance provides valuable balance to our global portfolio, helping us to offset fluctuations in other markets, including those influenced by evolving U.S. trade dynamics.

We remain confident in the region's ability to support our long-term growth, especially as Precision Ag grows there. Combined sales continued to decline across all 3 regions, with North America experiencing the largest year-over-year drop at 29%. Mid industry-wide pressures, AGCO is performing more resiliently than in previous downturns and remains well positioned for the long-term growth.

Looking ahead to 2026, current commodity prices and fundamental uncertainties continue to impact the global ag industry outlook. Positive market factors, including livestock and dairy prices, the replacement cycle and government payments are being offset by geopolitical tension, tariff impacts and difficult farm economics, which include elevated borrowing costs and rising input costs. Given the combination of all of these factors, there is increasing likelihood of markets being relatively flat in 2026, with North American large ag down and Europe and South America modestly out. This view confirms our assessment that the global industry is at the trough.

Slide 5 outlines AGCO's factory production hours. To ensure year-over-year comparability, we've excluded Grain & Protein production hours from the 2024 baseline. Third quarter production hours were up approximately 6% year-over-year, driven by a favorable comparison in Europe, where quarter 3 2024 and was impacted by the prolonged factory shutdowns as well as increased output in South America. In contrast, North America production was down over 50% again this quarter, reflecting our continued focus on reducing dealer inventories in response to soft market demand. And as I mentioned, production wells are actually down nearly 70% from 2023.

Looking ahead, we now expect full year 2025 production to be down approximately 15% versus 2024. A slight revision from our prior estimate of down 15% to 20% primarily due to stronger quarter 3 output in EAME. Rightsizing inventory in North America remains a top priority, while Europe and South America will continue to see production effectively aligned with retail demand.

Looking at regional inventory breakdown. In Europe, dealer inventory is now just over 3 months, slightly below our target. [ Ventis ] below this average, while Massey Ferguson Volta are just above. Europe's near target inventory levels are encouraging, particularly given our strong exposure to the region. In South America, dealer inventory ticked up to around 4 months, slightly above our 3-month target and quarter 2 levels given the decline in demand for low and medium horsepower tractors. The increase in inventory reflects mainly a more cautious industry outlook, given the demand changes in quarter 3, which led us to adjust our forward sales expectations.

In North America, we continue to make meaningful progress, reducing dealer inventory from 9 to 8 months, while still above our target, the reduction reflects the success of our disciplined production cuts, with units being reduced almost 13% in the quarter. Our 3 high-margin growth drivers, globalizing and expanding our [indiscernible] product line, growing precision ag, and increasing our parts business remains central to our strategy. To unlock the full potential of these growth levers and transform AGCO into a higher-performing company throughout the cycles, there are 5 major strategic shifts we've just made in the past 2 years that position us for significant earnings growth.

Let's start with a significant update regarding our resolution with TAFE. We recently announced the sale of our ownership interest in TAFE, generating approximately $230 million in after-tax proceeds. For the first time under my leadership, we now plan to move forward with a $1 billion share repurchase program, reflecting our confidence in the business and our commitment to shareholder returns. We plan to begin purchasing $300 million of shares in the fourth quarter.

Turning to other key elements that are meaningfully reshaping our company. The creation of our PTX business is the most critical to helping us achieve our vision to be the trusted partner for industry-leading smart farming solutions. By combining precision planting, the ag assets of Trimble and 6 additional tech acquisitions over the last 5 years, plus doubling our engineering budget, we've built a $900 million platform with a path to $2 billion in Precision Ag revenues as synergies and scale take hold.

As we strengthened our high-margin, high-growth portfolio, we exited the lower growth, lower margin business of green and protein, which lacked alignment with our core machine and technology products as well as our distribution strategy. Project Reimagined is a company-wide restructuring effort focused on automating, standardizing, simplifying, centralizing, and in some cases, outsourcing work. With over 700 active projects, we are driving efficiency, lower costs and most importantly, improving the outcomes for our dealers, farmers and employees, enabled by AI. This initiative is expected to reduce our cost base by $175 million to $200 million.

Finally, Farmer Core is unique in our industry and is transforming our go-to-market strategy. We're taking service and support right to the farmers, online and on the farm by investing in digital tools and enabling dealers to shift from brick-and-mortar to mobile service models. This is about servicing the farmer, not just the product. We're making meaningful progress in North and South America with expansion to other markets planned in the future. Together, these 5 strategic shifts are shaping the AGCO we've envisioned, more focused, more agile and better positioned to deliver sustainable, high-margin growth.

The results include margins at this trough that are comparable to the company's margins at the previous cycle's peak. AGCO is delivering higher margins through the business cycle, driven by these structural changes to the company's portfolio and value proposition.

Going deeper into Precision Ag, Slide 7 showcases 2 major innovation milestones that reflect AGCO as a leader in smart farming solutions. We've launched Phase 1 of Farm Engage, our new mixed fleet digital platform designed to deploy work plans, track fieldwork and collect test data from all machines on the farm regardless of brand. This retrofit first solution enables AGCO equipment to seamlessly integrate with existing Trimble technology while also supporting interoperability with non-AGCO fleets.

Looking ahead, Phase 2 will consolidate features into a unified platform experience and Phase 3 will complete the full farm operations cycle, delivering an end-to-end solution for planning, execution and optimization. Together, these phases positioned Farm Engage as an absolute cornerstone of our smart farming strategy. As you know, our goal is to be autonomous across the crop cycle by 2030. We are accelerating this journey and at a recent Tech Day in Germany, we unveiled the latest outrun autonomous solution for tillage and fertilization. Tillage is now in beta testing and fertilization is in alpha. These build on the success of our outrun autonomous green card solution, which is already in production.

These innovations offer autonomous capabilities for [ fent ] and competitive machines in 3 of the 5 major stages of the crop cycle, making us 1 of the industry leaders in this transformational technology. This progress reflects our commitment to delivering practical scalable technologies for the mixed fleet that reduce labor dependency, improve efficiency and help farmers operate more profitably.

On that exciting note, I'll hand it over to Damon for a deeper dive into the financials.

Thank you, Eric, and good morning. Slide 8 summarizes our regional net sales performance for the third quarter and year-to-date. Net sales for the quarter increased approximately 1% year-over-year, excluding the positive impact of currency translation. For comparability, we've also excluded the $251 million of sales associated with the divested Grain & Protein business in Q3 of 2024.

Breaking net sales down by region. Europe/Middle East posted a 20% increase compared to the same period in 2024, excluding the impact of favorable currency effects. This reflects a recovery in the production levels in corresponding sales following extended plant downtime last year. Growth was strongest in the high horsepower and mid-range tractors. South America declined close to 10%, excluding favorable currency impact. Weaker industry demand drove most of the decrease with lower sales across most product categories.

North America was down 32%, excluding unfavorable currency effects. The decline was driven by continued market softness and are focused under production to reduce dealer inventories. The largest decreases occurred in high-horsepower tractors, sprayers and combines. Asia/Pacific/Africa declined 5%, excluding unfavorable currency translation impacts. Lower demand across the Asian markets were partially offset by stronger performance in Australia and Africa.

Finally, consolidated replacement parts were $498 million in the third quarter, up 2% year-over-year on a reported basis and down approximately 2% when excluding the favorable currency translation.

Turning to Slide 9. Third quarter adjusted operating margin was 7.5%, 200 basis points higher than the prior year. The industry backdrop remains challenging with continued pressure from factory underabsorption and elevated discounting. The margin improvement was primarily driven by strong performance in our Europe, Middle East segment, where higher sales and production volume supported improved operating leverage. By region, Europe, Middle East income from operations increased around $163 million with operating margins approaching 16%. The improvement reflects the significantly higher volumes and sales compared to Q3 of 2024, which was impacted by the extended plant shutdowns.

North American operating income declined approximately $56 million year-over-year with margins remaining negative again this quarter. Lower sales and significantly reduced production hours were the key drivers, coupled with a significantly weaker industry. South America operating income declined $23 million with margins down to around 6%, primarily due to lower volumes. Asia/Pacific/Africa posted a slight increase in operating income of $1 million, driven by lower manufacturing costs, partially offset by lower sales volume.

Slide 10 shows our year-to-date free cash flow performance. As a reminder, free cash flow is defined as cash provided by or used in operating activities less capital expenditures. Free cash flow conversion is calculated as free cash flow divided by adjusted net income. Through September, we generated $65 million of free cash flow, an improvement of around $450 million versus last year's net outflow of $387 million for the same period. This was driven by stronger working capital performance and roughly $120 million in lower capital expenditures year-over-year. We continue to expect full year free cash flow to be within our targeted range of 75% to 100% of adjusted net income.

Our capital allocation priorities remain unchanged. Reinvest in the business potential bolt-on acquisitions, maintain investment-grade credit ratings and return capital to shareholders. As Eric mentioned, following the TAFE resolution and the Board approval of our new $1 billion share repurchase program, we expect to begin repurchasing $300 million of shares in the fourth quarter. We also recently declared our regular quarterly dividend of $0.29 per share. We remain focused on deploying capital effectively to drive long-term shareholder value, and we're encouraged by the increased flexibility to return capital through the preferred investor method of share repurchases.

Slide 11 highlights our current 2025 market outlook across our 3 major regions. Our outlooks remain relatively unchanged since the second quarter call other than a modest adjustment to our North American large ag forecast. In North America, we continue to expect significantly lower industry demand in 2025, while net farm income has improved, supported by government programs and record high cattle prices sentiment remains challenged by weak corn and soybean prices. Investment confidence is declining and interest rate cuts haven't yet provided meaningful relief. We're maintaining our outlook for the small tractor segment to be down approximately 5% and now expect large ag to be down around 30% versus our prior range of down 25% to 30%.

In Western Europe, we continue to expect the industry demand to decline 5% to 10%. The market remains soft, but relatively stable. Wheat prices are below historical averages, and geopolitical uncertainty continues to weigh on sentiments. In South America, record soybean exports, partly driven by U.S. tariff barriers have supported trade flows. However, margins are under pressure from higher input costs and elevated interest rates in Brazil are dampening demand, especially for large ag. Under these conditions, we still expect Brazil to be flat to up 5% for the year.

Slide 12 outlines the key assumptions supporting our full year 2025 outlook. We continue to expect global industry demand to be around 85% of mid-cycle levels. Our sales outlook remain unchanged despite a slightly softer pricing outlook now in the 0% to 1% range, which is down from approximately 1% in Q2 given the increase in competitive pricing in certain regions. We continue to anticipate a favorable currency impact of roughly 2%. Our guidance reflects current tariffs across our global footprint, along with mitigation efforts through cost actions and pricing. That said, the potential for additional U.S. tariffs or retaliatory measures fostered continued uncertainty.

We're monitoring developments closely and will adjust our outlook if needed. Engineering expense is expected to remain effectively flat year-over-year. We still expect our adjusted operating margin to be approximately 7.5%, reflecting structural improvements in cost initiatives, positioning us roughly 350 basis points above our last trough in 2016.

Lastly, we revised our effective tax rate to 33% to 35%, modestly better than our prior estimate of approximately 35%.

Turning to Slide 13 for our current 2025 outlook. We continue to expect full year net sales of approximately $9.8 billion, consistent with our prior outlook. This reflects the modest changes in demand trends across key markets. We refined our earnings per share forecast to approximately $5, reflecting strong execution across our global operations. This assumes no material changes to existing trade measures. Capital expenditures are now expected to be around $300 million. While this represents a decrease from the prior estimate of $350 million, we remain focused on supporting strategic initiatives and maintaining flexibility in response to shifting demand trends.

We continue to target free cash flow conversion of 75% to 100% of adjusted net income, supported by disciplined working capital management and improved inventory efficiency. As Eric noted, we're pleased with our performance through the third quarter in what remains a challenging and evolving year. Our teams have executed well, grown share and continue to reduce dealer inventories while supporting farmers' needs.

With this updated outlook, we believe our results further demonstrate the structural improvements in AGCO's profitability. Even in a down cycle, we're delivering stronger margins and more consistent earnings, a reflection of our transformed business model.

With that, I'll turn the call over to the operator to begin the Q&A.