Chad Dillard: Hi. Good morning guys.
Eric Hansotia: Good morning, Chad.
Chad Dillard: So a couple of questions for you. First on pricing. So if I look at your year-to-date price and your 8% guide, it looks like 4Q implied is flat so I just want to confirm that. Second, just would like to get some early color on 2024 farmer profits for the US and Europe? And then finally, I just wanted to get a better sense of where you are versus mid-cycle exiting 2023 on a volumetric basis.
Damon Audia: Yes, sure. So for Q4 pricing, Chad, I think directionally, you’re in the ballpark. Flat to mid to low single digits is sort of the range that we would expect to see in the fourth quarter. I’ll let Greg handle the ’24 probability. But as I think about where we are mid-cycle, I’d say we’ve seen, as the markets have weakened here in the back half of the year, directionally, I would expect that as a total company, we would be exiting the year at around 105% of mid-cycle would sort of be our current estimate. And we started the year a little bit stronger than that. But given the weakness we saw in Asia-Pacific, some of the weakness we’re seeing, especially in the low horsepower South America, probably about 105% as we finish the year. And I’ll let Greg touch on the 2024 farmer profit outlook.
Greg Peterson: Right. So we’ve talked a good bit in our prepared remarks about commodity prices coming down, but still remaining at attractive levels kind of well above, if you look at 10-year averages and stuff. That being said, we’ve also seen input costs come back, diesel, fertilizer, some of the other input costs. So the outlook kind of at a high level would be to see a modest decrease in 2024 in terms of farm income, but certainly still in a very supportive range as we think about farmers’ ability to continue to refresh their fleet and invest in new technology.
Chad Dillard: Great. That’s helpful. And second question, just on R&D intensity. With the integration of Trimble, any change in terms of how you’re thinking about that line item?
Eric Hansotia: No, I mean, we’ve raised our R&D or engineering spend 60% since we launched our new strategy. We’ve invested in six tech companies, including Trimble JV. All of this is to accelerate our progress on developing industry-leading smart farming solutions. We have very minimal overlap between the Trimble Teams projects and the Precision Planting or AGCO team’s projects. Where there are a little bit of overlap, we’ll redeploy those on more projects. We’ve got like 150 projects lined up that are not being worked on yet to automate more features on the machines all the way on the crop cycle. So plenty of work left to be done. Lots of great people to work on them, and we want to help find max velocity on the overall portfolio.
We think there’s probably going to be some synergies as just like when we bought the six tech companies. Even though the project isn’t redundant, if you develop a center in one place, you don’t have to develop in another, you can just reuse it and things like that. So, we’re looking forward to additional traction and velocity by having all these teams work together.
Operator: And the final question today will be from Tim Thein with Citigroup. Please go ahead.
Tim Thein: All right. Those combined. Maybe just, I guess, part A is just on the Fendt in Europe, rather, in an environment where — let’s just — let’s call the market flat to down as a market. What kind of — to the extent in a flat market, getting inventories back to normal, any way to think about, obviously, that carries a richer mix? So any way to think about kind of a margin range to the extent there’s some channel fill in that product line? And then just on South America and Brazil, specifically, I just want to make sure I kind of get the message with respect — not on the small side, but just on the high horsepower market. We’ve seen some of the crop chemical companies that put out some pretty big declines in terms of crop chemicals and other inputs. What, if anything, does that kind of signal to you in terms of demand profile as we head into 2024, not on the smaller set but just on your high horsepower market in Brazil? Thanks.
Damon Audia: So, I think, Tim, if we think about Europe and again, using the commentary about the dealer inventories being at a relatively normal level, as I alluded to in my remarks, the high horsepower inventory levels are still below in many areas. So again and you know this Fendt is a richer mix product for us. And so to the extent using your analogy, things staying normal, as that sort of part of the inventory fills up, that would be margin enhancing for us, all else being equal. You layer on top of that some of the new products, the market share initiatives that we have, also Precision Planting, looking to expand in Europe, we definitely see opportunities. I go back to our December Investor Day where we said, we’re going to outpace the industry by 4% to 5% regardless of where we are in the cycle and that between Fendt, Precision Ag and parts, Europe had an exceptionally strong growth parts business in the third quarter.
So team is doing quite well as they look continue to maximize those three growth vectors for us. And again, I think we’ll see where the overall markets are in 2024. But again, those three items, we expect to continue to help us outpace that. On South America, again, the team has done exceptionally well on the high horsepower segment of the market, the Fendt product portfolio, but even the high horsepower Valtra products, high-horsepower Massey products have done exceptionally well in gaining share there. So, again, we see significant white space opportunities in the Mato Grosso region. Again, you may recall, we have about — we’ve covered about 70% to 75% of the white space there. There are still opportunities to gain share there as we open up incremental dealers.
Our existing dealers continue to penetrate that farm. I would tell you, I was in the Mato Grosso region just a couple of weeks ago, met with multiple farmers in the region, and they are ecstatic with what they’re seeing with the Momentum planter. The Fendt and Valtra products in the region are performing exceptionally well, and they were very excited about what they saw as there are opportunities for growth as that region continues to expand in arable land, as they continue to becoming more of a global exporter and we’re very excited about the long-term process in Mato Grosso and what the Fendt product line, what was offering them in their overall profitability. So I think over the long-term, we feel very good about what we see in that part of Brazil specifically.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks.
Eric Hansotia: Very good. Thank you very much. I’ll close today of saying thank you very much for your participation and your support of AGCO. We’re really proud of our performance throughout 2023. It is a great third quarter in many ways and is setting us up for a trajectory to deliver even another record year big time. Just to give you some examples, our smart planters, we’re expecting those to be up 20% from 2023 versus 2022. IDEAL combines forecast those sales will be up 65% versus 2022 and 118% versus 2021. And sprayers, our smart nozzles be up 75% versus 2022. Those are all just the indicators of the value we’re generating for farmers through smarter and smarter machines that add not only more productivity but more sustainability to their operations.
