AGCO Corp (AGCO) 2015 Q4 法說會逐字稿

Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the AGCO 2015 fourth-quarter earnings release conference call.

(Operator Instructions)

Thank you. I will now turn the call over to Greg Peterson, AGCO Head of Investor Relations. You may begin your conference.

Thanks, Mike, and good morning. Welcome to those of you joining us for our fourth-quarter 2015 earnings release. We will refer to a slide presentation this morning, which is posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of the presentation.

We will make forward-looking statements this morning, including demand, product development plans and timing of those plans, acquisition, expansion and modernization plans, and our expectations with respect to the cost and benefits of those plans, and timing of those benefits. And our future revenue earnings and other financial metrics.

We wish to caution you that these statements are predictions, and that actual events may differ materially. We refer you to the periodic reports that we file from time to time the Securities and Exchange Commission, including the Company's form 10-K for the year ended December 31, 2014, and subsequent Form 10-Q's. These documents discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. A replay of this call will be available on our corporate website.

On the call with me this morning are Martin Richenhagen, our Chairman, President and Chief Executive Officer, and Andy Beck, our Senior Vice President and Chief Financial Officer. With that, Martin, please go ahead.

Thank you, and good morning everybody. My comments start on slide 3, where you can see that in the fourth quarter of 2015, AGCO sales were down approximately 21%. While our products are performing well in all markets, our results reflect the impact from softer industry-wide demand, production costs, and the negative impact of currency translation.

The year was highlighted by the progress we made with both inventory reduction and cost controls. By lowering production approximately 18% compared to 2014, inventory declined over $130 million on a constant currency basis, from December 31, 2014 levels.

This reduction supported the generation of over $300 million of free cash flow in 2015. Despite the lower sales levels, our gross and operating margins held up well compared to the prior-year, and we have generated $3.24 of adjusted earnings per share. Our cost-reduction efforts are being balanced with our commitment to customer support, and maintaining an aggressive sales and marketing presence. Our balance sheet is in excellent shape, and is enabling us to return more cash to our shareholders.

We completed $288 million of share repurchase in 2015, and expect to complete the remainder of our $500 million authorization during 2016. In addition, we announced last week an increase of our dividend for the third consecutive year.

Despite the current market difficulties, our long-term view remains positive. In addition to dividend cost management, we will be concentrating on initiatives that will drive long-term benefits and raise the efficiency of our factories, improve our service levels, and strengthen our product offering.

Slide 4 details industry unit retail sales results, by region, for the full year of 2015. Excellent harvests across all major regions put pressure on commodity prices, and the USDA estimates that US farm income will be down significantly in 2015, with most experts projecting another decline in 2016.

The softer farm economics have reduced demand for agricultural machinery, especially for larger models. In North America, tractor industry sales were down 13% in 2015, with tractors over 100 horsepower down 27%. The industry made progress in reducing inventory levels, but more work remains, especially with large horsepower tractors and combines.

Forecasts are pointing to reduced farm income in 2016, and we are expecting lower demand. Industry unit retail sales of tractors [investor new op] were down about 4% in the full year of 2015, compared to industry sales in 2014. Industry sales in the important dairy sector remain soft, due to lower milk prices. A milk surplus in the EU has been caused by Russia's import ban, as a reaction of the EU sanctions, and the removal of production quotas earlier this year. Weaker economics also lead to lighter demand from the grain producers.

As we look into 2016, we expect demand to decline further, due to soft market conditions in both the cereal and the dairy markets. Industry retail sales in South America were extremely weak, resulting from political uncertainty, or you could call it catastrophe, and a depressed general economy in Brazil. As well as loan processing disruptions related to the Brazil government financing program. Despite these issues, economics for the Brazilian farmer remained solid, as 2015 crop production was healthy, and the real's devaluation has helped to mitigate some of the decline in global commodity prices.

Our South American industry forecast for 2016 assumes additional declines, with the macro economic and political environment continuing to weigh on demands, but with more regular availability of government financing. AGCO's 2015 production schedule for factory production hours is shown on slide 5. We closely managed our Company and dealer inventories during 2015, with 2015 production hours down 18% for the full year, compared to 2014 levels. The lower production resulted in lower inventories in 2015, but also contributed to weaker earnings compared to last year.

In 2016, we will continue our efforts to reduce Company and dealer inventory levels furthermore, particularly in North America. We're targeting a much lower seasonal build in our inventories during the first half of 2016. On a year-over-year basis, we expect production to be down between 10% and 12% to the first quarter, while full-year production is expected to be down between 3% and 5%. Our first-half sales and earnings will be down significantly from 2015 levels, due to the impact of our production plan.

Globally, our order board for tractors was down at the end of 2015, compared to December 31, 2014. Orders were about flat in Europe. In North America, big tractor orders were down significantly, and order board in South America was also down. I will now turn the call over to Andy Beck, who will provide you more information on our fourth-quarter results.

Thank you, Martin, and good morning to everyone. I will start with a look at AGCO's regional net sales performance in the fourth quarter and full year of 2015, which are outlined on slide 6. The weaker euro and Brazilian real resulted in adverse currency translation, which negatively impacted fourth-quarter net sales by 12%, and full-year net sales by 13%, compared to the same periods last year.

Weaker industry demand also pressured sales results, across all the regions, for the full year of 2015. For the fourth quarter of 2015, the Europe, Africa, Middle East segment reported an increase in net sales of approximately 1%, excluding the negative impact of currency translation compared to the fourth quarter of 2014.

Sales growth in France, Turkey and Finland was mostly offset by declines in other markets. North America sales were down approximately 19%, excluding the unfavorable impact of currency translation during the fourth quarter of 2015, compared to levels experienced in the fourth quarter of 2014.

Lower sales of high-horsepower tractors, implements and combines were partially offset by growth in protein production equipment. AGCO's fourth-quarter 2015 net sales in South America were down approximately 34% compared to the fourth quarter of 2014, excluding negative currency impacts. Significant sales declines in Brazil, and other South America markets, were partially offset by modest growth in Argentina.

Net sales in our Asia-Pacific segment were down about 5% in the fourth quarter, compared to 2014, excluding the negative impact of currency. Lower sales in China were partially offset by growth in the Australia and New Zealand market.

Part sales were $274 million for the fourth quarter of 2015, which was approximately flat compared the same period in 2014, excluding the negative impact of currency translation. Parts sales were up modestly for the full year of 2015, compared to the same period last year, on a constant currency basis.

Slide 7 details AGCO's sales and margin performance. Our ongoing cost-reduction efforts, targeted at labor, productivity and material costs, helped mitigate the negative impacts of lower levels of demand and production on our fourth-quarter operating margins. The Europe, Africa, Middle East segment reported an increase in operating margins of over 100 basis points, from a low level to the fourth quarter of 2014. Higher part sales, operational efficiencies, and better margins on new product sales all contributed to the margin improvement.

North America's operating margins were 1.6% in the fourth quarter of 2015, down significantly compared to the fourth quarter of 2014. The negative impacts associated with lower sales and production, and a weaker sales mix, were responsible for the decline.

In South America, weaker margins resulted from lower sales and production levels, as well as material cost inflation. Margins in the Asia-Pacific region improved throughout 2015, as production gradually increased in our new Chinese manufacturing facility.

Slide 8 details GSI sales by region and by product. GSI sales were down about 5%, excluding currency impacts, for the full year of 2015, compared to 2014. Sales declines in Eastern Europe and Asia were partially offset by strong growth in South America, and in the North American protein production segment.

Demand for grain storage equipment in North America slowed considerably in 2015, consistent with strong declines and row crop economics. We're targeting flat sales for GSI in 2016, compared to 2015, on a constant currency basis.

Slide 9 looks at increased investments we have made in our business over the last decade, through both capital expenditures and research and development. After completing a number of major plant productivity projects, meeting Tier 4 emissions requirements in Europe and North America, and making heavy investments in new products, we reduced our CapEx and R&D programs for 2014 and 2015.

We are continuing to make strategic investments to refresh and expand our product line, upgrade our system capabilities, and improve our factory productivity. Despite the softer demand environment, we intend to increase the level of investment in 2016 to execute our product development plan, resulting in both increased CapEx and engineering spend. Our spending plan in 2016 is needed to maintain our competitiveness, and support the long-term growth of our business.

Slide 10 addresses AGCO's free cash flow, which represents cash generated from operating activities, less capital expenditures. The benefit of our inventory reduction efforts that Martin mentioned earlier is evidenced on this slide. We achieved our inventory reduction target, and finished the year generating over $300 million of free cash flow, for the full year of 2015.

As a result of the strong free cash flow, AGCO has generated over the last few years, our balance sheet and liquidity position remains strong. After covering our increased spending on strategic investments, we're targeting free cash flow of $150 million to $175 million in 2016.

At the end of December 2015, our North America dealer a month supply, on a trailing 12 month basis, was higher for combines, hay equipment and tractors, compared to last year. At the end of 2015, we are 6.5 months tractors and 6 months for combines. While we succeeded in lowering our dealer inventories compared to 2014 levels, our month supply went up, as a result of declining industry. Losses on sales receivables, associated with our receivable financing facilities, which is included in other expense net, were approximately $5.4 million during the fourth quarter of 2015, compared to $5.8 million in the same period of 2014.

Moving to the next slide, we continue to make cash returns an important component of our long-term capital allocation plan. In the fourth quarter, we continued to repurchase shares under a $500 million authorization, and finished 2015 spending approximately $288 million. We expect to complete the remainder of the $500 million authorization during 2016.

Our 2016 outlook for three major regional markets is captured on slide 12. Our forecast anticipates softer market conditions in all three regions.

In the United States, the USDA estimates that farm income will be down again in 2016. And as a result, our North American industry forecast calls for a decline of 10% to 15% from 2015 levels, with a more significant decline in higher horsepower equipment.

Our forecast for South America region expects industry demand to be down 10% to 15% from 2015 levels. Political instability, economic weakness, and uncertainty on the funding levels of the government-subsidized financing programs in Brazil are expected to contribute to the weaker South American industry demand forecast in 2016. Lastly, we expect a decline in Western European market, due to lower dairy and cereal prices that are expected to pressure farm income in 2016.

Slide 13 highlights the assumptions underlying our 2016 outlook. While we're optimistic about the long-term growth opportunities for our industry and our business, the priority for 2016 continues to be managing our costs and lowering our dealer inventories, to better align ourselves with current market demand. Our 2016 forecast assumes softer industry demand across all regions, and a sales decline of about 6%. Our plan includes price increases of approximately 2% on a consolidated basis, and at current exchange rates, we expect currency translation to negatively impact sales by about 3.5%.

In 2016, engineering expenses is expected to run about 4.2% of our sales, which amounts to an increase of $15 million to $20 million, on a constant currency basis, compared to 2015. We also look for sales -- lower sales and production, and a weaker sales mix, that negatively impact gross margins. These negative impacts are expected to be partially offset by the benefit of new products and productivity and purchasing initiatives. We're targeting an effective tax rate of approximately 30% to 32% for 2016.

Slide 14 lists our view of selected 2016 financial goals. We're projecting 2016 sales to be about $7 billion, with softer market conditions reducing overall sales volumes. This impact is expected to be partially offset by pricing and modest market share gains.

We expect gross and operating margins to be down form 2015, reflecting the negative impact of lower sales volumes and a weaker sales mix. The benefit of our cost-reduction efforts are expected to partially offset the volume-related impacts.

Based on these assumptions, we are targeting 2016 earnings per share of approximately $2.30. We expect capital expenditures of about $250 million, and free cash flow to range from $150 million to $175 million.

In the first quarter of 2016, sales and earnings per share are expected to be significantly lower than reported for the first quarter of 2015, due to the lower production levels we discussed earlier. First-quarter 2016 earnings per share is expected to be approximately breakeven.

And with that, operator, we're ready to take questions.

(Operator Instructions)

Nicole DeBlase, Morgan Stanley.

My first question is around the quarterly production build that you guys talked about. That was really helpful. But I guess my question is -- it seems like -- can you clarify? Do you expect production to return to growth in the second half of the year?

And then the quarterly build, what inventory movement, on the used side, does that require? Does that require that you guys are in really good shape, with respect to used equipment inventory, by year end?

Yes, I think we are in pretty good shape, all included, our in-house inventories and also dealer inventories. When it comes to the second quarter, I think we expect growth.

So, on the production, we expect the production to decline significantly in the first quarter. And then it starts to level off for the balance of the year, in terms of our production levels. Down a little in the second quarter and the third, and then actually, right now, we've got our production slightly up in the fourth quarter compared to last year.

With regard to our -- as Martin mentioned, on our inventories, we did -- we were able to get our dealer inventories lower in western Europe. And also, our used inventories and our dealer inventories in North America are down from the prior year. But as the market decline was so significant, our month supply, as we mentioned, went up.

So, we still have some work to do in 2016, as it relates to dealer inventories in North America, and we are projecting another decline in our dealer inventories within our business plan for 2016. And we would expect that, by the end of this year, we have our inventories in line with market conditions, assuming market conditions are as we project right now.

What I would like to mention is that we seem to be best in class here, so we seem to outperform our competitors in that area.

Okay, thanks, Martin and Andy; that was really helpful.

And then my second question, I guess, is around GSI. So, you guys had, I think, a 19% year-on-year reported, including currency, decline in sales during the fourth quarter. So, just curious on the level of conviction in the flattish outcome projected for 2016.

What we are seeing in GSI is that -- we're seeing still significant declines and weakness in the grain storage business in North America, particularly on the on-farm segment of that business. And we expect it to be down in line with what we are seeing -- the equipment market is down 10% or 15% plus in that segment.

We are projecting the rest of our Business to be relatively flat, with the exception of, we are looking for growth in our Asia business and GSI this year. We think we will get some rebound, particularly in some of the protein segments there.

And then we do have some small acquisitions that we have done -- that we did throughout 2015 that will give us some benefit, as well. So, that acquisition impact for 2016 is a few percent, and so that is helping us, I think, meet that projection that we are putting out there right now.

In addition to that, I also want to mention that we have very attractive and exciting projects in the pipeline, which will generate growth for GSI. They are not in this chart here, but overall, I think GSI will also perform pretty well in the future.

Okay, thanks, I will pass it on.

Robert Wertheimer, Barclays.

Thanks for the answers on the prior question. I wonder if you could say -- is there an issue with channel inventory, industry wide, on smaller equipment -- utility tractors, 40 to 100 [horsepower], let's say? Or is it just the large stuff?

And, Martin, you were helpful in talking about -- you best in class, and what you can do. Do you have a sense as to whether you think the industry channel inventory will be cleared up this year or not? There's a lot of cross currents on what's really going on there, with the [rest of us].

It depends pretty much on the manufacturers. So, there are some who really have a major problem. I don't want to mention name here. We talk about Echo. When it comes to smaller tractors, I think this might also be an issue for the guys who basically didn't plan properly, mainly companies from Asia.

Okay. Interesting. Thank you.

Also, just real quickly, on Brazil, we can't really see retail sales very well. Has the government made any shift in processing paperwork faster, and helping retails push along? Or is that more of a hope that that flips in the future?

I think they tried to improve, but they don't want to, because I think the fact that they slowed down the process, they [use so to say], in order to also make less money available. We are not satisfied with the performance at all. We tried to lobby. Politicians right now don't listen.

So, the government in Brazil is in very bad shape. They don't know what they are doing. They don't have a strategy. They are corrupt, and this is damaging not only our Business, but business in general.

Andy Casey, Wells Fargo.

On the North American region, you mentioned orders down significantly in large tractors, and you had the drop in GSI revenues in the fourth quarter. Can you help us frame what you are seeing in the GSI order board for grain storage in the region? Is that similar to the large tractor? Or is it a little bit more of a moderate decline?

Andy, I think the orders on the grain storage side and GSI right now are probably down 20% to 30%. When we package it together with some new businesses that we've -- and new business lines that we've set up in GSI, it's more around flat for the year, as we stand right now. So, the protein sector is up a little. We've got some new business lines that are offsetting some of the severe weakness we are seeing on the storage side of the business.

And this was always part of the strategy. So, as you recall, GSI is a very North American business, and we saw the potential to globalize the product offer. And as a result, we basically, so far, are in a position to somewhat balance the more -- the weak North American business, by getting new business in from outside, many from Asia.

Okay, thank you. And then, on the Q1 guidance for breakeven, should we just assume that North America and South America are the weights? Or are you looking at trying to decrease inventories pretty much across the board again?

It's a little bit across the board, but I think your assumption is right, that most of the decline that we are projecting is focused on North and South America. The Europe, Africa, Middle East segment we are expecting to be down modestly.

So, yes, we are trying to be as aggressive as we can, in terms of our dealer inventory actions in the first quarter. So, typically, the first quarter is a quarter -- especially in North America -- where you're building your inventories at your dealers for the spring selling season. And because of where we stand with our inventories, and the market conditions, we're trying to limit that build. And so, as a result, we are projecting our sales to be down fairly significantly here in the first quarter of the year, in order to make progress towards those inventory goals that we talked about already.

And then in South America, the market is just very weak right now, and dealers also are working on destocking their inventory levels. And as a result, we have -- projecting fairly significant sales declines there in the first quarter.

(multiple speakers) And then lastly, our Asia-Pacific segment is going to look worse in the first quarter then it will for the rest of the year. Our production schedule is tilted more to the second, third and fourth quarter. So, we do expect that to get better, as we go through the year.

Okay, thanks. And just one follow-up on the South American commentary: If I go back to the investor day, it was portrayed as Brazil, bad, and I appreciate the comments you made already on that, Martin. But the rest of South America was okay, or it looked good. Is the rest of South America still looking okay, or did that deteriorate between then and now?

Yes, there are two important factors. One is the election in Argentina, where we're very hopeful that the new president, with whom we will meet soon, comes in with a much more business-oriented strategy. For farmers, that means that we lobbied many years with Kirchner on basically reducing the export duties, and I think we have chances that this will be done, which would, of course, help Argentinian farmers a lot.

Second, the rather weak real helps us to be more competitive in the surrounding South American markets. So, we have certain opportunities here.

And then there is one other bad exception, with Venezuela. I think Venezuela is close to complete bankruptcy. The political system doesn't work at all. You can't travel there without being killed.

So, that's really, really a very, very difficult market. Fortunately, not a huge market. But we generated pretty nice market shares, and we think that we also can continue to do so, because we handle the business through local importers.

Thank you very much.

Joe O'Dea, Vertical Research Partners.

On the after-market side of the Business, could you just talk about expectations for how you anticipate revenues there will trend in 2016? And how you think that ends up being, as a portion of total revenue, in the year?

Yes, I think Andy can talk about it. What I want to make is a more general statement. When -- normally what you see in our industry when new equipment sales go down for a longer period of time -- and in the past, this was mainly maximum two years. So, now we are in year three already, which also creates the hope that we might be through it soon.

You will see, normally, an increase in parts, because the age of the fleet is going up, and farmers still want to be as productive as before. So, this downwards trend in new might help parts a little bit.

That's right, Martin. And so, our projection on parts is that it's going to be relatively flat, year over year. I think some of the trends that Martin is talking about is a positive, and it's being offset a little by some dealers' desire to get their inventories down. So, it will -- management of dealer inventories is expected in 2016 as well.

Okay. And then on the North America inventory front, based on underproduction plans, where do you target those months of inventory being at the end of 2016, in the key equipment categories?

Yes, we're looking for our tractors to be hopefully about six months, or slightly below that; combines down about 3 to 4 months; and hay equipment about 6 to 7 months.

Great, thanks very much.

Your next question is from Jamie Cook, Credit Suisse.

I guess a couple quick questions: Andy, could you -- what was your price realization, I guess, for 2015 -- and any color by region? Because I am just trying to see how that ended up, relative to your expectation of 2% price in 2016, and whether or not that's realistic.

And then my second question: I think at the analyst day, you said AGCO specifically wanted to reduce inventory about $200 million. I want to know if that is still the right number, or if it's more than that?

And I also think you said you were going to build a little inventory, as you transition to Brazil tier 3 for 2017 -- so, if there's been any change in that? Thanks.

Yes, Jamie. I will take the second one first.

The inventory -- what we said was that we do expect, actually, an increase in inventory in Brazil, associated with that tier 3 implementation in 2017. And we do expect some reduction in North America to offset that. So, inventory would be relatively flat, year over year, on a constant-currency basis. So, that's our assumption going into 2016.

And then on the pricing, we talked about 1.5%, I think, to 2% in 2015, which was -- we were close to that on a gross basis. On a net basis, we were probably somewhere between 50 and 75 bps positive. Actually a little more -- probably got a little more pricing in South America, just due to the inflation down there; a little less in North America and South America. But we also benefited in North America and western Europe because of the tier 4 impacts that we had.

And then for 2016, we are targeting 2% for 2016 on a gross basis, and again, more pricing in Brazil because of the higher inflation there. We will get, in 2016, some additional tier 4 benefit in both western Europe and North America. So, do expect positive pricing in all the regions.

And then on a net basis, we are looking for about 100 bps of net benefit in 2016. So, we will see some material inflation, again, mostly in South America; but we do expect to be positive, on a net basis, in 2016.

Jamie, in those markets where we are the market leader, we feel obligated to also lead the pack when it comes to pricing. We need to be very disciplined here, because on the other hand, we also have cost increases coming from -- mainly from the tier regulations from new product.

Okay, thank you, that's very helpful. I will get back in queue.

Ann Duignan, JPMorgan.

Hi, good morning.

Good morning, Ann.

Just on South America and your outlets there for down 10% to 15%, given your mix in that market, Martin, would you expect AGCO to perform in line or underperform? You may have a little bit more skewed towards low horsepower, and maybe that's going to be down more. If you can just talk about that market, that would be great.

Yes, in general, our market shares globally look pretty well. So, in some markets we could gain, or not too many losses.

In South America, I think we will be pretty much in line with the industry, with the hope to do slightly better, and gain market share in combines, because that is an area where we somewhat underperformed in the past. And I think part of it is management, and the lack of the right distributions.

Okay, that's helpful. Thank you.

And then back to the pricing issue, could you define gross pricing versus net pricing? I am assuming your net pricing does not include things like extended warranties or low-cost financing. It's just your net of inflation. Is that correct?

So, my definition of net pricing is the pricing we pass through to our end customers, less whatever material-related cost increases that we have during the year. So, things like the cost of additional warranties or special financing programs shows up in our discounts, which in effect would reduce our gross pricing. So, yes, those kinds of things would be reflected in our pricing.

So, they are included in your net pricing or your gross pricing?

Both.

Both. Okay, that's helpful. I appreciate that. And the rest of my questions have been answered, so I'm good. Thank you.

Thank you, Ann. Have a nice day.

Yes. I won't go to Venezuela.

(laughter) Maybe we should invite some of the analysts to a trip to Venezuela. (laughter)

One-way tickets.

We stay here, Ann.

You'd save a lot of money. Well done. Take care.

Jerry Revich, Goldman Sachs.

I am wondering if you could talk about what you are seeing in Europe, by country -- any distinction between the end markets? Looks like their retail registrations in France really picked up steam over the past couple of months. Do you see that sustainable? And any differentiation versus the other countries, as you look at the overall outlook for 2016?

Yes, before Andy talks about France, I would like to make a general observation. To me, it looks like as if Europe, somewhat, is close to have bottomed out. And Europe seems to be, in general, a little bit more stable than the other markets.

Of course, this varies a lot by countries, and we have the big upside that if the EU would come to terms regarding the sanctions for Russia, which could basically generate a counter-effect that the Russians would give up their sanctions, which mainly hit our customers in major markets in Europe, that Europe has a potential to improve. So, I think the idea of sanctions, which to me is a very, very old-fashioned way of doing business in politics, needs to be reviewed. And I think the very negative side effects for the EU have not been taken into consideration by the European leaders.

So, business, so far, doesn't talk so much about it, because we don't want to run our own diplomacy here. But I think this needs to be changed, and I think discussions now are a little bit more constructive than they have been in the past, because also at the same time, some of the leaders weaken due to other reasons.

And with this, Andy can talk about France.

Hey, Jerry. The French market, as you recall, throughout 2015 was one of the worst performing markets, until we got late in the year. And in the fourth quarter, the French market was up about 20% versus a year ago.

There is a government-sponsored incentive program, an accelerated or additional depreciation measure that you can take in France, and that stimulated demand in the fourth quarter. And that made the French market be just slightly up for the full year. Some of the other markets were also modestly up in the fourth quarter, and I think that leads to some of the comments Martin made about where that market is right now.

As we look forward into 2016, we are looking for some mixed results -- down likely in Germany, but stable or up in some of the other markets. And again, our forecast is that 0% to 5% down.

The French incentive expires right now at the end of March. And we are obviously hoping that that gets continued on, but there is no certainty around that at this point.

Okay, thank you. And then in South America, can you talk about the margin bridge in the quarter, either sequentially or on a year-over-year basis? You've managed through a pretty tough environment, and it looks like we saw margins take a step lower this quarter. Maybe you could bridge that for us? And how are you thinking about the South America margins for full-year 2016, embedded in your guidance?

Sure, yes. As you point out, the fourth-quarter margins were down. In terms of the lower income levels there, we took a fairly big hit on currency, from a translation standpoint. Then we had production down very significantly as well, during the fourth quarter. And then obviously, just the sales down, because of the margin -- because of the market decline.

The one unusual item that I think also needs to be factored in is, if you recall, in fourth quarter of 2014, we had some big combine deals that we completed. And that benefited us in the fourth quarter of 2014. And obviously, we didn't get that again in 2015. Those were in markets outside of Brazil.

So, I would say that, in terms of margin, it was split between production issues, being the lower production levels, and the mix, because of that big combine deal that had pretty good margins on it. As we look forward into 2016, we are looking for the margins to be fairly similar to 2015 on a full-year basis.

Thank you.

Ross Gilardi, Bank of America Merrill Lynch.

Thanks, guys. I just wanted to follow up on the -- Andy's comments on France. So, are you assuming that these tax benefits are extended? And if they are not, would you expect to see a falloff in demand after April? Because presumably, some demand is being pulled forward right now?

Yes, we are not assuming that they are extended in our plan, and in our presentation. If they would be extended, we normally would expect some additional business.

Got it, thanks, Martin.

And then could you give us a little more color behind the western European combine market, down 10% in 2015? I was a little surprised that it was down that much. The tractor data is a little bit easier to follow.

How did that unfold, as the year progressed? Did it get steadily weaker? Or were you down at that level for most of the year? And how did [Fendt] perform, in relation to the down 10% for the market?

I think it was a steady development. And you only see, basically, most of the numbers after the harvest. You see it early in the year, because of the pre-season deals, and then you basically see it confirmed after the harvest. And so, this is -- I think the European combine, or the German combine market, in special, was pretty stable for many years. And now, automatically, this market is hit as well.

Got it. And Fendt, just in relationship to that minus 10%, do you think -- was it more or less in line?

Pretty much in line. We're working on new technologies, so that means, as soon as the market comes back, I think we will be in with better products, which is a good growth opportunity in the future. So, our new combines will be launched around 2018, and so that means we want to grow market share, also, in that market.

Got it. And then, could you guys just give a little more color on the increase in CapEx that's budgeted for 2016? You gave some detail in your formal remarks. But if you could just elaborate on that a little bit, it would be helpful.

One, I want to mention, when we talk about CapEx, this was not a coincidence. So, we planned for lower CapEx for already quite some years, and so we could execute 2015. So, the increase --?

Yes, the increase is mainly around product programs. We are getting launched -- getting ready for our tier 3 product launches in South America, and then some other new products around our global series in China, and then various products around the world.

So, our flow of new products continues. And just based on the scheduling and the timing, we think that we may need to spend a little more CapEx than we did this year.

In general, this is also a nice buffer, so I would not be surprised if [we reduce] this area to do slightly better.

Got it. Thank you.

Stephen Volkmann, Jefferies.

Actually, almost all answered; but one in the same vein as what you just talked about: I guess the Centurion program, we should view that as being pretty much executed at this point. So, I think you are moving this whole China strategy up the horsepower range, if I am not mistaken. And, Andy, in the past, you gave us some specific financial metrics you thought the Centurion program could drive. And I am wondering if there is a way to think about what you guys are doing next on your global platforms, vis-a-vis the margin opportunities and timing and that type of thing?

Yes, when it comes to the Massey Ferguson global tractor -- you called it Centurion, which was the project name -- this project is pretty much completed when it comes to engineering, and to the factory layout and so on -- purchasing, and the whole process, as such. When it comes to the execution in sales, this is, of course, an area where I see plenty of opportunity. So, that means market introduction in major markets will be in 2016, and then we want to ramp up sales.

We have a certain windfall, which we did not put into the plan, because it's a -- not very stable situation anyhow. But in our project plan, we had assumed the Chinese currency going up over time. Now we see the opposite.

And when you talk to experts, it seems to be, let's say, the case, not -- there seems to be more, for a longer period of time. So, that would create an additional sales opportunity. So, it looks like as if our product from China might be much more competitive than we thought.

Okay. And the next iteration of these global platforms -- is that another [cost save] potential?

Yes, the next generation of our -- yes, the next potential, as we talked about in our December analyst meeting, is that we're working on platforms primarily on the high horsepower tractor side, that middle range. It's somewhere between 150 and 250 horsepower. So, we are trying to get that.

We're working on that from an engineering development standpoint. Those products will be ready by probably 2018 or 2019, in accordance with the tier 5 implementation. And then, as Martin mentioned, some new combines that we are working on also have an element of product platform, as well. And so we are looking for those to be major margin improvement opportunities for the Company.

Steve, I think it would be, most probably, a good idea if we brought our expert to Wall Street in December to have a presentation on our platform projects, because I think this is very exciting for investors to know.

Sounds good, thank you.

Mike Shlisky, Seaport Global.

Good morning, guys.

Good morning, Mike.

Good morning. So, during this call, you have alluded to some share gain opportunities in South America, as well as Europe and even in Asia. I was wondering if you can maybe share with us your plans for any share gains in North America? Is there anywhere you think you can pick off some share from some of the, let's say, more over-inventory peers out there?

Yes, in terms of share gains in North America, where our focus is on some of the new products that we're introducing this year -- as Martin mentioned, we have our new global series, which is the new line of low horsepower tractors that we will be launching very soon in North America. And so, we think that will be a big opportunity for us.

Other than that, we are looking for share opportunities on the professional producer segment, which is the high horsepower segment. And that is around new products, but also the development of our distribution network, which we think is developing very well, and will give us some opportunities for growth in the future.

To be honest, I am not satisfied with the development. So, we talk about share gains in North America for many years, but I don't think that we were really very successful, and that we saw a breakthrough. And that is why I asked management to come to me with a strategy, and I want to see that being done faster. Because in these difficult times, we need to focus not only on cost control and headcount reduction; you also need to look for growth opportunities.

And I think the share situation in North America is not to my satisfaction, and it's also the lowest, when you look into our global markets. So, why do we have 40%, 50% in Brazil, and in some of the European markets, and around 10% or something in North America? I don't accept that, and I want to see that being addressed.

Okay, great. I also wanted to ask about grain storage. Can you maybe update us on how well supplied are the US markets for grain storage? If we see another large crop next year, is there any chance of the overall bin capacity being challenged at any point? Or are we pretty well supplied here right now?

No, the grain capacity -- as I said, there's a lot of old grain elevators around the country, so we have plenty of opportunities. I think it is more the lack of liquidity, or the fact that farmers handle their business a little bit more careful right now.

The other opportunity, Mike, that we have is around the commercial grain storage, and handling especially. We made an acquisition a couple years ago that improved our capabilities with the high speed conveyance. And that piece of it should help us, as we now are competing for more of the commercial part of that business. So, that's another opportunity, especially as you look at export volumes of grain around the world increasing, that should help us.

And GSI grain drying technology is by far advanced, compared to any competitor globally.

Got it; thanks so much, guys.

Tim Thein, Citigroup.

Great, thanks. Andy, just on the outlook for North America in 2016, just based on your comments earlier, with respect to the underproduction that you expect. Just if you peel out the profits from GSI, would you expect the equipment -- (technical difficulty).

Tim, are you still there?

No, I think the question is whether there is a difference between -- or let's say what the farm equipment growth only is, without GSI. But that's a guess.

The outlook that we give on the sales being down 10% to 15% is on that market. And overall, we are expecting our revenues to be down about 10% on [North America results] (multiple speakers).

And one could say it's somewhat equally spread between GSI and farm equipment, or is GSI doing slightly better?

GSI is flatter than the protein production.

Yes, I think that's what we said, also, at the beginning of the call.

Tim, hopefully that answered your question.

And with that, we would like to thank everyone for their interest in AGCO this morning. And for those of you that have follow-up questions, I will be available for the balance of the day to handle those for you. Thank you, and have a great day.

This concludes today's conference call. You may now disconnect.