AGCO Corporation (AGCO) Earnings Call Transcript & Summary

Thank you for joining us for the afternoon sessions. I'm Michael Feniger, the analyst that covers machinery, engineering and construction, and I'm pleased to host AGCO, who's actually been at the Industrial Conference for many years now. We outgrew the old headquarters. So we're here now. And I'm just going to pass it off to the AGCO team to introduce themselves, and we'll jump into some Q&A.

Sure. My name is Damon Audia, I'm the Chief Financial Officer for AGCO.

Greg Peterson, I handle Investor Relations for AGCO.

Great. And I think the best place for us to start for any investors in the room that are unfamiliar with AGCO, most investors think of, with the farm equipment space, Deere is the first thing that comes to mind. Curious if you kind of talk about where AGCO fits in the farm equipment space, how we should kind of think of AGCO in those terms?

Yes. So I think -- if I think, how I think about AGCO is we're one of the 3 ag and precision technology companies that sort of compete on the global playing field. And we are a company last year about $12.7 billion in revenue. About half of that came from our European markets. 20-plus percent out of North America and the rest out of South America and Asia Pacific. So a very globally diverse company. We're a company that's about 32 years old and we're built through acquisitions. So many of our customers know the Fendt brand, the Massey Ferguson brand or Valtra, but also the Precision Planting, acquisition on the tech side of the house. So a group of companies or names that have been built over the last 30 years, that over the last several years has gone through transition. As we have looked brands as we looked at the markets, we have refocused the company to cater more to these professional growers to large agriculture companies that are looking for technology, that are looking for high horsepower type equipment. And given the strength of our brands and some of our technology have really taken advantage of that and over the last several years have really generated significant improvement in our profitability through our 3 growth engines. So as -- I'm sure we'll talk about a little later, but our Fendt brand, which is very well known here in the U.K. and in Europe, we decided to create a full line. So now offering our dealers, sprayers, planters, combines along with the Fendt tractor brand to giving them a full suite of offering. And then that to North America and to South America, where we really didn't have much of a presence there with the Fendt brand, seeing great growth in both of those markets, and that's a high-margin business for us. We've also refocused ourselves in our parts business, so understanding that farmers need to get up and running as quickly as possible. We've worked hard to create the industry-leading fill rates in North America, South America and in Europe to make sure that we're gaining more share to our dealers and helping our dealers gain more share with their farmers, all of that helping drive high-margin growth for us. And then thirdly is our Precision Ag business. That really -- we've had a lot of precision in the company, but it really sort of accelerated the growth with the acquisition of Precision Planting in 2017. So we see significant growth coming out of that business. A year ago this time, I would have told you our target for Precision Ag was $800 million. In June of last year, we took it to $900 million. And then in December at our Investor Day, we took it up to $1 billion. So we saw about 30% growth in that business, and we see continued growth in that one going forward as farmers are looking for more technology to drive productivity, improve their yield while simultaneously reducing their input costs. significant potential with our growth. And again, we're one of the 3 major players and looking to leverage this strong macro backdrop that we have to continue our growth.

Perfect. And just to piggyback off that, the world -- the macro is kind of as certain as ever, right? There's risk of a recession. You were former the CFO of Kennametal, a company more tied to, I would say, the industrial cycle, more of considered a PMI stock. AGCO, as you said, is more tied to agriculture. How should we look at farmer purchasing patterns in a backdrop of the global growth slowing? Is there any divergence that we can see there?

Yes. I think every cycle is a little bit different. But if we look at the ag cycle, historically, it doesn't always correlate with the overall economy or GDP. It's much more influenced by farmer income or commodity prices. So as farmers are looking to reinvest in their -- into their fleets, they're looking at whether I'm making money or not making money, and that comes into a couple of things, right, what are the commodity prices they're selling their products for and correspondingly what are their input costs. And as commodity prices have stayed strong, and we'll talk about the macro backdrop of there not being enough grain in the world, and how these commodity prices have stayed at an elevated price for a while, and we expect them to stay that way for the foreseeable future here, that's driving farmers to want to reinvest into this new technology. So even though some parts of the world are dealing with high levels of inflation, we're talking about recessions in parts like the U.S., we're not seeing that in the ag space, because those commodity prices that these farmers are selling their products for are strong enough. And even though their input costs have increased over the last couple of years, they're still making healthy income and they're trying to redeploy that income into the new technology because it helps them from a tax standpoint that they're upgrading their equipment and they're keeping their tax base as low as possible. So for us, we see that sort of differentiating or bifurcating itself from the traditional inventory or the traditional economy, especially in the high horsepower space. When you go down to the low horsepower, a little bit more susceptible to GDP, to interest rates, more of an economic type, because you're dealing with construction, landscaping, novelty farmers. So a little bit more susceptible there. But as part of our growth, as we talk about high horsepower, we're really not seeing and have as much of a correlation to overall economic or GDP growth.

Helpful. And last year, obviously, the Ukraine Russia war resulted in a shortage of grain. Ag commodity prices have surged, remain relatively elevated. Farmer income last year, I think, was at a record. There's some forecast of it coming down a little bit in '23, yet still remaining elevated. What are you looking at in terms of farmer income trends in '23 and '24? What should we be monitoring to see the health of your customers?

Yes. Well, I guess when we step back at the most macro level, right, there is a mega trend in agriculture that's lending itself that there's not enough grain in the world. The global population is growing. We know that it's going to continue to grow to $12 billion by 2050. We know that the middle class is continuing to grow around the world. And history says that as the middle class grows, they naturally consume more protein. And so we know that more protein consumption is more demand on grain because you need 3 pounds of grain for every pound of poultry, and you have beef and pork, which requires even more. So as the middle class is growing, it's driving more demand for grain. And then you hear a lot of talk about biodiesel or biofuels, right, increasing the pressure for more grain there. So we have 3 major trends that are going to put more -- require more grain production. At the same time, as we sit here today, there's not enough grain in the world today. The stock-to-use ratios are at relatively low levels. You look at what's happened here with the war with the Russia and Ukraine. Ukraine used to supply 13% of the world's calories. As that war has challenged the harvest, the ability to export, that has been taken out of the system. So putting more demand on other countries to produce more in order to fulfill that demand, we don't see that sort of changing tomorrow, even if something was to happen with the war, they still have to replant, they still have to be able to harvest. So that's going to take a while to replenish that. You think about what happened over the last year with China with the COVID lockdowns, right, as they've started to come out of that, they're increasing their consumption as well. So putting more term pressure on farmers to deliver more product that's holding the grain prices up. And as we look at this over the next year plus, we don't see that materially changing.

And if -- I think in 2035, it might be down slightly yet your order books are still full for the year. If farmer income trends down just a little in '24 again, does that mean farmers pause or is the age of the fleet old? And like some of the demand drivers you said would ultimately carry through the activity?

Yes. For the farmers, again what the first question is what is their net economics, right? So if commodity prices, I think if I look at the corn futures right now at the end of this year, they're trading somewhere in the $5.50 to $6 range. When a farmer is looking at his or her input cost, fertilizer has come down from its peaks in '22. So they're looking at their net number, saying, am I going to be positive? And I'm going to be positive, how do I reinvest that back into my business today to improve my fleet to reduce the age of my fleet to get more technology, so we're seeing that today. We're seeing that strong order book. The USDA in the U.S. said that farm income was going to be down around 16% in '23 versus the peak, as you mentioned in '22, but yet still above the 2020 level, still above the 20-year average. So still very strong profitability there, and you can probably get strong profitability in South America, strong profitability here in Europe as well. So we continue to see farmers wanting to invest in the new technology. Part of that is they get the opportunity from a tax standpoint to deduct the new equipment. So not only are you getting more productive, you're getting the latest equipment, the latest technology, which you're getting the tax benefits of deducting that new equipment. And for them today, at least residual values on their existing equipment is relatively high. So even though we hear about interest rates rising, many of us are affected by that. For these farmers, even though they're looking at a price of new piece equipment quite high, that residual value on what they're trading in is still at a relatively high level as well. So their incremental cost is not as big as what you look as the overall purchase price, and they're able to get those tax deductions when they buy that piece of equipment this year. So they're looking to deploy that capital as quickly as they can, which is what we're seeing in our order books.

There was a data point out last night that I think emphasized how auction pricing from farm equipment actually continues to hit new highs January through March right now, which kind of highlights when you were discussing, but if we could talk about higher rates, how should just investors think about there's a regional banking crisis brewing in the U.S.? Markets are a little bit in turmoil. How do higher rates tightening lending standards impact AGCO dealers to the customers and farmers?

Yes. So if I think about -- I'll go AGCO first. So we have an AGCO Finance, which is a 50-50 joint venture with Rabobank, privately held bank. We worked with them through the financial, the recent changes in the financial markets here. Again, a fairly conservative bank. No real issues not exposed to some of the lending that we would have saw with Silicon Valley Bank, and again a relatively conservative investment profile. So for us, from a financing arm, we see no changes in what we're offering, and how we're approaching that. As we've talked to the dealers, the farmers again, many of them being lent by local, more ag-oriented banks, which again, historically have a more conservative investment philosophy.

Not banks in Silicon Valley?

Not banks in Silicon Valley. I don't think they're lending into Iowa, but you never know. But at least as we've seen, we haven't heard any sort of issues with our dealers on access to liquidity or their ability of their farmers to get financed. And again, AGCO Finance is there to support them through that. So we don't see any real significant changes in buying pattern yet related to that. If you think about the interest rate side of the house, I guess, I would break it into 2 categories. Again, for the large ag farmers, we're not really seeing them adjust their order patterns. Again, to your comment about the residual values, even though we're raising prices on our new equipment, they're still seeing very good trade-in values on their equipment. And so the delta isn't quite as large as what you think on the overall purchase price. And second, many of them are cash rich. And so again, depending on the cost of borrowing versus the cash, we see that as an option. So it's not driving or influencing their buying behavior in the high-end side or the large ag side of the market. As you move into the low ag or the low horsepower, that is the section of the market globally that is a little bit more susceptible to interest rates or to the overall GDP. If we go back to 2021, the low ag segment of the market had a great year. In the midst of COVID, you had the novelty farmers buying his or her tractor. You had home construction, landscaping, all doing quite well. We saw that market decline in '22. We expect to see those low ag markets to decline again in '23, and part of that is, one, coming off the peak. But two, because in a lot of those instances, you're buying an incremental unit. You're not trading in, but you may be buying as a novelty farmer, you buy yourself a tractor, you're financing the whole thing or a large portion of that going to be more susceptible to what that interest rate is. So we see that influencing the small ag a little bit more, but there really not playing a part in the large ag much.

Perfect. And AGCO delivered record results in 2022, yet farm equipment units are still below peak. Can you kind of just walk us through your key regions, North America, EMEA, Brazil, where kind of are we on a unit basis relative to prior cycles?

Yes. So if we look at our market outlook, we expect the markets to be relatively flat. In North America, we've said market is going to be relatively flat in '23 versus '22. Europe, we expect it to be relatively flat versus '22. In North -- sorry, South America, we said up 0% to 5%. Now all 3 of those major markets are above their mid-cycle. So we see Brazil, last year, we would have said it's about 125% of what we would term the mid-cycle. North America and Europe, we would say somewhere in that 100% to 105%, 105% to 107% -- 110% of mid-cycle. So relatively strong conditions. If we look at North America, and you look at the number of units sold, we're still below the historical 5-year average in number of units. Now our revenue is up, because we're selling higher price, more technology-rich products an actual number of units sold, we're still below that peak from the 2010 to the 2014 period. One thing that's different this time, again, back then, there was a lot of these short-term leases, 1- to 2-year leases that created a big spike and then really drove the residual values down. The industry that's not as prevalent right now in the industry. And so you're sort of seeing, hopefully, a little bit of a shaving off of the peak, and elongating the order pattern for these high horsepower tractors over the -- over hopefully, the next couple of years.

And just to put a fine point on it with the order commentary, just so far through 2023. Have you seen any pausing outside of maybe just more of a supply constraint issue, anything on demand that in North America or Brazil that you want to flag?

No. I think right now, again, if we think about high horsepower, large ag, we are extremely strong demand. We are booked through the third quarter here in the European business unit. We are booked through the third quarter in our North American business unit. And we have capped or limited the order book in North America. Part of that is because of our delivery capabilities. We've been introducing the Fendt product into North America, and we talk a lot about this Fendt experience. It's the product, it's receiving it from the dealer. It's the warranty and the service. And the Net Promoter Score on the Fendt product is phenomenal. It's the one product that the Net Promoter Store actually goes up after a year of use instead of down. So it is a great product. The one thing that we've been challenged on is delivery experience. So we get farmers excited that they're going to get their product in July. We call them in July and say it's not coming until September. And so because we're dealing with supply chain, and we've tried to cap that order book to 3 quarters, so we have better visibility rather than promising something than delaying it. So we look back, and if we would have opened the order book, we would have seen North American orders up year-over-year, but we've chosen to curtail that more for that Fendt experience. South America were booked through the second quarter. We've been limiting our order book in South America to one quarter out, given the volatility of that market, some of the inflationary pressures there. We've been trying to make sure that we're maximizing or getting the right pricing in the system rather than committing to a retail order too far out. And again, that order book has stayed strong for the last 1 year or so. We're feeling very good. If we look at the retail content of these orders versus what I call more traditional stock order, we still see very high levels of retail. So farmers' names attach to these products, which tells us the demand continues to be strong. The inventory levels at our dealer channels continue to be below the traditional levels on large ag. So I would say on the small ag, the low ag, most dealer levels are appropriate, still below the historical average, but more in line with where we would like them to be. But on the large ag, they're still below optimal inventory level. So again, we still see great demand coming out of major regions, especially on the high horsepower or the large ag segment.

And can we touch on South America you referenced how you're booked to Q2, but that's really more of a function of you guys just trying to manage some of the volatility there. How big is South America to the business? And what I really want to touch on is, in the fourth quarter, you got a 20% operating margin. I remember we're talking to Greg on the phone when you guys were basically a breakeven business there. So what has kind of changed for you guys to become so profitable in South America? Is that AGCO initiatives? Or is that just the market of Brazil becoming more of a bigger powerhouse on the global ag stage?

Yes. So I would tell you the vast majority is what we have done to transform the South American business. Now it is the strongest market. But if you think about what AGCO has done in Brazil, it's really a transformation in leveraging what we do well. Go back to your point, when we were a breakeven money-losing business, we were predominantly a low horsepower tractor supplier in Southern Brazil. As part of our strategy of becoming bringing high horsepower, targeting the professional farmers, the professional growers, we brought Fendt high horsepower tractors into the South American or into the Brazilian region. And at the same time, we've a our focus up to the Mato Grosso region, the Midwest part, where you have these large professional growers. So these are growers who are -- they're looking for fuel efficiency. They're managing every dollar. They're professional manage optimizing fuel efficiency, diesel spend, seed spend, whatever that may be. And as we brought Fendt into that market, it's catering to that large professional farmer. We opened up our first dealership there several years ago. Today, we have 20 -- now we own that. Today, we have 25 independent dealers. We're covering around 70% of the white space there. We were up in Brazil. We are up 56 -- in South America, we were up 56% last year. So -- and that's not all pricing. That's share growth, that's high horsepower mix growth. So seeing really good momentum as these farmers see what the Fendt portfolio. So it's not only the best tractor, but you got the best planter out there, you have the ideal combine, and now you have a Fendt sprayer offering these farmers a full suite of the best technology, best performing assets to really maximize their value. We've seen tremendous growth there. Now that being said, that market is also very strong. And it's lending itself to a very strong pricing environment. And I have been on the calls for the last couple of quarterly calls saying it's hard to keep it going, and my team in South America has done a great job in keeping the pricing above what we would say is more the long-term average there. So Q4, we were 20% margin. As we look at the 2023, we expect that to be more about mid-teens type margin, because we know we have some costs coming in because of the delay of our supply chain products coming out of Europe. We know that some of the normal incentives you would give to the dealers, the market strength right now hasn't warranted that. We expect at some point, that's going to find its way back into the system. So we're expecting more of that mid teen, call it, a 15% margin for South America in 2023, which is still great. If I think about what is structurally what we have said is even through the economic downturns now given the things we've done to move up the Mato Grosso region, these high horsepower tractors, we would expect to see the South American margins in the low double digits even during the downside or the below mid-cycle. And obviously, what you're seeing right now on the strong up cycle, you're seeing this 17.5% last year, 20% in the fourth quarter and again, a strong expectations for 2023 there.

And just to wrap up the conversation on South America and Brazil, I mean, there's been some turbulence volatility politically there. Years ago, I believe it used to be a market that was very reliant on subsidies. How has just the market in Brazil overall, AGCO has changed its position, but how has Brazil evolved overall as a player on the agriculture stage?

Yes. I mean Brazil is becoming one of, if not the global exporter. If you look at the -- if you think about one of the megatrends that I didn't touch on earlier, but there is less and less arable land in the world. The only place in the world, major place, the world that's adding arable land Brazil. And they're taking the cattle land, and they're increasing the density of cattle per acre to free up more arable land. So you have a market which is creating more arable land. You look at the exports in Brazil over the last couple of years have continued to increase. If you look at the forecast for Brazil, you see that the export is expected to increase over the next couple of years. Obviously, geopolitically, we read what's going on. We have the China-Brazil relationships, a large consumption of that export. And so you expect to see that grow. So -- when we look at the Brazilian market, not only do we see great opportunity because of the ag space, the tractors, the combines continuing to grow, but our grain and protein business has done very well down there. Again, you think about the ports, the exporting, we're seeing a very profitable grain and protein business down there as they continue to increase their need for storage, because of their exporting expectations, it's a very strong market, showing a lot of potential. You always sort of question the volatility of the environment there. But the agriculture space is such a large percentage of Brazil's GDP that we understand there may be some blips in it. But over the long term, we see this still being a core part of the economy and something we'll continue to see hopefully grow.

And talking about long-term tailwind, I'd' like to shift the conversation more to Precision Ag. I mean, many industrial companies here at the conference talk about being an industrial tech. I think investors sometimes roll their eyes at that. It feels like farm equipment is one of the areas you are seeing that adoption. Can you just talk about AGCO's Precision Ag journey? I think it started with the Precision Planting acquisition in 2017. I think it was like less than $100 million revenue at the time. How was AGCO from that acquisition really expanded its precision ag journey there?

So there's -- I guess there's really more 2 parts to the Precision Ag story for us, probably started a little bit before the Precision Planting as you think about sort of the in-cab technology for us. It was more about creating a common architecture across all of our product offerings to create the same sort of digital platform. We've worked hard to build that -- we'll call it the Fuse platform. So within our in-cab technology, GPS, all of the technology and they're really trying to commonize that create more connected machinery. So we've done a lot of that. We continue to create more connected machines through that platform. And then what you touched on is more of the retrofit. So the Precision Planting application, which is a phenomenal business for us growing rapidly, but think of that more in the retrofit applications of bringing smart technology to the farmers. And what's unique about the Precision Planting business is it's a retrofit first mindset. And not only is it retrofit first, but it's OEM agnostic. So a lot of our competitors talk about retrofit, generally, their retrofit is on their brands. When we look at Precision Planting, you can be on a John Deere or a Case planter and you can apply Precision Planting modules to that iron and allows you to make that machine smarter by using that. The other thing that's unique about precision planting is it allows the farmers to do more module type investments. So rather than buying a brand-new $400,000 planter, he or she can buy certain modules related to the Precision Planting part, or they can buy it all for 2 rows or 4 rows or 6 rows of their planter, see the productivity they're getting before they have to invest in a full planter. And our proposition to these farmers on the Precision Planting side is trying to help give them a 1- to 2-year payback with their investment. And you think about the technology of our Precision Planting, it's a lot more real time. So as these farmers are running these planters through the field, it's making real-time adjustments in its planting. So the seed spacing, the depth of what it's planting sees all trying to optimize the yield and at the same time, if you're using a liquid fertilizer application, helping the farmer use less input. So hopefully getting more yield at less cost because they're using fewer inputs, trying to help drive that productivity and that profit for them. So we've seen really good success on the planter. Again, 1- to 2-year payback. We've sort of expanded the crop cycle with Precision Planting. So if you look at what we're doing with targeted spraying, we've talked about introducing a retrofit approach in targeted spraying in 2024. So identifying a weed versus the plant only spraying selectively where you need to. We're again, reducing that farmer's input of what he or she is spending on the herbicides. So really trying to drive productivity there. And then with our head sight acquisition on the harvesting side, trying to work from a technology side and optimizing more of the harvesting side of the house. So offering the farmer or sort of across the crop cycle, the smart technology that he or she has the availability to do retrofit with their existing iron before they necessarily jump in with the full-scale brand-new momentum planter or something that has all those bells and whistles. So we've seen great growth there. As I said earlier, our target between our OEM or our Fuse application and our Precision Planting together, that target was $800 million. We're now at $1 billion. It grew at around 30% last year. So we're seeing great adoption rate. The other thing that we love about Precision is we think that this will be cycle agnostic. So we know that average -- the 7% to 8% of farmers invest new every year, almost 100% do some sort of modernization or maintenance or upgrade to their existing fleet. And when you're thinking about these economic downturns coming at some point in time in the future, this is going to get farmer with a much smaller capital to be able to invest, to drive productivity because he or she can pick half of the planter, or only certain parts of the modules and see the benefit and then when times are good, hopefully, they upgrade to that brand-new Momentum planter.

Now a lot of these offerings are obviously going to come with a higher price point. Yet it's driving productivity and higher yields for the farmer. Is the goal for AGCO to gain more share of that farmer wallet ? Where is some of the low-hanging fruit you kind of touched on where it's not just buying a machine, it's helping address the other cost pressures that the farmer is facing today?

Yes. So when we look at the farmers spend across his or her portfolio, equipment sales is a small percentage of that, but when you layer in what we're doing with the Precision applications, we feel that we can address almost all of the spend outside of the land. So it's a plus 80-some percent of the farmer spent on average, we think, we can address either through new equipment sales or through the Precision. Again -- and part of that is, again, you think about this Precision Planting opportunity that if I'm able to help you produce the same yield with fewer amount with fewer fertilizer, you're saving money there that you can invest back into the Precision Planting. If you think about the targeted spraying, all of these things helping either reduce their input cost or as you think about running your machines reducing your labor cost. All of these things trying to address these other spends by helping drive productivity or lower the overall input cost.

And part of the discussion leads me to pricing, which in the fourth quarter, I think, was up 13%. When investors look at that 13% price growth, I mean, how much of that is just covering your cost inflation? How much of that is driven by these technology offering? If inflation costs do normalize at some point, what's a good pricing range we should think about for some of this higher tech equipment going forward?

Yes. So I think they're sort of the total AGCO comment, and then there's the growth engine comment. And again, if we look at the pricing last year, very strong pricing. I'd tell you the vast majority of that was to offset inflation. If I look at the margin, though, right, we were 100 -- we did 10.3% margin last year, so a record for AGCO. We were about 120 basis points higher than the prior year. So we're pricing in excess of inflation, but we're also driving a richer mix, more technology-rich product, and we're seeing growth from our 3 big growth engines. So Fendt market share growth, Precision Ag growth and parts growth, all 3 of those high-margin businesses, helping drive that increased profitability. This year, we've said pricing will be around 8%. We expect that to cover inflation plus a lot of that is carryover pricing. So we do have some incremental pricing planned for 2023, but a lot of that is going to be carryover pricing. We expect we'll more than cover the inflation and be margin enhancing. Longer term, I think the 2 questions, a, what does inflation do? Our industry -- we and our industry have been pretty good at trying to price oxide inflation or more every year. And second is what is the demand for these high-technology rich products, Precision Planting is doing great growth. As we continue to see that grow, that should more than outpace inflation. So again, our history, if you go back pre-COVID, our industry normally had 2%-3% when inflation was very low, again, when will we get back to that traditional inflation? Hard for me to predict, but our goals are regardless of where inflation is, we want to try to offset that and hopefully plus on an annual basis. And then see the enhancements coming from our 3 growth engines to help drive the margin up.

And what are those growth engines highlighted before, which is good for the mix is Fendt. And if you can kind of just talk about that strategy. I think you grew at over 30% last year. It's hard for some people to conceptualize the fact that you're kind of going now head-to-head in the territory of some very well-known entrenched brands. So how does AGCO gain share there? What's kind of the offering, since it is margin accretive to you, yet you're kind of going up against some well-known brands in their backyard.

Yes. No, I mean, I think we're -- part of our strategy, when Eric became the CEO was really to global to, a, create a full line offering under the Fendt brand, which historically has been very well known here in the U.K. and in Europe, a premier tractor brand. It's one -- it's the best of the best, the most technologically advanced, the most fuel-efficient tractor in the market. It has the CVT transmission, which helps these tractors idle at lower RPMs versus the competition, thus driving more fuel savings, especially for these professional farmers who are looking to minimize their input cost. So a great tractor brand, but limited to tractor. We've broadened that portfolio with the Momentum planter, the IDEAL Combine and now the sprayer. So these Fendt dealers have ability to offer a full suite of technology-rich products to the farmers. And we decided we were going to bring that to South America. We talked about that huge growth in the Mato Grosso region, and we brought it to North America. One of our challenges with North America was that the tractors didn't have the right wheel spacing for these professional large growers, row crop farmers. So we had to redesign the tractors that have the right wheel spacing. As we did that, coupled with the rest of the portfolio, we really positioned ourselves to bring this premier brand to the North American market. Now our challenge, to your point, it's a new brand. We worked hard to create what we call the Fendt experience. So we are bringing Fendt in, I would say, selectively to what dealers are able to offer this, because when you bring a new product into market, it's the product quality, the product technology. It's the dealer experience, it's the warranty and we are the warranty, which we call the Gold Star warranties, 3 years maintenance, everything is covered, the dealers have to have the ability to meet that warranty. So if the Fendt tractor goes down for an extended period of time, you got to have another tractor to put on his or her field let it run while you're fixing it, right? You have to have the right service parts, the right technicians to help deliver that overall Fendt experience. So we've been very good at bringing in, adding new dealers, converting existing dealers. Not every dealer, who sells our Massey Ferguson brand is going to be given the Fendt brand. And even if you get a Fendt brand for your dealership, not every one of your stores may necessarily be able to offer that, because you have to make sure you're helping deliver on that Fendt experience. So we've been very careful as we roll out these products, and we brought out the North American dealers to make sure we're delivering on the Fendt experience. We're seeing great take rates, great adoption. And when we get a tractor on the field, we see a very high conquest rate or that farmer buys the tractor, well above any of our other products, and we think it is probably one of the best in the industry on a conquest rate. So -- and why is that? It's because the technology is there. The product, again, you're dealing with professional growers, who are looking at economics, and if you have a tractor that's idling lower than the competition using less diesel, right, saving you money at the end of the day, that's what it's all about. And the more that we're able to gain traction with word of mouth in the fields, social media, other things helping build our brand there, the momentum continues. Our challenge is capacity right now, right? It's one thing to have it, a dealer who wants it. But if we can't get it to the service or to the field, right, because we're capacity constrained, and we're working hard that up with the supply chain. That's sort of the limiting right now, but we're seeing good growth in North America. We've doubled the revenues between Fendt and Challenger from 2020 to 2022 in North America and South America. We said we're going that again by 2020, so I think in the next 3 to -- 4 to 6 years we said. So we see the momentum for us, but it's being very calculated with how you do that because it's a new brand, right? So you don't want to tarnish that reputation. You want to make sure that the overall experience delivers on that farmer's expectations when you drop that tractor off of his or her firm.

And just to bring the conversation full circle, we kind of started with where AGCO fits in the global farm equipment space. What is unique is your other 2 players actually have exposure to construction. You guys have -- are a pure farm equipment play, and you have this other business, it's grain storage. I was hoping you can kind of talk about how big that business is? What are the drivers of that business? Are the demand drivers a little different than what drives demand for high equipment -- high horsepower tractors?

Yes. So as you've mentioned, we are the largest pure ag play out there. I think, again, in addition to the equipment side of the house, we have our grain and protein side. Last year, that business was about $1.1 billion in revenue when you think of that predominantly in the grain storage space. Similar to the whole goods, grain prices are big driver of that business or what would require someone to invest in that. But in addition to grain prices, you also have steel prices. Again, a high percentage of the cost of a silo is going to be in steel prices. And we saw that in the U.S. We saw many the world last year, where steel prices were elevated for a period of time, giving farmers reasons for pause rather than reinvesting. So you have steel prices will be a second variable. And then sometimes the financing. Again, you think about interest rates, these are large purchases, long-term purchases and they're likely financed. So access to capital, cost of financing can influence a farmer's decision there. That being said, when we look at that business and go back to South America, grain and protein has done incredibly well down there as that business has grown in its export operations in the country, more needs for silos there. We're seeing great growth there. North America, we had a challenging 2022 steel prices were a big hit to our -- to the business, farmers deferring purchases there. We've worked hard to do some restructuring to reduce the cost structure there. I would tell you that was the business that was the most affected by the cyber attack last year. So it was the last one to come on. So we missed sort of the peak selling season. As we look at 2023 here, we see good growth prospects there. And then on the protein side of the house, obviously, a lot of challenges in Asia, specifically China last year with the COVID lockdown as they've started to come out from that, we've seen good order patterns with the protein side in Asia. So hopefully, we see that business growing. We see a lot of potential. The opportunity for us still is creating more synergies. We want 2 distribution -- 2 discrete distribution channels, but how do we leverage as we put that new that new farm Fendt -- Fendt tractor on the farm. How do we make sure if that farmer is growing, we make sure that he or she is connected with the GSI dealer in the U.S. to get that new silo. And conversely, when we're putting that silo up with the farmer, how does that local Fendt or Massey dealer know to be on that farm trying to help make a sale there and creating more synergies. So we think there's opportunities. There's still more work to be done for us in that one, and that's some of the opportunity we still see ahead.

And I'm just going to sneak one last in there since you are the CFO. You raised your dividend, I believe, it was 20% last year. You went through your whole product offering. Any M&A that we should be thinking about? Is that part of the capital allocation thought process? What are kind of the white spaces if that is something that you're thinking of in 2023?

So we're always open to acquisitions. We've demonstrated that with a lot -- several tech acquisitions over the last 1.5 years. Generally, they've been bolt-on type acquisitions. I would tell you, we'll continue to be inquisitive I said in the beginning, we're a company that's been built through acquisitions over the last 32 years. So we're not afraid to acquire companies. We're always looking to where can we either add to the equipment side, to help enhance the portfolio for our dealers to the farmers. And on the technology side, where can we buy it and get it to market faster than trying to build it ourselves. There's nothing that we're lacking, but some people are ahead. And if we can buy that and make that part of the portfolio, like you saw with Headsight and JCA, we're going to take advantage of buying that and take advantage of those synergies with the -- on the tech stack.

Perfect. We're going to end it there. I want to thank AGCO for joining us again and give them a round of applause. Thanks guys, that was great.