AGCO Corporation (AGCO) Earnings Call Transcript & Summary

I'm Kyle Menges, our U.S. machinery analyst. I'm happy to be joined by AGCO. And right now, I got Eric Hansotia, the CEO up here with me. And hopefully, Damon, the CFO, will also come up here to join us at some point.

Anyway, I think we can kick it off with just an overview of the company and I think the different brands in the portfolio and especially now, you've evolved the portfolio to much more of this precision tech orientation. And I think it'd be helpful to kick us off with an overview of that.

You bet. So just to orient people that may not be familiar with AGCO, it's predominantly an ag machinery and technology company. So we sell planters, sprayers, tractors, combines, those types of things. That's our main business selling machinery through dealers to farmers to help them be more productive. What we've been really focused on for the last several years is also in parallel to that, building up a whole tech business separate from our machinery. And that business goes through a different channel to serve farmers directly to retrofit or upgrade their existing machinery with a tech module to give it new capability, usually automating a feature of some sort. It's targeting the mixed fleet. So we'll put technology on any brand of equipment, almost any age. So they can go back several years of life, any brand. It's a very differentiated approach than anybody else in the industry. So we've got 2 businesses, a machinery business and the tech business, 2 different channels, one is a machinery channel and then a tech channel. I'll just describe a little bit the machinery channel. We have 3 primary brands that you're probably familiar with are Massey Ferguson and Fendt. And then we also have Valtra in a few of our markets. And then in our tech business, we just completed the large ag tech -- largest ag tech deal in the history of the industry. It's a $2.3 billion deal with Trimble closed this April. And essentially, it created a joint venture where we own 85% of the joint venture. And that business is now called Precision Technologies Multiplied Trimble, PTx, Trimble. We've put that in the same house as the tech business we already own, which is called precision planting. So Precision Planting plus PTx Trimble is this new tech business that we call PTx. That's the one going through the retrofit tech channel. And so you say, well, what does it take me? We'll give you a couple more examples. We just launched last week at Farm Progress Show the big North America show, a kit that could go on to a tractor to make it an autonomous vehicle. No driver in the vehicle. It can work with a combine, the combine is a machine that harvests the crop. As the combine is harvesting grain, it fills up its grain bin it summons this driverless tractor, the tractor comes over, finds the combine, comes in alongside it, locks its path, the combine unloads as its continuing to harvest. And then it releases the tractor as it positions for another load or if it's full, it drives driverless over to the side of the road. That's one example. Another example would be outfitting a sprayer, there's a big boom on the sprayer that sprays, the typical sprayer sprays every square inch of the field today. While this new technology would allow vision systems to look down into the field, identify the [indiscernible] the crop and the weed and spray only the weed. So spot spraying in the field, saving about 70% of the chemical -- big AI library back behind us identifying the difference between the weed and what kind of weed it is so we can apply the right chemical. Those were a couple of examples. Essentially, we're trying to automate all sorts of features, a few hundred of them on the farmers equipment to be able to make it more productive for the farmer. So that's kind of the background.

That's helpful. And can you talk about how big the Precision Tech side of the business is today in terms of revenue? And I know you have some 2028 targets out there. And then on top of that, what sort of different revenue models and pricing models are you exploring with some of these new Precision Tech offerings, like especially maybe talk a little bit about the model with outrun how you're charging for that new technology. And I know you're playing around with you and your peers with subscription models versus maybe just kind of paying upfront, paying per acre. So talk a little bit about that and so -- yes.

So let's unpack that PTx business. PTx has essentially I've talked about its primary channel is the retrofit channel. It goes to market through a dealer that sells directly to a customer to upgrade their equipment. It also sells through the OEM channel, meaning other machinery companies that would use this technology on their machines and self from factory. So those are the 2 main customer groups, OEM and retrofit. We sell technology into both of those. And we also sell that technology to our own equipment, and we're one of those OEMs. The margin profile is much higher than our average business, as you can imagine. So it's a higher margin, higher growth business than the typical equipment business is. We sell a few things about the value proposition. We try and sell to the retrofit customer in a way that generates a one at most 2-year payback for the farmer. Whatever they pay in this technology piece, we want them to get enough benefit in either lower input, less use of fertilizer, chemicals, seed, things like that or higher yield or both. So that's the notion to the farmer. Majority of our sales historically have been like a machinery where it's an upfront purchase that's either financed or not, but it's an upfront pay for the whole thing. We're finding a few areas now where we can do more of an ongoing revenue model, subscription models or pay-as-you-go type things. We've automated the soil sampling. One of the biggest inefficiencies in farming is how we put fertilizer down. If we can automate soil sampling that helps us fertilizer. That is very much a pay per sample approach. And so that's being accepted in the marketplace. The autonomy kit that Kyle mentioned is our marketing name for that is outrun. We've got a few different module -- few different packages for that. And you can pay for use only in the hours when you turn it into autonomy mode. So that tractor is still the same tractor. We put the kit on it to say it autonomous. The farmer is going to use that tractor sometimes just like they did whilst or do something else. But when they want to use it with the green card in the combine, they turn it in automatic mode. We're only going to charge them for when they're using it in that mode. So we're finding that when you can find a unique way to sell like that, that the farmers appreciate it. Historically, they've liked buying big-ticket items when their profitability is strong and paying for the whole thing and then not having the variable cost when they're in low markets. But we're finding more and more opportunities for ongoing revenue.

Could you talk about weak ag market right now? How is the Precision Tech revenue is still -- so is it still growing this year? Could you talk a little bit about that?

Yes, if you look at -- there's 2 parts of our business that are steady growers. Service parts grow, they grow more or less, but they always grow, and so does the retrofit business, selling to farmers to upgrade their existing equipment. And it's because there's -- it's always a good time to be more productive. Even when times are tight and there's not a lot of profitability if you can do a better job of managing those inputs, for an example, just for those who are -- the volume of money a farmer will put through the planter in terms of seed or fertilizer usually exceeds the cost of the planter. So they'll put a lot of -- they have a lot of input costs flowing through the farm. The 2 biggest buckets of costs usually are the chemical they put down, either fertilizer or pesticide or herbicide in seed, and so the ability to manage those more efficiently to get higher yields or to manage inputs is still a good thing to matter if the industry is down.

That helps. And I also noticed the parts business has been pretty resilient. I think it was about flattish if you adjust for currency in the quarter. So I guess do we think about that kind of maybe up or down, maybe flattish, low single digits. And then you also talked about, I think there's an incremental opportunity pushing more into e-commerce. Could you talk a little bit about that as well?

Yes, we've got 3 big growth engines in the company, growing our premium brand Fendt globally, especially in the North America and South America, growing our Precision Ag business with PTx and then service parts. All 3 of those are high-margin businesses, higher margin than the average of the company. We've talked about -- a little bit about PTx, let's double tap on the service parts now. For the last few years, we've been really working on parts fill rate to make sure that the confidence in the marketplace is strong that when you come to the counter that you can reliably make sure that the part is there. We are the absolute industry leader now in parts fill rate, better than any of our competitors and have been for several years, measured by an independent third party. So confidence is there. Now we're applying kind of the newer tools to move it from a reactive to a proactive experience, pushing e-commerce a fair bit. Two things we've learned out of e-commerce is 40% of the searches for an e-commerce opportunity to sale are done when the deal is closed. So it's a farmer looking for a part when they couldn't have gone to the dealership, which tells us that this -- our shift towards more digital tools and more on farmer as opposed to having to come to the store, which we'll talk about maybe later in the distribution approach is the right one. It's the more convenient one for the farmer. And second thing we've learned is that as farmers use e-commerce so they are searching 40% of the time when the dealership was closed because they're doing it online. When they purchase, 25% of their purchases are actually incremental sales, sales that we wouldn't have had if they would have gone to the dealership. It's very much like all of us who have a digital experience, you find something and then it's very easy to use intelligence, artificial intelligence and so on to be able to recommend things that fit with that either the entire kit when you're buying a filter, how about we sell you the entire kit that would go along with everything you need to do this maintenance interval or whatever it may be. So we're finding both of those are strong opportunities. And then maybe the third thing to raise would be, we've essentially got all of our large ag fleet connected now. They all are reporting data off the machine. We can remotely monitor that information. And so we can anticipate we can move from reactive to proactive and say, I see the -- call the farmer and say, I see you're coming up on a service interval. Next Tuesday, it's going to rain, how about if I come out and handle that for you, more often than not the farmers say that would be great. And so we can start taking on more and more of that work, which drives service for our dealers and parts for us.

That's helpful. Maybe we could talk now, I think, about margins, and you mentioned some of these portfolio changes you're making and strategic pushes in those 3 areas. Talk about the step change you're seeing in margins cycle over cycle. And it's looking like, I think, the 9% margin that you're guiding to this year could be potentially the new trough level for margins. So I think that would be helpful if you could unpack that a little bit.

Yes. So before we made our big push into technology and these 3 big growth drivers, we looked at the behavior of the company, and we had this over the volume range that we look at, we say like what's the 10-year average of the industry. And the industry moves from about -- if 100% is the average, it moves from 120% at the peak to 80% of the trough is what we modeled. Now the actual peak last time was 115%, not 120% and the trough was 85%, not 80%, but -- so that's -- it's in that neighborhood. We had just been moving up and down this line of better years when the volume was up, for years when the volume is down. Our peak year at the last peak was 8.5% operating margin, our trough was 4%. So moving between 4% and 8.5%, call it a 6% company, not very good. So as a leadership team, we said, all right, as we embark on this new strategy, it's got all of these things are better for farmers adding more value to the marketplace. We also want to add more value for shareholders. So we're going to raise the bar on our expectations everywhere along the cycle from trough to normal to peak. And we said instead of a 6% company, our first commitment was to become a 10% at mid-cycle volumes. And we structurally kept growing these 3 growth drivers, become adding a lot more technology to our products and to our business, and we got to that 10%. Then we said, okay, we're going to raise the bar again to 12%. We've been doing the same things and we're growing there. This year, we made 2 big, huge portfolio shifts. We made the ag tech deal with Trimble, bringing in -- essentially doubling our tech business, high margin, high-growth business. And then we exited segment is a little over $1 billion of grain and protein. That was our lowest margin, lowest tech -- lowest growth business. So we've again shifted the business towards not only more tech, but the net result as measured is more margin. So the whole line moves up instead of being 4% to 8.5%. We've committed that we're going to be -- right now, our commitment in the market is 12% before we made those portfolio shifts at mid-cycle. And we said we'll never drop below 9% at the trough. So we're always above our cost of capital. We stand behind that commitment. And this December, we're going to come back and refresh that. And with our portfolio changes, our expectation is that we'll raise the bar again.

Looking forward to that in December.

Good.

And then I think we could touch on the Trimble deal a little bit more. And just I think just help us understand really what that deal is doing for the -- I think the growth of the company, but then also just the competitive positioning. And I think a lot of people think that other players in the market have this massive lead over some other players, but it seems like that the competitive differentiation, perhaps in technology is narrowing over time, especially with you guys now acquiring Trimble. So maybe talk a little bit about that.

When you bring this group together, this PTx precision technologies multiplied is the overall group name now of our tech business. It is the absolute market leader in mixed fleet precision ag. No question about it. The market leader, the biggest and the best. We serve all customers of all brands well into the life of the machine. So many years old machines can still be upgraded with either technology that used to come from Trimble or a technology that used to come from Precision Planting. Now it all comes from PTx. And we're serving that with a dedicated channel. That's why it's unique. It's not only that we serve all customers, but we're serving it through a dedicated channel that focuses on the retrofit. That channel are people that used to be agronomists. They used to be seed salesman. They know how a plant grows and how a farmer makes money, farmer economics. They can go to a farm and say, do you have any problems? No, we're all good. Well, let's look at your crop here. It's got varying heights. It's got varying spacing between the plants. It's got varying color. Let's dig sum up, and let's look at what are the root causes literally of the issue here and let's talk about what technology can do to solve some of those problems and make you a better farmer next year automatically. Those will be features that will be automatically handled for you like an autopilot mode. So that's kind of the chemistry element of it of these 2 businesses coming together, we both had the same mindset. We both want to serve the mixed fleet. We both thought about several years in events, so we both wanted to be innovative tech companies where our aspiration and our commitment is to become a $2 billion business by 2028. We're a little over $1 billion today, and we expect that to grow strongly over the next several years. We've got minimal overlap between the 2 teams that came together in terms of what they were working on, product overlap. So that's great because we can just start having them work together as synergies go back and forth from innovation and multiply our ability to bring features to the market. The area where we have work to do is bringing the channel together into one seamless integrated retrofit ag tech channel. We had some great dealers for Precision Planting. We had some great dealers for Trimble. We need to now have them each sell the full portfolio and pick the very best dealers and end up kind of melting that all together over the next several years. So that's work in front of us.

And so how is that progressing? We're still in early stages, but starting to bring those 2 channels together. Could you talk a little bit about that?

Yes, when you think about different things to buy, this is a tech company, you're essentially buying people. And so one of the first questions is, did everybody come over to the JV because they could have said, no, everybody came over. Next question is, are you keeping everybody? What's your attention? We're keeping everybody. Everybody is excited about what the future holds and being part of the winning team being a leader in the marketplace, solving more really hard problems for farmers. They love the purpose behind it. So the people side is working well. The 2 teams are integrating very nicely. They both respect one another as experts in the field. And they bring different things to the party so that you don't have people bumping heads and trying to do the same thing. So the workshops that are happening with a lot of work between the announcement and closing, but that's continuing on now. A lot of integration, planning, melting the teams together planning has happened, but it continues. And the culture fit is very strong. 2024, we always knew was going to be a difficult year because it's a transition year out of the channel where Trimble used to sell to CNH that then sold to the dealers. We're now having to rewire that and sell directly to the dealers. We've signed a lot of dealers up over 200 dealers up. But those dealers are still consuming off of a last time buy from the parent CNH. So they're not ordering so much yet. So we always knew there was an air pocket in the system. We just got to get on the backside of that. We've got almost 200 OEMs that we support. We've not lost a single one of them, and many of them are growing with us. So the entire OEM channel is strong and growing. The retrofit channel is strong and growing. The integration of the development teams is going very, very well, and we've kept all the talent. The innovation pipeline is very clear. And we've got work now to do on the dealer network to merge that.

And is the biggest opportunity for merging the dealer networks? Is that in North America? Or is that pretty spread out across the globe?

It's spread out because we each had dealers in that were globally -- the Precision Planting had its strongest dealer network in North America. Trimble has strongest dealer network in Europe. So it's not exactly the same, but we have work to do in a lot of places.

Yes. Makes sense. And can you talk a little bit more about the tech stack integration. So I was at the Tech Day and I noticed that there's a few different tech platforms that you're trying to bring into one. So could you talk about your confidence in being able to execute on that? And then I think you did have some targets on a time line of when you think you'd be able to achieve that.

The biggest thing that needs to come together is not so much machine technology of making a machine more capable. It's the offboard data platform. So that's something we haven't talked about very much. We've been spending our time on technology modules onboard Intel compute capability that makes a machine to be able to automatically do something. But all of these machines are having more and more sensors, they're doing more and more decisions. They're collecting more and more data and they're all connected. So one of the things that farmer cares about is what do I do with that data? How do I use that data to make farming decisions, and that's what we call the offboard data platform. And so it's either the farmer or the agronomist or other advisers to the farmer can use that data platform to help the farmer make decisions. So the data platform is an area where Trimble had a data platform. We have a data platform called Fendt One, and we bought a company just for its data platform this year as well. It was a specialist in a certain element, a certain attribute. We've melted all those teams together already. They're on one team now led by one person, a former Trimble leader, and they've got one game plan. We had them 6 months together of what's our aspiration, what do we want to develop? What's the best data platform in the marketplace that serves the mixed fleet. Pretty much the data platforms that are out there today serve a given brand. We want to have it served -- like everything else, we want to serve all farmers. So what's our aspiration, what's the future state and then what's our migration path from the elements that we have to this future state and then working through that. There's 3 waves of rollout. The first wave will come out next year, and it will essentially allow all the features that exist between the 3 platforms to be accessed by a single sign-on. You come in and you can access all the features. Now they'll look like they came from different places to some extent because they did. But we want to get access quickly. And then the second wave will be making it more harmonious once you're inside and being able to say, I can navigate from one to the next and all feels and looks the same. So -- and then the third one is to add new functionality on top of that.

Got you.

So that's a lift we have to do. But these are all experts already skilled in data platforms, all working together, and I'm confident we'll deliver on that.

I'll stop opening it up for any audience questions or can keep going. We got one in the back here.

Just curious if you could spend another minute just on the integration and the selling into the dealers for your solution plus the Trimble solution. Is there going to be like one solution for the case dealers and another solution for the New Holland dealers? Because that was one of the nice things about the parent company before as you would sell to them, and they would figure out sort of how it goes downstream to the dealers. So just talk to us a little bit about that. And then is there any opportunity with dear dealers as well when you sort of think about the new offering that you have?

Yes. So couple of things in that, that I'll speak to. First of all, relative to the OEMs, let's start with the retrofit. If you're upgrading an existing piece of machine, whether you're buying that through a -- we're going to have 2 kinds of dealers, a full-line tech dealer that will have the full suite of solutions. They'll be the experts. That's that separate channel. They're typically agronomists, very focused. So they will have the entire suite of technology upgrades to be able to sell. And that will be coming from former Trimble dealers and former Precision Planting dealers. We're trying to -- they each are coming with about half the portfolio. We're training them on the other half, and we're picking the best ones in the area and growing them. So that's how that channel will work. Now your question, I think, was also a little bit about this other channel, which is the OEM channel. And they have a much smaller portfolio. It's generally because they usually don't try to sell all of these upgrade kits. Machinery dealer is pretty much trying to sell a new machine, or if they get a used piece of equipment and then they'll upgrade guidance system. So they'll upgrade a little bit. But it's a much narrow field. So that's the category we're talking about is these OEM dealers. And I'll say a couple of things to that. Number one, we're signing up directly with the dealer, and so we'll serve them directly. The differentiation between a case in the New Holland is typically 0. Now if -- but I also said that we're partnering with 200 OEMs to serve their technology needs directly to their factories. What that looks like is -- what they want to do is innovate on top of the base technology. They want to add some feature that's -- they don't have -- typically, many of them don't have the scale. So they want -- mostly they want access to the technology, but they want something a little bit unique. So we've developed a track record where we'll say, we're going to keep your unique stuff and financial and unique to you. So there's the base platform that we'll sell to them, and then we'll innovate on top of that in unique ways for any OEM that wants to do something different. And we've cordon that off so that nothing is cross-contaminated in terms of sharing IP between the two. Precision Planting has been great at that. Trimble has been great at that. We've got a proven track record. And so there's confidence in the market that, that will continue.

Any other questions?

Just your capital allocation priorities going into this year and '25?

Yes. Maybe Damon, I'll give it to you.

Yes. Sure. So capital allocation historically has been focused on reinvestment back into the business first. So we've been increasing our capital expenditures, increasing our R&D about 60% over the last couple of years. And then we've been focused on inorganics. So again, prior to the Trimble joint venture, we've bought 6 tech companies, all of that's been funded with free cash flow. Generally, we've generated more than enough cash to do all of that. and we've been opting for what we call as a special variable dividend. Given our ownership concentration, we've been paying back via our quarterly dividends and then annually, we'll do these special variable dividends. It was $4, $4.50, $5 the last 3 years. This year, we did $2.50 million because we did the Trimble acquisition. So that's sort of been the historical philosophy. With the Trimble acquisition, we added about $1.6 billion of debt on the balance sheet. So we've now moved debt repayment sort of higher up in the capital allocation. So with the grain and protein sale that we've announced, we're bringing in about $700 million of gross proceeds. We said we'll likely earmark most of that, if not all, that for debt repayment. And so that will sort of get us our leverage down a little bit, and then we'll move back into more of our traditional allocation policy. So I think it's important we don't really buy back stock as a company right now. We only buy back to offset annual dilution and we choose to do that given the ownership concentration that we have and so we've tried to find other ways to redeploy the cash effectively to the shareholders, which is that special variable dividend.

Could you just touch on the machinery segment, just how the farmers doing this year into next year and then competitive changes in the market just given it's a down cycle?

Yes, the machinery business has moved from -- if you look at that 10-year average, again, and you call that 100%, it's moved from 105% of the 10-year average last year, down to 90% of the 10-year average this year. In addition, last year, most of the companies, including us, were filling the channel because of -- during COVID, we just couldn't meet demand, and so the dealers were below their target level of inventory. During that -- that was last year. This year, we're actually underproducing retail demand. So we're trying to pull inventory out of the channel. Although sales are down 15% from 105% to 90%, our production plan is down 25% to try and be very aggressive on getting inventory -- keeping inventory lean and not having any kind of buildup there. So we can produce as close to retail demand as possible next year.

Just on the ad tech side of the business, given how consolidated are the markets here in with in terms of the equipment manufacturers, Deere and Case New Holland, I mean, this seems so integral to their future. But obviously, they'd want to do it on their own, and it's a big part of their product offering going forward. How does that retrofit idea kind of mesh with wanting your large competitors want to do everything on their own, supporting their own clients, customers going forward?

Well, our retrofit business, one of the other things I didn't say is that our retrofit strategy, one of the differentiators is it serves all customers. But the other thing is we come to market retrofit first. So what we typically find is our speed to market is a year or 2 faster than any of our competitors. We come to market in the retrofit channel. That's usually early adopters, innovative customers. We continue to iterate with them the technology stabilizes, user interface, all of that in terms of the perfect fit for the marketplace. And that's when you start having OEM integration. So we still think that as long as we stay fast, there's -- we have a list of about 350 tasks that need to get automated on the machines because there are things that the operator is doing today, and they're doing them pretty ineffectively. They can't sense things as frequently as a sensor can. They can't onboard compute things like a computer can. So we've got a lot of features that we can innovate around in the coming years. What our track record has been, if you look at the U.S. awards, this one called AE50 for the last 4 years in a row, we've been awarded more awards than anybody else. A couple of years ago, we got 10 brand X, got 5 brand Y, got 2. But every year for the last 4 or 5 years, we've gotten the most. We've got an innovation engine ranking faster than anybody else in the industry. And so we expect this business to keep growing. When we bought Precision Planting, it was $100 million over 6 years, it grew to $400 million. Our target with that plus Trimble and our Fuse businesses to get to $2 billion. We expect this growth to continue. Precision Ag is going to be the big thing for the next decade. And so whoever can do that well has a lot of growth opportunity. We expect to do that.

All right. I guess I'll continue. I think...

Maybe I'll just throw one more just to expand. When your farmer first is different than when you're machinery first, so for example, one of the products we just launched to the market a year ago was called Radicle Agronomics. It was an automation of the soil sampling process that I mentioned a little earlier that maybe didn't trigger people's thoughts, but you'd say, would a tractor company do that? Probably not. They haven't. So we're looking at all of the things that impact the farm through our retrofit technology company versus how do I make the tractor, not versus only looking at how to make them tractor more capable. So that Radicle Agronomics is a great example of a product that wouldn't have had any attention probably from an OEM company.

I think coming back to the prior question on inventories. Just doing the math on -- so North America, I think that seems to be the area where there's more to do on bringing the inventories down. So I want to take them from 8 months to down to 5 to 6 months. Just thinking through the math if retail is down 15% this year, your production is going to be down 25%. Does that get you to that 5-, 6-month range of dealer inventories exiting the year? Or do you think that some of that work to bring down the inventories is probably going to spill over into 2025?

We're going to make progress on that. I'm not -- Damon and I are not sure yet that we're going to get all the way there. I think we would say we may not. It may be that we've got work left to do in North America. It's 25% of our total business, 50% is in Europe. Europe, we feel much closer to being in target. South America, we feel closer to being on target. But North America, we may have some correction work left to do in '25.

I think that's a good segue. I don't want to put you guys on that outlook for 2025. But I think maybe I can phrase the question in a different way. If you look at the different geographies and especially Europe, which is about 50% of the business, and that's, I think, going to be down for the fourth straight year in a row or something like that this year. Which markets feel like they're closest to bottoming out in 2024?

Australia and New Zealand is the one that went into the downturn the first. We expect it will probably come out first, and we're starting to see early signs of that. Europe is the least volatile. So I talked about this 80% to 120% globally for AGCO. Europe is more like 90% to 110%. It's much less cyclical and already there at the unit volume lower than they've ever seen in the last 15 years today. So those are 2 indicators of we're way closer to the bottom than we are at the top in those markets. The last cycle went down to 85% of normal. We're at 90% today. Could we go down a little bit more globally? Maybe. But the last cycle, we were unconstrained on being able to supply the market. This time, we were constrained because of COVID. . So the clip -- the peak was clipped. None of us were able to sell into all the demand. So the age of the fleet in the customers' hands went from old average to young last cycle. This time, it just went from old to average. So we've got an average age of the fleet sitting out there. And then the last time there's also the whole industry put out these short-term leases that kind of accelerated the downturn. So I think the downturn is going to be shorter and not so deep this time. And we've got a lot of signs of getting close to that point in some of our key markets.

And turning to margins quickly. So -- and really focusing on, I think, on the EV margins, which have actually held up pretty well this year. I know you are getting some -- it seems like some mix benefit from Fendt's outgrowth, especially over Massey and Valtra. So how do we think about those margins maybe resetting into next year as the mix perhaps rebalances out a little bit?

Ideally, we want all of our regions sort of at that mid-cycle to directionally be in the mid-teens. And I think you're seeing that, again, to your point, Kyle, today, EME is holding up better than the other 3 regions and part of it is just that mix concentration where Fendt is growing share and outperforming some of the more volume-orientated brands. But again, as the industry as a whole lifts, that would mean more Fendt tractors and more Massey and Valtra tractors. So longer term, again, we talk about better diversity of our earnings and sort of the primary regions, all being in those mid-teens going forward. So again, see how the industry performs. But again, I'm not too worried about it.

And then on PTx Trimble, those margins. So I had originally guided to those margins in the high 20s. It seems like -- over the long term, that's pretty easily achievable. But maybe talk a little bit about what's dragging on the margins this year, especially having some churn with the CNH business and then also from my understanding, it is a higher fixed cost business, more SG&A costs. So maybe talk a little bit about some of those impacts to PTx this year, but maybe how I could look into next year as you lap some of these headwinds that you're seeing this year?

Yes. So we do -- when we disclose the anticipated joint venture, we sort of gave the outlook of the of the PTx Trimble margins were in those high 20% EBIT margin range. We don't see any reason why we wouldn't continue that when the market normalizes. To your point, very high gross margin products, so high incrementals. But also equally high decrementals because again, you have that sales force, they've installed base. And so as we're seeing that transition this year where there's 2 things that are happening, one, the OE part of that business is down, no different than any other part of the industry. You're getting the high decrementals and then you layer on or magnify that with the CNH churn where you're just, again, we're investing for the future, but we're not getting the revenue into that channel right now, it's creating a depressed margin this year. Part of the uplift next year will be, again, we expect that CNH channel churn to hopefully subside this year. So next year, we start to sell more into those channels directly via PTx, and we should start to see better stability of the margins in 2025 versus what we sit here in 2024.

Yes, makes sense. We've got a couple more minutes if there's any other questions from the audience. All right. It doesn't look like it. Last thing on the margins. You did announce this restructuring, so taking out some of the salaried workforce. You highlighted that it would be more so next year a benefit of about 100 basis points margin improvement. And you also talked about taking out those salaried workers and opportunities to actually replace some of that work, some of the back office work with AI and generative AI, maybe talk a little bit about that? And then how you reached that decision, and then the margin benefit into next year from those moves?

Yes. So we announced the restructuring action. The run rate savings for that is going to be in the range of $100 million to $125 million. That will be a run rate as we exit next -- end of next year so we won't monetize that full $100 million, $125 million in 2025, but it would be some sort of an incremental margin lift year-over-year for us there. It also provides us an opportunity to revisit how we run the business internally, sort of the skeleton. When the times are very good, we're making record profits and record margins. Hard to get the team engaged on rewiring the skeleton within AGCO. And so the environment right now is allowed to sort of revisit that look at leveraging offshoring low-cost country for certain centers of excellence, but also leveraging technology, no different than what we're doing in the machinery, leveraging generative AI, we can apply that across our SG&A workforce much more effectively than what we've been in the past. And that's sort of the early stage of what we see coming over the next couple of years. It won't happen next year. But we're building upon that of what do we automate versus today, which is a person doing that task in leveraging that type of technology. So we see continuous SG&A approval -- sorry, improvement going forward on top of just the natural reduction that we're going through with the workforce.

All right. Well, we're up on time. Thank you guys so much for being here at the conference. Thank you.

Very good. Thanks, Kyle. Good stuff.