AGCO Corp (AGCO) 2012 Q1 法說會逐字稿

Good morning. My name is Sarah, and I will be your conference operator for today. At this time, I would like to welcome everyone to the 2012 Q1 earnings release and 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 session.

(Operator Instructions)

Thank you. Mr. Greg Peterson, you may begin your conference.

Thanks, Sarah, and good morning. Welcome to those of you joining us on the call and over the internet for AGCO's first-quarter 2012 earnings conference call. We will refer to a slide presentation this morning, which we posted on our website at www.AGCOcorp.com. The non-GAAP measures used in the slide presentation are reconcile to GAAP measures in the last section of our presentation.

We will make forward-looking statements this morning, including statements that are not historical fact, including projections of earnings per share, sales, free cash flow, market conditions, farmer income, harvests, weather, market share, margin improvements, production levels, new product development, factory productivity, investments in facilities in expanding markets, government financing programs, industry demand, impacts of foreign currency, general economic conditions, depreciation, emission requirements, pricing benefits, plant shutdowns, engineering expenses, start-up and market-support costs, capital expenditures, and the impact of the GSI acquisition. 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 with the Securities and Exchange Commission, including the Company's Form 10-K for the year ended December 31, 2011. 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.

Now, 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. AGCO's momentum continued in the first quarter of 2012. With the strongest first quarter in our history, we capitalized on improved demand in key Western European markets and continued market strength in North America, while executing against our important margin-improvement initiatives. First-quarter operating margins in our Europe, Africa, Middle East region increased to 11.3%. In North America, the economics for row-crop farmers continue to be outstanding, and the market demand for large equipment remains very strong. Including the benefit of the GSI acquisition, AGCO sales in North America grew by approximately 59%, compared to the first quarter of 2011. Excluding the unfavorable impact of currency translation, North America operating margins expanded over 500 basis points in the first quarter of 2012 compared to the same period in 2011.

Slide 3 summarizes our results for the first quarter of 2012. Adjusted earnings per share for the first quarter of 2012 of $1.21 exceeded our guidance, due to better-than-anticipated market conditions and better performance on overrating margins. In the next few quarters, we plan to increase our investment in new-product development and facility and market expansion. AGCO's tractor and combine production volumes for 2011, and projected volumes for 2012, are illustrated on slide 4. AGCO's first-quarter 2012 production was up 12% compared to the first quarter of 2011.

Strong order boards, with increased production levels in our European and North American factories, were offset by lower production volumes in South America. First-quarter demand in South America was adversely impacted by the dry conditions in Southern Brazil and Argentina, and our production was reduced accordingly. Our European production benefited from the pull-forward of Fendt production into the first quarter. The Fendt production scheduled in 2012 is more heavily weighted to both the first and second quarters.

We expect to have lower production at our plant in Germany during the third quarter to facilitate the transition of our Fendt assembly facility in Marktoberdorf. AGCO's order board is up between 10% and 25% across all regions at the end of March 2012 compared to March 2011 levels. In 2012, we expect production volumes to be up for the remainder of the year, with higher production in Europe and North America. For the full year of 2012, we expect production to be up 10% to 12% from 2011 levels.

Slide 5 details industry unit volumes by region for the first quarter of 2012. Industry tractor sales in North America were up modestly compared to 2011 levels. In North America, industry sales of high-horsepower and utility tractors both increased due to continued positive conditions for row-crop farmers and improvement in the dairy and livestock sectors. The combine market was down significantly compared to the first quarter of 2011 due to the timing of industry production and due to very high levels of demand seen last year. We expect full-year industry combine demand to be down modestly compared to 2011.

Industry unit retail sales of tractors in Western Europe were up approximately 1% in the first quarter of 2012. Strong growth in the key markets are France, United Kingdom, and Germany was partially offset by declines in Italy and Spain. South American industry retail tractor volumes declined modestly during the first quarter of 2012 compared to the first quarter of 2011. Dry weather impacted the first harvest in Southern Brazil and Argentina, and industry demand was negatively impacted. I will now turn the call over to Andy Beck, who will provide you more information on our first quarter with us.

Thank you, Martin, and good morning to everyone. AGCO's regional net sales performance for the first quarter of 2012 is outlined on slide 6. Currency translation had a negative impact of about 4% on AGCO's consolidated net sales in the first quarter of 2012. Acquisitions, primarily the GSI acquisition, added approximately 11% to net sales in the first quarter of 2012 compared to the first quarter of 2011. The Europe/Africa/Middle East segment reported a net sales increase of approximately 29%, excluding the impact of currency translation, during the first quarter of 2012 compared to the first quarter of 2011. Growth was highest in Germany, France, and the United Kingdom and was partially offset by sales declines in some of the Southern European markets. The accelerated production in dealer shipments in Germany that Martin referenced earlier contributed to the increase.

North American net sales have increased approximately 59%, excluding currency translation impacts, during the first quarter of 2012 compared to the same period in 2011. Organic growth was approximately 27% after excluding acquisition impacts. Sales improved significantly across all major product categories in the first quarter compared to the first quarter of 2011. AGCO's first-quarter net sales in South America grew 7% from comparable 2011 levels, excluding currency translation. Acquisitions generated nearly all of the growth.

Organic sales were impacted by drought conditions in Southern Brazil and in Argentina. Net sales in our Asia/Pacific segment increased approximately 24% in the first quarter of 2012 compared to 2011, excluding the impact of currency and the benefit of acquisitions. Sales growth across Asia produced most of the organic increase. Part sales were $304 million for the first quarter 2012, an increase of approximately 16% compared to the same period in 2011, excluding the impact of currency.

Slide 7 details AGCO's sales and margin performance. Adjusted operating margins were about 140 basis points in the first quarter of 2012 better, compared to the first quarter of 2011. The benefit of increased production volumes and pricing was partially offset by increased material cost and higher engineering and marketing expenses. Operating margins in the first quarter of 2012 were highest in AGCO's Europe/Africa/and Middle East region, where they surpassed 11%. Margins improved 300 points in the first quarter of 2012 compared to the same period in 2011 due to higher sales and production volumes, combined with cost controls and a favorable mix associated with the accelerated Fendt production.

In the first quarter of 2012, operating margins in North America, excluding acquisition impacts, exceeded 7%, due to higher sales and production, a favorable sales mix, and cost-control initiatives. Including the benefit of GSI, North American operating margins reached 8.9%. In South America region, operating margins were 5.8% in the first quarter of 2012. Margins were lower compared to the first quarter of 2011 due to expenses associated with acquisitions and increased engineering and marketing expenses associated with new-product introductions.

GSI performed well in its first full quarter as part of AGCO. Slide 8 details GSI's sale by region and by product for the first quarter of 2012. GSI sales grew over 10% in the first quarter of 2012 compared to the same period last year. Sales grew across all regions, with the strongest growth in Asia. GSI contributed $0.09 of EPS in the first quarter, and we are still expecting $0.45 of accretion for the full year of 2012.

Slide 9 provides visibility into working-capital management over the last few years. Every year, our first-quarter operating plan includes a build of dealer and Company inventory required for the spring selling season. The inventory build in the first quarter of 2012 was attributable to both the normal seasonality, as well as to the ultra-production schedules in Europe. Inventories are higher during the transition at our Valtra plant in Finland, where we are installing SAP, and at the Fendt plant in Germany, where we are building a new assembly facility. At the end of March, 2012, our North America dealer month's supply on a trailing 12 month basis was lower for combines and hay equipment and higher for tractors than the same time a year ago.

A dealer month's supply in North America was as follows. Tractors were 6.5 months, 3 months for combine, and 7.5 months for hay equipment. Other working capital details are as follows. Losses on sales of receivables associated with our receivable financing facilities, which is included in other expense net, were approximately $5.2 million during the first quarter of 2012, compared to $3.6 million in the same period of 2011.

Slide 10 details our depreciation and capital expenditure trends. In 2012, we expect to increase our capital expenditures to approximately $350 million as we continue to work to meet the Tier 4 emissions requirements, refresh and expand our product line, upgrade our system capabilities, improve factory productivity, and complete the expansion at Fendt and establish assembly facilities in China. Slide 11 addresses AGCO's free cash flow, which represents cash used in operating activities, less capital expenditures. AGCO's use of cash in the first quarter of 2012 was stronger than the first quarter of 2011 due to our higher inventory build for the selling season. We expect to generate strong cash flow again this year and plan to continue investing for future growth in the form of engineering expenses and additional investments in our plants and new products. Even after covering increased spending on those strategic investments, we are targeting free cash flow in over $200 million range during 2012.

Our regional market outlook for 2012 is captured on slide 12. Our forecast anticipates continued strong demand on a global basis. In North America, the solid financial position of row-cop 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 hay equipment demand. In South America, we expect elevated level of farm income in 2012 and the clarity around the government financing programs to keep demand at a relatively high level.

However, dry weather impacted the first harvest in southern Brazil and in Argentina. We expect the dry conditions to result in a modest decline in industry demand compared to 2012. Healthy income for grain and dairy farmers in 2012 is expected to keep Western European demand strong. We are forecasting modest growth in key Western European markets, offset by declines in Southern Europe. Better harvests in Russia and Eastern Europe in 2012 are expected to produce robust growth in these markets.

Slide 13 highlights the assumptions underlying our 2012 outlook. We are forecasting price increases of approximately 3.5% on a consolidated basis, offset by about 5% of negative currency impacts. In 2012, expenditures on new-product development and Tier 4 emissions requirements are expected to cause an increase in engineering expense by approximately 15%, or $40 million. We also look for new products and our productivity and purchasing initiatives to drive improved gross margins. Our SG&A expense is expected to include expenses associated with site and manufacturing start-up and market-support costs amounting to about $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. The strengthening US dollar is expected to negatively impact 2012 EPS by about $0.20 to $0.25, based on current exchange rates.

Slide 14 lists our view of selected 2012 financial goals. Our order boards remain strong, and we are projecting 2012 sales in the $10.2 billion to $10.5 billion range. Forecasted pricing benefits, market-share improvements, and acquisition impacts are expected to be partially offset by the negative impact of currency translation. Including significant planned investments in product development, market development, and start-up costs associated with our manufacturing projects, we expect to continue to improve gross and operating margins from 2011 levels. We've increased our target for 2012 earnings per share to approximately $5.50. We expect to increase capital expenditures to be in the $350 million range, and our free cash flow to exceed $200 million after funding the expected increase in CapEx. That concludes our prepared remarks. Operator, we were now ready to take questions.

(Operator Instructions) Stephen Volkmann, Jefferies.

It's actually Chris Edwards this morning on for Steve. A couple of quick questions. Of the China start-up expense that you expect for the full year, do you know how much of that was in Q1 and how much we should expect in Q2 in the second half?

Chris, you will see the expenses associated with our China plant and new marketing organization there ramp up through the year. We had about $4 million in the first quarter, and then going forward in the second, third, and fourth quarter, somewhere between $5 million and $8 million a quarter for the rest of the year. Pretty close to the $20 million to $25 million we had said at the beginning of the year.

Okay. That sounds good. And then the other question I had is on the increase in the sales outlook. You are up $200 million to $500 million for the year. I understand you improved your currency-translation impact a little bit. But that only accounts for $185 million or $200 million. Where is the rest of that coming from? Is that share gains, or is there something else there that we should be thinking about?

I think for the most part, we expect the markets to be where we expected at the beginning of the year. We looked at our order boards for the balance of the year and have increased our projections on sales in some markets, particularly looking at Western Europe and North America's where we see most of that growth. Also, we are still positive about what's happening in markets like Central Europe and Eastern Europe and Africa as well, where the markets are looking relatively strong this year.

Okay. But you didn't really change your overall market outlook. It's more of something on the margins?

What we are saying overall is the market's performing as we said. I think what we are seeing is some movement in mix to our favor. Some of the key markets for AGCO, like UK, Germany, and France are performing better than the markets that aren't as important to AGCO, like Italy or Spain or markets like that. I think overall the markets, as a percentage change, aren't changing from where we thought, but some of the key markets for us are going to perform better.

Got you. Just the distribution. All right. Thank you very much.

Henry Kirn, UBS.

Wondering if you could update the progress on GSI and getting the product sold into new markets?

Henry, we were making good progress there. As we put in our forecast, things are on plan so far. If anything so far, what we have seen is a little softer results in North America, but offsetting by better results internationally. To your question, we are seeing very good momentum in establishing GSI in international markets. We've got a number of projects in place to establish better distribution and establish some manufacturing capabilities overseas as well. For the most part, we are staying on plan and really seeing some good conditions, especially in the protein sector in China, where the growth there is very strong, and we're participating well in that market so far.

And then I know it's not as big category for AGCO, but there's lots of industry chatter about North American combines. Could you talk about how the inventories look and if it you see any signs of a real cliff coming?

Henry, I think we said in our comments that we have about three months' worth of inventory. That's really good shape for us. Anecdotally, as you said, we are not huge players in the combine market. So we don't have as much visibility as some of our competitors. We are on plan for our sales for combines and don't expect to see any problems for us in 2012 related to combines in North America.

That's helpful. Thanks a lot. Good quarter.

Rob Wertheimer, Vertical Research.

Good morning. It's Joe O'Dea for Rob. First, on Europe, could you talk a little bit about share? I know Fendt and the high-horsepower tractors had a very solid share in 2011, but it looks like that may have moved up. But in UK and France, are there other things going on to move your share higher?

Well, actually I think that's a question of technology and demand for technology. My vision for the future is that markets like England, France, and Spain will have a higher demand for high-tech tractors, such as Fendt, also mainly in the high-horsepower category. And therefore, I'm rather optimistic.

Okay. And is anything accelerating ahead of plans going into this year? Or pretty much on course with respect to share and mix?

Everything as scheduled.

All right. Second question, just focusing on Western Europe, where do you think the market is relative to peak? And when you look at Eastern Europe how much pull-through of used equipment out of Western Europe is contributing to certain demand levels?

I think Europe and Western Europe is on a normal level, levels we have seen in the past and levels we will also see in the future. And Eastern Europe is the area where one could imagine more additional growth. And the main areas or the main regions are the countries of Central Europe and then Russia, Ukraine, Kazakhstan, Belarus.

Okay. Thank you.

Ann Duignan, J.P. Morgan.

It's Mike Shlisky filling in for Ann. I saw you guys had pretty strong order boards in the first quarter. Want to know what have dealers and farmers told you about their orders [occasions] for tractors a little later in the year, given the big increases in North America for the row-crop planting? And do you expect any early delivery requests this year because of some early planting in certain parts of North America?

Yes, that's -- we have some little upside potential here.

I think what we are seeing is a good retail order board that matches our good order board that we have with our dealers. So that's a positive sign. And also, to your point, there is some pressure to get some units out because of the early planting. But we are hopefully going to be able to deliver and meet all our customer requirements.

Our brand-new Jackson tractor assembly factory will open in May, so that will help as well.

Got it. Got it. Thanks. Then secondly, it looks like you had a pretty decent quarter at GSI. Can you comment on GSI's margins, how they came out versus your expectations and if you could change any expectations for margins for that group during the rest of the year?

GSI margins for the first quarter were about 14%, excluding the amortization of intangibles. What we expect on a full-year basis is north of 15%, and that is about in line with what we had expected at the beginning of the year. So no change on margins, and they're performing to our expectations so far.

Great. And if I could squeeze in one last one here. About the Brazilian incentive programs that were extended. Want to make sure, are those for the exact same products and for the same farmers, or have they been changed at all?

All the same.

Everything is for the same programs, same customers. Everything is the same. They have just been extended till the end of 2013. And the interest rates have been lowered slightly, by about 50 basis points from where they were.

Those are two good news. One is that the conditions improved, and second, that we now have for the customers visibility through the end of 2013.

Great. Excellent. Thanks so much, guys.

Ashish Gupta, CLSA

Hi, guys. Great quarter. Just a few questions. On the second-quarter -- or fourth-quarter call, you had mentioned that you had looked for 1Q to be flat year-over-year on an earnings basis and that 2Q would be exceptionally strong because of the downtime in Finland and otherwise. I was wondering if you were still -- if how much of the demand that we saw in 1Q -- what are your expectations for 2Q now in the first half of the year and second half of the year relative to what you guys had said at the last call?

We raised our guidance because we think that also for the second quarter will be strong.

Okay.

Absolutely. Yes, we were a little cautious in our first quarter because of some of the transitions we were working on and we are able to get more production out into our dealers' hands a little ahead of schedule, which helped us in the first quarter. But second quarter continues to look in line with what we had expected and really no change there.

On GSI, I'm wondering, you had mentioned before that a lot of your dealers were eager to distribute GSI in your initial conversations. Wondering one, how the progress is going there and if there is still a lot of interest? And in terms of the $1 billion revenue target you had initially planned on, I know it's still pretty early. It's only been about six months since you initially launched -- looked at -- announced the transaction. Are you thinking that $1 billion revenue target might be light now?

I think from the first question in terms of distribution, it's still early, but we do have a lot of interest from dealers outside of North America to help us in distributing that product. We are anxious to advance ourselves with that product in markets like Eastern Europe, Asia, Africa, and we think that some shared distribution will be effective there. And also in Brazil, which is a much more established market, we think our strong network in some cases can help us. So we are still moving forward with those discussions and activities as we continue to bring GSI into AGCO on a more formal basis. In terms of our sales forecast, as you say, it's still very early, but I guess the way I would answer is there's no negative surprises so far, only good, positive surprises, where we see opportunities to work together with GSI. And we will stay with our $1 billion target, but we are confident we will achieve that.

Great. Thanks a lot, guys. Have a great day.

Vance Edelson, Morgan Stanley.

Thanks for taking the questions. If we look at South America, the industry-wide unit sales declined, albeit off of high levels a year earlier, and yet your own sales in the region were described as relatively flat and therefore relatively better, even excluding M&A and FX. That would suggest you're either raising prices or you took market share or maybe a combination of the two. Could you elaborate on that?

There was a little pricing there. I'd say if you look purely on a volume basis, it was pretty flat with the prior year. So we performed relatively well in the first quarter on a volume basis.

Okay. Great. And then the CapEx in the quarter in the guide for the year, it's a little higher than historical levels. Is that $325 million to $350 million for 2012, is that a good run rate for the out years in our model? Or could you describe if there is anything unique to 2012 in terms of the build out? Is that more of a 2012 event?

That's a good number to be used.

I would agree with Martin. We have some significant projects that we'll still be working through in 2013 and 2014, particularly our expansion into Asia, and some other major projects associated with new products, and expansions into Eastern Europe as well. And so we would expect those levels of capital to be likely to be spent at least through next year.

Okay, got it. And then one more question, if I may. Could you talk about whether operating (technical difficulty)? Good way to look at it?

You do have some seasonality between quarters. As typical, what you see is that our margins will look stronger in the second quarter, and then in the third quarter dip back down. That's when we have a lot our factories shut down for summer shutdown period, so we don't have as high production there. The margins come back down, and then they come back to more of an average basis in Q4. I would encourage you to look at the seasonality of our margins. But most of your comments are right on.

Okay. Makes sense. Thanks a lot.

Andrew Obin, Bank of America.

First a question on your European guidance. Given the strength, combines up 24% in Q1, tractors up a little bit, and the strength of your order board, does your guidance for Europe imply weakness in the second half of the year?

No, it does not.

I think the comps get a little tougher, but no, we aren't expecting any weakness in the market.

Okay. On GSI, can you walk us through -- you said $0.45 of accretion for the year, $0.09 in Q1. How will that work out through the year? How should we model it?

For GSI, their best quarters are the second and third quarters of the year. And then in the fourth quarter, it's actually could be even slightly dilutive in the fourth quarter. That's not their -- that's their seasonally weak quarter.

Got you. And a final question on European sales for you guys were very strong. Obviously, you have the strongest tractor brand in Europe. Did you see any preordering ahead of your shutdowns at Fendt? Did you adjust your marketing to make sure you fully capitalized on strong demand in the first half of the year, given that you will face a shutdown as you revamp the factory?

The answer is yes. It's all organized. All our dealers know, and so that's all in good shape.

Terrific. Great quarter, guys. Thanks a lot.

Seth Weber, RBC Capital Markets.

On the South American margins, they came in a little bit light from where we were thinking. Is that primarily due to production issue, or are you seeing anything on the competitive pricing front there?

Had a couple of things going on, Seth. Andy talked a little bit in the comments about the impact of acquisitions, and that actually had a pretty big -- was a pretty big number. If you look at both the seasonality of the companies that we bought, as well as some one-time costs, that made up probably close to 150 basis points of impact, negative impact to the quarter. And then as you throw in then some engineering, additional engineering expense, and some marketing and product-development expenses, those contributed to the decline year-over-year. But if you look at -- on the gross-margin line, we're actually flat year-over-year. Some of these one-time items that I'm calling out made a big difference, and we do expect for the full year to have margins very similar to last year. A little bit of light in the first quarter, and then we expect to see it improve the rest of the year.

Okay. That's helpful. Thanks, Greg. And then on the Europe business, as you do the Fendt production transition, should we expect a margin impact there in the second half of the year?

What we expect is, as we said, we pulled some sales forward in Fendt over our normal flow of production and sales, and we will see that third quarter, where the sales for the Fendt product will be lower. And that does affect our mix a little in the third quarter. So we will see some impact in the third quarter as a result.

Okay. Lastly, on the tractor inventories being up in North America, can you frame that for us, the 6.5 months versus what? And your level of comfort there?

Yes, it's up about somewhere between 0.5 month and 1 month. And to be honest, some of that was intentional. We saw the market strong, and if you look at our sales for the quarter, our high-horsepower tractor sales were up close to 30% -- actually, over 30%. A lot of that was getting ready for what we think will be a strong remainder of the year. So we historically have brought -- our tractor inventories in North America have historically been a little higher than industry average since we were still sourcing from Europe. As we begin to transition, as Martin talked about, and ramp up our plant in Jackson, Minnesota, you should expect to see our North American tractor inventories go down over time.

Okay. Thank you very much, guys.

Jerry Revich, Goldman Sachs.

Can you update us on the timing of the Argentina local capacity ramp and import-approval process? Where do we stand?

We actually have a strategy in place, and we will meet with the President this month, most probably. And we will come up with an official press release about what we plan to do.

Okay. In terms of, Andy, the performance in the quarter, pricing and material costs, can you step us through that and remind us if you've changed your material-cost forecast as part of your guidance revision?

Yes. Jerry, we in terms of pricing, we are still looking at 3.5% pricing for the year, and that's about what we got in the first quarter. We saw then that gave us a benefit, after you look at material-cost increases, gave us a benefit somewhere between 75 basis points and 100 basis points positive in the quarter. We look for that positive benefit to continue for the rest of the year, obviously absent any major changes in the key commodities like steel for us. We also benefited in the quarter, as we talked about, from higher production levels, and that was probably close to 50 basis points. And then some of the acquisition benefits we talked about and some of the mix benefits, especially in North America, contributed positively, as did FX. We had a number of things that helped on the gross margin line. And then as you move down, we were penalized for the additional amortization this year for GSI, and then some additional long-term incentive pay that also caused a slight impact to our margins. That is a summary of what the impacts were for our margins this quarter.

Thanks, Greg. And can you say more about -- the prior question touched on this, in Europe, you are looking for a flat end market. Your order books are looking better than that. Is that just a function of you want one more quarter under your belt before your raise that end-market outlook? Or are you concerned about slowing trajectory of order growth?

No, I don't think we are concerned about the market from that sense. I think again, it's -- there's certain markets that are doing better offsetting other markets that are doing worse. Overall, you don't see the improvement. But in some of our key markets, we are seeing an improved market condition, and that's reflective in our outlook.

Okay. Thank you.

Jamie Cook, Credit Suisse.

This is Andrew Buscaglia on behalf of Jamie Cook. Great quarter, guys. I had a quick question. Everyone is giving you guys a pretty good rundown of all the key questions. I wanted to see if you can delve more into South America. You kept that guidance the same but commented on the drier conditions there. Can you talk a little bit about why if there is any more risk there to that industry outlook and what you are seeing at your level for AGCO, what we can expect throughout the year?

Sure. As you say appropriately, we did expect and we did see some weaker conditions here in the first quarter as a result of the dry weather condition. We are hopeful that the balance of the year in South America is improved as farmers have their next production to be more successful, and so that's what we are hopefully counting on. Also, the areas in the northern part of Brazil weren't as affected by weather and are doing quite well. And then lastly, this extension of the financing programs and the lowering of the rates we would expect to help demand in the balance of the year as well.

Okay. Okay, that's helpful. I don't have anything else. So thanks a lot, and great quarter.

Larry De Maria, William Blair.

Thank you. Related to the EMEA segment, can you break out Eastern Europe from Russia for us? And then secondly as it relates to that segment, if I'm hearing you guys correctly, second-quarter margins should be similar to better than the first quarter. Is that right, or should we expect them to climb sequentially from the high level?

The first question on Europe/Africa/Middle East, Western Europe is roughly 85% of that, 10% Central and Eastern Europe, and maybe a little over 10% Central and Eastern Europe, and a little less than 5% is Africa/Middle East. So that gives you a break down. And your other question, Larry, is about -- Margins for the second quarter should be higher than what we see in the first quarter.

Okay. Got you. For all of the segments, presumably, or especially Europe?

No.

More in when you are looking at North America and South America.

Okay. And then flat to down for Europe, Africa -- for EMEA?

Flattish. Flattish for Europe.

Okay. That's helpful. And then secondly, for GSI, $0.09 accretion looks to be in line with what you guys said previously, about 20% for the full year in the first quarter. But as far as synergies go, you guys didn't factor in much and didn't change the guidance. Have you guys found or assessed any further synergies and found any buckets of improvement or factory shutdowns or things like that, that can help?

No, we haven't changed our business plan associated with GSI. We have found opportunities to help them on the sales side. We found opportunities to co-locate some of their operations into our operations. So you can call those synergies. They are not cost cutting, where we are closing anything. These are where we are going to optimally grow the business, and that's where we are focused on with GSI.

There are no there are no shutdowns or head-count reductions planned.

Okay. Very good. Thank you.

There are no further questions. Presenters, do you have any closing remarks?

Yes, thanks, Sarah. Would like to thank everybody for their participation today, and I would encourage you to follow up with me later if you have additional questions. Thanks, and take care.

Thank you, ladies and gentlemen, for participating in today's call. You may now disconnect.