AGCO Corporation (AGCO) Earnings Call Transcript & Summary

Okay. Thanks, everyone. We're moving along here. Next up, we have the team from AGCO, who's been great supporters of this conference over the years, and we appreciate that. Again, you guys being here to my left, Damon Audia is the CFO; and then Greg Peterson from IR. So welcome, guys. Good morning.

Thank you.

Maybe we just -- as a way to get the dialogue going out. I'm curious, Damon, as you think about relatively certainly newer to AGCO and as well as in the Ag Equipment space, just your overall perceptions as you have had some time to kind of settle in just the competitive dynamics, just the overall market structure, your initial impressions on that. And then AGCO's spot in those -- in the market?

Yes. Maybe to my start -- I mean I'll start with AGCO and then I'll move more to the macro or the market backdrop. And I've been fortunate in my 7.5 months here, I've been able to travel the world quite a bit, see a lot of our factories, talk to some of our dealers, talk to us some of our farmers and I've spent almost 30 years in industrial companies. So I've been through a lot of factories, and I've seen what good factories look like, and I've seen what the more challenged factories have looked like. And inside outside I was very pleasantly surprised with what I saw with AGCO. The level of investment they've done to modernize, keep the facility sort of producing quite well and very efficient was a pleasant surprise for me. I think the other thing as I walk the floors with these plant managers, very clear focus on safety, which, again, ultimately translates to more value and a better performing company, but more importantly, a focus on continuous improvement. And today, we're not getting it. Supply chain is creating disruption, as you would expect, things are not efficient. But as I talk to them, they've identified areas that when things normalize, we can get better, we can get faster and that's hard to teach in a lot of companies. And I would say it's very common within the AGCO facilities, a real continuous improvement mindset. So that's part of our growth or our profitability improvement plan is as supply chain normalizes, we'll see that drop to the bottom line. So to me, that was a pleasant surprise. I think the other thing that I've been very pleased with is the power of our brands. I knew about Precision Planting coming in. When I think about the unique OEM-agnostic retrofit approach, to me, that's a game changer. It's a differentiator for us versus any other OEM. And when you talk to the farmers, and their ability to do smaller investments to see that return much quicker. We talk about a 1- to 2-year investment, you're not asking them to buy a brand-new planter at 400,000, 450,000 hour but they can do the modules and they can see the payback. And to me, that was something I really didn't fully appreciate coming into AGCO is how unique that retrofit and OEM agnostic retrofit approach was for Precision. So that was great. I would tell you, Fendt, I knew the Fendt brand coming in, I had to spend a lot of time in Europe, so I understood that, but when I've never been in a Fendt tractor. And so when you get in the Fendt tractor, you look at the technology, the ease of use, you look at what it does from a transmission, lower idling fuel savings for the farmers, those are significant. And you see the success of Fendt in South America. You hear us talk about the success of Fendt coming here in North America. And so to me, that was even better than what I expected coming in. So we've been very pleased with everything I see the opportunity to grow. As we've talked about it to our investors, I see the path to that, and we'll probably talk about that more. The farmers, it's been a good couple of years, right? Their profitability is up. 22 was a record year for here in the U.S., they're continuing to invest. And you look at our order boards for our high horsepower tractors, that's extended here into the third quarter from the North America and Europe. Grain prices have stayed relatively stable off the peak a little bit. But if you look at the forecast, I think corn is probably around $6 at the end of this year, still very favorable economics for the farmers or allowing them to continue to reinvest in the business. That's being fed by a very strong macro backdrop, right? There's not enough grain in the world today, stock-to-use ratios that are historically low levels right now. You look at what's going on with the conflict in the Ukraine, which produces or used to produce about 13% of the world's calories. That's been constrained, forcing other countries like the U.S., like Brazil, to continue to increase their input or their output. Brazil is exporting more this year than the last year forecasted to increase, all of these lending themselves to a strong macro backdrop and you layer on the technology of what we're bringing with our products, it lends itself to a strong order board in the '23. And as we said, we're likely into '24 right now.

Got it. But you mentioned -- you hit on supply chain earlier. As you think about the outlook for the year is, I think, grow production hours 3% to 5%. Where are the -- I'm sure that the answer could change day-to-day, but kind of your visibility levels there. Are there certain parts of the world where maybe you're seeing an easing or just kind of take us through the year there?

So we're forecasting 3% to 5% increased production hours year-over-year. That's a global comment. I would tell you it's going to be driven by the supply chain. Things are getting better. We've seen that in the third quarter. We saw it again in the fourth quarter getting better. Europe performed very well in the fourth quarter. South America performed very well. Our challenge of those other major regions was North America. So if I think about -- if I just look at my fourth quarter run rate, where is the biggest opportunity? I think the supply chain getting better in the U.S. is presenting the most opportunity. But again, for us, as we see the supply chain getting stronger around the world, we're going to see that growth coming out of Europe. We're going to see improvements in South America. But again, it's going to fluctuate depending on the supplier that's an issue. And what we've said as we don't see the supply chain getting back to normal in 2023. Our outlook for the year does embed a certain level of inefficiency, better than where we were in '22, but not back to normal by the end of '23 at this stage.

Yes. I think if you would have said Europe performed better than expected in the fourth quarter, in early part or middle part of '22, then people probably thought you were crazy, right? I was given all the potential risk there. I mean how has that played out from, obviously, a more mild winter help from an energy perspective?

Yes. So a lot of -- 5 to 6 months ago, lots of questions about the energy availability, cost. Obviously, the cost of utilities went through the roof here. For us, the cost is not the big issue, it was about 1% of our cost of goods sold. So not a big driver for us. Availability was a bigger challenge. We took a lot of proactive steps in our factories to reduce our risk, bringing in wood fire sort of furnaces, shifting to electricity where we could, trying to make sure that we were as independent or reduced our dependency as much as possible. The bigger challenge for us was the supply base. We buy a lot of components, a lot of parts. So our sourcing team spent a lot of time last year really working with suppliers, trying to make sure we understood where the alternatives were. So if the supplier had multiple factories, making sure that if they were outside of the European area, we had access to that capacity. If we were dual-sourced understanding who and where and then also working on them with their continuity plan as what they are going to do if something was to happen. Again, knock on wood, we didn't see any challenges this year. We feel like we've taken as many proactive steps as possible to reduce the risk. It looks like, again, from the storage, we'll get through this winter, and then we'll sort of see how things pan out a year from now. But we feel like we're in good shape within our AGCO facilities and trying to do as much as we could to reduce our risk with the supply base.

Got it. If we could shift gears a bit, as you guys have outlined at the Investor Day back in December. This notion of, okay, we can drive 150 basis points of margin improvement. There's 3 kind of key pillars within that, maybe we break those up a bit, starting with Precision in terms of the target to get that to $1 billion by '25. I think one of the questions I have is that you mentioned earlier that we've been in a favorable backdrop from a farmer profitability standpoint in the past few years. And I'm just curious, as you think about Precision there, is -- how do you expect that particular piece to behave in the event we don't see a continuation in terms of farmer profitability improving? Do you think that -- I mean, there's -- you could argue maybe that, that could be almost countercyclical in that maybe farmers invest more to bring down their costs or improve yields in tougher times? So just curious if the team is hard to prove or disprove at this point?

Yes. No, it's -- let me -- I'll come to Precision in minute. Let's just make sure we set the tone for where we're going on our margin target because it's -- it's a big step up, right? If you think about what we did last year, we did 10.3% was our operating margin. We were above mid-cycle. And we would tell you directionally 107%. When we gave you our 12% target, that was at a mid-cycle number. And so when you bring that 10.3% down to mid-cycle, that's closer to about 9.3%. So we're going to go up 300 basis points between 2022 to 2026. So a 3% improvement, half of that is going to come from our 3 growth engines. So half of it's going to come from parts, Precision Ag growth and Fendt. And those are 3 -- those 3 are going to help us outpace the market by 4% to 5%. The other half is coming from cost improvements in our Grain & Protein business, our Massey Ferguson business and then more operational efficiency. So we see sort of 2 profitability improvement plans, one, top line growth, 1 operationally cost focused. If I go into your specific question on Precision, you're right. What we've said is we look at some of our growth drivers, the share growth we see in Fendt, the single-digit -- high single-digit part growth we -- and Precision we expect them to be less cyclical, maybe even noncyclical. And I look at Precision specifically, as I said, the thing that surprised me was this OEM-agnostic retrofit approach. So as we think about the economic cycles, as farmers see their commodity costs come down, their net income dropping, Precision offers them the opportunity to be much smaller type of investments while still improving their yield, still reducing their input cost. And so again, if you think about that farmer who's already using a planter, he or she has the ability to implement only a portion of that planter. So they can buy a couple of rows worth of the Precision Planting. They can buy different modules so they can buy the SmartFirmer, they can buy the things that help close the furrow. Each piece to see or understand what sort of yield improvement it can help them with or input reductions in their costs. And so for us, we know that even during those challenging times, the farmers are going to want to continue to look for better yield or better productivity, reduce their input cost. So we see that Precision side of the house really playing out well. Again, because it's OEM agnostic, we see that opportunity that addressable market being larger than your traditional new equipment. And we see it sort of working through the cycle. I don't know if it will be counter cycle, but we definitely don't see it flexing the way the new equipment would during a downturn.

Got it. And on the retrofit side, starting with planters, where do you plan to take that?

Yes. So they really have broadened the horizon across the crop cycle now. Precision Planting started in the planting cycle and a lot of work being done continuing to improve that. But if you look at some of the things we've announced on the Precision Planting side, we're also into the targeted spring. So really focusing on that, trying to improve the spraying technology with our Headsight acquisition. We're on the harvesting side as well. And then equally important, maybe not directly to the farmer is the radical agronomics, the soil testing side. Again, every farmer goes through a traditional process where he or she tests their soil. They send it out to a third-party lab. They get the results back and it helps them influence where they plant, but with our radical agronomics, they're getting much more accurate data and they're getting it faster. And so they can do more samples, get the information a lot faster, more real time and they can adjust their planting a much faster path than what they would have done traditionally. So that's not going to be sold to them directly, but more to these third parties, consultants or agronomists who are working on the field supporting the farmers, but again, another way for these farmers to help improve their yield because they're getting a lot more information a lot more accurately and a lot quicker as they're getting ready for the planting cycle. So they're sort of working and Precision is working across the crop cycle now. All of these things with the idea of helping the farmer become more productive improve his or her yield, reduce their input cost with the mindset of a 1- to 2-year payback. That's sort of the goal when we talk to them is 1 to 2 years.

Within Precision and Fuse, so just the whole sphere of your Precision business, you, over time, have grown the AGCO content and obviously, outsourcing less of that technology to third parties, what -- is there a way to quantify the margin dynamics as you've done that?

Yes. I mean we've always had good strategic partners with some of them -- some of them who we purchased as part of our integration of our tech stack. I would tell you there is a modest -- it's been a modest margin enhancement to us. But at the end of the day, we're really working back on the value that we can bring to farmer and it's resulting in strong margins to us, but it's been a positive, but not a material driver of the overall profitability of the Precision Group.

Got it. You mentioned your impressions of Fendt being over in Germany and seeing the factory. We've heard from North American dealers really going back over the past several years, it's just a lot of the product improvements that have been made have been very well received. I think that Gold Star program gets a lot of high marks for dealers, but early days in terms of the penetration here. And obviously, you've got some strong incumbent brands. So just how is that rollout just performed relative to your expectations?

Yes. So I think the rollout we've been very careful in rolling out the Fendt brand around the U.S. And we -- you hear us talk a lot about that Fendt experience. So not every AGCO dealer today is going to ultimately be a Fendt dealer. He or she are not every dealer who has multiple outwards, we'll likely be able to offer Fendt out of the outwards. They have to sort of meet on this overall Fendt experience. And part of that is the dealer service, his or her ability to repair, having the right products to fill rates for their parts. That Gold Star warranty is a differentiator for us here in the industry. So we've been very careful in rolling out and bringing out these Fendt dealers. We have about 75% of the white space covered here in the U.S. with Fendt. So we still see opportunity to grow from a white space standpoint, but we also see opportunities to grow with our existing dealers as they continue to gain more and more recognition in the marketplace related to the Fendt brand. So when we look at the quality, we look at the feedback from the farmers, the product itself, the technology, the fuel efficiency, all of these things, the warranty deliver a very strong Fendt experience. Our one challenge that we've dealt with over the last year, 1.5 years has been our delivery and no surprise with the supply chain. It's sort of that commitment date has been a challenge. We've been extending it. And as we look at the farmers and telling him or her they're going to get that tractor in date X to only delay, that's been one of our inhibiting factors or one of our challenges. That's sort of why we've constrained our order book. You've heard us talk on the fourth quarter call. We've capped it at 3 quarters because we want to have better visibility on our production and ability to deliver. So when we tell that farmer a commitment date, we work hard to deliver on that date, and we've tried to get better. And that was one of the reasons why we made the decision last quarter to slow that down. But overall, we've seen really good demand. Farmers see the value of it and you see that in the profitability, both in North America and what we're seeing -- or sorry, in South America and what we're seeing here in North America is a really good interest. It's more of our ability to supply the demand right now.

Got it. Let's touch on parts, the aftermarket being another contributor or a piece of that margin improvement, is that a function of a better dealer coverage? Is it a function of fill rates? Or what are the factors that either to support that?

Yes. Sure. I think there's a couple of pieces that go into the parts business and the growth. Again, high margin business for us, I think really 2 things. One is starts with fill rates, right, having the right part at the right dealer at the right time. So when that farmer needs it, his or her first call so the dealer parts there and they're getting their tractor or their combine up and running as quickly as possible. Europe and North America, we have done very well at fill rates over the last couple of years, a really increased level of focus to improve the fill rates to more industry-leading fill rates now in South America as well. So we've seen good improvement there, which is helping drive growth. The second one is working more with the dealers and helping them in the penetration with the AGCO products. So again, every dealer will buy a percentage of the products from AGCO or from a third party, making sure that we're working with them to increase the penetration of our parts to them and then more importantly, their penetration with the farmer. So as the farmers are replacing his or her parts, not all of it comes from the dealer, but trying to make sure that the dealer understands how to service those farmers better so that they can supply the parts when the farmer needs it. So a lot of work being done there. And then you layer in the connectivity, right? As we talk about these smart machines, the digital information that we're getting knowing what's about to happen or when it happens, making sure that, that dealer that farmer knows we saw the air code or you're due for a replacement of your oil change or filter, can we ship you this? Or do you want to schedule that so creating more connectivity with that farmer, really areas we're getting better. And that doesn't necessarily lend itself a lot with that first farmer. But as you think about the second and the third owners, as they move further away from that original dealer, making sure that, that digital connectivity with them to build a longer connection with them, potentially extended warranties and other things that allows you to service that platform or that tractor for a longer period of time is really where we're seeing some more opportunities going forward to continue that growth trajectory of the parts business.

And presumably, I mean, you started -- the company was founded as a basically a collection of tractor brands, and you've grown the product portfolio over time. And I'm guessing those different product categories also in a different aftermarket streams associated with them, is it? I mean that are we fine to combine?

We are trying to commonize as much as possible, again, when you look at a replacement part, it's an AGCO replacement part. It's not a Fendt or a Massey or a White or a Challenger. Generally speaking, it's more AGCO parts again, trying to create that a simple -- simplified inventory system because if I had to have 2 filters, one Fendt, one Massey. I got SKU complexity, but again, trying to create more of a common platform on the parts servicing side.

Got it. Ben, If anyone has any questions, go ahead, right here. Sorry. So the question a little bit hard. The order book, is it -- are they hard? Or is it... Yes. So what I would tell you the question was basically the outlook for the order boards.

Yes. So -- and I think your question is, could we grow the order boards as we go through the year? So if we look at our order boards, South America, we only opened the order book one quarter out. And so as we said on our fourth quarter call, we're booked through Q2 right now for the last year, and quarter. So we've only been opening in one quarter in advance to make sure that we're managing the pricing as effectively as possible given some of the inflationary environmental conditions we saw down there. So there's a chance to continue. That will continue to build quarter after quarter. We're producing 3% to 5% more in hours. And so we know what we can accept in the order board. Europe were out 3 quarters. That sort of locked our production capacity aligns with our order board. And then North America, we're out 3 quarters as well. That's the one that we've chosen to constrain because of the spent experience that I was mentioning earlier to make sure that we're delivering on our commitments to the farmers and the dealers. And again, that will -- if we would have unconstrained that demand, I think our order board would have been up double digits in the high horsepower and down in the low horsepower. So again, really strong demand there. I think your question, could we do more? Supply chain is going to be that variable. If supply chains improved faster than what we had expected, we're able to get more equipment out of our factory sooner. It will allow us to deliver to those customers sooner and allow us to replenish what we have available. But I think in the near term here, we're going to -- we're basically -- we're full and we're producing to align with the orders.

I just did before we go to the question. But a summary on that is that caution needs to be applied when -- as you think about order boards today versus where they were 12 months ago or 9 months ago, right? Because of that dynamic of you had free flowing supply a year ago, you don't know, right? So that naturally is going to impact your order intake. Is that a fair summary or...

Well, I think -- I mean, we're seeing strong -- we're seeing demand that is outpacing our capability supply. We're choosing to restrict because we want to make sure that we're not overcommitting from a price standpoint. We want to -- if we give an order, we want to acknowledge the commitment of the order without sort of locking in the price today, trying to make sure that we -- given the volatility of inflation, we don't want to overcommit to a retail customer, right? The last thing that we really want to do with the farmers, he or she locks in a retail order 6 or 9 months from now. And then we have to do something different on the price, right? That's what we try to avoid and we've tried to maintain as much flexibility to acknowledge the order but not necessarily lock in the price, but where we can, we want that farmer commitment. He or she knows they're getting their combine at this price and trying to manage that as effectively as we can.

Got it. So you've historically been predominantly a tractor company. I think tractors made up 60% of sales over the past few years. I'm curious how do you think your mix shifts? Looking to 2026, especially, how do -- what do you think your mix looks like over the next 5 years?

Yes. So we're still going to be predominantly a tractor company in 2026. That's the highest volume of units. But I think if you look at the new products that we've brought to market over the last several years, our Momentum planter, we would say, is the best in the industry. We see super strong demand for that planter around the world. That's going to continue to grow in volume. We look at the new IDEAL Combine that we brought to market here. We're seeing really good momentum in the order book for the IDEAL Combine. We expect to continue to gain share with that product around the world. I think I said in the fourth quarter call, if I look at some of the regions, the order book for IDEAL was up over 70% in certain parts of the world in the fourth quarter. So we're seeing really good demand. We expect to see that share capture continue to progress over the next several years. And then the sprayers, again, which is an area that we've -- we just introduced a new Fendt sprayer coming to market this year. Again, we think that will be one of the best in the industry, and we see that growing in share as well. I think what you're going to see is tractors continue to be the dominant portion of it, but a better overall mix as the full product portfolio, especially with the Fendt full line, right? Again, Fendt several years ago was more just tractor. Now you have the IDEAL Combine, you have the Momentum planter, and you have the Fendt sprayer. All of those giving the dealers a full complement of products to offer the farmers. So we definitely see a better balance between them. But you're still going to see tractors to be the dominant one.

Is the strategy for the dealers with rolling out the Fendt brands to kind of lead with the tractor and converting the customers and then have great success with that and then try to convert them to other Fendt products like you talked about the IDEAL combine, the sprayers, the planters, is that kind of the strategy in the dealer channel?

Every farmer is going to be a little bit different on what he or she is looking for. But again, directionally, if you think about the strength of the Fendt brand originally, it is that tractor. It is the premier tractor in the industry. It offers the best fuel efficiency in the industry. So it is sort of the leading edge to what a farmer is going to look for because it's such a critical part of his or her farm. And so as they start to see the value of that product. And again, when you look at the Fendt tractor, Fendt tractors are -- is the one product that the Net Promoter Score actually goes up after use versus going down. And so all of us who buy new cars, we get that new car survey and then a year later, how likely you recommend. Most of it goes down. Fendt tractor actually goes up as farmers are more impressed with it. So using that as that catalyst of how do you bundle then the planter or what I would tell you in South America, for example, the planters are driving because the Momentum Planter is so strong. but they need a big Fendt tractor to pull those. So they're sort of in some ways in South America, you're seeing more of the planter as a catalyst for the Fendt sales rather than just a tractor driving it. So it's a little bit unique depending on the region and the farmer. But tractors first, but planters are also driving it a lot.

I have a question on Precision Ag. When you do your -- look at your in-house studies on your Precision planters, et cetera, does it result in any meaningful reduction in fertilizer usage or any ag chemical usage?

Yes. There's -- I mean, the whole point of our Precision Ag is to help the farmers reduce their input costs. So the -- there's 2 parts of the planter. One is focused on the yield. So if you think about the smart farming technology, it's helping the farmers optimize or improve the yield of their crop. A little bit harder for them to see because the planting depth or the fertilizer is being applied, really trying to maximize the yield. The second part is on reduced uses of input. So less fertilizer, less herbicides, all of that is part of that Precision application process. So if you look at how we look at a farmer and how he or she spends their money across all the different applications, the Precision Planting application helps address everything outside of land and new equipment sales and effectively either reducing their spend on those type of products or ultimately improving the yield, making the input cost per acre less. And our target for our Precision Planting when we go to the farms, effectively trying to explain to the farmers that we're looking for a -- for them to have a 1- to 2-year payback on these applications, and that comes from lower spend on other applications or increase yield related to the acres that they're using our equipment on.

Lower usage is maybe 5% or 10% or more? Is there any color that you can give us.

That's probably an average number. If you go like to the extreme, our targeted spring can reduce your post-emergent herbicide use by 60% or 70%. So just depending on what aspect of the crop cycle you're talking about, it can be low like that and probably on average, 5% to 10%, but can be as high as significantly higher.

Maybe just kind of go around the world quickly and kind of get a sense for sentiment amongst your dealers, and I'll start with Europe. There's a sentiment gauge that gets probably weigh too much attention and focus because it's the only one out there, but it has improved pretty notably here in recent months. And I'm just curious if that matches the feedback that you're hearing from the dealer base across Europe?

Yes. I think overall, sentiment in Europe continues to be strong. Of the 3 major regions we play in. It's usually -- it's less -- it's the least volatile, as you know because of the subsidies by the government there, you generally don't see that market get too hot or too cold. It generally fluctuates around the mid-cycle. But if you look at the farm economics, again, commodity prices are strong for dairy farmers in Europe, they're doing quite well. So again, we see the sentiment improving, lending itself to another strong year for us. We said overall market relatively flat right now. But again, you're looking at the -- the lower horsepower market being a little bit weaker, high horsepower tending to be stronger there. So we see good market dynamics in Europe going through '23.

Got it. And we touched earlier on North American. But just as you think from a production standpoint within that divergence that you mentioned in terms of the strength in high horsepower versus the weakness in some of those lower horsepower categories from an inventory perspective across the industry have gotten fairly elevated. How does AGCO fit in within that? And how are you managing production schedules to address that?

Yes. So I guess there's a couple of things. So you're right. When we look at the inventory levels for the lower horsepower tractors, we would tell you, at least here in North America where they're probably about more in line with their traditional levels. And so for us, that's -- there's 2 things that we do on the low-horsepower tractors. One is for ones that we do make. Well, obviously, we'll slow the production if we can reallocate the labor. Any parts of the production. We'll do that towards other types of equipment. We do buy a lot of these lower horsepower tractors from third-party suppliers. And so we're not necessarily producing them. So we will slow the order intake there. And they will have to slow their production or find alternative places to ship those tractors. So we're not as exposed from a fixed cost absorption on these low horsepower tractors the way maybe others are because of our sort of third-party sourcing with them.

And that -- those are still produced in mostly in Asia, correct?

Correct.

Got it. Okay. And sticking -- the last one on North America. You about a year or so ago went through kind of a dealer assessment program. I think that the trend towards dealer consolidation has been going on for quite some time in North America. Where does AGCO fit in within that kind of dynamic?

Sure. So I'd tell you, still early stages from the dealer evolution. To your point, we do want to create -- if I think about the Fendt one first, we talked about rolling out from a white space. We have about 75% of the white space covered with our Fendt dealers, still room to grow there, still room to convert many of these farmers or these dealers to the Fendt dealers. So that we're taking a measured approach again because of the Fendt experience. If I think about the other opportunity, and we talked about the Massey Ferguson transformation, part of that is the dealer distribution network here in the U.S. We have a very long tail of dealers that are selling the Massey Ferguson brand. Many of them maybe own one store. So they're not as large professional type dealers. We're working on a lot of consolidations, trying to create more of these larger professional dealers who understand absorption better, who can manage multiple sites to create more of these large professional dealers. We're still in the early stages of that. That's part of that profitability improvement plan we talked about over the next several years is really trying to consolidate that dealer network here in North America to create more -- likely more sophisticated and ultimately more profitable dealer network that can help drive better penetration rate on the farms, better penetration on the parts and service aspects of the business helping facilitate some of this growth we've been talking about.

Got it. South America, there were some rumblings of maybe a little bit of caution that crept in on the recent elections. What are you hearing from your dealers just in Brazil, is that some time has passed there?

Brazil, for us, has been incredibly strong. I think in South America, we were up 56% and last year, excluding currency. We've done a fundamental transformation of the business in South America, migrating from what was traditionally these low horsepower tractors in Southern Brazil moving up to the Madagascar or the Midwest Region into these large professional large ag type farming community. We've seen great growth there. Fendt was started with the company-owned store. I think we now have 25 independent stores there. We still have opportunity to expand the white space in Brazil. So we feel really good about what we're doing to gain share and build out the opportunity in Brazil. If I look at the country itself, the macro backdrop, Brazil is a very strong market today. If you look at the level of exports in '22, they were up versus '21. You look at the forecast, they're expected to export more in '23 and then again in '24 as China comes out of its COVID lockdown, there are a large recipients of the exports from Brazil. So all of that lends itself to a strong market. Brazil is the only major country that's actually adding arable land. So they're increasing the density of their cattle land and taking that space and creating more arable land for row crops. And so as we look at the fundamentals, not enough grain in the world today, stock-to-use ratios are still at relatively low levels, close to historically low levels. The challenge of what's going on in the Ukraine, which produced about 13% of the global calories is still depressed, not going to produce what it was pre war. So you look at those fundamentals, growing population, increasing middle class, which consumes more protein, which drives significant increase in grain demand, the macro or the mega trends on ag is very strong and where Brazil sits today as a major producer and a major exporter is a significant driver for what we see as strong demand in this segment, as we said on the call, likely into '24. I know there's been some questions about the election. There was some from protest, I think, for a couple of days here, but nothing that we saw that really slowed down the momentum or the order book that we're seeing for our equipment, especially on the large ag. Small ag is a little bit different because of the interest rates and things of that nature. But large ag continues to be very strong.

Got it. As you think about the -- how you run the divisions? Historically, it was geographically run, and I believe you've changed it to more of -- it's brand oriented. So you're running Fendt globally rather than North America, South America, Europe. What results have you seen from that? I assume there's some efficiencies associated with that. But maybe you can just talk to that.

Yes. So we still run by region. We're still organized by region. We still report by region. What we layered on as we talked about taking Fendt global or looking at Massey Ferguson on a global basis is appointing these global leads of Fendt or for Massey Ferguson really to create more commonality and efficiency across the brand and across the world. And so what we're seeing is now better information sharing, better products being shared across the world with more commonization. I'll use Massey Ferguson as an example because there's a lot of internal optimization still to be done there. But when we looked at Massey, which is our -- which one of our global brands, it was sold differently, different platforms, which may deliver the same end use to the farmer but 2 very different configurations. And so you had SKU complexity, manufacturing complexity that was sort of unnecessary. And so as we looked at that, commonizing the platforms with Massey, streamlining from a manufacturing, from a sourcing perspective, taking the cost out and allowing Massey to market itself as a common platform to the world, created efficiencies for us. So what I would tell you is we do have these global brands, but it's more of a matrix. So you have regions and then the global brands looking across the regions, making sure that we're optimizing Fendt or Massey throughout South America, North America, Asia and Europe.

Got it. Okay. So sum it all up, the outlook for -- as you think around the globe areas that or geography that you're most optimistic and when you think maybe has where you're watching more closely, is anything to stand out?

I mean we're -- again, we're bullish on '23. I mean we think the market's commodity prices are staying strong. We're booked into the third quarter, production is looking good, pricing is high single digits, more than what we see offsetting more than the inflation. Strong demand for Precision. Overall, we feel really good about what we're doing with where we're winning share, how we're winning share. We think it's going to reduce our breakeven point, improve our trough margins as well. And you layer that with a strong macroeconomic backdrop, and we're looking for another strong 2023 and beyond.

Pretty clear. Thank you.

Thank you.