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Edited Transcript of AGCO earnings conference call or presentation 31-Oct-17 2:00pm GMT

Thomson Reuters StreetEvents

Q3 2017 AGCO Corp Earnings Call

DULUTH Nov 1, 2017 (Thomson StreetEvents) -- Edited Transcript of AGCO Corp earnings conference call or presentation Tuesday, October 31, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew H. Beck

AGCO Corporation - Senior VP & CFO

* Greg Peterson

AGCO Corporation - Director of IR

* Martin H. Richenhagen

AGCO Corporation - Chairman, President & CEO

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Conference Call Participants

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* Cleveland Dodge Rueckert

UBS Investment Bank, Research Division - Associate Director and Associate Analyst

* Corinne Jenkins

Goldman Sachs Group Inc., Research Division - Research Analyst

* Jorge Baptista Pica

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Lawrence Tighe De Maria

William Blair & Company L.L.C., Research Division - Co-Group Head of Global Industrial Infrastructure

* Michael J. Feniger

BofA Merrill Lynch, Research Division - VP

* Michael Shlisky

Seaport Global Securities LLC, Research Division - Director & Senior Industrials Analyst

* Nicole DeBlase

Deutsche Bank AG, Research Division

* Themis Davris

* Thomas Marc Alfred Simonitsch

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to the AGCO Corporation 2017 Third Quarter Earnings Release Conference Call. (Operator Instructions) Greg Peterson, Director of Investor Relations, you may begin your conference.

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Greg Peterson, AGCO Corporation - Director of IR [2]

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Thank you, Emily, and good morning. Welcome to those of you joining us for AGCO's Third Quarter 2017 Earnings Conference Call.

We will refer to a slide presentation this morning that we've posted on our website at www.agcocorp.com. We will be using non-GAAP measures, which are reconciled to GAAP measures in that presentation in the appendix portion of that -- of those slides.

We will make forward-looking statements this morning, including demand, product development and capital expenditure plans and the timing of those plans; acquisition, expansion and modernization plans and our expectations with respect to the cost and benefits of those plans and the timing of those benefits. We'll also discuss production levels, share repurchases and other future revenue price levels, earnings, cash flow, tax rates and other financial metrics. We wish to caution you that these statements are predictions, and that actual events may differ materially. We refer you to the periodic reports that we file from time to time with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31, 2016, and subsequent Form 10-Qs. These documents discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. We disclaim any obligation to update any forward-looking statements, except as required by law. A replay of this call will be available on our corporate website later today.

On the call with me this morning are Martin Richenhagen, our Chairman, President and Chief Executive Officer; and Andy Beck, our Senior Vice President and Chief Financial Officer.

And with that, Martin, please go ahead.

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Martin H. Richenhagen, AGCO Corporation - Chairman, President & CEO [3]

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Thank you, Greg, and good morning. Happy Halloween to everybody. We appreciate everyone joining us on the call today.

My comments start on Slide 3, where you will find a summary of our third quarter and year-to-date results. AGCO produced solid results in the quarter despite continued challenging market conditions. We delivered sales growth and margin expansion around -- or across all regions. Our third quarter sales grew by almost 13% and operating earnings climbed over 60% compared to the third quarter of 2016, driven by a 160- basis point increase in operating margins. AGCO's financial performance also reflects the benefit of our efforts to reduce expenses and improve the efficiency of our factories.

Long-term growth continues to be a key focus, and we are working to expand our product offerings for internal product development efforts as well as bolt-on acquisitions. We recently completed 2 acquisitions, which broadened our product portfolio. In September, we acquired Precision Planting, a leader in innovative planting technology. And in October, we completed the purchase of the products division of the Dutch Lely Group, which significantly enhances our hay and forage product lines globally.

Slide 4 details industry unit retail sales results by region for the first 9 months of 2017. The world's expanding population and its appetite for more protein is pressuring global grain supplies. Another strong crop production year is enabling the world's farmers to keep pace with this growing demand for grain. Both improved farm technology and very positive growing conditions are contributing to the farmers' productivity improvements. The USDA is estimating global grain inventories will decline only modestly during 2017, maintaining pressure on commodity prices.

As shown on this slide, we experienced modestly soft industry equipment demand in Europe and North America in the first 9 months of 2017. The farm equipment fleet has begun to age in North America, and industry retail sales have been mixed in the first 9 months of 2017. Small tractors are up compared to last year while sales in the row crop segment remained weak. Full year industry sales in North America expected to be down compared to 2016.

Industry retail sales in Western Europe have stabilized and are benefiting from improved profitability of the dairy producers. Commodity prices have been holding at low levels and has kept market demand on soft on the arable farming segment. Industry sales declined most significantly in France from high levels in the first half of 2016, which were stimulated by tax incentives. Growth in Italy, United Kingdom and Spain offset most of the decline in the French market. For the full year of 2017, demand in Western Europe is expected to be relatively flat compared to 2016.

Industry retail sales in South America increased during the first 9 months of 2017 as demand in Brazil grew strongly from depressed first half levels experienced last year. The Argentine market remained robust as more supportive government policies continue to stimulate growth. Full year 2017 industry demand in South America is expected to be up, but fourth quarter industry demand in Brazil is expected to remain challenged.

2017 production schedule for factory production hours is shown on Slide 5. Production increased in Europe and South America in response to increased demand in those regions during the first 9 months of 2017. We lowered production in North America in the first 9 months of 2017 versus last year's level in order to reduce dealer inventories. We expect total company production to be up by about 3% for the full year versus 2016. Globally, our order boards for tractors is up at the end of September compared to the end of September last year. Orders were higher in Europe and relatively flat in North and South America.

I will now turn the call over to Andy Beck, who will provide you more information about our third quarter results. Andy?

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Andrew H. Beck, AGCO Corporation - Senior VP & CFO [4]

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Thank you, Martin, and good morning to everyone. I will start on Slide 6, which looks at AGCO's regional net sales performance for the third quarter and first 9 months of 2017. AGCO sales increased 10% compared to third quarter of 2016, excluding the positive impact of currency translation. AGCO benefited from the impact of acquisitions, which increased sales by approximately 2%, as well as achieved growth in all regions in the third quarter of 2017 compared to the third quarter of 2016.

The Europe/Middle East segment reported an increase in net sales of approximately 11%, excluding the positive impact of currency translation compared to third quarter 2016. Excluding acquisition-related sales of approximately $25 million, the EME sales were up about 8%. Sales growth was the strongest in France, the United Kingdom and Scandinavia.

North American sales increased approximately 6%, excluding the impact of currency translation, during the third quarter of 2017 compared to the levels experienced in the third quarter of 2016. Strong growth in mid-range and high horsepower tractors as well as parts was partially offset by declines in sprayers and combines.

AGCO's third quarter 2017 net sales in South America increased approximately 5% compared to the third quarter of 2016, excluding negative currency translation impacts. Robust demand in Argentina was mostly offset by lower sales in Brazil.

Net sales in our Asia Pacific segment increased -- Asia/Pacific/Africa segment increased about 28% in the third quarter of 2017 compared to 2016, excluding the positive impacts of currency translation. Sales in Australia accounted for much of the increase.

Part sales were approximately $357 million for the third quarter of 2017 and were up about 7% compared to the same period in 2016, excluding the positive impact of currency translation.

Slide 7 examines the AGCO sales and margin performance. Our third quarter results were highlighted by improved operating margin performance across all regions compared to the same period of 2016. Higher sales and production and our ongoing efforts targeted at labor productivity and material cost as well as continued focus on SG&A expenses all contributed to the margin improvement.

The Europe/Middle East segment reported an increase of about 110- basis points in operating margins from the third quarter of 2016. The benefit of higher sales and production, in addition to our richer sales mix, produced most of the increase. Sales growth and cost-reduction initiatives both contributed to approximately 100- basis points of margin expansion in North America in the third quarter of 2017 compared to the same period last year. Operating margins also improved in our South American region in the third quarter of 2017. The benefits of higher sales continued to be offset by material cost inflation and costs associated with transitioning to the new Tier 3 emissions technology. Operating margins in Asia/Pacific/Africa region improved due to strong sales growth.

Slide 8 details GSI sales by region and product. GSI sales were up about 20%, excluding currency impacts but including the benefit of acquisitions for the first 9 months of 2017, compared to the same period of 2016. Excluding the positive impact of acquisitions, GSI sales were up about 1% on a constant currency basis. Organic growth in sales of protein production equipment is being offset by lower grain and seed equipment sales. GSI sales are expected to reach $1 billion in 2017.

Slide 9 looks at the investments through capital expenditures and research and development. We're continuing to make strategic investments to refresh and expand our product lines, upgrade our system capabilities and improve our factory productivity. Despite the challenging demand environment, we intend to increase the level of investment to execute our product development plans, resulting in increased CapEx and engineering spend in 2017. Our spending plan in 2017 is needed to maintain our competitiveness and to support the long-term growth of our business.

Slide 10 addresses AGCO's free cash flow, which represents cash generated or used in operating activities, less capital expenditures. Our seasonal requirements for working capital are greater in the first half of the year and thereby resulted in negative free cash flow in the first 9 months of both 2016 and '17. We expect an inventory decrease in South America during the second half of the year as we release a number of new Tier 3 emissions products during the remainder of the year. After covering spending on our strategic investments, we're targeting another strong free cash flow year for 2017. At the end of September 2017, our North America dealer and company inventories for tractors, combines and hay equipment were all lower than a year ago. The dealer month supply on a trailing 12-month basis was lower by about 1 month for tractors and 1.5 months for combines versus a year ago.

As we focus on our returns for our shareholders, we expect to make cash distributions an important component of our long-term capital allocation plan. Over the past 3 years, we have executed share repurchases of $1 billion, which had the effect of reducing our share count by approximately 20%. We've also approved a $300 million program that expires in December 2019. We are assimilating our recent acquisitions this year, leaving share repurchase capacity in 2018 and '19. As we demonstrated in the first quarter, we're also committed to responsibly growing our dividend in the coming years. We expect to fund these programs with operating cash flow.

Our 2017 outlook for the 3 major regional markets is captured on Slide 12. Our 2017 forecast is decreased modestly for South America. In Brazil, the instability of the macroeconomic environment continues to weigh on farmer sentiment. Further improvement in the Argentina market is expected from 2016 levels as more farmer-friendly government policies and healthy crop production have stimulated demand. Our South America industry forecasts this industry volume will be lower in the fourth quarter compared to last year, resulting in an increase of approximately 10% to 15% for the full year.

In United States, the USDA estimates that the farm income will be down again this year, and we expect 2017 to be another challenging year with industry sales down approximately 5% to 10% compared to 2016. The large agricultural equipment sector in North America is expected to be the source of the decline.

Lastly, we expect Western European market to be relatively flat, as farm income remains under pressure in 2017. Improving demand from the dairy and livestock sector is expected to be offset by continued weakness from cereal producers.

Slide 13 highlights the assumptions underlying our 2017 outlook. Our 2017 forecast assumes industry growth in South America and Asia, partially offset by softer industry demand across North America. Our plan includes market share improvement with price increases of approximately 1.5% on a consolidated basis. At current exchange rates, we expect currency translation to positively influence sales by approximately 2%. Acquisitions are expected to increase sales by about 2.5%. In 2017, engineering expense is expected to increase about $25 million compared to 2016. Operating margins are expected to improve by about 100- basis points due to the benefit of increased sales and production, our fixed cost-reduction efforts as well as continued progress on our productivity and purchasing initiatives. We're targeting an effective tax rate of approximately 37% for 2017.

Slide 14 lists our view of selected 2017 financial goals. We're projecting 2017 sales to be in the $8.2 billion range. We also expect gross and operating margins to be improved from 2016, reflecting higher volumes and the positive impact of our cost-reduction efforts. Based on these assumptions, we're targeting 2017 adjusted earnings-per-share of approximately $3 per share. We expect capital expenditures of $200 million to $225 million and free cash flow to range from $225 million to $250 million.

And with that, operator, we are ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Michael Shlisky from Seaport Global.

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Michael Shlisky, Seaport Global Securities LLC, Research Division - Director & Senior Industrials Analyst [2]

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I just -- I wanted to ask about Brazil first. The challenges that you're looking at, possibly in Q4, I know you won't -- I thought you might go into too much in 2018. But are the Q4 challenges just temporary and a single quarter? Or is it -- could there be some bleeding into 2018? I keep hearing about some erosion of margin forecast for soy beans in the area. So any kind of color you can provide on the duration of the weakness in Brazil would be appreciated.

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Greg Peterson, AGCO Corporation - Director of IR [3]

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So Mike, as you know, we came through a very weak period at the end of last year and the market strengthened through the first part of this year. We saw related benefit from kind of stabilizing macro economy. We saw the benefit of a favorable exchange rate for the farmers. And then as we've gone through the year, we caught up to some tougher comps, and we've also kind of come back into a period of kind of more economic uncertainty. And then also with some pullback in commodity prices, the margins, the farmers were feeling, haven't been quite as good. So we've seen now kind of more of a stabilization in demand. So at this point, looking forward, we don't expect to see major growth or major pullbacks in that market. We're looking for kind of stable conditions to kind of continue as we look into the fourth quarter.

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Michael Shlisky, Seaport Global Securities LLC, Research Division - Director & Senior Industrials Analyst [4]

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Okay, got it. And then kind of thinking more broadly, globally here, can you give me any sense as to what some of the early order programs are or order books are by region for the year -- sorry, for the first part of 2018 delivery? And is there any sense that you might be outperforming in certain parts of the world, like with the Challenger 1000 here in the U.S.?

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Andrew H. Beck, AGCO Corporation - Senior VP & CFO [5]

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Sure. In terms of orders, as we said, our orders are relatively flat in North America and South America and are healthily up in our European segment. So overall, we're pretty -- feel pretty good about our order situation. In terms of -- most of those order boards are still really covering the fourth quarter demand and not extending much into 2018 yet. We'll say in North America, we do have some seasonal products that we're already getting orders for 2018, and those are doing quite well in terms of getting orders there. So everything's in line with our expectations so far.

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Michael Shlisky, Seaport Global Securities LLC, Research Division - Director & Senior Industrials Analyst [6]

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Okay. And if I could just squeeze in a third one here. I did hear one of your competitors mention a kind of weak hay and forage market right now. Is that what you think you're seeing right now at the new acquisition with Lely? And should we be concerned that the accretion from that deal might not be quite what you were initially thinking...

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Martin H. Richenhagen, AGCO Corporation - Chairman, President & CEO [7]

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We don't think that at all because this business does -- do very well in Europe. So milk price has stabilized. Butter is almost twice as expensive as it has been 2 years ago. So I think the dairy business in Europe recovered.

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Operator [8]

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Our next question comes from the line of Nicole DeBlase from Deutsche Bank.

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Nicole DeBlase, Deutsche Bank AG, Research Division [9]

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So my first question is just a little bit more detail around Europe. I know you guys have talked about order activity being up in the double-digit range for the past 2 quarters, which I think was a bit surprising to a lot of people. So I'm curious if the magnitude of strength is similar to what you had seen in the first half of the year.

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Martin H. Richenhagen, AGCO Corporation - Chairman, President & CEO [10]

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Yes, it is.

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Nicole DeBlase, Deutsche Bank AG, Research Division [11]

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Okay. And then on Brazil, so totally understand the caution around 4Q. I guess when you think about like the medium-term prospects for the region, is there any change at all in the path of recovery for Brazil? Is that at risk? Or is this just basically an issue of tough comps and maybe a temporary weakness in farmer profitability?

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Martin H. Richenhagen, AGCO Corporation - Chairman, President & CEO [12]

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I see it more as a temporary slowdown because all fundamentals is still good -- look pretty good, plus there's a certain need for replacement in Brazil. So I'm not that pessimistic. But we don't talk about next year yet. We're just in the process of putting our plan together.

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Nicole DeBlase, Deutsche Bank AG, Research Division [13]

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Okay, understood. And since those were pretty quick, I'll just sneak one more in, if that's okay. So you talked about more inventory progress in North America. Based on where you are today and what you're thinking about for production in the fourth quarter, do you think that you can produce in line with retail demand in 2018?

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Martin H. Richenhagen, AGCO Corporation - Chairman, President & CEO [14]

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Yes.

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Andrew H. Beck, AGCO Corporation - Senior VP & CFO [15]

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Nicole, fourth quarter is a big retail quarter for us. So what we'll be doing is obviously working hard to achieve our targets here at the end of the year, and we'll take a look at that end of the year. I assume -- as Martin said, I think in a lot of cases, we're going to be in good shape. But we'll check that again at the end of the year.

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Greg Peterson, AGCO Corporation - Director of IR [16]

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Thanks. And let's -- operator, let's limit the questions to one question and one follow-up. Thank you.

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Operator [17]

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Of course. And your next question comes from the line of Larry De Maria from William Blair.

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Lawrence Tighe De Maria, William Blair & Company L.L.C., Research Division - Co-Group Head of Global Industrial Infrastructure [18]

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Engineering expense up a bit more than expected for the year. I don't know if there's anything specific to call out there, like maybe the new combines. And should that kind of peak out now and start to dribble down, now that we're going through that combine launch? Is there anything around the expense, engineering expense that you can call out for us?

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Martin H. Richenhagen, AGCO Corporation - Chairman, President & CEO [19]

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No. I think it's a pretty normal level, and you should not expect the numbers going down. So that means we think that we should maybe invest about 3% to 4% of revenues in engineering, and that's what we are doing.

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Andrew H. Beck, AGCO Corporation - Senior VP & CFO [20]

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Yes. Larry, the -- some of that increase is reflective of currency and the new acquisition. So about $5 million of that relates to that.

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Operator [21]

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And our next question comes from the line of Andy Casey from Wells Fargo.

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Jorge Baptista Pica, Wells Fargo Securities, LLC, Research Division - Associate Analyst [22]

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This is Jorge Pica on for Andy. Quick question with regard to the slower production rate in Q4. It looks like from the previous deck, it seems like you're implying a lower production rate going into the end of the year. Am I reading that right?

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Andrew H. Beck, AGCO Corporation - Senior VP & CFO [23]

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Well, we have made a few adjustments to production levels, mainly in South America, but also increasing some production in Europe. So overall, our production for the full year really hasn't changed, so little bit of changes here and there.

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Martin H. Richenhagen, AGCO Corporation - Chairman, President & CEO [24]

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But I mean, normal adjustments.

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Andrew H. Beck, AGCO Corporation - Senior VP & CFO [25]

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But nothing too big of a change.

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Operator [26]

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And our next question comes from the line of Jamie Cook from Crédit Suisse.

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Themis Davris, [27]

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This is actually Themis on for Jeremy. Just a question on pricing. Maybe could you talk through pricing dynamics by regions and also address how your assumptions on material costs have changed relative to prior guidance?

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Andrew H. Beck, AGCO Corporation - Senior VP & CFO [28]

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Sure. Our overall pricing assumptions, again, haven't changed. They're about 1.5%, as you probably -- I don't think there's anything that changed from quarter-to-quarter there. Still, pricing, I would say, is overall challenging to get. The markets are still on the weak side of normal, and in those cases, it's fairly challenging to get. We did increase some pricing in Europe during the year to offset increases in steel prices, and so that's been in place. And in South America, we continue to try to put pricing in to offset inflationary pressures from exchange rates and as well as from just general inflationary costs. In terms of our material costs, as everyone knows, we're being challenged by increasing steel prices and other hard commodity prices. And so -- but we're managing those quite well. I would say, there hasn't been a lot of change there either in terms of what our forecast is for the balance of the year. And we look for our net pricing, which is the 1.5% less the material cost inflation, to be in the 70- to 80- basis point positive for the full year.

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Operator [29]

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Our next question comes from the line of Michael Feniger from Bank of America.

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Michael J. Feniger, BofA Merrill Lynch, Research Division - VP [30]

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Just on South America, the margin has been under pressure this year for a few reasons. I know you're not guiding for 2018. But I was hoping you could talk about puts and takes of the margin next year with regards to pricing, material costs and what you're seeing with the Tier 3 transition.

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Martin H. Richenhagen, AGCO Corporation - Chairman, President & CEO [31]

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We do not talk about 2018, sorry.

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Michael J. Feniger, BofA Merrill Lynch, Research Division - VP [32]

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Okay. And then just on the -- on Europe, you're seeing -- you're mentioning double-digit order growth. You're seeing strong sales. I just hope you could give us some color about how that is by region, how we should square that away with some weak registration data the last month or 2?

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Greg Peterson, AGCO Corporation - Director of IR [33]

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Yes, Mike. Some of the weakness that we've seen over the third quarter, and especially, in September, was due to inflated numbers last year around the registration requirements for the interim Tier 4 emissions that went through. And so if you cut -- back those out, I think, we're much closer to kind of getting really close to the flat that we're seeing for the full year. We've seen the U.K. be stronger through the first part of the year, and orders there have slowed down. Orders in France have actually picked up some over the last few months, and orders in the other big market in Germany have been slightly softer. So it's been kind of a mixed bag, but I think we're trending towards that flat forecast that we have for the full year.

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Operator [34]

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(Operator Instructions) And our last question comes from the line of Ann Duignan from JPMorgan.

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Thomas Marc Alfred Simonitsch, JP Morgan Chase & Co, Research Division - Analyst [35]

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This is Tom Simonitsch on behalf of Ann. You seem pretty optimistic about the European dairy sector. Could you expand on that for us a little bit?

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Martin H. Richenhagen, AGCO Corporation - Chairman, President & CEO [36]

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Yes. With the exception of Ireland, of course. No, the prices are more stable than they have been, and so therefore, I think we see signs of recovery in that sector. So that's the only thing I can share with you.

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Thomas Marc Alfred Simonitsch, JP Morgan Chase & Co, Research Division - Analyst [37]

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Okay. And also perhaps you could expand on the impact to your 2 most recent acquisitions on 2017 guidance, and also if you could update us on capital lever and the likelihood of that deal closing.

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Andrew H. Beck, AGCO Corporation - Senior VP & CFO [38]

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Sure. In terms of the 2 acquisitions, Precision Planting and Lely, we will have those in our fourth quarter results. Timing-wise, it's not fortuitous in that we are acquiring them during a seasonally slow period for both businesses. So it will be somewhat dilutive for us here in the fourth quarter and be one of the things that we'll have to offset it in order to maintain our full year targets. So -- but those will turn around in the second -- in the first part of next year because those were -- are when the seasonal seasons -- best seasons for those products are, in the first half of the year. In terms of Kepler Weber, we have not initiated the tender offer yet. We're still monitoring the situation with the company's performance and haven't made any decisions about moving forward at this time.

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Martin H. Richenhagen, AGCO Corporation - Chairman, President & CEO [39]

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And they underperformed. So they are -- let's say, they're not doing very well right now.

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Greg Peterson, AGCO Corporation - Director of IR [40]

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And then lastly, Tom, the last thing we wanted to say about our fourth quarter was just in terms of the tax rate. If you noticed, we didn't change our full year effective tax rate. And it was a little lower than we anticipated in the third quarter, and it'll be a little higher than we have previously planned in the fourth quarter. So net-net, we didn't make any change. And so we just want to make sure everybody's aware of that and has taken note of that.

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Andrew H. Beck, AGCO Corporation - Senior VP & CFO [41]

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Operator, do we have any more questions in the queue?

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Operator [42]

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Yes, we do. And our next question comes from the line of Steven Fisher from UBS.

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Cleveland Dodge Rueckert, UBS Investment Bank, Research Division - Associate Director and Associate Analyst [43]

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This is actually Cleve Rueckert on for Steve. Just some quick ones. Can you give us an update on where your market share is trending and maybe what your market share expectations are for Q4, just in kind of the global regions? And then other question is, can you update us on the ramp-up of production in China? I don't think the -- you commented on that yet.

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Andrew H. Beck, AGCO Corporation - Senior VP & CFO [44]

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Sure. In terms of market shares, we're performing well really in all of our markets. So where our market shares are improving, you can see that in our sales results and that our sales -- organic sales increases are above what's happening within the industries. So we're very positive about how we're performing. Some of our new products that we've introduced, whether it's the Global Series, which is out of our new China facility, or some of our large tractor offerings, are both producing good feedback from our customers and good order coverage and good sales activity. So we're very positive how that -- globally, we're performing on a sales basis. In terms of the China facility, we continue to advance the production levels there and the number of models and product -- within the product range that we're producing there. And as you can tell in our Asia/Pacific/Africa segment, the margins are improving, and that's because of the improvement in the production that we continue to see out of that facility. So that facility is performing quite well, and again, the products are being very well-received in the market.

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Operator [45]

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Our last question comes from the line of Jerry Revich from Goldman Sachs.

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Corinne Jenkins, Goldman Sachs Group Inc., Research Division - Research Analyst [46]

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This is Corinne Jenkins on for Jerry. So I was hoping you've touched on dealer inventory in North America on a month supply basis. I was hoping you could give us a little color on what that is on an absolute basis and then also how that compares in Europe.

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Andrew H. Beck, AGCO Corporation - Senior VP & CFO [47]

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Sure. In terms of dealer inventory levels versus a year ago, our dealer inventory is about 15%, little over 15% better. We're targeting somewhere between 10% to almost 15% for the full year, and so we're progressing quite well there and meeting -- and hopefully, we'll hit our targets at the end of the year. Dealer inventory in South America is down versus a year ago, and that's a little better than what we see across most of the industry. So that's being managed well. And then lastly, in Europe, our dealer inventory is a little higher at this point, but I think it's in anticipation of some recovery in the market, as we've already described, particularly in France.

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Operator [48]

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And there are no further questions at this time. I will turn the call back over to Mr. Peterson.

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Greg Peterson, AGCO Corporation - Director of IR [49]

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Thanks, Emily. I'd like just to encourage all of our listeners to -- if you have additional questions, to please follow up with us later. We'll be around here to take your questions.

Thank you, and have a great Halloween.

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Operator [50]

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This concludes today's conference call. You may now disconnect.