And then as the new financing plans for the crop plants kick in, in the third quarter and the fourth quarter and the industry hopefully becomes more stabilized, we see that getting back to those mid-teen margins which is what we’ve been planning for South America to be at. And again, I think you remember, the margins the last couple of quarters have been exceptionally strong given the strength of that market. But we sort of see South America as a mid-teens market and we expect that to be sort of the second half outlook for South America.
Kristen Owen: Great. And then a follow-up to Larry’s question earlier on some of the growth assumptions and those growth pillars. You said parts revenue, just over $1.8 billion. That’s approaching nearly 15% of your sales. And you’re calling out growth in that business for next year. Just wondering if you can help us sort of do the math there or at least understand how that is helping support this through cycle margin target that you’ve got out there.
Damon Audia: Yes. I think the key is, again, this is — we’ve talked about parts is 1 of our 3 high-margin growth businesses. And again, it’s the credit to the team as a concerted effort in really focusing on fill rates. They’ve done a lot of work to improve the fill rates. We’ve put some inventory in different parts of the world to ensure that we have better fill rates in places like South America. As we’re leveraging more digital tools with our farmers, leveraging more of the connected machines with our dealers and leveraging more of the connected machines with the farmers, we’re getting a lot more visibility, better predictability, better engagement with the farmers and the dealers to service that equipment. That’s driving the traction that we’ve seen in the last couple of years.
We’ve seen good growth in our parts business the last several years. And as the team looks forward with that sort of focus, again, we still expect to see sort of this mid-single-digit revenue growth in 2024 with parts as well. So we’re still feeling good about that. And again, I think the market dynamics probably lend itself to — in areas where farmers are more likely to look to replace maybe rather than buy new and that’s sort of reflective on our overall industry decline. So we feel really good about this business and the team that we have driving it in 2024.
Operator: We now have a question from Timothy Thein from Citigroup.
Timothy Thein: Apologies in advance if I missed this as I was going back and forth on calls. But — and — but maybe just going back, I did hear your comments on kind of getting to — ideally getting back to kind of a mid-teens margin in the second half in South America. And I’m just curious, from the standpoint of a lot of the — or not a lot but some of the benefit in recent years has been that AGCO and others have been benefiting from a significant pricing tailwind. And as that normalizes and given all the issues that you and others have in South America from an inventory perspective, does that — I understand you don’t want to be overly descriptive on this from a competitive standpoint but does that — do you need a price/cost — I guess, how would price/cost then play into that in terms of getting back from a low single-digit to a mid- to high teens?
Do you need to be on the cost side there? Or can you get there just from — on just operating leverage and volumes? Hopefully, that question makes sense.
Damon Audia: Yes. Tim, the answer is a little bit of both. We do need the operating leverage, obviously, as we need to generate the absorption through the factory to get the leverage. Our expectations are that we will be price/cost-positive in 2024, even with that more traditional 1.5% pricing. As I alluded to and Eric would attest this, we are laser focused on our operations to do two things. One is as supply chains have improved, driving better productivity through our factories in better scheduling, reducing the amount of rework, really trying to drive efficiency in the factories based on the supply chain. So that’s number one and that will happen around the world. But number two, again, given the constraints that we were working in the last couple of years, we were, I would say, trying to get the products sometimes at any cost to deliver to the farmers.
As these have — as supply chains have normalized, it’s giving our team an ability to really go back and challenge the supply base in understanding what is the real cost and where are we able to drive productivity in cost savings. And so we have initiatives within our factories and built into our assumptions that we are going to drive cost improvements through productivity and price downs in our operations to help bolster the margins or stabilize the margins, that 11% that we’re telling you about through those initiatives on top of some of the other things that you know we’re doing with market share gains, parts growth, Precision Ag growth, things of that nature. So the answer is a little bit of both but I would tell you this, team is obviously very focused on the cost side.
In South America, where the markets are most volatile but also in Europe, South — in Europe, North America and Asia as well.
Eric Hansotia: Maybe just to build on that, too, from a top-down perspective, I think your inherent question is can South America be a profitable region since we had a low profit 1 quarter. Well, the 3 quarters before that were all 20-plus margins. And from a top-down perspective, if you look at is the farmer in South America going to be profitable. We think strongly yes. That’s the market where in much of the region you can plant 2 crops, sometimes more. You — right behind the combine comes the planter and so you’re taking off soybeans and planting corn right behind it. It’s a tropical climate. It’s the area where more land can be put into production, highly intensively planted and harvested. So over the next 20 years, we’ve talked about for a long time, the world needs more green.
Brazil is going to be a big part of supplying the world and that means that the — and the infrastructure keeps getting better to make the Brazilian farmer more effective — efficient. So we’re bullish on Brazil as a market. We think the farmer is going to be adding a lot of value and profitable. And so then we’re doing all the things that Damon talked about to make sure that we can support that farmer in an efficient way with our supply chain.
Timothy Thein: Got it. Okay. Very good. And just on the — for Europe, maybe just a word or two on — in terms of the margin outlook in ’24. And I’m curious from basically how product mix plays into that. And going back to your comments about Fendt — dealer inventories being maybe a hair on the low side. And obviously, that can have a pretty powerful impact to margins. So maybe just speak to, as you did with South America, the expectations from a profit standpoint.
Damon Audia: Yes. So — yes, Tim. So I don’t think — we finished Europe overall, I think, just around — just over like 14.5%, 14.6%. So just tremendous performance by the team in Europe. Again, you saw our industry outlook there. We have that industry coming down. And so we would expect the margins to contract based on industry and lower overall units. But given some of the strength we’re seeing, as I think I mentioned to Larry, some of the new product introductions that we have coming out with Fendt and given the strong presence we have there, I would say we probably should see the margins relatively flat on the full year. Again, it may fluctuate quarter-to-quarter. But for the full year, given that mix of new products that Fendt has coming out, we think that we should be able to keep the margins relatively flat.
Eric Hansotia: And then to build on that mix, like you said, there’s a channel element for Fendt. Our new products are coming into the market. In Europe, we’ve got the e100 coming in, the first electric tractor for Fendt. And on the low end, Turkey, we think, is going to contract as a market, or at least not nearly — not grow nearly as much as it has. And that’s a low-horsepower, lower-margin market, in general. So there’s — although the overall market is cooling, there’s a lot of positive mix elements embedded in Europe.
Operator: We have a question from Tami Zakaria from JPMorgan.
Tami Zakaria: So just wondering, can you update us on the Trimble JV? Do you expect it still by mid this year? And do you expect the JV to be accretive in year 1?
Eric Hansotia: Yes. So JV is going right on track. We’ve hired an outside partner to help us with integration planning. That’s going extremely well. We’ve got a lot of good cooperation, teamwork, culture building, plan generation happening on every element of the business to make sure that we’re ready on day 1 and that we can capture the synergies of bringing these 2 great businesses together and serving farmers better than anybody else in the industry. Regulatory approval is tracking according to plan. We’ve already gotten approval from several of the regions. Still have a few that are in process but that’s proceeding as planned. And according to the time line that we out laid, we think it will be in the first half of this year.
