AGCO Corp (AGCO) 2011 Q2 法說會逐字稿

Good morning. My name is Tamika and I will be your conference operator. At this time I would like to welcome everyone to AGCO Corporation 2011 second quarter earnings release conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. (Operator Instructions). As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, July 28, 2011. Thank you. I would like to introduce Greg Peterson. Please go ahead, sir.

Thanks, Tamika and good morning. Welcome, to those of you joining us on the call and over the Internet for AGCO's second quarter 2011 earnings conference call . We will refer to a slide presentation this morning, which is on our website.

The non-GAAP measures used in the slide presentation are reconciled to the GAAP measures in the last section of the presentation. We will make forward-looking statements this morning, including those related to projections of earnings per share, sales, market conditions, margin improvements, commodity prices, the impacts of currency translation and acquisitions, new product development and market expansion, factory productivity, plant investments, production volumes, free cash-flow, depreciation, emission requirements, product-line expansion, general economic conditions, pricing benefits, engineering expenses, and capital expenditures. .

We wish to caution you that these are statements are prediction, and the actual events or results may differ materially. We refer to the periodic reports that we file from time to time with the Securities Exchange Commission, including the Company's Form 10-K for year ended December 31, 2010. These documents discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking statements.

We would also like to remind you the replay of this call will be available on our corporate website. So, this morning I have on the call with us Martin Richenhagen, our Chairman, President and Chief Executive Officer, and Andy Beck, our Senior Vice President and Chief Financial Officer. With that, Martin, please

Thank you, Greg, and good morning, everybody. AGCO delivered another record performance in the second quarter. Farm economics remained strong and we took advantage of robust market conditions in Europe and North America, and posted second-quarter [sales growth] of over 20% on a constant currency basis compared to the second quarter of 2010.

Our focus on margin improvement this year has been quite clear. AGCO's operating margin reached 8.5% during the seasonally strong second quarter. Our Europe/Africa/Middle East region delivered second quarter operating margins of 12.5%.

In North America we capitalized on healthy industry conditions, [good] sales, and expanded North American operating margins by over 200 basis points, compared to the second quarter of 2010. As we look to the end of 2011, commodity prices remain at very high levels,a positive sign for farm income and farmer sentiment this year.

Slide three summarizes our results for the second quarter and first six months of 2011. AGCO reported adjusted earnings per share of the second quarter of $1.35, nearly twice what we reported a year ago. In addition, our strong operating performance translated into nearly $200 million of free cash flow for the second quarter of 2011.

AGCO's tractor and combine production volumes for 2010 and 2011 are illustrated on slide four. AGCO's second quarter and first half 2011 tractor and combine production was up 8% and 14% compared to the same period in 2010. Increased production levels in our European and North American factories were partially offset by lower production volumes in South America.

AGCO's [order boards] for the EAME markets doubled at the end of June 2011 compared to the end of June 2010. Equipment [order boards] in North America were also up significantly from June 2010 levels. South American [order boards] remain strong, but were down from very high levels at the end of second quarter of 2010. We expect production volumes to be up modestly in the second half 2011 versus the comparable period in 2010. For the full year of 2011 we expect production to be up approximately 9% from 2010 levels.

Slide five, details industry unit volumes by region for the first half of 2011. Industry tractor sales in North America were up modestly compared to 2010 levels. In North America, industry sales of compact and utility tractors both increased due to improvement in the general economy. Sales of high horsepower tractors remained at an elevated level, but declined about 3% compared to the strong levels in the first half of 2010.

The combined market benefited from favorable [low carb] economics and presale programs to increase about 8% during the first half of 2011 compared to the same period last year. Industry tractor unit retail sales in Western Europe were up approximately 14% in the first six months of 2011 compared to the weak level experienced in the same period last year.

Higher commodity prices and improvement in the dairy and large [stock] sectors contributed to the growth. Industry growth was strongest in Germany, Scandinavia, France and Finland.

South American industry retail tractor volumes decreased modestly during the first six months of 2011 compared to strong levels in the first six months of 2010. Despite healthy farm economics, declines in Argentina and Brazil were mostly offset by growth in smaller South American markets. I will now turn the call over to Andy Beck who will provide you more information on our second quarter results.

Thank you, Martin, and good morning, everyone. AGCO's regional net sales performance for the second quarter and first half of 2011 is outlined on slide six. Currency translation had a positive impact of nearly 13% on AGCO's consolidated net sales in the second quarter 2011. Acquisitions added approximately 5% to sales in the second quarter 2011 compared to the second quarter of 2010.

Europe, Africa and Middle East segment reported a net sales increase of approximately 40%, excluding the impact of currency translation during the second quarter of 2011 compared to the second quarter of 2010. Sales increased in nearly every major market across Europe in the second quarter compared to the second quarter of 2010. The most significant improvements occurred in Germany, France, and Central Europe.

Recall that in the first half of 2010, we managed through weaker market conditions in the US and western Europe and were focused on inventory reduction. This year we operated our factories at normal seasonal levels during both the first and second quarters. Last year market demand recovered in the back half of the year, so we will face tougher comparables as we move forward into the final two quarters of 2011.

North American net sales increased approximately 5%, excluding currency translation impacts during the second quarter 2011 compared to the same period of 2010. With our dealer inventory destocking efforts complete, sales of sprayers, high horsepower tractors, and combines all showed improvement in the second quarter of 2011 compared to the second quarter of 2010.

AGCO's second quarter 2011 net sales in South America were flat from comparable 2010 levels, excluding currency translation. Trade disruptions in Argentina and lighter demand in Brazil for small tractors resulted in sales declines in those markets for AGCO during the second quarter of 2011 compared to the same period in 2010. Strong growth in the smaller South American markets offset the decline in Brazil and Argentina.

Net sales in our rest of the world segment increased approximately 52% in the second quarter compared to 2010,excluding the impact of currency. Sales growth in Australia, New Zealand, Eastern Europe and Russia produced the increase.

Parts sales were $363 million and $635 million for the second quarter and first half of 2011,an increase of approximately 23% for the quarter and 26% for the first half, compared to the same period in 2010, excluding currency.

Slide 70 (sic) tells AGCO's sales and margin performance. Adjusted operating margins were up nearly 300 basis points in the second quarter of 2011 compared to the second quarter of 2010. The benefit of increased production volumes, material of cost control, pricing, and leverage over operating expenses resulted in the improvement.

As Martin mentioned earlier, second quarter 2011 operating margins in AGCO's Europe, Africa, and Middle East region were 12.5%, up significantly on a year-over-year basis. Margins were improved in the second quarter 2011 compared to the same period in 2010, due to higher sales and production volumes, better pricing, and a richer mix of products.

In South America region, operating margins declined in the second quarter of 2011 compared to 2010. A weaker geographic mix, lower levels of production, increased material costs, and higher operating expenses contributed to the decline.

In the second quarter 2011, operating margins improved significantly in North America due to higher sales in production, along with cost controls initiatives, as you can see on the next slide. Slide eight looks at North America profitability in more detail.

Margins in this region have been one of our main focus areas for the last few years. You can see from the graph on this slide that we have made significant progress. In the second quarter of 2011, our margins improved over 500 basis points compared to the second quarter of 2008 on lower sales. We introduced profitable new products, reorganized our sales organization, lowered our logistics cost, and improved the efficiency of our factories.

Second quarter 2011 operating margins also benefited from higher levels of production, pricing, and improved leverage over operating costs compared to the second quarter of 2010.

Slide nine addresses AGCO's free cash flow which represents cash provided by operating activities, less capital expenditures. Our balance sheet and liquidity position at the end of the second quarter remains very strong. AGCO's second quarter cash flow was $193 million, which generated from elevated sales levels and improved margins, and covered a $76 million increase in capital expenditures.

We plan to continue investing for future growth in the form of engineering expense, and additional investments in our plants and new products. Even after covering the increased spending on these strategic investments, we are targeting positive cash flow for 2011.

At the end of June 2011, our North America dealer month-supply on a trailing 12-month basis was as follows; tractors were at 4.9 months,four months for combine, and eight months for hay equipment.

Other working capital details are as follow; losses on sales receivables, which included in both interest expense net and other expensenet, were approximately $5.2 million and $8.8 million for the second quarter in the first six months of 2011, compared to $4.3 million and $7.5 million for the same periods of 2010.

During the second quarter, we redeemed our EUR200 million , 6.875% notes due April 15th, 2004. This early redemption was funded with a new EUR200 million senior unsecured term loan. The new term loan is due May 2, 2016, and bears interest at a fixed rate of 4.5%.

We recorded expenses of approximately $4.3 million with an interest expense in the second quarter and connection with the redemption. Interest savings from the lower rate on the new loan is expected to completely offset this loss by the end of 2011.

Slide ten looks at our depreciation and capital expenditure trends. In 2011, we expect to increase our capital expenditures, as we were to meet Tier 4 emissions requirements, refresh and expand our product line, improve our factory productivity in Germany, and make investments in China and Russia.

Through the first six months of 2011, our capital investments totaled $112 million, and will accelerate through the rest of the year.

Our outlook for 2011 for our regional markets is captured on slide 11. We anticipate modest growth in North America, as the strong financial position of row crop farmers and the projection of farm income above historical averages is expected to support strong demand. We expect the South American market to remain strong, but be down 5% to 10%. Higher prices for grain and dairy farmers in Western Europe, and improved farmer sentiment, are expected to generate market growth of about 15% compared to weak levels in 2010.

Slide 12 lists our view of selected 2011 financial goals. We are projecting 2011 sales to range from $8.5 billion to $8.7 billion. Forecasted pricing benefits, market share improvements, the positive impact of currency, and acquisition impacts are all expected to contribute to the growth, including significant investments in product development and market development, we expect 2011 earnings to be improved from 2010 levels.

We are raising our target for 2011 earnings per share to $4 per share. We expect increased capital expenditures to be in the $250 million to $300 million range, and our free cash flow to remain positive, and exceed $150 million after funding the expected increase in capital expenditures.

In the third quarter of 2011, earnings per share are expected to be flat, with the $0.66 reported in the third quarter of 2010. Compared to the third quarter of last year, we expect higher sales and gross margin improvement to be offset by increases in engineering and market development expenses, as well as a more normal tax rate. In the fourth quarter 2011, we expect strong sales and earnings growth compared to the fourth quarter of 2010.

Operator, that concludes our prepared remarks. We are now ready to open up the conference for

(Operator Instructions). And your first question is from the line of Ann Duignan of JP Morgan.

Hi, good morning, guys, it's Ann Duignan.

Good morning.

I really think I need to change my last name. Can you, first of all, walk us through the impact of currency on profits by region, please.

Ann, for -- we gave you the sales impacts on each region,and you can use the margins by each region to get those profit impacts. Overall , currency had an impact for the first half of the year of about -- positive about $0.08 to $0.10 a

And can you remind me what it was in Q1?

Q1 was probably was about $0.02 or $0.03. So it was more in the second quarter.

Okay. And my second question is -- I appreciate that when you add up [Fendt], [Massey Ferguson] and [Valtra] in Germanyyou still are number one. However, if I compare the Fendt brand, which is really the classic German brand, with [Deere], it does look like Deere is making some inroads in the German market versus the Fendt brand. Can you can talk a little bit about that, Martin? Is it supply constraints or capacity constraints up from Fendt? Is it really something that you're watching carefully? Or is it just explainable as something that's temporary in nature?

Well, one is that Fendt is the clear market leader in the higher horsepower segment. No change, even slight gains, we are up this year, again. So that means we do not see any other brand improving a lot. So we are in a very strong position in Germany and we will stay in a very strong position in Germany.

The reason is advanced technology, higher profitability, lower cost -- lifetime cost of our product, and much lower cost, but much lower fuel consumption, so I'm not worried at all about Fendt's position in Germany. Second, Fendt's capacity this year -- we will produce around 15,000 Fendt tractors. We have --or we are in the middle of a major investment in that factory, and the capacity will be up to about 25,000 tractors, maybe even more towards 30,000 tractors, from the end of 2012. And therefore I don't think that we will face major capacity restrictions.

Okay, butyou did say by the end of 2012, not the end of 2011?

Sorry, the --no, the end of 2012. So that means the big -- we have already the capacity increase in part of the factories, so the transmission plant is already finished and working. The assembly factory transition -- or I say the new factory will start to work after the summer shutdown 2012.

Okay, thank you for the clarification, and hopefully see you at AGRITECHNICA. I'll get back in line. Thanks.

Thank you, Ann.

Your next question is from the line of Henry Kern with UBS.

Hi, good morning, guys.

Good morning, Henry.

I wonder if you can chat on the new investment level and thoughts on the investment necessary for 2012, and may how that impacts the incremental margin potential over the next couple of years beyond just the back half of the year.

Well, we are certainly, as you can tell in our notes, that we are increasing the level of investment in a number of areas of our business. Martin just discussed a significant investment in our German plant, and we're also making investments in some of the emerging market areas.

We are looking at putting in an assembly operation in Russia and also have plans for investments in China as well. And across our factories we are making significant upgrades to the quality and the other machinery that we have in the plants.

When we look at 2012, we are still in the planning stage but certainly have a lot of plans to continue to make significant investments. So, I would say that it is very safe to say that our development levels in 2012 will be at least what we are spending this year, and likely could be higher.

And as we look at Europe going forward, where do you think Europe is today versus a normalized demand? And --

Europe has a pretty good year, but not yet on the level we saw in 2008, so there's some growth potential in Europe. Plus, I think the biggest future growth might come from Eastern Europe and Russia, where we see thing slowly improving, but not yet where they can be.

And dovetailing with that, did you see any impact as we went through July from the draught in Europe? And I'll hope back in the queue.

We don't see draught issues because let's say we have --farming is something that is done outside. So we always have weather conditions and they may be good or bad. So what is bad for some of the weed farmers is very good for the corn farmers in Europe, so therefore, we don't see a major impact.

Thank you very much.

Our next question comes from the line of Steve Volkmann with Jefferies.

Good morning. If we could switch to North America for a second. You've made good progress on your margins there, but still a ways to go versus some of your peers. Where do you think that goes, medium-term, based on the various programs that you have in place?

Well, Steve, as you can tell we have made progress, and actually we talked about trying to get to mid single-digits in a couple of years and it looks like we will be there this year. So we are ahead of schedule. As we go through our plans for the next few years, we still have -- we see opportunity to improve in margins through a lot of work in our factories in terms of how -- in terms of material cost savings, and also new products.

So we think there's opportunity beyond this -- you know the well-hanging fruits have probably been cleared out, but with some growth in the business, and we are starting to see some improvements in our results in higher horsepower segment of the market, that will also help us from a mixed stand point. So we are still very positive about our progress in North America and believe we can continue to improve from where we are today.

Great, thanksAnd then in just the end market commentary, you can tell us anything about what you are seeing in the used equipment part of the market in North America?

From our used equipment, and our dealers, the levels are at normal levels, as a percentage of new equipment. So all of that looks okay. And from what I understand, the pricing is holding up and staying fairly steady. So no issues from our end.

Great. Martin, do you have any longer-term comments about North America? There's a bit of a debate about out here about whether things are peaky here in North America, or whether we are in a long-term uptrend. What do you think over the next few years?

Well you know that I'm pretty bullish, and I've been bullish already early, so I was one of the first guys --the first guy talking about a paradigm shift in our industry in 2004, already. So I think the logics didn't change. The world population is growing. We face serious problems in some parts of the world. That happens in the meantime, war, as we know, from Africa. We see changing diets going on. We see renewable fuels, we also see renewables from farmed produce used in other industries.

So overall I think the demand for farm product, for commodities, will be higher than supply for many, many years to come. My [guidance] is for the next 100 years. And let's say, when we were hit, 2009 or in the middle of 2009, first we were hit late. And then second, this had nothing to do with our industry.

And our industry suffered much less than other industries, which is also a sign that seemed to be strong fundamentals when you compare farm commodities in 2009 and 2010. They did better than most of the other commodities and our industry wasn't hit as much. So I like to be in that business, and I think we will see some very good years.

Thanks. I will pass it off.

Your next question comes from the line of Seth Weber with RBC Capital Markets.

Thanks. Good morning,everybody. Maybe on pricing, can you give what your assumption is for the year, and any color by region in the first half or the second quarter?Thanks.

Seth, as you know, we have benefited so far this year from a number of items on the pricing front. As we talked about last time, we are getting benefit of some Tier 4 pricing that we put in both at the end last year and early this year. We did our normal [motto-year] pricing on top of that, and as we talked about earlier, we added some pricing in the second quarter to help us catch up with the material cost increases that we are seeing.

And then the last piece of the puzzle has been our discount programs. They've actually impacted us somewhat favorably this year. So we were looking -- as we talked about last quarter, looking for about 3% of pricing this year. Now with some of the maybe slightly positive tailwinds we are getting on the discounting, maybe a little bit north of 3%. But still right around that 3% range.

And then, as you talk about how that is covering our material, for the first half of the year we have done a very good job in terms of how those price increases are keeping us whole. We are actually favorable, probably in terms of a margin impact, probably 1.5% to 2% on our price increases versus material inflation.

But as we move into the back half of the year we're going to see our material prices increase. Especially in the third quarter, we talked about how we're going to see material inflation maybe actually catch up with some of pricing we've already done. So we expect, maybe to be more break even-ish in terms of our pricing, versus material inflation in the third quarter. And then as we get the benefit in the fourth quarter of the pricing we put in, as we work through our order boards, we will get back on the right side it in the fourth quarter. So for the full year we are still looking probably to have a net benefit of probably 1.5% to 2%, in our own pricing at or slightly above that 3%.

Okay. That's helpful. Thanks, Greg. As a follow-up, maybe I'm just wrestling with the second half profit guidance here. You're coming off what looks like a record margin in Europe and North America, with your previous comment, it sounds like it still has some room to go. What do you think comes down here hard in the second half relative to these second quarter margin numbers?

There's a few factors here -- one is the factor Greg just talked about where we are looking at a little higher material cost inflation that's -- we did a great job here in the second quarter, somewhat holding off, though we still see that coming. We also see a little lower production in the second half, if you compare that to where we were in the second quarter in the first half, and also the mix is a little worse in terms of bringing [end-to-end] and horsepower ranges than what we had in the first half.

So there's a few element there is in terms of margins. The other element that we want everyone to understand is that we are ramping up engineering expense as well as some of this some of this, what we're calling, market expansion and additional marketing expenses in the second half, and that should be about $25 million. If you look first half versus second half of engineering increases, as well as probably about $10 million to $15 million in terms of these additional costs for market work that we are doing, that is in Russia, China, also some additional marketing activities in North and South America as well.

And those are second half of the year loaded and will impact us a little bit. They are very important for us to do, particularly on the engineering side, to meet the Tier 4 requirements, and to keep our product development plan going. And also on the market development side, we've got a lot of new products coming out. And also we're very --as Martin said, we're very optimistic about these markets in China and Russian, and we want to do what we need to do, and get started with continuing to market our products there.

Ok, Andy, thanks that's helpful. So this $25 million headwind, is that predominantly going to show up in the Europe region, then?

It's everywhere, but I would say mainly Europe, yes.

Okay, thank you very much, guys.

Sure.

Your next question is from the line of Jerry Revich with Goldman Sachs.

Good morning.

Hi, Jerry.

Andy, you had a strong rollout of interim to your [four-high] horsepower tractors, can you talk about the extent of cost increase you expect on under 175-horsepower tractors that you'll be transitioning next year, and talk about whether you expect pricing to more than offset the cost, like you delivered on the larger products this year?

The price increases are probably a little -- as a percentage, probably -- usually on the high horsepower is 5% to 10%. Would I say that's probably still the right range, but probably on the higher end of that. Just because the -- you're talking about smaller dollar sales products, so the percentages look a little higher. And of course, the plan is that we will price and cover those costs accordingly.

So, so far so good this year in terms of the market, and in terms of our market and demand being able to accept those price increases and, we don't expect any changes as we continue to rollout Tier 4 on the lower horsepower item.

Andy, you mentioned the Russia production facility. I guess previous calls Martin had spoke some potential opportunity to buy some existing capacity out there. You can give us an update on how are you're thinking about Greenfield versus acquisition, and over what time period can we expect capacity to come online?

We will actually inform about our strategy in Russia in the fourth quarter of this year. So we are working intensively in this area. I would rather expect a Greenfield growth maybe with some Russian participation to be on the safe side, or a small Russian partner, and it's a a big acquisition. But it's too premature to talk about it. We are negotiating right now and we will launch our strategy somewhere in the fourth quarter of this year.

And Martin, same question on China. Can give us an update as to timing of the facility ramp-up there?

Yeah, we are not working on getting everything together for the October board meeting for approval. As you know, we are in the middle -- we want to acquire a combine manufacturer with quite a nice volume which will help us to be in the market a little earlier. So they produce something like 8,000 to 8,500 combines in a year, and the rest of the investment is probably -- most of it is Greenfield.

Thank you.

Your next question is from the line of Andrew Obin with BofA Merrill Lynch.

Good morning. Could you just give more color on your ongoing combine strategy, particularly given revitalized efforts by two of your other global competitors in the combine sector?

Well, actually I'm not aware of any special activities of competitors.

Well, (inaudible) hosted a huge event for analysts in Europe highlighting a significant push in Europe. CNH hosted a big analyst day in Europe, in their Belgian facility, highlighting the increased focus on combines. And I know you guys, with [Lavert] acquisitions, are trying to grow your market shares. So could you please talk a little bit about that?

I'm not talking about investor meetings, I'm talking about products we have in the market. A major product launches so far this year. Maybe something might come up at the end of the year like [Technica].

What we are doing first of all here in the U.S., we are basically renovating, so to say, or getting into a facelift for all of our products, conventional combines and also the rotary combines. We do the same in Brazil. We have addressed a new hybrid combine in Europe. We basically need to think about the next bigger models, which is something we work on overall in Europe. The focus is on distribution, on our internal organization. We are in a position to hire some very good guys from one -- from some of the other players in the industry. So overall I think we have the right strategy, and you will see growth in the harvesting area over the next years.

I apologize. I was late dialing in on the call. Could you give us some more color on how the South American fall -- their spring selling season is shaping up? And I apologize I said I missed the beginning of the call.

Everything is pretty much like scheduled. So no surprises.

Thank you very much.

Your next question is from the line of Joel Tiss with Buckingham Research.

Hey, guys, how are you doing?

Hey, Joe.

We've been hearing a little about the move of Brazilian farmers to larger farms. And I just wondered if you can give us a sense of what is happening in the marketplace there. You have your new products, how they're going to stack up against some of the other guys who have been pretty aggressively rolling out larger, higher horsepower product.

Actually, that's nothing new. In Brazil, the farms are already pretty big. So we don't see a major move in one or the other direction, and Valtra is the market leader for those big professional farms in sugar canes and produce in other areas. So we are very well off.

We showed some of the bigger tractors at farm shows in order to find out what other markets had, too. The size of the tractor is not only driven by the size of the farm, but also by cost of labor. So that means even on a big farm, traditionally in Brazil, we will still use a smaller tractor compared to the U.S,because labor is cheap and you put two or three drivers on three tractors instead of using one very big one.

We have all product which is needed, and we are in very good connection with our dealers and farmers. So there will be -- for us, it will be good if it would go into a higher horsepower in the future.

Okay. And just -- thank you. And just clarifications. Did I hear you right, saying the third quarter of' 2011 is going to be flat with the third quarter -- with the $0.66 from a year ago? And also the tax rate for the year, could you clarify?

We said that the third quarter would be flat. Tax rate of the year is around 34%.

Joel, the tax rate in the third quarter of 2010 was artificially low because we had an adjustment in Brazil, and I think that was about $6 million, so that impacted taxes by about 10% to 12%. This year will it will be more normal. Last year it was artificially low.

Ok, thank you very much.

Your next question comes from the line of Lawrence De Maria with William Blair.

Hi, good morning. Quick question. Obviously South American market share in tractors has been declining a little bit, although, obviously, it's picked up share in combines. Is that a result of mix, with the low end tailing off, or is there any changes to Valtra, for example, in the sugar cane factory, now that your competitors are being more aggressive.

Well, I think -- our strategy is to defend our market share position in South America, and seasonally, numbers go up and down. Some of the numbers are not reported. For example we gained substantial market share in the planter business because we were not in that business two years ago. Now we have a very strong position there.

So overall, the AGCO strategy is to be strong in South America,to be strong in Brazil. We had some negative impact from strange political situations in Argentina, where they capped, or they want to cap, your imports to Argentina to the level of last year. And another cap would be that you only can import as much as you export. So this is what we discussed and everybody now does their homework, and I think you will see that basically, our players will find a solution.

You'll probably have to open a factory in Argentina? Is that the idea?

We have a factory in Argentina we don't own, so maybe the idea is to own it.

And then finally, you have talked about the sugar cane harvester, which is probably a pretty critical product for down there, especially with new competition coming on. Is there any timeline of when that's going to be out the door? It seems like it's been delayed.

Yes, it's next year.

Next year. Okay. Thanks.

Your next question comes from the line of Mark Koznarek with Cleveland Research

Hi, good morning.

Hi, Mark.

Question on the revenue outlook. I'm sorry if I missed this earlier, but is that simply currency adjustment, or are you expecting that your organic revenues will be higher?

It's a little organic, but currency is probably the bigger piece of the change.

So two-thirds, one-third, or something like that?

Something like that would be right.

Then, given that there is some improvement in your organic growth outlook, you didn't increase your estimates of the markets of the the three key geographies. So where do you expect to gain the extra core revenues? Is it across the board or centered more in a certain region?

It's more or less across the board, I would say.

Okay. And then, final one, just to ask a question about capacity. Martin you made a comment a little earlier about Fendt capacity going up to 25,000 tractors or 30,000 tractors. I guess I'm a little puzzled because as recently as last month, some of the Fendt press releases were still saying 20,000 tractors, but 28,000 transmission units.

So are we talking apples to apples, you've actually increasedthe tractor capacity outlook? Or is it really that difference between the tractors and the transmissions?

The tractor capacity will be 25,000, that's the number. And I think it could be more. It depends on how you look at it. So if you would go into a two-fifth operation, then you can increase it there. Number might be based on one-fifth conservative approach. But we have plenty of capacity at Fendt if needed.

How much is overall capacity is going into place just across all of your facilities for 2012 versus 2011?

Actually in our quarters we do a sales plan, more or less in Fall, so in a couple of months. And then as soon as we know the demand, we then plan capacities. I don't see any restrictions.

Okay. Thank you.

(Operator Instructions). Your next question does come from the line of Jamie Cook with Credit Suisse.

Hi. Good morning. Two quick questions. One, I get we like to put out estimates and beat the street. That's what we all like to do. But I'm trying to get a sense -- we started off the year with guiding the [$2.50 to $2.75] versus $4.

So Martin, you can give a sense of what is driving this? Is there some structural cost that the street is missing that you guys have done a better job on? And then just, my other question, Andy, I just think longer-term. It sound to me you guys seem pretty positive on 2012 in terms of an outlook with North America, EAME, and I'm assuming Brazil too. But how we should think about incremental margins. I'm assuming, given the comps that we have, they've probably peaked, and with the level of R&D investment you've been talking about making. If you can comment on that longer term.

Let me answer the first question. I think there are two drivers. One is Europe, Western Europe, we covered much more than our assumption has been, so they came back much faster and bigger than we thought, and at that time were pretty much in line with everybody else, so that means maybe we were a little bit conservative, but the reason is demand in investor Europe. And the second reason why we improved our margin improvement project, where we showed quite substantial improvements, and this, altogether helped us to perform better than expected.

And, Jamie, your question about long-term and next year, we are not in a position to start talking about that yet. But in general, our incremental margins should continue to be steady or improve as we work through our cost reduction activities and projects that we have in place. The factor of what our engineering investments are, investments in new markets, and things like that, are the variables that we will need to work through on our planning process for next year and the years to come.

All right. Thanks. I will get back in queue.

At this time there are no further questions in queue. I will now hand the call back to presenters for any remarks.

Thanks, Tamika and thanks to all who have participated today. We welcome and appreciate your interest and please follow up with me later today if you have additional questions.

And buy AGCO shares.

Thank you.

Thank you for joining us for today's conference call. This concludes today's call. You may now disconnect.