On Slide 14, a highlight of a reconciliation of sales, adjusted operating margin and adjusted earnings per share from what we’ve communicated on our fourth quarter earnings call on February 6 to today. Starting from the left, our initial outlook reflected sales of $13.6 billion, adjusted operating margins of approximately 11% and adjusted earnings per share of around $13.15.
The negative effect of currency translation and the weaker South American industry outlook assumption change, coupled with the modest reduction in our pricing outlook, reduced our sales outlook by approximately $400 million, which is partially offset by the inclusion of the PTx Trimble joint venture sales of approximately $300 million for the balance of the year. Our new sales outlook is down slightly to $13.5 billion.
Our continued and heightened focus on taking cost out of the business is mitigating margin erosion from the lower operating leverage. We anticipate remaining at 11% adjusted operating margins before adjusting for the impact of the PTx Trimble joint venture. The strong margins in the high 20% range of the PTx Trimble business helps us raise our full year adjusted operating margins now to 11.3%.
Our new adjusted EPS guidance is approximately $12 on a consolidated basis. The reduction in EPS is a combination of multiple factors, including the effect of currency translation, industry assumption changes, a slightly lower pricing assumption, continued FX losses that affect other income and expense and an increased effective tax rate related to inflation and foreign currency in Argentina as well as the incremental interest expense on debt related to the acquisition of the PTx Trimble joint venture. This is partially offset by the consolidation of the earnings of PTx Trimble.
The figures for PTx Trimble you see on this reconciliation reflect 9 months of activity, and they exclude any sales related to other parts of AGCO. As we said at the announcement of the deal back in September and reiterated on April 1 of this year, we anticipate PTx Trimble to be accretive to AGCO’s revenues, adjusted operating margin and adjusted earnings per share in the first full year post close. This will be achieved by paydown of debt combined with higher earnings from PTx Trimble as we transition to a new distribution model and realize synergies across the AGCO portfolio.
Slide 15 highlights a few key assumptions underlying our 2024 outlook, which now includes the consolidated results of PTx Trimble joint venture. At this time, we see markets continuing to weaken in 2024. Our sales plan includes market share gains, along with price increases reverting back to approximately 1%. As our raw material cost has stabilized and we pursue further cost savings actions, we expect this level of pricing will more than offset inflationary cost increases.
We expect currency translation to now have a 1% adverse effect on sales year-over-year primarily due to a weakening of the euro, which is modestly lower than our previous assumption. Engineering expenses are expected to be up approximately 3% in 2024 compared to 2023, including PTx Trimble. Excluding PTx Trimble, engineering expenses would have been down around 4% as we look to moderate some investment, given the softening industry outlook.
With the expectations of our industry declining around 10% to 15% from our approximately 105% of mid-cycle in 2023 to around 90% to 95% in 2024, we would expect our adjusted operating margins to come down from the record 12% in 2023 to around 11.3% in 2024, slightly above the value creation line due to the strong performance of our 3 growth drivers, increased cost control measures and the inclusion of the high-margin PTx Trimble joint venture.
We will provide updated long-term margin targets at our December 2024 Analyst Meeting to account for the performance of PTx Trimble. Our effective tax rate is now anticipated to be between 28% and 29% for 2024, which is 1.5 percentage points higher than our previous guidance. The reason for the increase is due to the impact of foreign exchange rates and inflation in the calculation of income tax in Argentina.
Turning to Slide 16 for our 2024 outlook. Our full year net sales outlook for 2024 is $13.5 billion, down from the record levels seen in 2023. Our adjusted earnings per share forecast is approximately $12. We’ve also set a CapEx target of around $475 million, slightly lower than what we spent in 2023. Our free cash flow conversion should be at the upper end of our range of 75% to 100% of adjusted net income, consistent with our long-term target.
With the continued underproduction relative to retail demand in the second quarter of 2024, we project sales in the $3.6 billion range, adjusted operating margins of about 11% and adjusted earnings per share of around $3.
With that, I’ll turn it back over to the operator for Q&A.
Operator: [Operator Instructions] The first question is from the line of Jamie Cook from Truist.
Jamie Cook: Two questions. One, could you help us a little bit on South America in terms of how you’re expecting production cuts like the level of production cuts in South America, sort of pricing and how you’re thinking about margins in South America in the back half of the year? I think before, you said you expected margins to be in the maybe low double-digit range. I’m just wondering if that’s still an opportunity?
And then my second question, Damon, I just want to make sure I understand Trimble, understanding you’re saying it’s going to be accretive for the first full year post the close. Do you mean by the first quarter of 2025? I just want to be clear there.
And then I’m just wondering the path to get there, given it’s going to be $0.13 dilutive, I mean, for the year. I guess it’s just debt pay down. Any color you could help me there? And then, I guess, how accretive by the first — by the full year, just given the farming trends aren’t really favorable right now.
Damon Audia: Yes. So Jamie, I’ll start with the Trimble question, and I’ll revert back to the South American question. So fully accretive in all of 2025. So not the 4 quarters. But if we look at all of 2025 is what we’re planning on it being accretive. And it’s really a combination of us being able to repay some of the debt that we took on here, given our strong free cash flow generation.
But more importantly, as we really start to ramp up some of the synergies here in leveraging the precision ag channel that we have, our Precision Planting channel and also complementary products from Precision Planting moving into the Trimble, Vantage channels. So we see those 2 things really helping drive some growth next year and then paying down some debt. So again, accretive for the full year of 2025 versus the first 4 quarters.
On South America, as you heard in Eric’s opening comments, we did reduce our production again over 30% here in the fourth — in the first quarter. That’s after a 30% reduction in the fourth quarter. I would expect to see continued production cuts more heavily weighted here in the second quarter.
We did make some marginal improvement in the dealer inventory down there, but still not where we need to be. So I would expect to see further production cuts here again in the second quarter. And then hopefully, as we move into the back half of the year, those production cuts starting to become less and hopefully, as we get to the fourth quarter lapping.
As we think about the margins in South America, and again, I’m going to give you margins that are inclusive of the PTx Trimble being rolled into these numbers just to stay consistent. But we do expect the margins really in the back half of the year to start to get back up into those mid-teens. Again, under the presumption that the markets continue to improve, the new FINAME financing comes out here in the back half of the year, which spurs growth in some of the farmer activity.
So right now, we see the first half continue to be challenged, both for farmer demand as well as our production and the absorption but then hopefully improving in the back half.
Operator: Our next question is from the line of Kristen Owen from Oppenheimer.
Kristen Owen: Sort of an extension of Jamie’s here, but maybe broadening that out to the other regions. Just given the production cuts that were both higher than expected and broad-based and now the updated outlook, I’m hoping you can walk us through your updated assumptions for just organic volume growth across the regions for the remainder of the year. So maybe if we strip out the Trimble results, what those organic expectations are.
Damon Audia: Yes. So I think, Kristen, if we look at the organic — again, excluding Trimble, we expect to see the, I would say, the North American market probably down right around 10% for the full year, so a little bit better. They were down 21% in the first quarter. So call that sort of mid-single, upper single digits for the balance of the year.
Europe, after the strong first quarter that we saw here, I would tell you, relatively stable year-over-year other than that fourth quarter. Remember, we had a record fourth quarter with Europe. We don’t see that repeating, given the state of the market. So I would say Europe will likely be down sort of that mid-single digit for the full year, a lot of that though concentrated in the fourth quarter year-over-year comp.
Asia Pacific, relatively flat as we move through the year here off the big decline here in the first quarter. We see that stabilizing through the balance of the year.
And then South America, again, big decline here in the first quarter. We expect another large decline year-over-year in the second quarter and then a decline in the third quarter and then again lapping what, hopefully, is an easier comp seeing growth returning back in the fourth quarter. But I would put the sales in South America down at around 20% for the full year, and that sort of gets you to our negative 9% or so what we’re looking at organically here for the company.
Kristen Owen: Okay. And then you didn’t mention this in the prepared remarks, but I was wondering if you could address the 8-K yesterday regarding your commercial relationship with TAFE. Can you provide us some of the background, any terms related to the termination and just the strategic rationale there.
Damon Audia: Yes. So thanks for the question, Kristen. Nothing — I guess nothing significant other than — again, TAFE, as you know, is one of our critical suppliers to us last year. We purchased about $172 million of low horsepower tractors that we sold in other parts of the world.
And like any supplier relationship, we work through them on how they’re performing. And we’ve had multiple communications with TAFE over the years on our supplier expectations of them. And we basically got to a point where we worked with them, and we needed to give them notice that we were going to take a different path to source these low horsepower tractor from a different supplier at some point in time in the future.
So we follow the ordinary course. I would tell you, Kristen, we did this as we would treat any important strategic supplier relationship with significant communications over the last several years, outlining expectations. But at some point, as we think about the farmers’ demand for our products, the dealers’ needs for certain products around the world, we felt this was in the best interest of AGCO and our farmers and our dealers to make this change.
Operator: We have our next question from the line of Stanley Elliott from Stifel.
Stanley Elliott: Can you talk a little bit more about what you’re seeing in Europe? Curious, I guess, kind of how much margin is maybe mix versus some of the manufacturing improvements you all have had going on over there?
Damon Audia: Yes. I think, Stanley, it’s sort of — Europe is maybe a little bit of a tale of 2 cities there. Our Fendt product line has done exceptionally well. We’ve seen good pricing, and I would say some very strong mix coming out of Europe. Again, we got the new 600, and we have the next generation 700. So seeing some very good performance, good share capture by the team.
Our Fendt [ EMEA ] team has done phenomenally well in gaining share in the European region as well. So I would say that part of the business has done quite well. As the industry has weakened there, I would say we’re seeing more pressure on the more volume-orientated brands in Europe. So Massey Ferguson and Valtra, although doing okay, I think they were a little bit more subject to the market weakness. And so again, overall, the markets are weakening, but Fendt continues to perform exceptionally well as that value proposition that those farmers see is being rewarded right now.
