AGCO Corp (AGCO) 2014 Q3 法說會逐字稿

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

(Operator Instructions)

I will now turn the call over to Greg Peterson, head of Investor Relations. Please go ahead.

Thanks, LeAnn, and good morning. Welcome to those of you joining us on the call for our third quarter 2014 earnings presentation. We will refer to a slide presentation this morning, which is posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the last section of the slides.

We will make forward-looking statements this morning, including demand of our products, the economic and other factors that drive that demand, product development plans, timing of those plans, acquisition, expansion, and monetization plans, and our expectations with respect to the cost and benefits of those plans and timings of those benefits. Our future revenue, earnings and other financial metrics will also be discussed.

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, 2013, and subsequent Form 10-Qs. 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 later today. 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, everybody. We appreciate you joining us on the call. I'll begin my remarks on slide 3, where you can see that in the third quarter of 2014, AGCO sales were down approximately 13% versus previous year.

While our products are performing well in the market, our results reflect the impact from both softer industry-wide demand and our resulting production cuts. In response to weaker industry conditions, we are executing our plan to reduce inventory and aggressively control costs.

Our team is analyzing all aspects of the business to identify cost savings and to better align our operations with the current market environment. We are balancing the need for cost reduction with our commitment to customer support and the need to maintain our market presence.

Despite the downturn in the commodity markets, we remain confident that long-term agricultural fundamentals remain positive. Strong harvests are still required to meet the growing demand for food and biofuel requirements.

Our optimism for the long-term demand for our products is driving continued investment in our long-term growth initiatives. While we do plan to manage our production and working capital very closely this year, we are planning strategic investments in engineering and capital expenditures.

Slide 4 details industry unit volumes by region for the first nine months of 2014. Nearly ideal growing conditions have contributed to record crop production across the global ag markets this year. The outlook for increased year-end grain inventories is pressuring commodity prices, which will negatively impact the economics for row crop farmers, but favorably improve the profitability of dairy and livestock producers.

In North America, industry sales grew in the lower horsepower categories, which are typically sold to dairy and livestock sectors; while sales of higher margin, higher horsepower tractors and combines declined significantly in the first nine months of 2014 compared to the same period in 2013. Industry unit retail sales of tractors in western Europe were down about 7% in the first nine months of 2014 compared to industry sales of the first nine months of 2013.

Market results by country remained mixed, with a significant decline in our key market of France. We also experiencing lower demand in the important markets of Germany and Scandinavia. The southern American industry retail tractor volumes decreased significantly during the first nine months of 2014 compared to the same period in 2013, as well.

The decline was most pronounced in Brazil and Argentina. Demand in Brazil has been negatively impacted by funding delays of the government financing program earlier in the year and by weaker demand from sugar producers.

AGCO's tractor and combine production volumes are illustrated on slide 5. As I mentioned earlier, we made further reductions to our production schedule during the third quarter in response to softer market conditions. Our production was down about 11% in the third quarter 2014 compared to the third quarter of 2013. Production of our high horsepower equipment was down more significantly and was partially offset by increased [demand] of smaller horsepower tractors.

Globally, our order book for tractors was down about 15% at the end of September compared to September 30, 2013. We expect production volumes to be down 15% to 20% in the fourth quarter and down about 15% for the full year versus the comparable prior year period. Declines in higher horsepower equipment are expected to be partially offset by increases in lower horsepower machines.

I will now turn the call over to Andy Beck, who will provide you more information on our third quarter results.

Thank you, Martin, and good morning to everyone. I will start with a look at AGCO's regional net sales performance for the third quarter and first 9 months of 2014, which are outlined on slide 6.

The Euro and Brazilian Real both weakened during the third quarter and currency translation negatively impacted sales by about 0.7% during the third quarter. At today's rate, currency is expected to reduce our fourth quarter sales more significantly, resulting in an annual negative impact of about 2% for the full year of 2014.

Softer market conditions are pressuring results across all our regions. The Europe, Africa, Middle East segment reported a decrease in net sales of approximately 5%, excluding the negative impact of currency translation, during the third quarter of 2014 compared to the third quarter of 2013.

With softer demand from the arable farming sector, France and Germany reported the largest declines. Growth in Africa and Turkey offset some of the decrease.

North American sales were down approximately 22%, excluding the unfavorable impact of currency translation, during the third quarter of 2014 compared to higher levels experienced in the third quarter of 2013. Lower sales of high horsepower tractors, sprayers and implements were partially offset by sales growth in lower horsepower tractors and grain storage. North America sales were also negatively impacted by the timing of new product introductions and by some dealer destocking during the third quarter.

AGCO's third quarter 2014 net sales in South America were down 18% compared to strong levels in the third quarter of 2013, excluding negative currency translation impacts. Sales declined across all South American markets.

Net sales in our Asia-Pacific segment increased approximately 9% in the third quarter of 2014 compared to 2013, excluding the negative impact of currency translation. The improvement resulted from sales growth in the Australia-New Zealand market.

Parts sales were $367 million for the third quarter of 2014, which were flat compared to the same period in 2013, excluding the impact of currency translation. Parts sales increased approximately 4% in the first nine months of 2014.

Slide 7 details AGCO's sales and margin performance. Operating margins declined about 300 basis points in the third quarter of 2014 compared to the prior year period. Lower sales and production volumes and a weaker product mix generated the decline.

Europe, Africa, Middle East operating income decreased about $41 million in the third quarter of 2014 from the same period in 2013. Lower sales and the impact of lower production and a weak sales mix contributed to the decline.

North America's operating income also declined about $41 million in the third quarter of 2014 compared to the third quarter of 2013. Sales declines and a weaker product mix contributed to the lower operating income.

In South America region, operating margins were 8% in the third quarter of 2014, a decline of 460 basis points compared to the same period in 2013. Weaker margins resulted from lower sales and production levels and material cost inflation. In addition to our regional results, our results for the third quarter included a reversal of previously recorded long-term stock compensation expense of about $24 million.

Slide 8 details GSI sales by region and by product. GSI sales were up about 9% for the first nine months of 2014 compared to the same period in 2013. The largest increases incurred with grain storage sales in Europe, North America and Brazil.

We are forecasting GSI sales to be up approximately 10% for the full year of 2014 compared to 2013, with most of the growth occurring outside the US. Longer term, the global trends of population growth and changing diets are generating demand for additional grain storage and protein production capacity.

Slide 9 looks at our depreciation and capital expenditures trends. Our CapEx has been elevated the last few years to facilitate our plant productivity and new facility projects, as well as tier 4 new product introductions which support our growth and margin ambitions.

We have reduced our CapEx program modestly for the remainder of 2014. The spending will focus on tier 4 emissions requirements, other new product introductions, and our new facility in China.

Slide 10 addresses AGCO's free cash flow, which represents cash used in operating activities, less capital expenditures. Our seasonal requirements for working capital are greater in the first half of the year and thereby resulted in negative free cash flow in the first nine months of both 2013 and 2014. Our increased cash used in the first nine months of 2014 resulted from higher levels of working capital.

AGCO's inventory position at the end of September was higher than a year ago, due to increased inventory attributable to the transition to tier 4 products, higher replacement part inventory, and increases caused by declining sales. We have made further reductions to our production schedule and are targeting end of year inventory levels at or below last year's levels.

At the end of September 2014, our North America dealer month supply on a trailing 12-month basis was in the 6 month range for tractors, about 5 months for combines, and 6 months for hay equipment. These levels are comparable to those in 2013.

Losses on sales of receivables associated with our receivable financing facilities, which are included in other expense net, were approximately $4.8 million during the third quarter of 2014 compared to $6.7 million in the same period of 2013.

Slide 11 highlights AGCO's plans for returning cash to our shareholders. In March, we increased our quarterly dividend by 10%, and we have made significant progress on our share repurchase program. Through the end of September, we purchased approximately 6.4 million shares, which lowered our weighted average share count by 4.1 million shares for the first nine months of 2014.

Our 2014 outlook for the three major regional markets is captured on Slide 12. In North America, we increased our outlook for the growth in utility tractors associated with improved economics being experienced by dairy and livestock producers. However, our sales forecast for higher horsepower tractors, combines and sprayers have also been reduced to reflect softening demand within the row crop farming sectors.

Our South American industry forecast reflects pressure from tsunami funding interruptions earlier in the year, a weaker sugar sector, and lower demand in Argentina. In Western Europe, we expect demand declines in the arable farming sector and are forecasting more significant drops in the demand for higher horsepower equipment. After several strong years of industry sales in France and Germany, we are expecting continued weakness of demand in those markets in 2014 compared to 2013.

Slide 13 highlights the assumptions underlying our 2014 outlook. The 2014 forecast assumes price increases ranging from 1% to 1.5% on a consolidated basis.

At current exchange rates, we expect currency translation to reduce sales by about 2%. We also expect lower sales and production to negatively impact our gross margins.

Our forecast for engineering expenses has been reduced and is now forecasted to be at or below 2013 levels. In addition, our SG&A expense is forecasted to be lower than 2013, after including an increase in expenses associated with start-up site costs and market support costs for our Chinese operation. We are also targeting an effective tax rate of approximately 35% to 36% for 2014.

Slide 14 lists our selected 2014 financial estimates. We are projecting 2014 sales to be down about 10% compared to 2013, with the impact of softer market conditions expected to be partially offset by pricing and market share gains. We expect gross margins to be negatively impacted by lower production volumes and a weaker product mix.

Based on these assumptions, we are targeting 2014 earnings per share ranging from $4.10 to $4.30. We expect 2014 capital expenditures to be in the $350 million to $375 million range and free cash flow to range from $125 million to $150 million after funding capital expenditures.

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

(Operator Instructions)

Jamie Cook, Credit Suisse.

Just a couple questions, and I apologize because there's 4 calls going on at the same time. So I apologize if I missed something. But one, Andy, can you comment on your comfort level or where you think AGCO inventories need to be and dealer inventories need to be as you exit 2014?

And then my second question, Martin, is sort of bigger picture. While I understand you haven't given a -- you won't give a formal 2015 guidance until your analyst meeting in December, if you could give some color on how to think about your markets or how you're managing your business. For example, a large supplier said that they thought North America would be down at least 20%. So just how you're managing your business -- is it a one-year downturn? Is it a prolonged? Or how you're thinking about the cycle. Thanks.

Yes, Jamie, thank you very much. I will start. So when it comes to this famous large supply you talk about, I'm not sure about the quality of his forecast. What we are doing here, we basically tried to re-engineer our business in a way that we can cope with the markets in 2015. We want to take quick and very radical and aggressive steps in order to reduce our costs.

And we start with very small things from the top -- combining three assistant jobs between Andy, sustainability, and me into one -- down to very important activities where we think that we can run sand as a one-shift operation, but still, because of all the improvements we implemented during the last couple of years, be in a position to generate a capacity of 18,000 units. So that's a major cost advantage we can take advantage of. So we look into every corner of our Company in order to make sure that we deliver. And we want to outperform the market by quick and radical reengineering.

And then, Jamie, in terms of your question on inventories, starting with our own Company inventories, they're still, as you can see, higher than where we were a year ago, which is not what we'd like to see us with our revenues down. And as I said in my comments, we're still targeting that we can get our inventories down to level or below last year at the end of December. So we've got a lot of work to do here in the balance of the year. We have significantly reduced our production levels here in the third quarter and the fourth quarter to try to achieve that. Ultimately, it will depend on us meeting our sales targets at the end of the year.

In terms of dealer inventories, dealer inventories across the board are fairly consistent with where they were about a year ago. Obviously, with the decline in our sales and the market, we would like them to be below at this point; but we're working very closely with our dealers and I think we're making good progress in that respect, as well.

We are much better than any other competitor. So that means our dealer inventories look much better, and certainly there are some with very high inventories.

All right. Thank you. I'll get back in queue.

Rob Wertheimer, Vertical Research.

It's Joe O'Dea of Vertical. First question, more on production, I guess. It looks like from the slides that the production expectation in 4Q is roughly flat levels with 3Q. But could you talk about the mix of that? So what high horsepower might be down sequentially versus some of the smaller utility side of things up, just to get a sense for continued actions that you're taking from 3Q into 4Q as you work those inventory levels lower.

Yes, sure. I think that's a good point to be making, that the production information we give is all units. And with the mix changing, where our low horsepower equipment sales are relatively flat or even going up in some areas, and then our high horsepower equipment is coming down, so the mix is an issue. So if you take out some of the smaller horsepower production, our unit production on high horsepower equipment's going to be down in the fourth quarter, likely almost 20%. And from a standard hour standpoint, our productions will be down in excess of 20%. So that's why you're seeing some of the margin deterioration in our results as a result of the bigger, more fully integrated factories taking the brunt of the production cuts so far.

Perfect. And then along those lines, the decremental margin in Europe seemed to be considerably stronger than what you had in other regions. So could you talk about the timing of some of the planned cuts that you have? Are you maybe ahead or leading in Europe and we'll see some of the catch-up in South America, North America in the fourth quarter, or maybe just what particularly drove that decremental in Europe in the quarter?

Sure. The European production cuts were fairly big here in the third quarter. And also, I would point out that the margin deterioration was also pretty severe mix change. We had growth in some of our lower horsepower equipment, with lower margin equipment and declines, fairly significant declines, because of the production cuts in the high horsepower equipment. And that created a pretty different margin impact than what you're normally seeing. In the fourth quarter, it should get a little better from a mix standpoint. And so we're hoping that will be the result.

And then, Joe, for the full year, we would expect our decremental margins to be in that range that we had talked about earlier, so probably high 20s is the way to think about it.

Great. Thanks very much.

Andy Kaplowitz, Barclays.

It's Alan Fleming in for Andy today. If I could, I want to step back and maybe ask you a little bit of a bigger picture question. I think the view by some investors, going back to earlier this year, was that AGCO had less exposure to the large ag markets in the US on the way up, and therefore, you guys might be able to weather a potential downturn a little bit better than some competitors on the way down. So I want to ask you what's changed as you've adjusted your expectations down over the last few quarters. Do you think that this is some of you guys moving a little bit quicker than others in the industry to get production down, or has Europe come in materially worse than your initial expectations, or if you could commend on dealer willingness to restock in the channel?

I would like to start with the first part of your question or remarks. Our footprint, in a way, basically normally would allow us to compensate, let's say, a downturn in one market by opportunities in another market. So that's what we saw in the past, Brazil going down, North America going up, or North America going down, Europe going up, things like that. And what we saw so far this year is that all markets globally went down and partially without any reason within our business.

So the market in France went down because the Socialist government lost track completely and how else you can read in the newspapers, companies move their headquarters out of France, CEOs move out of France, leave their headquarters there, but relocate in order to avoid the taxes, which are up to 75%. And this does hit the farmers in France. It's not completely -- or let's say, this is not related to something in our industry.

Then the Ukraine situation, Russia, Ukraine, as previously discussed, doesn't hit us directly. So we are still in a position to manufacture and to deliver, but we have through the Russian sanctions, certain farmers in Europe being hit severely. So the vegetable farmers in the Netherlands lose about $350 million top line. The Polish farmers lose their potato and swine business and all kind of things, collateral damages which have been created, which were difficult to forecast.

So that means -- we then have an election year in Brazil. This is finally over now. I'm not sure whether it's good news for the country that the candidate who was more pro business didn't make it, but was close. So on the other hand, we will see more stability in Brazil. We have a problem in Argentina with elections coming soon.

There are a lot of basically -- there's a lot of volatility, but it's not created by the fundamentals of our industry. So that makes it -- or made it more difficult. And then I think I would agree to your point that we decided to make severe, radical cuts very early. And therefore, we might -- I hope that we are a little bit ahead of the events.

Okay. That's helpful, Martin. I'll build off of that last part, then. How are you thinking about the need for additional restructuring going forward? I see you took some modest restructuring charge in the quarter. But can you talk about your ability to flex the business down and how much more head room you have in terms of dialing back production or reducing shifts, before you need to look at larger actions if we do see a more significant decline in the markets going forward?

Yes, everybody now is working on the sales plan, and we do that, like every year, bottom up. So we talk to farmers and dealers in order to figure out what's going on in the markets. This will be closed rather soon. And in the past, we basically did the sales plan first and then we'd look into how to match this and how to basically organize the factories and things like that. So in this year, we take a different approach. At the same time, while we do the sales plan, we also come in with a very serious discussion about the restructuring needs in our Company.

And as I already mentioned, we want to be -- we want to satisfy our shareholders and create shareholder value and therefore, we will be very, very fast and very aggressive. But that being said, we also don't want to talk about it now, so we will come to Wall Street as usual. I look at it as business as usual, in a way, because with all the headwind, 2014 still will be a very good year in the history of AGCO, so we will come in with the third best year in the history or something like that. So it's not a disaster or complete mess. But we want to show that we can stand substantial headwind, and we will talk about it in December.

Okay. Thank you. And Andy, if I could squeeze one more in. Can you remind us --

Actually, Alan, I think in the spirit of letting others participate, why don't you get back in queue and we'll get back to you.

Okay.

Yes. But a nice try. And like Amy already tried to find out what we are doing.

Stephen Fisher, UBS.

It's Eric Crawford on for Steve. On the EMEA margins, appreciate the color on sales mix in 3Q, the impact that had, and what you're expecting for the fourth quarter. Is what you're expecting for 4Q mix a more normalized mix, if you will, with respect to what you're thinking for 2015 as far as the dynamic you expect to play out?

I would say, I don't know how to answer that. I think the mix does get a little better in the fourth quarter. But still, it's the high horsepower market is what's coming down the most, and we'll have to obviously look at how our sales plan for next year will be consistent with that, or will there be more mix impacts for next year? We're not ready to -- we don't know that yet. We're not ready to comment on that.

I look at it most probably will not be on record levels, but it will improve.

Okay. That's helpful. And taking a step back, I know everybody's trying to get a sense of how to frame out 2015, myself included.

That's your job, actually That's why you are an analyst.

But as far as the CapEx components and how you're viewing your priorities there, your commitment to investing in IT and new product --

Yes, what we want to do is we want to still continue with implementation of our strategic initiatives. So we think we have a very good strategy, which we also proved during the last years; but we also, of course, are more aware of the market environment and therefore, as already planned also, you will see CapEx going down.

But this was already discussed basically last year, where we said that basically we had some peak years and we did do quite some very important strategic investments. And from there on, we wanted to be done, anyhow. And that is what you should expect for 2015.

Okay. Great. Thanks for the color, guys.

Mike Shlisky, Global Hunter Securities.

I wanted to touch briefly here on Brazil. So most of your commentary so far has been on sugar cane. Just want to know a little bit about the health of your current row crop business there, with the current crop being the size it is and the prices being as low as they are, just any extra color there would be appreciated.

Yes, I think overall the business in Brazil is pretty solid. And I would also like to mention that many farmers are very aware of the situation and take action immediately. In sugar cane, people talk about generation 2 ethanol, which is made out of all the waste, which has been thrown away so far. And then in the area of arable farms, you can see in the very big and important regional (Indiscernible), farmers looking into more harvests. So from one, they go to two, or from two to three, depending on climate conditions and availability of water.

So overall, I think that the arable farmers in Brazil do pretty well. And I would expect that after the election now also, the BNDS subsidies will basically stabilize more and we will maybe hopefully get more visibility about next year soon.

Great. Thanks. And my other question is just a quick update on how it's going with Intersystems thus far through the third quarter now.

As far as we can say today, very well. So I think it was a very intelligent acquisition. But to be also honest, I think the proof is in the coming years. So because we had, of course, very high expectations, as well.

Okay. Thanks so much, guys.

Thanks, Mike.

Jerry Revich, Goldman Sachs.

It's Matt Rybak on behalf of Jerry. Gentlemen, I was wondering if you can maybe touch on the pricing environment that you're seeing play out across the various regions, and in particular, any sort of competitive dynamics that are shaping up over the quarter and heading into the fourth quarter.

As you can see from our comments, we've pulled down the pricing expectations again. So I think we're seeing a more competitive environment. This is very typical when conditions get a little softer and manufacturers are working on their dealer inventory levels, and the dealers are, as well. But I would also categorize it as more competitive, but there's not crazy things going on in the market, at this point. It's still, I think, a good market and everyone's able to compete in a good way, so far.

But there were certain crazy things going on here in the US. A smaller German competitor basically dumped combines in the market, because nobody wanted to buy them. And that's bad for them. It didn't hurt us so far, because they're some kind of a niche player.

Understood. And briefly, wondering if you could maybe touch on how order books are shaping up. You're one month into the fourth quarter. Just any commentary you can provide on the progression would be much appreciated.

Yes, our order board, as we said, is down about 15% overall. Again, better on the low horsepower side of things, worse on the high horsepower side of the market.

And we see slight improvement, I would call it, mainly in Europe.

And that's for the fourth quarter?

Yes.

Thank you.

Vishal Shah, Deutsche Bank.

This is Chad Dillard on for Vishal. Thanks for taking my question. Just wanted to dig a little bit more into the inventories and get a sense of where you see the most need to stock down, particularly, do you think you'll be able to hit your target on the high horsepower of getting to where they were last year?

Well, in terms of our inventories, a lot of the increase that we have over a year ago, at this point, is attributable to tier 4. So probably $120 million or so of the inventory increase is transition inventory that we start to work down in the fourth quarter. So we should actually see that coming down and being lower than the levels of transition inventory we had at the end of last year. So that's the key reduction.

Also, we'll be pulling down, like we always do in the fourth quarter, our replacement parts inventory and other finished goods inventory. So it's really across the board changes in inventory levels in the fourth quarter.

Okay. That's helpful. And just wanted to go to the Brazil market. It seems like over the year, a little bit of your share is declined per [Amfavia] data. Just want to get a sense of whether you're seeing more of this decline in the high horsepower or low horsepower?

Well, I think actually our share is pretty stable this year. What's happening is that there's a lot of movements going on down there. Our share has been -- is lower in the new regions of Brazil and still very, very high in the traditional markets. And then also, we have a very high share in the sugar cane sector and that's what's down most severely. So I think there's a lot of mix changes going on, but overall, we've been comfortable that we've been stabilized that market share this year.

And the most important message is we don't lose customers. So the customer retention by brand for Valtra and Massey Ferguson in South America is excellent.

Great. Thanks for the color. I'll jump back in queue.

Larry De Maria, William Blair.

I was hoping that you guys could clarify the intention of TAFE, a Board member that's been obviously buying stock on behalf of TAFE, and the enterprise maybe behind TAFE. What led you to cap the total at 12.5%? What should we read into that? And what does TAFE hope to gain by having a stake? Can you give us some clarity on that, please?

Yes, TAFE is a private owned, family-owned company in India. Their origins basically generate from being a major and leading book seller in India, and then 1960, the founder decided to invest in other businesses, a typical Indian diversified conglomerate. And they decided to invest in farming, organic tea, motorcycles, and automotive parts. 1960, there was a contract signed between Massey Ferguson and TAFE. And it was a license agreement where basically TAFE started to assemble, CKD assemble, tractors between, let's say up to 75-horsepower and branded them Massey Ferguson and sold them in India.

Today -- and at that time, AGCO, because of legal restrictions coming from the Indian government, could only own 23.5%, which is still the case today. And in the meantime, TAFE is number 2 in India, very close to the market leader Mahindra Mahindra. While Mahindra has a tendency to lose market share, TAFE does gain market share every year, and this is also supported by the technology transfer between AGCO and TAFE. So that's a very solid, long-lasting relationship.

TAFE is our main supplier for simple high quality, durable small tractors for markets like Africa, South America and also here in the US. So that's a long-lasting and very successful relationship. We also use them as our agency for the purchase of components in India, and we basically do generate a dividend for our investment.

Then several years ago, the Board or I invited Mallika to join the Board, which gives us a very good diversification. She is not only a woman; she has been Business Woman of India for several years, and she is very, very well connected and knows our industry very, very well. And on top of that, she is a woman, which also was attractive to us.

And then there's mandatory stock ownership for directors, and Mallika wanted to signalize how much she believes in our business and how much she believes in our strategic alliance, and wanted to buy more. In order to make sure that we don't get into complication here long-term, we decided to agree on a stand-still agreement, which is 12.5%, on the basis of the share count December 31 of 2013. And this is pretty much what she is rolling out through programs and she is pretty close. I think she is at around 11% right now, 11% something, 2, 3, 4, depending on how you look at it.

And we are actually very satisfied to have such an important strategic shareholder. She is in for the long run. I just talked to her last week. And so she sees it as a strategic long-term investment, without the intention to become a trader or to sell and buy, depending on the stock price. She is not concerned about the market, because she believes in the fundamentals, as we do. And she's a very, very supportive, and also at the same time, challenging director, helping us to understand the markets of Asia much better than we could do that just from Georgia.

Okay. That's a lot of color. Thanks. So I guess we shouldn't read too far into the stake, as far as limiting it and thinking that eventually there could be a bigger collaboration or something like that. Really, it's just simply a strategic investment that she believes long-term into, it sounds like.

It's a smaller, reasonable strategic investment in the Company. And no other interpretation.

Okay. That's great. Thank you. Then if I could ask my second question, you said the end of year inventory will be at or below last year's levels. We're assuming next year is probably going to be down. Does that imply that inventory is too high to start the year and you'll need to under produce versus retail again the first half? Because I'm just not sure how the engine making plays into that calculation.

Larry, it's something that we'll have to look at as we finalize our sales plans for next year and it will be something that we'll have to consider as part of our planning process.

Okay. Did you break out how much of the engines and parts are yet? I'm sorry if I missed that. In the inventory?

Yes, we said engines were about $120 million as a year-over-year change.

Okay. Thank you.

(Operator Instructions)

Seth Weber, RBC Capital Markets.

This is Emily McLaughlin filling in for Seth today. Just a couple questions. First, can you tell us what used inventories levels and pricing are by region and product, high horsepower versus some of the smaller equipment? And then secondly, can you update us on your capital allocation plans, particularly in light of the lowered free cash flow guidance for 2014?

Sure. On used inventories -- I don't have all that detail that you're asking for -- but generally, our used inventory levels at our dealers are higher than where they were a year ago, but I think in a manageable range. So it's certainly an important area for our dealers to -- important focus area for our dealers right now. But I think we're in pretty good shape in terms of used inventories.

In terms of capital allocation, you have in our results and our footnotes how many shares we've purchased so far. We're steadily working our way through that $500 million share repurchase authorization that we started with at the beginning of the year, and our intention is to continue to steadily repurchase shares. So the change in our free cash flow guidance is not changing our plans for share repurchase.

Okay. Thank you.

And this concludes our Q&A session. I will now turn the call back over to our presenters for closing remarks.

Thanks, LeAnn. I'd like to encourage the remainder of the folks still interested to follow up with me later today. And we appreciate everyone's interest in AGCO and wish you a very good day. Thank you.

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