AGCO Corp (AGCO) 2011 Q4 法說會逐字稿

Good morning. My name is Adrienne and I will be your conference operator today. At this time, I would like to welcome everyone to the AGCO Corporation 2011 fourth quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions) Thank you. I would now like to turn the call over to Greg Peterson. Sir, please go ahead.

Thanks, Adrienne, and good morning. Welcome to those of you joining us on the call and also to those of you joining us over the Internet for AGCO's fourth quarter 2011 earnings conference call. We will refer to a slide presentation this morning which we've posted on our website at www.agcocorp.com. Included in this slide presentation are non-GAAP measures which are reconciled to 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 and productivity improvements, commodity prices, farmer income, harvest, weather, market share, industry demands, the impact of currency translation, new product development and improvements, planned expansion investments, production volumes and localization, free cash flow, depreciation and amortization, and emission requirements, and the impact of the GSI acquisition. We wish to caution you that these statements are predictions and that actual events or results may differ materially. We refer you to the periodic reports that we file from time to time with the Securities and Exchange Commission including the company's Form 10-K for the 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.

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, Greg, and good morning to everyone. 2011 was a very good year for the global farm industry. Farmers made record levels of income and commodity prices reached and remained at attractive levels. AGCO took advantage of these positive conditions and delivered a year of strong sales growth and margin expansion in 2011 compared to 2010. AGCO's adjusted operating margins improved 225 basis points in the full year of 2011 compared to 2010. Gary Collar's Europe, Africa, Middle East business delivered exceptional performance. With industry demand below peak levels in Western Europe, our EAME Region produced record sales on a constant currency basis and improved operating margins by over 400 basis points compared to 2010. In North America, we capitalized on healthy industry conditions, grew sales, and improved margins. Bob Crain's North American business posted operating margins in excess of 5% for the full year of 2011. The best in over 10 years.

Slide 3 summarizes our results for the fourth quarter and full year of 2011. In the fourth quarter, we reported sales growth across all of our regions compared to the fourth quarter of 2010. Adjusted earnings per share reached $1.44 for the fourth quarter, up 64% compared to year-ago. In addition, our strong operating performance translated into improved cash flow. AGCO's tractor and combine production volumes for 2010 and 2011 are illustrated on slide 4. AGCO's fourth quarter 2011 tractor and combine production grew 8%, compared to the same period in 2010. Higher volumes in our North American and European factories were partially offset by lower production levels in our South American region. AGCO's year end order board remained well ahead of last year's levels in our EAME and North American markets. South American order boards remained strong and are about even with 2010 year-end levels. We expect production volumes for the full year of 2012 to be approximately 5% up versus 2011.

Slide 5 details industry unit volumes by region for the full year of 2011. Industry tractor sales in North America were up modestly compared to 2010 levels. In North America, industry sales of utility tractors increased due to improvement in the dairy and live stock sectors. Sales of high horsepower tractors remained elevated and were up slightly from the strong levels in the full year of 2010. As expected, combine industry retail sales were lower in the fourth quarter and were down 4% for the full year of 2011 from the high levels experienced in 2010. Industry tractor unit retail sales in Wester Europe were up approximately 12% in the full year of 2011, compared to the weak levels experienced in 2010.

Higher commodity prices and improvement in the dairy and live stock sectors contributed to this increase. Industry growth was strongest in Germany, France, Scandinavia, and Finland. South American industry retail tractor volumes decreased modestly during the full year of 2011 compared to strong levels in the full year of 2010. Declines in Argentina and Brazil were mostly offset by strong growth in smaller South American markets. Despite the slight downturn in 2011, industry retail sales in Brazil were still the second highest in their history.

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. Before I cover the sales results, I will start with a quick overview of the GSI impacts on our fourth quarter. AGCO completed the acquisition of GSI on November 30, 2011 for a purchase price of $932 million. The transaction was financed through $300 million of senior notes, and the remainder through our new credit facility. AGCO's fourth quarter reported results included a tax gain for a reversal of a valuation allowance against AGCO's net deferred tax assets which was associated with the acquisition accounting for GSI of approximately $149.3 million, as well as some one-time acquisition expenses. The tax gain and acquisition expenses, a net impact of $1.46 to EPS, were excluded from the company's adjusted results.

AGCO's regional net sales performance for the fourth quarter and full year of 2011 is outlined on slide 6. Currency translation had a negative impact of about 2% on AGCO's consolidated net sales in the fourth quarter of 2011. Acquisitions added approximately 5% to sales in the fourth quarter of 2011, compared to the fourth quarter of 2010. The Europe, Africa, Middle East segment reported a net sales increase of approximately 15%, excluding the impact of currency during the fourth quarter of 2011, compared to the fourth quarter of 2010. AGCO's sales increased in every major market across Western Europe in the fourth quarter of 2011. The most significant improvements occurred in the United Kingdom, France, and Austria.

North American net sales increased approximately 30%, excluding currency, during the fourth quarter of 2011 compared to the same period in 2010. Sales improved significantly across all major product categories in the fourth quarter, compared to the fourth quarter of 2010. AGCO's fourth quarter net sales in South America grew 8% from comparable 2010 levels, excluding currency impacts. From a product perspective, sprayers, high horsepower tractors, and combines generated the growth. Higher sales in Brazil and some smaller South American markets were offset by declines in Argentina. Net sales in our rest of the world segment increased approximately 54% in the fourth quarter of 2011 compared to 2010. Excluding the impact of currency. Sales growth in Russia, Eastern Europe, and Australia produced most of the increase.

Part sales were $293 million, and $1.3 billion, for the fourth quarter and full year of 2011, an increase of approximately 15% for the fourth quarter and 22% for the full year of 2011 compared to the same period in 2010, excluding currency translation. Slide 7 details AGCO's sales and margin performance. Adjusted operating margins were up about 100 basis points in the fourth quarter of 2011 compared to the fourth quarter of 2010. The benefit of increased production volumes, pricing, and leverage over operating expenses was partially offset by increased material cost and higher engineering and marketing expenses. Operating margins were highest in AGCO's Europe, Africa, Middle East region where they surpassed 10% for both the quarter and the year. Margins improved nearly 100 basis points in the fourth quarter of 2011 compared to the same period in 2010, due to higher sales and production volumes and cost controls.

In the South America region our operating margins expanded nearly 300 basis points in the fourth quarter of 2011, compared to 2010. Improved sales volumes and a richer mix of products and geographic mix contributed to improved profitability. In the fourth quarter of 2011, operating margins in North America exceeded 7%, due to higher sales and production, accelerated new product introductions, along with cost control initiatives.

Slide 8 shows the improvement in North America's profitability in more detail. Margins in this region have been one of our main focus over the last few years. You can see from the graph on this slide that we have made significant progress. For the full year of 2011, margins improved nearly 500 basis points on flat sales compared to the same period in 2008. We introduced new profitable new products, reorganized our sales organization, lowered our logistics cost, and improved efficiency of our factories. We expect more North American margin improvement by growing our top line through additional new product introductions, improving our existing products, and strengthening our distribution. We also expect to take more cost out of the business by improving our production and purchasing efficiency and by localizing more of our production. In January, we began assembling high horsepower tractors in Jackson, Minnesota, for the North American market. This should eliminate some currency exposure and allow us to add the Made in America label.

Slide 9 looks at our depreciation and capital expenditure trends. We increased the investment in some of our plant productivity projects and new products during the year to support our growth and margin ambitions. In 2012, we expect to further increase our capital expenditures as we continue to work to meet tier 4 emissions requirements, refresh and expand our product line, upgrade our system capabilities, improve our factory productivity, complete the expansion at Fendt, and establish assembly capabilities in China and in Russia. Slide 10 addresses AGCO's free cash flow which represents cash provided by operating activities less capital expenditures. AGCO's free cash flow for 2011 of $426 million included a $127 million benefit associated with transferring our European wholesale receivables from a higher cost on-balance sheet securitization facility to our AGCO financed joint venture. As a result of the strong free cash flow, AGCO has generated over the past few years, our balance sheet and liquidity position at the end of 2011 remains strong. In 2012, we plan to continue investing for growth and profitability improvement in the form of engineering expenses and additional investments in our plants and new products. Even after covering increased spending on these strategic investments, we are targeting another solid year of free cash flow for 2012.

At the end of 2011, our North America dealer month supply on a trailing 12 month basis was as follows. Tractors were 5.5 months, 3 months for combines and 7 months for hay equipment. Other working capital details are a as follows. Losses on sales of receivables, which is included in both interest expense net and other expense net, were approximately $6.4 million, and $22 million for the fourth quarter and full year of 2011, compared to $4.6 million, and $16.1 million for the same periods of 2010. On December 1, 2011, AGCO entered into a new credit facility agreement providing for a $1 billion revolving credit and term loan facility. We used a portion of the credit facility to fund the acquisition of GSI. The new credit facility replaced our former $300 million revolving credit facility.

Our regional market outlook for 2012 is captured on slide 11. Our forecast anticipates relatively flat demand on a global basis. In North America the strong financial position of row crop farmers and the expectation of farm income above historical averages is expected to support demand from the professional farming sector. We also look for improvement in the dairy and livestock sectors which will help our hay equipment demand in 2012. In South America, we expect the elevated level of farm income in 2011 and the clarity around government financing programs to keep demand at relatively high levels in 2012. However, dry weather is impacting the first harvest in Southern Brazil and Argentina. We expect the dry conditions to result in a modest decline in industry demand compared to 2011. Healthy income for grain and dairy farmers in 2011 is expected to keep Western European demand strong in 2012. We are forecasting level demand in the Western European market. Better harvest in Russia and Eastern Europe in 2011 are expected to produce healthy growth in these markets in 2012.

Slide 12 highlights the assumptions underlying our 2012 outlook. We are forecasting price increases of approximately 3.5% on a consolidated basis, offset by about 7% of negative currency translation impact. In 2012, expenditures on new product development and tier 4 emissions requirements will cause an increase in engineering expense of approximately 10% to 15%, or $30 million. We also look for new products and our productivity and purchasing initiatives to drive improved gross margins. Our SG&A expense will include expenses associated with site and manufacturing startup and market support costs amounting to $20 million for Fendt and $20 million to $25 million for our Chinese operations. We project the GSI acquisition will be accretive to 2012 earnings per share by about $0.45 per share. And, the strengthening US dollar is expected to negatively impact 2012 earnings per share by about $0.35 to $0.40, based on the current exchange rates.

Slide 13 lists our view of selected 2012 financial goals. Our order boards remain strong and we are projecting 2012 sales to exceed $10 billion, even with the headwinds provided by the weaker Euro. Forecasted pricing benefits, market share improvements, and acquisition impacts will partially be offset by the negative impact of currency. Including significant investments in new product development, market development, and startup costs associated with our manufacturing projects, we expect to continue to improve gross and operating margins from 2011 levels. Despite the additional currency pressure we're facing since we gave your our 2012 guidance in December, our target for 2012 earnings per share remains at approximately $5 per share. We expect increased capital expenditures to be in the $325 million to $350 million range, and our free cash flow to exceed $200 million after funding the capital expenditures.

The improvements we are making in our European factories will impact the timing of production and sales throughout 2012. The production schedule at our Valtra plant in Finland ramps up slowly in the first quarter, following the SAP system cutover on January 1 of this year. As a result, first quarter production in Europe will be lower than the first quarter of 2011. With the timing of production, the impact of dry weather in South America, the negative impact of currency, and startup costs in our Chinese operations, we're expecting our first quarter earnings to be about flat to slightly up compared to the first quarter of 2011. We expect some of these timing issues to be recovered in the second quarter which should be up versus 2011.

That concludes our prepared remarks, operator, we're now ready to take questions.

(Operator Instructions) Our first question comes from the line of Andy Kaplowitz, with Barclays Capital.

Good morning, guys.

Good morning, Andy.

So, question about your incremental margins in North America. I mean, you did talk about improvement in '12, I think, with cost reductions that can help. I'm just wondering how much of the impact is currency related and how much can the Jackson plant really help that as we go into '12?

Well, when we look at 2012, certainly when you're going to look at the North America results you're going to see a big improvement as a result of the GSI acquisition. But, if you take that benefit out, we are still looking for improvement in our results in North America. Most of the improvement is going to be volume related where we still expect to see some growth, as we pointed out in our comments, from -- in the high horsepower sector as well as in the hay sector. And, we still have some cost reduction initiatives that should carry through into 2012. The Jackson plant expansion to handle high horsepower tractors will help us a little. I think it's more on the sales side where we're finding our dealers are very excited about the prospect of selling American made high horsepower tractors in the market.

Andy, was anything happening, though, in the last few quarters that maybe put some more pressure on incrementals in North America. I know it's a lumpy business. I'm not complaining about 7% plus margins. It's just, if I look at the incrementals, they came down a little bit over the last few quarters.

I think the difference there is the level of engineering expenses and marketing expenses that we've been incurring in North America. On the engineering side, there's tier 4 investments as well as some new products we're working on. And then, on the marketing side we are investing more in marketing expenses as a result to try to grow our business in North America.

Okay. That's great. Martin, obviously you were able to absorb $0.10 to $0.15 of currency impact and keep your guidance similar. Is that just initial out-of-the-box conservatism or did something actually get better? Is Europe actually looking better than you thought at this point?

Not right now, no. I don't think so.

Most of the -- I think from a standpoint of markets we're about where we thought we would be with the exception of South America where we're expecting the markets to be a little lower because of the dry weather. But, we feel that we can make that up with some margin improvement as well as a little lower tax rate than we had guided in our original guidance.

Thank you. And, Andy, the tax rate, what guidance are you giving?

Our tax rate should be right around 30% to maybe slightly below 30%.

Thank you.

Jamie Cook, Credit Suisse North America.

Hi, good morning. Two questions. One, Andy, first, can you just give your color around what you're expecting within GSI and the margin and revenue target or whatever, just to get to the $0.45 -- the $0.45 in accretion for 2012? I guess that's my first question.

Okay. GSI, the revenue expectation is to be somewhere north of $750 million in 2012. And, operating margin should be about 11% and that includes a -- that includes the amortization of goodwill or the amortization of intangible assets. So, if you excluded that, their margins would be north of 15%.

Okay. And then, I guess just a follow-up question. Can you talk about -- you didn't mention in your guidance any potential costs associated with growing the GSI business overseas. So, if you could just touch on that. And then, just a follow-up question on the margin side in North America for 2012, are you assume you're fully recovering tier 4 costs in 2012?

Jamie, the GSI export business, this is actually really a synergy because we don't think that we need to add a lot of cost to the existing organization. Our dealers are very interested in helping GSI in markets like Brazil, India, China, and so on. And, Greg will answer your second question.

Yes, so Jamie, if you look at the tier 4 expenses for both the US and North America, and consider other general material inflation, which we're saying is probably going to be about 2% or 3% next year, we do expect to cover that. This year, our pricing, in terms of pricing versus cost was, up about 100, 150 basis points. Next year we're looking to be up about 50 basis points in terms of our pricing that we have in place. We've talked about the 3.5% pricing that our plans call for and that does include pricing for tier 4. So, if you throw in all the costs associated with tier 4, we still l expect to be probably about 50 basis points above in terms of benefit.

Great. Thanks. I'll get back in queue.

Henry Kirn, UBS.

Henry, are you there?

Sorry, about that.

That's all right.

Headset problem here. On South America, can you give some color on how government incentive programs might impact the cadence of sales this year?

No impact at all, I would say.

The government tsunami financing programs that are very important to our customers to get low cost financing have been committed throughout the full year of 2012. So, that was announced late 2011, so there has been no disruption from that point of view.

And, could you talk a little bit about the competitive dynamics in the market, thoughts on pricing as well as your expectations for market share for tractors and combines?

I think you should ask CNH why their margins went down so much, not us. So, I think it's a competitive market, but nothing changed so much.

One final one, if I could. Could you quantify or add some color to the healthy growth you expect for Russia and Eastern Europe? How much bigger could that be in 2012? I know it fell precipitously from '08 to '09 and '10.

We're looking for pretty significant growth out of that sector, somewhere in the 30% to 40% range.

That's helpful. Thanks a lot.

The next question comes from the line of Steve Volkmann with Jefferies & Company.

Hi. Good morning. Andy, I think you mentioned that there were some one time costs in the fourth quarter with respect to the acquisition and I'm wondering if you could just ballpark those for us.

It was almost $6 million and that would be in the SG&A line.

Okay. Does that go away for 2012 or does it continue for a year or something?

Yes, those were all relating to the transaction as such. And so, those go away, yes.

Great. Sorry if I missed this, but did you quantify the step-up accounting amortization that goes away after the first year?

As it relates to inventories?

Whatever you want to add in there would be great.

Okay. Well, I think you're referring mainly to inventory write-ups that you have to do at acquisition. GSI, luckily, doesn't carry a lot of inventory. So, that was a fairly minor amount. Some of that was washed through in the first month so we took it in 2011. And, it's a very minor remaining balance for 2012. The only other item, as I've already mentioned, is a fairly significant amount of amortization of intangibles that will be running through our results. That will be for years to come and that's somewhere in the $30 million to $35 million range.

Got it. Great. And then, just I was interested in your comments, maybe this was Martin, talking about order books looking very solid. I'm wondering if you would care to put some numbers around that.

Sure. Our North America orders are up close to 40%. European orders are up about 50%. And, our South America orders are roughly flat.

And then, since those numbers are bigger than I would have guessed, what gives you the confidence that these markets should be flat, given those types of order books?

Well, --.

I think --.

Good question.

I think what's happened is that you get in a situation when you're analyzing your orders is that demand has improved significantly here in 2011. And, customers want to be assured they're going to get their product on time and in the season when they want it. So, you start to see order -- people putting in their orders earlier and more consistently than you did in the past. So, it's not necessarily an indication of all about what the market growth will be. It's also about securing their orders for the next year.

Okay. So, when would I have delivery slots available in those two markets, just kind of generically?

Probably --.

Second quarter.

Yes, in the latter part of the second quarter.

Okay. Thank you, very much.

Ann Duignan, JPMorgan.

Hi, guys. Good morning.

Good morning, Ann.

Can we talk a little bit about GSI again? Can you just remind us what were the revenues in 2011? Just trying to compare the year-over-year growth.

Revenues in 2011 were slightly above $700 million.

Okay. And then, how do you guys go about forecasting that business? Is there a large backlog? Do you look at backlog to build or book-to-bill? Or how are you arriving at the $750 million for 2012? Just trying to get a sense of how we should be forecasting that business.

Right. They don't carry a large backlog. Their backlog's maybe one or two months. That's pretty normal for them. So, we can't -- we don't have enough visibility to say that we've got it booked covered or anything like that. Their forecast is based on what their dealers are telling them, what they think is available in the market. So, basic understanding of the market conditions and what customers will be looking for in 2012.

And, would it be your goal to get them into something similar to North America combines like an early order program so you can get a sense of what the year's going to look like?

That's a good question. We would have to get in discussions with that team and then understand whether that's possible. But, that's not something we discussed with them or at least I've discussed with them.

Okay. Then I'll switch to South America. Can you talk about your acquisition of the sugar cane harvester in that region? And, when you'll have that in the marketplace and when you might be able to stem some of the recent share losses in that -- in Brazil in particular?

Well, in terms of the Santal acquisition, we just completed it here in first quarter. We're starting to work with their management team to put together a plan of joint marketing of that product and the rebranding of that product in our AGCO brands. So, that work and discussion is going on. We know that there's a lot of excitement among customers and our dealers about the availability of that product going forward. So, I would expect us to have more color and more visibility on how that's all going to sort out by the second half of this year. We certainly think that will help us retain our market share on the tractor side, because it allows us to have a full offering of equipment to those sugar cane customers. That's very important and was one of the reasons why we agreed to do the purchase.

Okay. Just finally, if I could, kind of similar vein, Kubota has been pretty vocal about making bigger acquisitions globally in the agricultural space. Can you talk about their recent acquisitions in Europe and if you're seeing any changes? Probably too early yet, but are you seeing or hearing any changes in the competitive environment just on the back of their more recent aggressive acquisitions?

My observation is they made an acquisition of a pretty complex business, which does not generate important profits or maybe the opposite. It does have a lot of factories, a lot of brands. It's not, let's say, restructured yet. And, to the product, actually most of the product cannot be used behind a Kubota tractor. So, that's my observation. I don't understand why they were interested in buying Kverneland, but you need to talk to them. I don't know. I have no better information. I was somewhat surprised.

So, you don't anticipate much change in the near term in the competitive environment, then, it sounds like?

Not really. We looked into that and we thought it's not an acquisition which helps us and which moves the needle into the right direction using Andy Beck's terms. So, I don't understand why they did it. At the end, CNH did get in the deal and very late. This company was for sale for, I don't know, five years at least. So, that is a business which was on the market forever. And so, I don't know -- I don't know what the strategy behind is.

Okay. That's good color, as always. I'll get back in line. Thanks.

Thank you, Ann.

Jerry Revich, Goldman Sachs & Co.

Good morning,.

Good morning.

Can you update us on your the timing of your Argentina local assembly? When that's expected to come online? And, have you received any approval for imports into the market in the interim?

Jerry, yes, we're importing product in and we've had numerous discussions with and sharing of plans with the Argentina government. And so, we are selling product in Argentina. It's still, probably, not at the pace that we would like. But, making little progress there. We're still developing the plans for the facility that we'll be putting in Argentina. We expect to get started with that this year. But, that's not a 2012 event when we'll be doing any more assembly activity in Argentina. It'll likely be 2013.

The deal you normally do is that as soon as you have agreed with the government, or have disclosed your plans for investment in local manufacturing in Argentina, they basically allow you more imports. And let's say maybe that has a positive impact on our business.

Sure. And, that's I guess what I'm trying to get at. What's the extent of ramp-up that we'll see in your import licenses once you do share the plan. If you could give us a rough ballpark number maybe that you've seen from other industries or how to think about the increase in number of licenses, that would be great.

I think we can talk about that next quarter. I think right now I have no idea.

Okay. And, Andy, what was pricing and material inflation in the quarter?

It was -- pricing was about 3.5% in the quarter and material inflation was close to 2%.

And so, Greg, your guidance assumes an acceleration from 2% to, call it, 2.5% at the midpoint of your range. Can you talk about the drivers of that pickup? Is it -- presumably it's not specialty steel; it's probably tires. Can you just say more on the drivers of the acceleration?

We're talking a little bit apples and oranges in the sense that the numbers I was talking about earlier dealt with some tier 4 costs which aren't completely material. There's some engineering and some other costs in there. So, I would characterize the material environment as relatively stable. But, that certainly will change and we'll watch it and we'll try and price for it next year.

Thank you.

Ash Gupta, Credit Agricole Security.

Hi, good morning, gentlemen.

Good morning, Ash.

Given Europe remains such a concern for investors, just wondering if you could provide any real-time information on perhaps the differences regionally and even on the financing side?

Well, I don't think -- as we've said our order boards are still strong. We're seeing good order intake. So, we haven't seen any meaningful change in market -- in the market environment in Europe. Some of the weaker economies in Europe are not big agricultural equipment markets for us. And so, so far we haven't seen much change from what we've been reporting the last few months -- last few quarters, excuse me.

Great. Just on GSI, I was just wondering if you can remind us about the seasonality of revenues there? Then, for the quarter, I just wanted to make sure, was there any revenue or profit contribution of note? Or was it just the $5.6 million of the SG&A impact that we should be aware of?

Sure, GSI had very little impact on the -- this year on the fourth quarter of 2011. Basically, roughly breakeven. When you look at the seasonality of the business, the sales run roughly 20% in the first and fourth quarter each and 30% in the second and third quarter each. So, it's a second and third quarter seasonal business. We don't expect to have much earnings accretion in the first quarter and/or the fourth quarter and that most of the earnings accretion will be in the second and third quarters.

Great. Just lastly, quickly I just wanted to kind of get an idea of your expectations for Santal over maybe a three to five year time frame in terms of how you would think about expanding capacity or increasing your position in the market. Thanks very much.

Well, when we bought SFIL, the implement and drilling equipment maker, we were in a position to double their volume within a year, about. I think this could be a plan for Santal. But, we didn't look into that yet. So, that means the volumes are low, so, I think the demand is high. We will talk about that as soon as the deal is completely done and the company is integrated into our South American activities.

Thanks, very much.

Vance Edelson, Morgan Stanley.

Thanks for taking the questions. You mentioned the importance of the Made in America label. I'm just trying to get a better feel for the current international flow of finished machinery. And, specifically how it's affecting the foreign exchange calculations. So, in other words if you're shipping a lot out of South America and Europe into the US, that would have an impact. So, anything you can tell us about the current flow of equipment from where it's produced to where it's sold?

Right. Vance, in most of our regions what we sell in those regions are made in those regions. The exception, or the slight exception, to that is in North America where about 25% of what we sell comes from our factories outside of North America. So, for North America we get between 10% and 15% of our whole goods we get from Europe and then 5% to 10% come from Brazil. And then, we also bring in smaller tractors from India, from TAFE.

Okay, that's very helpful. And, regarding tier 4, just given the gradual implementation schedule, could you provide us a feel for where we are overall in terms of the associated expense? Is a lot of it already behind us? Or going forward are there any hills and valleys we should be aware of or should we view it as fairly steady over the next year or two?

I think you've seen the ramp-up in engineering expenses that we've had from '10 to '11, '11 to '12 and some of that is associated with tier 4, for sure. Others is our ambition on new products. But, we're going to run a little north of 3% of sales here in 2012. And, I would expect that would be the run rate going forward. There is still a lot of work to do on tier 4, if that's your question.

Yes. Okay. That's great. Thanks, a lot.

Andy Casey, Wells Fargo Securities.

Thanks. Good morning, everybody.

Good morning, Andy.

Question, just a few follow-up questions, a lot have been asked and answered already. But, revolving around the 2012 guidance, could you clarify what Euro to dollar rate is now included in the outlook?

Right around the spot rates of today.

Okay, thanks. Also, I'm trying to understand the seasonality within the guidance for your $5 outlook. Are you looking for a similar split between the two halves that you had in 2011, given all the puts and takes you talked about earlier?

I'm trying to eyeball that right now. That looks about right. It looks like it's going to be probably a little more weighted in the first half. We should have a strong second quarter. And then -- but pretty close to 50/50 between the first half and the second half.

Andy, I'll be happy offline to give you a little more color if you need it.

Appreciate it. Look forward to that. Great. Thanks.

Seth Weber, RBC Capital Markets.

Hi, guys. Adam here on for Seth. Just wanted to drill down on Europe for a second. The Rabobank partnership there. Any increase in the percentage of financing coming from that as opposed to local financing? First of all.

No, I don't think we've seen any significant change.

Not in the budget, at least, no.

No. From a financing standpoint for our end customers, I think, obviously we've got the financing availability through the finance company in our major markets. But, I'm not aware of significant, or pullback, from other financing sources at this point in time.

Okay, great. And, could you also comment on the flow of machinery eastward in Europe?

Well, as we talked about, that's a major source of opportunity is Central and Eastern Europe, We talked about 30% to 40% growth in that market. So, we will continue to see products that we produce in Europe going that direction more and more.

Thanks.

Joel Tiss, Buckingham Research.

Last and least. Just made it.

Hi, Joel.

Hello. Just on inventories, they're running about 18% of trailing revenues. Is that kind of the sustainable rate going forward or is it a little bit elevated because you expect a little more activity in the first half?

I personally think it's a little elevated because I always like the numbers to be lower. And, I think this time of the year it really is.

Okay. So, it's just the timing?

Yes, I think so.

Yes, we would -- I'd like to see that number get improved as well. So, it's -- the inventory situation is that we worked hard on getting it to where it is and getting all the production out. But, I think there's opportunities there for improvement and efficiency going forward.

You guys brushed over quick that dairy farming's getting a little bit better and some other smaller factors in Europe give you confidence that the year can be flat. Can you spend a little more time and give us some more granularity on some of the positives and negatives you're seeing there that give you the confidence for a flat forecast? Just so we can all get on the same page.

Actually, there are not too many negatives people talk about right now. The farm income last year has been extremely strong. The financial situation of most of the farmers improved a lot. We measure their mood, so to say, by having external companies doing surveys. They are willing to invest this year. So, they're optimistic. They're not only optimistic about 2012, but also more long-term. They think they're in a good business and that's pretty much also what farmers in North and South America think. It's a paradigm shift, if you like.

Okay, thank you. And, just one final one, quick. Does this GSI acquisition start to put your talk about a dividend into jeopardy? You were talking about that a little bit in December. I just wondered if we can have an update on how this acquisition changes that thinking or if there's any change there.

Yes, Andy will answer it, but it's just the opposite, I think.

Yes, I think the GSI acquisition actually helps our chances in the future to offer a dividend to our shareholders in that the cash flow that GSI will generate in North America will allow us to have more -- generate more cash in North America which frees up the availability to return cash to shareholders.

I appreciate you taking my questions. Thank you.

Thank you.

Thank you.

I would now like to turn the call back over for closing remarks.

Thank you. Once again, we would like to thank you all for joining us today and we appreciate your interest in AGCO. And, I encourage you to follow up later on with me if you have additional questions. Thank you.

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