管理層發言
Good day, and welcome to the AGCO Second Quarter 2026 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star. After today's presentation, there will be an opportunity to ask questions. In consideration of time, please limit yourself to one question and one follow-up. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. 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 is posted on our website www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of that presentation. We will make forward-looking statements this morning, including statements about our strategic plans and initiatives, as well as their financial impacts. We will also discuss demand, product development, and capital expenditure plans and timing of those plans and our expectations concerning the cost 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 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 J. 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 improving 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%, 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 IEEPA 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 agriculture solutions which help farmers boost productivity and often deliver payback in one to two 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, and 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 will 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 remained 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. 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 remains soft year-over-year, with continued weakness in higher-horsepower equipment as farmers defer larger capital purchases. We are also seeing softer demand in lower-horsepower segments, reflecting new rural lifestyle customers focusing 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. Combine 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, lower credit availability, and currency dynamics continued to impact demand, with the greatest effects seen in larger equipment categories. Demand for smaller and midrange 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 pressuring crop production, and this is before the potential effects of the Super El Niño. 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 input costs eventually moderate, we would 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, particularly 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 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 in 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 three 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 four-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 nontractor products. The reduction reflects continued progress toward our three-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 six-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 are executing against our strategy to drive higher quality growth and expand margins over time toward our 14% to 15% mid-cycle target. That strategy does not change 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 three 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 we have 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 financials, 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 on fuel efficiency. We also celebrated the 50,000th Fendt 900 Vario, a flagship high-horsepower tractor that matters not only in Europe but across the world. Fendt's value proposition is resonating, especially with North American farmers, and we are 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 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 technology-seeking farmers see the power and productivity of our technologies. We continue to advance AI as a core enabler but with a sharper focus rather than spreading efforts across many experiments. We are 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 in our 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 are 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 will 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 six 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 a 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 parts 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 IEEPA 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 toward 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 2026 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 six 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 will 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 included $293 million associated with the April $350 million share repurchase announcement and $52 million in shares from TAFE associated with a 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 across 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 aging 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 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 IEEPA, Section 301, Section 32, and Section 22 tariffs, we now expect gross tariff-related costs of approximately $115 million in 2026. We recorded $22 million of certain IEEPA 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 IEEPA 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 efficiency 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, 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 IEEPA 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 in earnings of unconsolidated affiliates which we expect to be lower in the back half of the year. Before opening the call for questions, I would like to remind everyone of two events. First, our meeting at Farm Progress Show in Boone, Iowa at 10:00 a.m. on September 1. And second is our 2026 tech day event near Chicago this October. This event will include a strategic business update as well as live demonstrations of our precision agriculture technologies and FarmerCore capabilities. We look forward to hosting many of you at these events. With that, I will turn the call over to the operator to begin our Q&A.
分析師問答
We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. Our first question comes from Jerry Revich with D.A. Davidson. Please go ahead.
Good morning, and thanks for taking my questions. I want to start by asking about the market share that you noted. The gains in share look like you certainly gained some share in North America. Can you share a little bit about the market share increase that you saw overall? Its size, market share, just the pricing in North America and also the mix. Was there any additional attachment of PTX or other higher-horsepower attachments, etcetera? Is there anything we should isolate there besides the share gains that may have driven the upside in North America?
Yeah. I think, Mike, as you touched on, the share gains continue to have good momentum here in North America, especially in the high-horse segment. We are seeing very good traction both with the Fendt brand, which is our premier brand, but also with Massey Ferguson in the high-horsepower segment, coupled with strong performance in hay tools. All of that did quite well in the quarter. Pricing in North America was exceptionally strong for us, around 3.5% in the quarter. So not only have we gained share, but we also had strong pricing discipline which helped us deliver pricing of over 2% for the company in the quarter. I think it goes back to product quality and product performance, dovetailing that with our FarmerCore initiative where our dealers are really servicing the farmers in a different way and being on the farm, helping them in a much more convenient way. When you put that alongside product performance, we feel we have great momentum and the team in North America had a great quarter.
I might just build on that. When you look at the data on FarmerCore, the dealers that are performing the best on FarmerCore have 4.5 points higher net promoter score and 1.5 points higher market share. We continue to get more and more on-farm service capacity. We are up 65% now in North America and the Brazil fleet grew 25% in the last year. This is a very fast-moving adoption by our dealers and is well received by the farmers.
Thanks for that color. My follow-up is maybe a two-part question. One, any progress you have made in combine market share? I would love to hear about that. Then secondly, taking us around the world, any other regions where you think you may have gained a bit of share so far in 2026?
I think combines overall, we are a small player and really have had no significant traction recently. It's still early in the season, especially in the Northern Hemisphere, so no meaningful movements there yet. When I think about share in other parts of the world, Europe was a mixed bag. The industry in Germany shrunk quite a bit relative to our expectations, but we gained share in Germany and lost a little share in France. So Europe overall is mixed, and South America had a modest gain for us. In South America, as we discussed on the previous call, we have introduced Fendt into Argentina and are picking up sales there, which is increasing our market share in Argentina with the Fendt brand.
I think our combine share is positioned to grow in the near term over the next year or two for a couple of reasons. First, net promoter score for combines in South America jumped by more than any other product in our portfolios. The same thing happened in Europe, so farmers are really liking the latest features we have launched and the quality improvements in those products. Second, some dealers in North America have converted from competitor brands to ours. Whether it's product performance or channel support and alignment, I think both bode well for our combine business going forward.
Our next question comes from Tami Zakaria with JPMorgan. Please go ahead.
Hi. Good morning. I hope you can hear me well. I am on the road. A question on farmer income or the health of farm economics: if input costs do not see relief in the near term, how are you preparing for demand in the next 6 to 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? If so, what would be the strategy in terms of production versus retail demand?
Tami, as you would expect, we are doing a lot of scenario planning for how the back half of this year and early 2027 could play out. Over the last 18 months or so, we have been cutting production significantly in different parts of the world to different degrees, especially in North America and South America, to rightsize dealer inventories. As we sit here today, Europe is actually a little bit below where we want to be, around 3.5 months of dealer inventory; we target about 4 months. Latin America is at about 3.5 months and our target there is 3 months, so we remain underproducing there. We underproduced in South America by around 30% in the quarter year-over-year, so we are continuing to cut production quite heavily there. Dealers are doing a great job moving through aged inventory on their yards, especially non-tractor products, and I think we will be in a good position to get through that this year. For next year, even if the industry is flat in South America, we will be producing at a much higher level and we will not be offering the discounts we used to move aged inventory. So we feel good about South America. In North America, dealer inventory is now just below 7 months, so there is still a little work to do, but the team is making progress. As we grow share at retail, we will continue to watch production closely and make sure not to put too much into dealer inventory until we get more visibility on retail demand.
To summarize wholesale and touch on retail and farmer profitability: the biggest pressure recently has been fertilizer and fuel, largely tied to geopolitical factors. That is an unknown in duration. However, there are other elements that could support farmer economics. In Brazil, fuel policies are driving ethanol growth from 27% to 35%, which increases corn demand. In Europe, the ReFuelEU Aviation policy is intended to grow sustainable aviation fuel from 2% to 6% by 2030. In the U.S., year-round E15 could materially increase ethanol demand and consume a larger portion of the corn crop, and renewable diesel and sustainable aviation fuel growth could heavily increase soybean demand. There is also proposed renewable fuel usage for ocean-going vessels working through Congress. These are demand drivers that could support commodity prices. Combined with an aging fleet and reduced fertilizer application potentially pressuring crop production, there are several reasons to be positive about farmer economics even if input costs do not moderate quickly.
Under the updated guidance, what would be your underproduction percentage versus retail demand in North and South America as you exit this year? I may have missed that detail.
The underproduction relative to retail demand in South America is going to be approximately 15% as we exit the year. Underproduction relative to North America will be a little less. Remember, what we make in North America includes track tractors, sprayers, planters, and the Gleaner combine, and that production is quite low. We are seeing strong market share momentum in the tractor part of the portfolio, much of which is imported from Europe, so there is a bit of a disconnect between where products are manufactured and where demand is realized. We will continue to underproduce some North American-made products relative to retail demand to align inventories and support channel health.
Our next question comes from Jamie Cook with Truist. Please go ahead.
Hi, good morning. Two questions. First, Damon, on the second quarter, was there anything other than France or company-specific issues that resulted in the softer results in Europe/Middle East relative to your expectations? And because Europe is so important to your company, how should we think about margins in the back half for the EME region? Second, you said third quarter EPS is targeted at $0.85 to $0.90. That implies a much stronger fourth quarter. Is there anything other than production changes that should drive the fourth quarter strength?
Jamie, the second quarter surprise in Europe was mainly two pieces. One, Germany was significantly softer than we anticipated. Given our dominant market share in Germany and the market's size, that contraction had a big impact on our Europe earnings even though we grew share in Germany. Second, dealer inventories declined more than expected. We were around 4 months in Europe last quarter and are now around 3.5 months, which represents a couple hundred million dollars of change in sell-in versus sell-out. Given the macro backdrop and CEMA indicators deteriorating in the quarter, those factors drove the Europe miss versus our expectations. Looking at the second half and margins, European margins will typically dip in the third quarter because of the normal summer shutdown. Given the relatively flat industry outlook, we are going to take out some incremental days of production in Europe, so I would expect European margins in the third quarter to be in the low double-digit range, roughly 11% to 12%. As we come out of the summer shutdown and move into the fourth quarter—our strongest selling quarter in Europe—we should see revenue growth year-over-year coupled with increased production, which will help margins recover into the high teens and improve the full-year balance.
Anything other than production on the bridge from third quarter to fourth quarter?
The bridge is driven by revenue growth. In Europe, revenues are likely to be around $1.3 billion to $1.4 billion in the third quarter and we expect to be north of $2 billion in Q4 due to the seasonal pickup. Pricing will also contribute, as new model year pricing will be reflected more in the fourth quarter than the third.
Our next question comes from Kristen Owen with Oppenheimer. Please go ahead.
Hi. Good morning. Thank you for the color on Q2 in Europe. I'm wondering what you are seeing in terms of order velocity now in Europe. Commodities have improved since the quarter close, especially wheat, and fertilizer prices have corrected somewhat. How much of your comments reflect a cautious surprise in Q2 that you're rolling forward versus what is actually reflected in orders?
Kristen, Europe has the August holiday, so order velocity typically lags while dealers return. Right now, our order board in Europe sits at around three months, so we are down a bit from the three to four months we referenced last quarter. We expect to see orders tick up in September and into the fourth quarter as dealers and farmers return and react to commodity price movements.
Helpful. On North America, you had really strong performance in large ag in the quarter. How much of that was sell-in versus sell-through? And how should we think about the margin impact of a higher high-horsepower mix, given some of those tractors are imported form factors?
Kristen, mainly that performance was sell-through. Dealer inventories in North America were reduced by around 6% sequentially, so we are gaining share at the retail level and not just putting units on dealer lots. High-horsepower tractors have a favorable mix effect. For the balance of the year, there is seasonality: third quarter margins should improve sequentially and year-over-year with a stronger sales quarter, and the fourth quarter could dip depending on U.S. market developments such as subsidies or policy changes that might trigger additional farmer purchases.
Our next question comes from Steven Michael Fisher with UBS. Please go ahead.
Hi. Thanks for taking the question. I'm on for Steven Michael Fisher. First, a question about Brazil. The updated market outlook seems to imply improvement in the second half relative to the first half. That seemed a bit surprising given where the market is now. What is driving the improvement in the second half, and how reliant is this outlook on government stimulus or other late-year factors?
We expect the second half to be stronger in Brazil largely because of subsidized financing programs. The Brazilian government announced two programs: the normal FINAME funding with about 1% lower interest rates compared to last year, and a special program of about BRL 10 billion with interest just over 9%. Those programs were public, but the details and farmer/dealer access were delayed; the program was activated late last week, which historically acts as a catalyst for demand because farmers can access subsidized rates. Additionally, there is an election in Brazil later this year and historically election cycles result in incentives that can spur the ag economy. Now that FINAME information is accessible and with election dynamics, we expect a pickup in demand in the back half of the year.
Thanks. Second, on price versus cost: you lowered the price range and net tariff impact is higher. Do you expect to be price-cost neutral on a dollar basis this year? And looking to 2027, what are the key items to keep in mind for margins — price-cost, regional or product mix, diesel cost, operational efficiencies?
Excluding tariffs, pricing at 2% to 2.5% would leave us price-cost positive. When you factor tariffs and include the IEEPA refund, there is about a $50 million headwind year-over-year. With tariffs inclusive, the pricing range would not fully cover the tariff impact, so we would be negative on a dollar basis if no additional rebates occur. Operationally, however, we will monetize savings this year. For 2027, it's early to be definitive, but key building blocks include carryover of savings from organizational restructuring and operational efficiencies (the $60 million to $70 million we are monetizing this year will have some carryover), better alignment of production to retail which should improve absorption, and the relationship between price realization and inflationary cost. Those are the major drivers going into 2027.
Our next question comes from Jerry Revich with Wells Fargo. Please go ahead.
Hi. Good morning. Eric, Damon, could you talk about demand cadence for the short-cycle precision ag business, like GPS kits? How has that fared through the year? And can you comment on broader Precision Ag performance and whether you are revising expectations for the broader line this year?
Jerry, PTX as a group performed fairly well in the quarter and was close to our expectations. There are three components: PTX products sold into AGCO factories have high penetration rates and fluctuate with the industry; sales to 100-plus other OEMs remain steady with no loss of customers; and the retrofit channel continued to stay relatively strong compared to the overall OEM industry. The slowdown we've seen is more industry-driven than share-driven. For the full year, we expect PTX to be flat to modestly up versus the $860 million achieved last year. Overall, the team is delivering and structurally we are on track.
Strategically, we are focusing on innovation and channel development. We launched 14 PTX products last year and are on track to launch another 12 this year. On the channel side, the AGCO dealer channel now has 320 dealers enabled to sell PTX. The broader elite channel, which includes former Trimble and Precision Planting dealers, now counts 85 dealers; together, about 50% of the market is covered by elite dealers and over 90% by a PTX dealer. Our goal is to consolidate these channels into elite dealers and that is progressing as planned. Structural investments and changes are moving forward; we just need improved farmer profitability for customers to more broadly adopt the new technologies we are delivering.
Following up on precision planting heading into next year: do you have initial indication of interest for planters, first-fit or retrofit, for the next planting season? Also, for the upcoming tech day, any one or two products you think will materially move the needle for AGCO next year?
It's too early for ordering visibility for next year's planters. Strategically, planters and combines have been down more than the rest of the market, so if the industry recovers in 2027, those categories should benefit more. In terms of technology that could move the needle, our Precision Planting SymphonyVision system is gaining traction — sales are up about 35% year-over-year and demand is strong. Another strategic area is autonomy: our OutRun autonomy system launched in Brazil and received overwhelmingly positive customer reaction across crops including sugarcane. OutRun is at an early stage of adoption, while targeted spraying and other precision solutions are further along the adoption curve.
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 and for your continued interest in AGCO. The second quarter reflected a more challenging demand environment but also demonstrated the discipline and resilience we are building into the company. We are 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 agriculture and autonomy are 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 remain 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 share growth, and continued investment in the technologies and brands that position AGCO to outperform through the cycle. Thank you for your continued support of 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.