AGCO Corporation (AGCO) Earnings Call Transcript & Summary

Good morning, and good afternoon, everyone. My name is Chad Dillard. I'm the lead analyst here at Bernstein for the machinery sector. And today, I'm really pleased to have AGCO joining us. AGCO is one of the largest leading pure-play agriculture equipment manufacturers with a global presence. And joining from AGCO is Andy Beck, the Chief Financial Officer; and Greg Peterson, who is the Director of Investor Relations. So today, we're going to have the format of a fireside chat between myself, Andy and Greg. But I certainly encourage you who're all listening in to submit your questions, and we can read them off real-time. And to do that, you'll actually see a Q&A tab at the right-hand side of your viewing screen. You can just press that and enter in your questions. So without any further ado, we'll just jump into the questions.

So first of all, Andy, what is the biggest single execution challenge facing the company today?

Well, Chad, thanks for having us today. Well, that one is a pretty easy answer with the very difficult problem that we have is all about the supply chain. We released earnings just recently and talked a lot about that in terms of the challenges that are facing us with our supply chain right now. I think it's -- what we're -- I think we're seeing that all across the industrial company landscape. And the supply chain is just really fragile right now. We're constantly getting surprised by shortages, not -- missing delivery times, things like that. The issues start with components that use -- have microchips in them, but there are also lots of other components that we're having issues with getting the level of componentry that we need to fill our demand. So our order boards are very strong. We have significant interest from customers to replace equipment by equipment. And the limiting factor right now is primarily and really singly our supply chain, the ability to get parts in and complete equipment. So we're working really hard, working with our supply base to do everything we can to find solutions, get the components in so we can get equipment to our customers, but it is -- it's a real challenge right now, something that we're really working hard to try to mitigate its impact on our results.

Got it. So just next question, just sticking with the supply chain which has just been such a central factor across the entire sector. Can you bucket the margin headwinds that you're seeing from the supply chain this year? Like I'm just thinking about how much incremental costs are you seeing from material costs from the absorption inefficiencies as well as just like the freight and logistics costs, just so we can kind of get a sense for the order of magnitude and how to think about that going forward?

Well, Chad, what we looked at is our focus is looking at the inflation that's coming and trying to make sure we've got enough pricing to cover that. That's been our focus all year and the amount of cost increases that we're seeing is quite substantial. In the first half of the year, we were really running ahead of the cost increases and our pricing in excess of the cost inflation that we're experiencing was giving us a positive margin. So our net pricing was pretty strong in the first half, and we're seeing that deteriorate in the second half. So we were still net pricing positive in the third quarter, but just marginally. And in the fourth quarter, we really think we're going to get a lot of cost increases that kind of a wave of cost increases hit our results. Typically, these costs have about a 3- to 6-month lag to get to our results from the time that you see the cost of componentry going up with spot -- and then spot prices of steel and things like that to where they start to hit us because we're not a really a heavy buyer of raw steel. We're mainly buying steel within our components like a casting or an engine or something like that. And so there's a lag time. And now we're seeing in the fourth quarter, we really think we're going to get a heavy influence of this inflation that everyone is seeing in terms of commodity prices impact our results. So we've added a lot of pricing throughout the year. In the third quarter, we had close to 6% pricing, and we expect to have similar levels at the -- in the fourth quarter, but that's going to be just sufficient to cover the costs. It won't deliver any margin enhancement. So that's kind of where we are right now, and we also will see those costs carry into '22 because obviously, this cost increases have been increasing throughout the year. So we'll have quite a carryover that we'll need to make sure that the pricing also is in place to cover for next year. And these are -- the costs are as you pointed out, steel, freight increases are substantial. We've been having to, in some cases, surcharge our pricing on equipment if there's a substantial freight cost increase that we've had to absorb. So we're doing everything we can to try to cover this very significant increase in costs that we're seeing right now.

Got it. So Andy, you talked about how net price is becoming more challenged as we go into the fourth quarter. So do you think that the fourth quarter represents the trough in terms of these cost headwinds? And like what does a realistic recovery of incremental margins look like if we're thinking about the next 12 months going into like 2022?

Yes. When we talk about year-over-year increases, certainly, there are going to be, as we say, a significant amount of these costs carry over into the first half of next year because the costs were increasing throughout the year. Sequentially, I think there also will be some increases. So I don't think -- I think there's still a part of this lag period that we'll still absorb into next year. So -- and that means that we also need to continue to price and cover these costs with pricing. Luckily, for us, at least at this point, the industry -- underlying industry demand is very strong. Market conditions are quite good. Farmers are really looking to replace equipment. So if there's a time when we needed to get some pricing in this kind of -- the market conditions are going to be helpful and allowing us to get that pricing in. And in addition, these are factors that are affecting our competitors as well. This is kind of industry-wide. For all industrial companies, we're going to see these kinds of cost increases because the underlying commodities are causing these increases. And so for that reason, I think we'll focus on pricing to cover these costs and really monitor what's happening with the costs and trying to make sure we're staying ahead of it as best we can.

Got it. Okay. So this is a bit of a longer-term, bigger-picture question. But having gone through the supply chain ordeal over the last several months, what about the structure of your supply chain? And the manufacturing footprint needs to change. And I guess, like more pointedly, does a global production model still makes sense? Or do you think a more regionalized or localized footprint [ sets up growth ] for the world that we're in today?

I think kind of -- if you look at manufacturing footprint of AGCO, I don't think -- for the most part, we would want to change anything. I think the cost to have any of these products made in 2 sources is quite substantial. There's really a heavy tooling investment and so -- and to get any scale in our industry, we want a -- for the most part, produce the product in one source. Now we do have some exceptions to that like our global combine equipment is in a position where we want to produce, we're producing that at South America, in Europe today and could produce that in the U.S. So there'll be exceptions to that. But for the most part, I think we're happy with our footprint, not looking to try to double that up in any way. I think the real question is how do you manage your supply chain. And what we've been doing over the years is really trying to consolidate our supply chain, leverage our buy better by going to single source componentry also within our -- and also with platform design. So if you we were going to design a component, we want it to be able to be used not only in 1 range of equipment, but multiple ranges of equipment across our brands, across manufacturing facilities. And so then you get into a situation like we're in today, and if we have a disruption with that supplier, now it's affecting more than 1 range of equipment, more than one of our factories. And so it points to the risks, obviously, of single sourcing and having the platform design. So we still believe that platform designs is the way to go. It gives us scale, leverage. We're not reengineering parts more than one time. So I think that's a clear advantage and something we'll continue to do, where I think we'll look again is how to manage the supply chain resiliency. And does that mean that we want to always have single sources? Or will we look at dual sources or have the single supplier have dual-source capabilities for us? So I think those are going to be important questions as we move into next year and look at where we think we have more vulnerable parts of our supply chain and how do we resolve that. And it could be trying to get multiple sources of that component. I think there's going to be a trade-off between costs and resiliency and reliability of that supplier, and that's something that I think we'll really be focusing on next year and in years to come because we're learning right now about how hiccups in the supply chain can really kind of have created a domino effect that really impacts our ability to get components and get our products out the door.

Got it. So earlier this week, there were some uncommon positive news with respect to material costs. It's that the U.S. [indiscernible] agreed to de-escalate tariffs. Can you frame -- is this a big deal for AGCO? And if so, can you frame just like how big of a tailwind it could be, maybe you can start with just percentage of steel in the COGS and just walk through I think about the lead time between spot steel and when it flows through our P&L? And -- yes, maybe let's just start there.

Sure. So steel is an important factor in our cost of goods sold and probably 15% to 20% of our cost are steel related. Now again, we're not buying a lot of raw steel. We're buying components from suppliers that have steel content. So for that reason, a lot of times, there's a lag time that before the costs get to us. And so it's typically 3 to 6 months is a good rule of thumb. In terms of this -- the news this week, probably need to see how that develops. I don't know what the capacity levels are of European steel to provide much of a dent into U.S. demand or anything like that. But we're obviously hoping that helps a little bit in terms of cost increases. Some of the larger cost increases that we're seeing in terms of steel-related components is in the U.S. And so that might bring a little bit of relief, but I think it's a little too early to tell how that will impact us.

Got it. So let's actually move on to talking about margins. And Andy, I think at the last Investor Day, you guys talked about your operating margins of 10% at the mid-cycle. But as we look at, let's say, like 2Q this year, they're basically there. This past quarter, if it wasn't for some of the supply chain issues one could probably argue with that, you could have been there. And so I guess it's a roundabout way of asking, is there actually an upside to this figure? And if we think about where the ag cycle reaches peak, like where do you think AGCO's margins could be and where we're actually at the peak of the cycle?

Well, what we've been focusing on is a goal of reaching 10% operating margins. And what we said was we'd like that to be a sustainable margin for us at the mid-cycle. And so we've got a ways to go still. We're -- as you say, making a lot of progress. We're at 7%. Margins last year should be well above 8% this year, depending on how we finish the year. So we're making a lot of progress there, but we haven't met our goal yet. Right now, the industry is stronger than mid-cycle. We're ahead of that. So some of this is volume related. So there's still work to be done, and we have -- within our strategy that we've talked about this year is really a key element of that is growing the margins. And there is a number of ways that we're focusing on doing that. First of all, we want to grow some of our higher-margin businesses. So that's included in that is our replacement parts business, our Precision Ag business, which carries high margins. Our premium high horsepower equipment like our Fendt brand growing that not only in Europe but growing that outside of Europe and North and South America, expanding that business. And overall, growing in the high horsepower sector in North America, which is typically carry strong margins. So a real focus on growing high-margin businesses, improving our mix by doing that. Secondly, we're working on really improving some of our businesses where we think there's margin improvement potential. For instance, our GSI business has really been in a situation where the markets have been not very strong. And we've been doing a lot of work in terms of facility rationalization, cost reduction, simplifying the product line, kind of focusing on key markets in order to bring those margins up. We also are looking at our Massey Ferguson business, which is our global -- biggest global brand and taking that brand and looking at the complexity of our product offering, can we simplify it? Can we get more pricing within that brand? Number of areas to try to simplify and make that more -- improve the margins of the Massey Ferguson business. And we talked a little -- a lot about early Precision Ag and how that brings margin to the business. And then lastly, within our industrial operations, we're always focusing on how to improve our costs. So investments in new equipment that brings automation, reduces costs within our purchasing organization, this is, right now, maybe not the focus. But when we can get back to more normal conditions with our supply chain, we are continuing to look at how do we leverage our buy in an improved way in order to reduce costs, engineer products and to reduce costs. So a lot of different ways to improve our margins, and we need to go tackle all of those in order to reach those goals, and then as you implied, we should move beyond that as well. So we want to hit that goal and then focus on the next chapters of improving beyond that.

Got it. It sounds like there's just a number of different initiatives that you guys are working on. So it really beckons a question like how are you thinking about -- like ranging the top priorities of margin or maybe a better way to put it is, like what's the lowest-hanging fruit? And then just to add on to that, is there any way to quantify like where you are today? Like how much more do we have to go just so we can think through just the overall upside potential versus where you are right now?

Well, there's never an end state. I think what I laid out just for now is -- what I recently laid out was and what we've talked about in our strategy is something that continues on. So the more we grow these high-margin businesses, how they become really key for AGCO, that's going to continue to enhance the margins. It doesn't need to stop. And so I think what I laid out is a way to see year-over-year improvement in margins for a number of years in the future. And so that's what we're really focused on is seeing that improvement each year.

Okay. And then zooming back, just maybe a little more near term. Can you talk about the pricing visibility in '22 for your products? Maybe if you can break it into your large ag versus small ag, talk through like what you're seeing, like the pricing potential from like a regional perspective? And are there upper single digits actually on the table? Do you think that the farmers can actually bear that level of price?

There's a couple of factors here right now, Chad. As I mentioned, we do need to keep the pricing going because of the amount of cost that's going to carry over into our '22 results. So we're cognizant that we've got to make sure that our pricing remains in place. The real challenge is how do you get that pricing into the system. We've got an order board of at least 6 months or more in a lot of products. So that carries well into 2022. So we have to -- we talked about it in our conference call that there's a number of mechanisms that we're going to have to employee to make sure that those orders as we fill them are priced appropriately. There are cases where we have prices locked in, if it's for a deal that's been negotiated with the end customer. But if it's an order from our dealer, we're going to -- we have ways to change that price. And then ultimately, there's also the discounting of our equipment that allows us to have flexibility kind of in terms of adding price. So our first focus is making sure that we can get as much pricing into that order board to cover our costs. And then as we move into later parts of '22, we'll want to make sure that our headline pricing is adequate and make sure that, again, as you point out, we're pricing at the right level to remain competitive but also maximize the margins that we can achieve in this environment.

Got it. Okay. So let's shift gears from price cost and let's talk a little bit more about demand and the ag cycle and just overall market position. So as we look towards '22, how should we think about the health of the ag cycle in Europe? If we look on the screens today, the European farmers benefiting from high wheat prices, which should be positive. Shouldn't volumes continue to grow pretty nicely in that part of the world into next year?

Greg, do you want to cover that one?

Sure. So Chad, the European market -- Western European market tends to be a little more stable, a little less cyclical than -- to the markets in North and South America. And there are a number of reasons. Number -- the first one is that the farmers in Europe tend to be a little better diversified than their North American or South American counterparts. And by that, I mean it's relatively common, for instance, for a large farmer, whether he's in Germany or France or one of the other Western European countries to do a row crop like wheat or rapeseed, for instance, but then also to have his hand in like dairy and livestock. And the reason that's significant is that those sectors tend to be countercyclical when grain prices go up, margins on his protein -- wheat and protein side go down. And so that tends to help his balance, his income. And the other factor is that the farmers in Europe are -- in terms of subsidies, subsidies represent a bigger piece of -- in most years, anyway, a bigger piece of farm income, and that tends to be a little more stable. Now in Europe, they have 7-year cycles for those subsidies through the common agricultural policy of the EU. And the last we're in -- I guess, this is a first year of that new cycle. Starting in year 3 or in 2023, there's going to be some changes to the way those payments are made, and that could influence income levels and certainly then demand and what happens with the overall cycle. But -- so in 2023, the European farmers are going to start to get -- or I'm sorry, the payments are going to be influenced by environmental rules. And so that really enters -- puts a little more complicating factors into the equation. The difficulty is we don't know yet what those rules are and they're going to likely be different by country. So there's a lot to happen between now and the end of next year in terms of farmers figuring out, "Okay, what do I need to do to meet these new environmental rules?" Now maybe the positive for our industry is that there's a good chance these rules are going to involve using less chemicals, using less water, working on carbon sequestration. And a lot of the technology we're putting into our equipment is aimed at helping farmers with those very topic. So there could be a reason to think that maybe these new rules could be a way that the cycle gets extended or the time at or above mid-cycle gets extended. Now in Europe, I would say that we've been more or less at mid-cycle for the last 2 or 3 years. So we come into it in Europe in a much different place than, for instance, North and South America, which we'll, I guess, cover in a minute. But -- and typically, in Europe, these variations, whether you're at the trough, to get to mid-cycle and then up to the peak, typically, as I said, it's not nearly as -- typically, the variance isn't as great. So a significant variance in Europe is 5% typically in any 1 year. What we've seen, like I said over the last 2 or 3 years, we've been at mid-cycle. What drives volumes in our industry for farmers, from farmers is their income levels. And to your point, with higher commodity prices and relatively manageable input costs and good yields, the farmers are going to have another very good income year. So that likely would support demand next year where our order boards reflect that. And so going into next year, it would look like we'll have another solid year in Europe.

Got it. That's super helpful. And just to shift regions, how much market share have you gained thus far in this cyclical in North America? And perhaps you can talk about the products that are driving those gains, and how much -- maybe if you can, how much share gain do you have baked into this year? And how do we think about this framework for market share going into next year and the rest of the cycle?

We don't really give out too much detail on market share. What we -- I think this year is a very difficult year to measure market share because the supply issues are really the driver rather than customer demand. We've got great, as I said, very strong orders and interest on all our products from our customers. We're working as hard as we can to get those products to our customers as soon as we can. In terms of our strategy, we have very strong market position in Europe and South America in tractors. What we'd like to do in those 2 markets is grow market share in non-tractor products. So combines, hay products in Europe. We've expanded, for instance, the Massey Ferguson and Fendt brands to be full-line brands. So they're not just tractor brands. They're selling combines, harvesting equipment, hay equipment, all of the equipment needed to be a full line provider in the market. So we believe that, that will give the brand equity that we have within those brands in Europe that will give us an opportunity to grow market share in those business lines. In South America, big focus on growing outside of the tractor share that we have. Combines, we've been very successful with our planters in South America. We have a very substantial market share there now through using some of the precision planting technology on a planter that we call the Momentum planter, and we're selling that. That's a really state-of-the-art equipment, selling that in South America, and that's been received very well in our market position's improving. And so North America is where we'd like to have a broader market share improvement within all product lines but probably focusing on tractors and combines, getting into that premium tractor space with the Fendt tractor to meet those professional farmer needs in North America. We have a new combine called IDEAL combine that has really great results in terms of yields and throughput, so very high-performing combine. So we believe that, that will help us get inroads in that market. So if you go by region, we've got different goals and different targets, but we think we're making great progress in all those areas.

Got it. So I have to ask this, the Deere strike was the news today. Have you guys seen any incremental, I guess, share gains from just the lack of your productive capacity there?

No. As we've talked about before, there -- we have a very large order board right now. We've got customers waiting for equipment. So there's a fairly lengthy lead time to get to -- if someone came today and wanted a piece of equipment. So I don't expect that to be a big impact near term in terms of our retail demand or something like that. So I think our focus remains on serving -- trying to get the product out, serve the customer, serve the orders that we have. And obviously, if we can deliver product to new customers, we'd be glad to do that, but there's quite a lengthy lead time right now.

Got it. It's okay. So one of the biggest challenges I think AGCO had to deal with has been the smaller dealer footprint relative to selling your competitors. Can you just talk about what does the right dealer footprint look like for AGCO? And can you talk about just like how far along the company is and getting towards that proper footprint that allows you to be more competitive?

Well, I think little bit over generalization in terms of our dealer network in Europe, I think we have as good a network as any of our competition. So I don't think we have any issues there. We're working -- we always work on improving it and making sure our dealers have all the capabilities they need to compete and thrive and servicing our customers. So that's the real key is continue to work with our dealers, training, bringing them new technology, those kind of things, new tools to be more competitive in the future. In terms of where there are some areas where we like to improve our network, I'd probably highlight 2 areas. One is in North America. We -- again, we've talked about growing our Fendt brand in North America that premium equipment space that we'd like to compete in more heavily. And we've signed a lot of Fendt dealers over the last few years. We've taken a strategy of really picking from our best and brightest dealers in each region of the country in North America and Canada to really bring the best service and best quality dealer that we can offer. There are still some areas we'd like to add dealers or have our dealers expand into some new territories. So we're continually working on that. I think it's more as I said, working with those dealers, improving their capabilities, bringing the way we sell Fendt equipment, which is really -- the total Fendt experience, we want to bring that to North America and South America. So we're really working on that. South America, we have a very strong market share, very good dealer network. There are some areas where we'd like to grow, and it's in the growing Cerrado region of Brazil, where we could add some more dealers and looking at ways to improve our distribution network there. So there are some areas where our dealer distribution teams are really focused on. But overall, we have a great network of dealers. We're not losing ground to anyone, and I think it's a great asset that AGCO has.

Sounds good. So just wanted to jump into the product portfolio, part of this conversation. I think you mentioned earlier just some work that you've been doing with Massey Ferguson. So I guess the broader question is like what sort of opportunities does AGCO have to optimize the product portfolio? So maybe touch on -- a little more on to the Massey Ferguson side? And then I guess, on GSI, like why should this be a core business for AGCO?

Well, our focus is to serve our professional farmers, serve our core markets. And so we're doing that through our differentiation of our brands. And I think with our new strategy, we're even focusing on that more. So there are different segments of the market. So there's the professional segment looking for highest technology, that's our Fendt brand and we want to deliver that. There's also someone who wants maybe not all that technology, not a -- pay a little bit of a lower price, want very reliable equipment, and that's where our Massey Ferguson brand is going to be positioned and is positioned today. So we're working on making sure our products and -- fit our brand positions because the unique -- the ability of AGCO to serve different segments of the market are -- we're able to do that with our different brands. And so I think that's a real focus of us. And then as we talked before, we're trying to grow outside of the tractor segment. So a lot of product development, harvesting, combines, hay equipment, all very focused on having the right equipment so that we can serve those markets as well and gain a stronger position in those markets. The key to our product development efforts right now is really towards Precision Ag, smart machines, so automating tasks, bringing more technology, more data to the farmer so that they can improve their cost, solve some of their issues and improve yields. And so most of our product development efforts are really trending towards the technology area and finding ways to enhance the equipment that we have through these new technologies that we're developing.

Got it. Okay. We're going to take a question from the audience. But before I do, I just want to remind you that you can submit questions via the live Q&A chat on the right side of your screen. So feel free to put in questions you'd like. But here's really the question. So are the hedges on materials that roll off and the cost headwinds, will they become worse next year as a result?

Well, the only thing we're hedging in terms of having forward contracts or something like that in place is on steel as it relates to our grain and protein business for the -- because there's such a high steel content, we're buying lot of raw steel, corrugated steel for our silos and things like that. As we get orders in, we're matching that with a hedge on the steel. So we're not -- there's no speculation there, no locking in of costs. We're trying to match orders with costs so that we can make sure our margins are intact. This year, we did some of that, but not to the same extent. And like in the third quarter, we saw that we had some imbalances between what the cost of the steel and so the cost of the silo ended up being versus what price we had already agreed to. So had some margin deterioration there. That should start to clear back out in the fourth quarter and as we get into next year. But our goal is to match costs and pricing so that we can make sure we have solid margins moving forward. So there -- in terms of how the costs roll into AGCO, it's more, as I said, kind of a 3- to 6-month lag of what you see in terms of what's changing in terms of the price of commodities. As our suppliers need to pass those costs on to us, we're going to obviously end up having higher costs as well. So we need to time all that with our price increases. And so that's how that kind of works at our company.

Got it. There's another one from the audience. So machinery OEM results have disappointed recently as supply chain issues accelerated over the last quarter. What gives you the confidence that these issues won't continue or get worse well into 2022?

Well, I don't -- I think right now, there is a lot of uncertainty right now. We're working with all our suppliers and talking about not only can I get parts tomorrow or next week, but also how can we plan for next year, giving them as much visibility of what our needs are and talking about will they have the capacities and available of their supplies to meet our demand. So there's a lot of planning going on, a lot of work that we're doing with each supplier. But saying we have visibility or we can tell when things, all these disruptions and issues are going to go away, we really don't have that ability to say when that is. Obviously, we hope that with the advanced work we're doing, things do improve next year, but timing-wise too early to tell at this point.

Okay. Let's shift gears over to Precision Ag. So in the last few years, AGCO has done a lot on the internal infrastructure side of things to advance its Precision Ag platform. What can you do now that you couldn't do before? Or is this may be more competitive?

I think within the industry as a whole, this is a real key focus. It's -- we want to continue to upgrade our equipment and our offerings to our customers to help them be more successful and that's by reducing their cost, improving their yields. And so we start -- we're trying to solve a farmer problem and try to engineer a way for our equipment to help solve that problem, whether it's be gathering more data, automating a task, different ways to improve the situation for the farmer. Our Precision Planting group, which is a retrofit business, primarily at least right now, focusing on retrofitting planters is a great example of that. So the planter as it goes through the soil, it's measuring soil temperature, organic matter, moisture levels and it's making real-time decisions about the depth and distance between seeds, what seed to plant, all these kinds of things where, in the past, the farmer would maybe make a much more general decision about those kind of factors. Now we're doing a seed-by-seed level decision. So that's a great example of how we've taken something, made it more precise with more data and that generates significant yield improvement for the farmer. So he's investing in those kinds of areas. And so we think as we solve problems, create opportunities for farmers who are going to want to invest. So as you point out, those capabilities we needed to develop in-house or acquire, the Precision Planting group has a great team of innovative engineers working every day on these kinds of issues, and we're continuing to expand our capabilities. We're hiring more software engineers, developers that have those capabilities. And you've seen us make 2 little small acquisitions this year to acquire some of this technology that we think will be beneficial to our customers. And so I think this is a real focus area as we move forward in the next few years to make sure either through acquiring businesses, partnering with or having alliances with some of these high technology-rich companies or through internal development and building those kinds of staffs of engineers in place, that's going to be something that you'll see AGCO really focusing on in the next few years.

Got it. So AGCO has talked about its Precision Ag products enabling roughly a 20% increase in net farmer income. Can you break that down across the cycle and talk about maybe where it comes from like a product perspective?

Well, I think, again, that's talking about how do you improve the profitability of the farmer? And there are many areas we can focus on in terms of how to reduce the costs, fuel efficiency, better fleet management, all sorts of things we can do, reducing input. So how do we reach the amount of chemicals and things like that. So there's lots of things to reduce cost. And then there's also improvements in yield in terms of just the example I gave in terms of precision technology in the planter really has clear yield improvement opportunities. So there's -- again, what we're focused on is how do we solve the problems for the farmer, take it and adapt our equipment. So we're automating tasks making sure that the decisions that the farmer is making are with the right data in mind. And so all of those things that are -- that we have are focused on improving the profitability of farmer and bringing these solutions to the farmer over the next few years.

So this is probably going to be my last question since we're almost out of time. But just sticking with that 20% increase in the farmer income, Andy, can you lay out the Precision Ag product road map for AGCO, say, like in the next 3 to 5 years, what could that value creation potential be? And where do you see what sort of future products could get you there?

Greg, do you want to tackle that one?

Sure. So Chad, and Andy touched on this already. But historically, AGCO has been, in terms of our technology approach, we've been really more of a systems integrator and add really more open architecture. One of the reasons is we felt like we could get technology into the hands of our customers much, much quicker. And one of the things we've been working on over the last 2 or 3 years is to develop what we call a common electronic architecture. And so that stretches across, whether it's tractors, combines, sprayers, all of the big equipment that we make and sell globally. And we have that virtually complete in our North American and European product offerings. And so what that allows us to do and where we're headed is to continue then to layer on essentially applications on to that common electronic architecture. One of the biggest examples is our FendtONE suite of products, both our FendtONE suite of products as well as our FendtONE cab that essentially puts both instrumentation but also a lot of homegrown software into the hands of our customers. So for example, one of the -- one of our long-term partners -- a couple of our long-term partners in the technology area has been Topcon and Trimble. Historically, we've resold some of their solutions in terms of equipment management and farm management. Today, we have a solution that replaces most of that functionality in our FendtONE solution, so that today, those suppliers in a lot of cases now might just supply 1 piece of the puzzle, for instance, an antenna on top of the tractor. And now the customer is using our suite of technology products to manage this equipment and to manage his farm. And as we do that, the idea is more and more margin opportunities will accrue to AGCO. And so that -- directionally, that's kind of where we're headed. And we're seeing benefits from that already. Our Fendt tractor sales in North America have probably doubled over the last 3 years. Our IDEAL combine is off to a great start. We're leveraging that technology then with our Momentum planter and the new Fendt Rogator sprayer that we haven't really talked about a whole lot, but that's going to be a big opportunity for us as we essentially give a farmer a sprayer that's able to do both pre- and post-emergent spraying, which is something they haven't had before, they typically have to rely on 2 different sprayers. And then when you layer on things like targeted spraying capabilities that we're working on now with some partners, we're going to be able to significantly -- help the farmer significantly reduce his chemical usage and his input cost. So a lot of work on really putting that technology into the hands of our farmer customers.

That's super helpful. So I mean it looks like we are couple minutes past time. So we should probably leave it there. I just want to say, Andy and Greg, thank you so much for taking the time to join us. And to those of you on the line, thanking you also for joining us. And if you have any questions, you can always contact me, [email protected]. And we'll leave it there. Thank you all.

Thanks, Chad.

Thanks, Chad.