AGCO Corp (AGCO) 2015 Q3 法說會逐字稿

Good morning. My name is Kelly and I will be your conference operator today. At this time I would like to welcome everyone to the AGCO 2015 third quarter earnings 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. Greg Peterson, head of Investor Relations, you may begin your conference.

Thanks, Kelly, and good morning. Welcome to those of you joining us on the call for our third quarter 2015 results summary.

We will refer you to a slide presentation this morning, which is posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of this presentation. We will make forward-looking statements this morning, including demand, product development plans and timing of those plans, acquisition, expansion, and modernization plans, and our expectations with respect to the cost and benefits of those plans and timing of those benefits. And our future revenue earnings and other financial metrics. We wish to caution you that these statements are predictions and that actual events may differ materially.

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

Pushing ahead, on the call this morning with me are Martin Richenhagen, our Chairman, President and Chief Executive Office; and Andy Beck, our Senior Vice President and Chief Financial Officer. Martin, please go ahead.

Thank you Greg and good morning to those of you joining us on the call. My comments start on slide 3. You'll find a summary of our third-quarter results. AGCO's performance demonstrates our ability to deliver solid results despite difficult market conditions.

During the third quarter our focus remained on operational execution and customer service. In response to softer market conditions across the globe, we continued our efforts to control costs and manage our production schedules to address our company and dealer inventory level. As a result of weaker market demands, lower production levels, and currency headwinds, AGCO sales were down approximately 19% compared to the third quarter of 2014. Despite the lower sales level, our growth and operating margins held up well compared to the prior year. Our cost reduction efforts are being balanced with our commitment to customer support and maintaining an aggressive sales and marketing presence

The quarter was also highlighted by strong execution on our inventory reduction plan. Inventories were lower by over $305 million on a constant currency basis from September 30, 2014 levels. Our balance sheet remains in very good shape and is enabling us to continue to return cash to our shareholders.

Now slide 4 details industry unit retail sales results by region for the first 9 months of 2015. Another year of robust global harvest is putting pressure on commodity prices, and more challenging farm economics has reduced demand for agricultural machinery, especially for larger models.

Industry retail sales in North America declined, with the largest drop in high-horsepower tractors, sprayers and combines, partially offset by more stable demand for small tractors due to more normal conditions in the region's livestock sector. Industry unit retail sales of tractors investment (inaudible) up or down about 8% in the first 9 months of 2015 compared to industry sales in the same period last year.

Difficult conditions for dairy producers and low grain prices impacted market demand across Western Europe. Industry retail sales in South America were extremely weak resulting from the political uncertainty and depressed general economy in Brazil, as well as the related changes to the weak Brazil government financing program.

AGCO's 2015 production schedule for factory production hours are shown on slide five. We closely managed the seasonal build in our Company and dealer inventories during the first 9 months of 2015. On a year-over-year basis production hours were down 14% in the third quarter of 2015 and contributed to the significant decline in our Company inventory compared to the third quarter of 2014. The lower production also contributed to weaker earnings compared to last year. We expect fourth quarter production to be down about 10% resulting in full-year production that is expected to be lower by 16% to 18%, about, compared to 2014 levels. The 2015 production mix will also be weaker than last year with more significant reductions in higher horsepower equipment.

Globally, our order book for tractors was down about 10% as well at the end of September compared to September 30, 2014. Orders were up in Europe, down in North America, and down more significantly in South America.

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. I will start with a look at AGCO's regional net sales performance for the third quarter and first nine months of 2015 which are outlined on slide 6. The weaker Euro and Brazilian Real resulted in adverse currency translation, which negatively impacted third-quarter net sales by 15% and year-to-date net sets by 13.5% compared to the same periods last year. Weaker industry demand also pressured sales across all our regions for the first nine months of 2015.

For the third quarter of 2015, the Europe, Africa, and Middle East segment reported an increase in net sales of approximately 4% excluding the negative impact of currency translation compared to the third quarter of 2014. The timing of new product introductions compared to last year contributed to sales growth despite the industry decline. Sales growth in France, Germany, and Spain was mostly offset by declines in other markets. North American sales were down approximately 4% excluding the unfavorable impact of currency translation during the third quarter of 2015 compared to levels experienced in the third quarter of 2014.

Lower sales of combines and sprayers were partially offset by growth in protein production equipment. AGCO's third quarter net sales in South America were down approximately 24% compared to the third quarter of 2014 excluding negative currency translation impacts. Significant sales declines in Brazil were partially offset by growth in other South American markets.

Net sales in our Asia-Pacific segment were down about 4% in the third quarter of 2015 compared to 2014, excluding the negative impact of currency translation. Lower sales in the Australia New Zealand market and Japan were partially offset by growth in China. Parts sales were $329 million for the third quarter of 2015, which were up about 5% compared to the same period of 2014 excluding the negative impact of currency translation. Parts sales were up modestly for the first nine months of 2015 compared to the same period of last year on a constant-currency basis.

Slide 7 details AGCO's sales and margin performance, our ongoing cost-reduction efforts targeted at labor, productivity, and material costs helped to minimize the negative impacts of lower levels of demand and production on our third-quarter operating margins. On a consolidated basis, third-quarter adjusted operating margins declined only 60 basis points compared to the third quarter of 2014. In addition, excluding the benefit of the 2014 reversal of previously recorded stock compensation expense, the 2015 third-quarter operating margins were higher compared to the third quarter of 2014.

The Europe/Africa/Middle East segment reported an increase in operating margins of over 200 basis points from low levels in the third quarter of 2014. Slightly higher sales on a constant currency basis, operational efficiencies, lower SG&A expenses and higher margins on new product sales all contributed to the margin improvement.

North America's operating margins were 8.3% in the third quarter of 2015, up over 100 basis points compared to the third quarter of 2014. The benefits of improved mix, cost control action, and favorable transactional currency impacts more than offset the impact initiated by lower sales and production. In the South American region, weaker margins resulted from lower sales and production levels as well as material cost inflation. Margins in the Asia-Pacific region were negatively impacted by startup costs associated with our new factory in China.

AGCO's third-quarter results also benefited from lower interest expense net, and higher other income compared to the third quarter of 2014. Interest expense net was improved over the prior year as a result of lower interest rates on debt and higher interest income. Other income was improved due to lower discounts on sales receivables, as well as the generation of foreign exchange transaction and hedging gains compared to losses in the prior year.

Slide eight details GSI sales by region and by product. GSI sales were down about 5% excluding currency impacts for the first nine months of 2015 compared to the same period in 2014. Sales declines in Eastern Europe and China were partially offset by growth in South America and in the North American protein production segment. Demand for grain storage equipment in North America slowed considerably in the first nine months of 2015. We continue to expect GSI sales to be down modestly in 2015 compared to 2014 on a constant currency basis.

Slide 9 looks at our depreciation and capital expenditure trends. After completing a number of major productivity projects and making heavy investments in new products over the last few years, we reduced our CapEx program for 2014 and 2015. For the full year of 2015 we expect our CapEx to be below 2014, primarily due to the impact of currency translation. We continue to make strategic investments to refresh and expand our product line, upgrade our system capabilities, and improve our factory productivity.

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 for both the first 9 months of 2014 and 2015. The benefit of our inventory reduction efforts that Martin mentioned earlier is evident on this slide. Our lower production schedules reduced the seasonal build of working capital and our use of cash during the first nine months was lower by nearly $370 million compared to 2014.

In 2015, we plan to continue to invest for long-term growth and profitability improvement, as well as make additional investments in new products. After covering spending on those strategic investments, we are targeting significantly improved free cash flow for 2015. At the end of September 2015, our North America dealer month supply on a trailing 12 month basis was higher per combine, in line for tractors and hay equipment, compared to last year.

At the end of the third quarter we were at 6.5 months for tractors, 5.5 months for hay equipment, and 9 months for combine. Losses on sales receivables associated with our receivable financing facilities, which is included in Other Expense Net, were approximately $4 million during the third quarter of 2015 compared to $4.8 million in the same period of 2014.

We continue to make cash returns an important component of our long-term capital allocation plan. In the third quarter we continued to repurchase shares under a $500 million authorization, which is expected to be utilized through 2016. For the first 3 quarters, we repurchased shares at a rate of a little over $60 million per quarter. We intend to increase the rate for the fourth quarter. The share repurchases and our dividend are expected to be funded with operating cash flow.

Our outlook for 2015 for the three major regional markets is captured on slide 12. Our forecast anticipates softer market conditions in all three regions. In the United States, the USDA estimates that farm income will be down again in 2015, and the equipment market continues to weaken through the first nine months of 2015. As a result, we have lowered our North American forecast to be down about 10% from 2014 levels. We expect softer equipment demand, with row crop equipment expected to be down more significantly, and lower horsepower equipment expected to be relatively flat.

We also lowered our forecast for the South American region, and now expect industry demand to be down about 25% from 2014 levels. Political uncertainty and economic weakness is negatively impacting demand in Brazil. Uncertainty on the funding levels of the government-subsidized financing programs and unfavorable economics for sugar producers in Brazil are also expected to contribute to weaker South American industry demand in 2015 compared to 2014. Lastly, we expect a decline in Western European markets impacted by lower dairy and cereal prices that are reducing farm income in 2015.

Slide 13 highlights the assumptions underlying our 2015 outlook. Our 2015 forecast assumes softer industry demand across all regions and a sales decline ranging from 22% to 23%. Our plan includes price increases of about 1.5% on a consolidated basis and currency exchange rates. We expect currency translations to negatively impact sales by about 13%. In 2015, engineering expenses are expected to run about 3.8% of our sales. We also expect lower sales and production levels, as well as a weaker sales mix, that negatively impact gross margins. These negative impacts are expected to be partially offset by the benefit of new products, our productivity and purchasing initiatives, and our restructuring actions. We are forecasting adjusted operating margins ranging from 5.3% to 5.5% in 2015 and are targeting an effective tax rate of approximately 30% to 32% for 2015.

Slide 14 lists our selected 2015 financial goals. We're projecting 2015 sales to range from $7.5 billion to $7.6 billion, with softer market conditions and the negative impact of currency translation reducing both sales and earnings. These factors should be partially offset by pricing and modest market share gains. We expect growth in operating margins to be down from 2014 levels, reflecting the negative impact of lower sales volume and a weaker sales mix. The benefit of our cost-reduction efforts and a lower tax rate are expected to be partially offset by the volume-related impacts. Based on these assumptions, we are targeting 2015 Adjusted Earnings per Share of approximately $3.20. We expect capital expenditures to range from $250 million to $275 million, and free cash flow to be approximately $300 million.

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

(Operator Instructions)

Ann Duignan, JPMorgan.

Good morning. First, can we talk a little bit about GSI? If I look at grain storage, year-over-year, it looks like that business is down about 15% from a revenue perspective. Can you give us a little bit more color on the North America grain storage business? I know you said it was down significantly, but can you quantify how much it was down in the quarter, and why wouldn't we expect that to get worse before it gets better?

Well, Ann, what's happening on the grain storage side in North America is we are seeing that significant weakness on the on-farm storage part of the business. That's being in line with what we're seeing on the row crop tractor, combine, where farmers are just delaying purchases or a new investment. What has held up better is what we call the commercial side of the grain storage business, that's selling to the Cargills of the world or in ports, or grain elevators and those types of operations.

Our overall grain storage business in North America -- and I'm going to talk about year-to-date -- is down about 7% or 8%, and our protein business which in North America is up mid-teens. So overall our sales in North America are relatively flat year-over-year through the first nine months of the year.

Looking forward, I think what's going to happen still is that we will see weakness on the grain storage side, particularly on the on-farm side, as it looks like the demand patterns are going to mirror what's happening on the tractor combine part of the business as well.

Jerry Revich, Goldman Sachs.

Hi, good morning. I'm wondering if you could talk about what you're seeing out of the other major markets for you in South America outside of Brazil. It looks like your organic volume performance was better than shipments in Brazil. Can you just flush out for us what you're seeing in Chile and Argentina and the go-forward there?

The strategy for those South American markets outside Brazil is of course to take advantage of the very favorable low Real, so the favorable exchange rates, which makes us more competitive in exports. This is what we see this year and we also try to level this for the remainder of the year.

Jerry, the biggest export market outside of Brazil, or the market that we ship the equipment from Brazil to, is Argentina. As you are aware, the last few years they have had import restrictions that have really reduced sales in that market. This year though there's been some increase to those import -- and import allowances. So this year the market for us or our sales in Argentina are almost 20% and up actually more than that in some of the other South American markets. Significant increases for sure.

Jamie Cook of Credit Suisse.

Good morning. A couple questions. One on the order book I think you noted again that Europe was up. Does that give you increased confidence? Has your backlog improved at all and what did you see on a sequential basis?

And then, I guess, Martin or Andy, just broadly, can you talk about where dealer inventory is, relative to where you want it to be, and does the excess inventory in the channel sort of shift into 2016 which I think is the market's view at this point. But if you could give us a little color on how much of a headwind that is to 2016, and whether or not, given what you are seeing in the markets, should we expect, are you contemplating another restructuring of size? Thanks.

Okay, Jamie. Looking at the orders in Europe, if you look at the Europe, Africa, Middle East order backlog, it is up over 20% versus where we were a year ago. If you look at just Western European market, it's just modestly up. Most of that order growth is in markets like Africa, Middle East. The Western European market I think has been very steady. It's been down all year, relatively constant rates, and that is what we expect to continue for the balance of the year.

In terms of dealer inventory level, we are making some progress. Our North America dealer inventories are down about 10% compared to where we were a year ago. Obviously in the market, on the large equipment is down at a higher percentage than that. That would indicate that we still have more work to do.

Our target for the end of the year is to continue to have that dealer inventory get lower. And the end of the year is a big retail period for our business in North America, and we will have to look and see where we are at the end of the year to see how that impacts 2016.

I would expect that we will have some more work to do in 2016, but the extent of it is still yet to be determined.

Jamie, when it comes to restructuring I do not hope that we have to do something major in 2016. We are due a little bit here in North America. We offered another early-retirement program, which would -- could affect about 150 people. So the question is how many will take it. I guess maybe half of those. We have tried to run the Company with -- let's say very carefully in order to make sure that we stay very cost-focused.

Joe O'Dea, Vertical Partners.

With the outlook for a little bit more work to do on North America inventories, and I think the slides show that production should be flattish 4Q versus 3Q, and I think some seasonal element of that -- but could you talk about in general, your comfort level with sort of current production rates and the extent to which you think those still need to come down a little bit. Or have you made most of the move there and now it's a matter of just letting inventory work itself down?

No. We will cut production levels [out] in the fourth quarter.

I think, right, as we indicated our production levels will be down year-over-year about 10%. And I think we've pretty much set our production for the balance of the year. There could be some minor changes from that depending on what happens in the market in the fourth quarter, but for the most part we are now in a position where our production is set and it's a matter of what our sales activities are, what our retail sales are, for the balance of the year, and that's where the real focus is at this point.

Andy Casey, Wells Fargo Securities.

Martin, a couple questions. Can you update us on what you're hearing about the potential changes to Finame? And then second, on cash flow, there's an implied acceleration in CapEx during Q4 and to get to the $300 million in free cash guidance, I understand Q4 is always seasonally strong. What sort of inventory reduction or working capital benefit do you expect?

Well, on the -- on the CapEx, you're right, we do typically spend more in the fourth quarter and so that should be consistent with what we've done in the prior years. On the inventory side, because we did not increase seasonally our inventory as much as we did in the prior year, you won't see as dramatic a reduction in the fourth quarter. We will reduce -- all of our working capital comes down in the fourth quarter and our inventory levels come down as we wind down the year. That should be consistent.

What we're looking for is our total inventories year-over-year on a constant-currency basis to be somewhere $100 million and $125 million lower than a year ago. I will let Greg discuss what's going on in the Brazilian financing program.

Right, Andy. The announcements that were made last week, the numbers that were thrown out were for all the commercial programs that they have. That's trucks and construction equipment and farm equipment, and the numbers that you saw, $50 billion was the original authorized amount -- got cut to $19.5 billion. Some of that isn't -- maybe the headline is a little worse than reality, in that only about $7 billion has been funded year-to-date. They are just cutting those budgets kind of to back into what the run rates are today.

Right now our going-in assumption for the rest of 2015 is that interest rates and down payment requirements stay the same. Throughout the year, the government has slowed the processing of loans to kind of regulate the amount of funding that is being met. Our expectation is that will continue through the end of the year. We are going to monitor it very closely.

Right now our assumption for 2015 though is that we will be able to fund -- or that the financing program will fund our estimated industry sales. That is kind of where we are.

When it comes to the slowdown in the process as such, together with our peers we really lobby hard in order to get that changed, because this is not acceptable. We talked to the Secretary of Agriculture, who has no understanding for the problems so far. We have talked to the government, who does not understand how important farming is for Brazil. And this is unheard of, and it's not okay that the process -- after the money has been allocated, is going as slow as it is right now. I think they have political intentions, they want to keep as much money in their pocket as possible. It's a lousy government, it doesn't function, it's dysfunctional, and we need to speak up and we need to basically get our voice heard. And that's what we are doing. We went to Brazilia, we talked to all relevant people, but this is a very, very difficult time in Brazil.

Seth Weber, RBC Capital Markets.

First question, can you update us on what you're seeing on used equipment inventories for AGCO and I guess maybe relative to the industry, and what you're seeing on used equipment pricing. And then I had a follow-up question on the GSI business if you could.

Our used inventory is coming down. It's down in relation to what I discussed, or actually a little better than what I discussed on our new inventory. We are making progress there.

Obviously the market is weak, and especially on the large equipment and so it's just a matter of time to watch that inventory move its way down. It certainly continues to impact the market, as dealers do not want to increase their used inventories at this time. It is something that we continue to monitor. I think we're probably in maybe better shape than the overall industry just because of our position in North America. And we do still see it as an issue for the overall industry.

Is pricing holding, or is it down low single digits, mid single digits, something like that, is that a better --

It's been down modestly. We haven't seen any recent major changes in the used pricing.

The reason is a used Massey Ferguson tractor is still better as a new [Granville], so therefore we don't suffer from that.

Understood. If I could just follow up with a GSI question. The North America margins were actually better than what we were looking for just across-the-board. Is there any granularity you could share with respect to GSI margin, grain storage versus the protein business? Are they roughly comparable, is one better than the other, is there any way you can help frame that for us?

So, Seth, in North America the products that we sell through our GSI business are typically a little more sophisticated and so the margins in North America are typically a little higher than what you would find outside of the US. When you are looking between the grain storage and the protein production I would say that they are pretty comparable. Grain, in some cases, the bigger grain installations might be a little higher, but they are both very attractive margins.

Larry De Maria from William Blair.

Two questions. You mentioned that hoping not to do any major restructuring next year, but if volumes are down again 10% or 15% and thinking maybe North America and Brazil, how would we think about decremental margins and your ability to take out more costs next year?

And secondly can you just help out -- European registrations were down in most markets in the quarter, even sharply in some markets, but you posted a nice organic growth on the quarter. Can you give us a little color as to where that growth is coming from?

First I want to make some comments on the restructuring. I think so far we reacted early and in a very cool manner. You should assume that we will do something similar if needed in 2016.

I still believe we don't have to do major things. Direct labor will be assessed anyhow automatically. I would trust -- suggest that you trust that we must have this kind of situation.

On the decremental margins, Larry, our assumptions, and again we think about it typically more in a constant currency basis, but our decremental margin assumptions are a range from probably low 20%s, more so, low- to- mid-20%s in South America, in Europe, probably upper 20%s or low 30%s. Depending on the mix of the products that are in decline, you will see varying rates of decremental margins, but those are the assumptions that we typically think about. And again, keeping currency constant.

That is one of the things this year as you look at our margins, from a decremental basis, the currency movements have definitely influenced those. So when you look at the underlying margins, those are typically in that low 20%s to low 30%s range.

You had one last question Larry?

No, two he had.

Yes, Robert Wertheimer of Barclays.

My first question is on Brazil margins and you just alluded to it. It would seem with the rapid -- well, continued rapid depreciation of the Real that importing some of the componentry that you might do -- I know you produce locally, but I assume there is a decent portion that is imported -- would raise the local costs and your margins were pretty good. Are you able to get local pricing, if there is such an impact that I described, is that a quarter or two ahead? Are we through the worst of it? Maybe you can comment on that situation.

I just want to make a comment before I hand it over to Andy on our factory. We have several factories in Brazil. A very strong footprint and all products are localized so we don't depend on imports so much.

I didn't mean, Martin, the finished product. But I didn't know how much componentry and whatnot -- (multiple speaker)

Components as well. You can only localize if you buy the components locally. Okay?

Yes, you have -- to qualify for the Finame program in Brazil, you have to have at least 60% local content, and they are actually making those rules more stringent going forward. You must be a local manufacturer.

You are right that there are some components and some volume that we are importing. Actually the amount of imports has gone up over the years because we were able to get some content out of developing markets like India or China that were cheaper than Brazil. What our purchasing teams are doing right now is resourcing some of those components back locally.

We think for the most part we can cope with the change in the Real. It does have some impact on the imported content, but also we are exporting tractors and production out of Brazil into other markets. We export them into the other South American markets, we export them into markets like Africa, Middle East, and some other markets like that that use small equipment. For that reason actually we are a net exporter out of Brazil, and so the weakening in the currency has some favorable impact for us.

That explains it. Perfect. If I can ask a quick follow-up, on the earlier question on financing, one of the summaries mentioned the PSI funding cutoff was changed from December 30 to October 31. I don't know if that has an actual meaning on the ground or what that meant, if you're able to clarify that, if you saw it.

Martin mentioned that we are working with various government agencies to get that clarified and to improve that. Also, Rob, there is another program in Brazil that you are aware of, [Mortopreto], that is available when and if the PSI program is cut off. Right now our expectation is there won't be a gap in funding, but obviously we will watch that very closely.

Tim Thein, Citigroup.

Martin, there is some good billboard material for some of the folks in Moline earlier. Two questions on EMEA. First, just the margin expectations in light of the total Company guidance coming down a bit. Do you still feel, Andy, that you see the normal 4Q margin acceleration to get you into the same ballpark as where you finished 2014? And then the second part was just overall sentiment in Western Europe. Looks like it's picked up here in recent months, and even in Eastern Europe. They have called out German dealers as talking about higher levels of both new and used machines.

I'm just curious if there is something, especially in light of the show coming up in a couple of weeks, if there's anything particular there? I know it's obviously a pretty important market for Fendt. Maybe you can just comment on Germany specifically? Thanks.

Germany actually is down this year and I am not sure how Germany will develop. We will know more, as you say, after we saw dealers and customers on the show. The mood in Germany is not really great compared to other European countries.

On your question on the margins. We have not changed anything relating to our assumption on Europe, Africa, and the Middle East segment and we do continue to see that the margins should be relatively close to what we performed last year in terms of overall operating margins in our Europe, Africa, and Middle East region.

Nicole Deblase, Morgan Stanley.

My first question is around North America margins. So they were really strong this quarter. You guys saw 130 bps of expansion even though the revenues were down. I know you highlighted FX and mix, but I thought maybe you could dig into that a little bit and talk about the sustainability of that result into the fourth quarter?

Then my second question is just if you guys have any more color around the volume of buybacks that you're expecting in 4Q since you said that you will be accelerating the program.

Sure. On the margins, we did have a pretty good result here in the third quarter. And there was a benefit from foreign exchange of about 1% on our margin. That helped offset some of the impacts within our factory costs associated with the lower production. And so that was the main reason why we were up, and then the mix is much better. It's the best quarter, or one of the best quarters, for our GSI business, which as Greg highlighted before, is a very good margin.

As you move into the fourth quarter in North America, that is the weakest quarter for GSI. So we lose a lot from a mix standpoint and so our margins will come down substantially here in the fourth quarter compared to what we saw in the third and compared to what we had a year ago, because we have lowered production further to compensate for some of the industry weakness, and that is going to affect the margins in the fourth quarter.

When it comes to the share buyback, we had discussions with some of our major shareholders and we basically agreed to the idea to accelerate the program. We couldn't do that, or we can't do that at any time because we have windows we have to reward and therefore we will do that in the fourth -- in the next quarter.

Thank you.

Steven Fisher, UBS.

Thanks. Good morning. I know it's a little bit too early for 2016 guidance, but I just wanted to get a sense of the impact of your restructuring actions. What kind of--

We don't talk about 2016 during this call. We will be in New York in December and talk about next year.

Right, but I was just kind of curious about what kind of market conditions --

Yes, we don't talk about 2016. And understand, I'm curious as well, but let's wait until we put the plan together.

Okay, fair enough. I guess the other question would be coming back to Europe. Wondering if you can just talk a little bit more about what really did drive the European growth in the quarter and how sustainable it is. It sounds like it wasn't Germany. I know you mentioned some new products. Do you have an extensive pipeline there that can keep that going? Just curious what was the real drivers of Europe and how sustainable is that growth?

Sure. You have to first go back to what third quarter looked like a year ago. It was the quarter where we started to make rapid adjustments to production and sales levels to respond to the declining industry. And so we had some extended production shutdowns a year ago in Europe, and actually even though we talked a little about Germany being weaker, our -- for instance our German Fendt facility, the production was actually up this year versus last year, just modestly. And so for that reason, we saw some sales growth in some of our brands because of what we did a year ago.

Secondly, we had, last year, some really slower sales because we were transitioning to some new Tier 4 products that were going to be released later in the year. It was a relatively weak sales quarter for us. This year we have the full benefit of those new products in our results. We can definitely see margin improvement and sales growth associated with those products that were not in our results a year ago.

Is that enough to sustain it for multiple quarters going forward? Or you need to see the market conditions improve?

Yes, that was somewhat of an unusual situation. We kind of get back to normalized sales conditions in the fourth quarter with the comparable products being sold in both quarters, and so I would expect that you are going to see our sales be down, and be down in relation to what we're giving from an industry perspective of the decline.

Thanks a lot guys.

Joel Tiss of BMO. Your line is open.

A lot of my questions have been answered. Before, Larry asked about the capacity utilization rate, and I was curious about the answer to that. And I guess we've gotten a lot of the pieces about really what is accounting for your much better resiliency in earnings and margins and all that during this cycle versus past cycles. But if there's anything else that we've missed on that front.

I think the summary is pretty much that, one, we could deliver above guidance and above consensus. And then second, we slightly raised the guidance for the remainder of the year, which is also good news compared to our peers. I think we are, as I said, hanging in.

As you might believe that we really try very, very hard to perform as well as possible. And I think it shows also how much we have changed the footprint of the Company in previous years. And now imagine markets come back. We need shareholders to have a little bit of patience and if you're in for a little longer, then I think we will please our shareholders as soon as the markets come back.

And capacity utilization?

This is a question for whom? Beck, to you?

Yes, so obviously the utilization varies pretty significantly across our factories. One of the things that is consistent is that we have gone to single-assembly shifts in all of our plants. The good news is that over the last 5 years to 10 years we have made some significant improvements, significant investments, in our plants such that we are able to operate more efficiently. A big example of that is in Germany, we have taken a lot of costs out of the Fendt plant as a result of automation and some improved management and software.

We are probably closer to the 2/3, 60% to 70% of capacity utilization assuming these single assembly shifts. And of course some of that is dependent upon our supply chain and how timely we can get components. Probably in that range, Joel.

Thank you.

Vishal Shah of Deutsche Bank.

I want to understand the tax rate. You guys have done a good job of cutting tax rate over the last year. Can you help us understand contributions from regional mix versus some of the structural improvements and how much more run rate you have to improve tax rate going forward?

The tax rate is basically dependent on, as you say, the regional mix of profitability. And as our profitabilities come down, particularly in our North America region, the US tax rates are some of the highest in the world as you probably know. That's allowing our rates to come down. That's the main driver of the rate decline. The rate going forward will be very dependent on the mix of profitability in the future.

On the GSI business, you mentioned the commercial GSI segment is doing quite okay. What kind of visibility do you have on that segment, are you seeing strong orders from that part of the segment and do you think that this kind of activity continues into 2016?

We don't really get a lot of visibility into the GSI from an order backlog standpoint. Their order backload is like maybe one to two months. As we said, that side of the market has held up better than the on-farm piece, but it's down as well, and we're seeing weaker demand than a year ago in that segment as well.

Richard Hayden, CHC.

Most of the questions I -- have been answered. A couple of small questions. What created the $12.1 million swing in Other Income in the quarter?

Sure, as we have said in our comments, there was a number of things. Some were lower discounts on sales of receivables. As our sales go down, we were selling fewer receivables and so those costs come down as well. That was a portion of it.

Then we always have some level of foreign exchange transactional gains or losses in any quarter. A year ago, they were losses and this year they were gains. Those are a little unpredictable and not something that you can count on. They were gains this quarter versus loss, and that creates that sizable swing in that line item on our income statement.

Thank you.

There are no further questions at this time. I turn the call back over to Mr. Peterson.

Thank you for your participation this morning. We appreciate your interest in AGCO, and for those of you that have follow-up questions, I encourage you to follow up with me later today. Thank you.

This concludes today's conference call, you may now disconnect.