Greg Peterson - Director-Investor Relations Martin H. Richenhagen - Chairman, President & Chief Executive Officer Andrew H. Beck - Chief Financial Officer & Senior Vice President.

Andrew E. Buscaglia - Credit Suisse Securities (USA) LLC (Broker) Stephen Edward Volkmann - Jefferies LLC Eric Crawford - UBS Securities LLC Ann P. Duignan - JPMorgan Securities LLC Larry T. De Maria - William Blair & Co. LLC Alan Matthew Fleming - Barclays Capital, Inc. Tyler L. Etten - Piper Jaffray & Co (Broker) Joe J.

O'Dea - Vertical Research Partners LLC Michael J. Feniger - Bank of America Merrill Lynch Vishal Shah - Deutsche Bank Securities, Inc. Seth R. Weber - RBC Capital Markets LLC.

Good morning, ladies and gentlemen. My name is Ryan, and I will be your conference operator today. At this time, I would like to welcome everyone to the AGCO 2015 First Quarter Earnings Release Call. All lines have been placed on mute in order to prevent any background noise. After the speakers' remarks, we'll have a question-and-answer session.

I would now like to turn our call over to Greg Peterson, Director of Investor Relations. Please go ahead..

Thanks, Ryan, and good morning. Welcome to those of you joining us for AGCO's first quarter 2015 earnings conference call. We will refer to a slide presentation this morning, which is posted on our website on our investor page at www.agcocorp.com.

The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the last section of the presentation.

We'll also make forward-looking statements this morning including demand for our products and the economic and other factors that drive that demand, product development plans and timing of those plans, acquisition and other and our expectations with respect to the costs and benefits of those plans and timing 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, 2014 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.

On the call this morning – 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. And with that, Martin, please go ahead..

Thank you, Greg, and good morning, everybody. We appreciate you joining us on the call. My comments start on slide three. You can see that in the first quarter of 2015, AGCO sales were down approximately 27%.

We felt the effects of weaker market demand, inventory reduction initiatives and the impacts of a stronger dollar compared to the first quarter of 2014. Demand for agricultural equipment softened in all the major world markets during the first quarter, as weaker farm fundamentals continued to impact our industry.

Our quarter was highlighted by strong execution on our inventory reduction plans and cost reduction initiatives. By lowering production compared to the first quarter of 2014 and curtailing the seasonal build in working capital, inventories were lower by over $175 million on a constant currency basis, for March 31, 2014 levels.

Our results also reflect the benefits of the workforce reduction initiated in the second half of 2014. These cost reduction efforts are being balanced with our commitment to customer support and maintaining an aggressive sales and marketing presence.

Our balance sheet remains in excellent shape and is enabling us to return more cash to our shareholders. During the first quarter, we paid a higher dividend compared to the first quarter of 2014 and made progress on our share repurch sales program. Slide four details industry unit retail sales results by region for the first quarter of 2015.

Increased grain stocks and preliminary crop production forecasts continued to pressure soft commodity prices and farm income across the key agricultural markets. Lower income levels produced softer industry equipment demand during the first quarter of 2015.

Retail sales in North America declined, with the largest drop in high-horsepower tractors and combines, partially offset by growth in hay and forage equipment, due to healthy conditions in the region's livestock sector.

Industry unit retail sales of tractors in Western Europe were down about 12% in the first quarter of 2015 compared to industry sales in the first quarter of 2014. Difficult economics for dairy producers and lower grain prices impacted market demand across Western Europe.

Reduced industry sales in South America were the result of lower demand from sugar producers in Brazil, weakness in the general economy and uncertainty around Brazil's government financing program. AGCO's 2015 production schedule for factory production hours are shown on slide five.

We are working toward a much lower seasonal build in our company and dealer inventories during the first half of 2015. In addition, the sequential step down in production in the back half of 2015 will be less steep than in 2014.

On a year-over-year basis, production hours were down 21% in the first quarter and contributed to the significant decline in our company inventory compared to the first quarter of 2014. The lower production also contributed to weaker first quarter earnings compared to last year.

We expect second quarter production to be down 15% to 20%, while full-year production is expected to be lower by between 12% and 14% compared to 2014 levels. The 2015 production mix will be weaker than last year with more significant reductions in high-horsepower equipment.

Globally, our order book for tractors was down about 5% at the end of March compared to March 31, 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 first 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 first quarter of 2015, which is outlined on slide six. The euro and the Brazilian real both weakened during the first quarter, and currency translation negatively impacted net sales by 11.7% during the quarter.

Softer market conditions are also pressuring sales results across all of our regions. The Europe/ Africa/Middle East segment reported a decrease in net sales of approximately 10%, excluding the negative impact of currency translation during the first quarter of 2015 compared to the first quarter of 2014.

From a market perspective, Germany, Scandinavia and Russia reported large decreases. North America sales were down approximately 25%, excluding the impact of unfavorable currency translation during the first quarter of 2015 compared to levels experienced in the first quarter of 2014.

Lower sales of high-horsepower tractors, implements and combines were partially offset by growth in GSI products and sprayers. AGCO's first quarter 2015 net sales in South America were down 14% compared to the first quarter of 2014, excluding negative currency translation impacts. Sales declines in Brazil accounted for nearly all the reduction.

Net sales in our Asia/Pacific segment decreased approximately 15% in the first quarter of 2015 compared to 2014, excluding the negative impact of currency translation. Declines in Asia were offset by modest improvements in the Australia/New Zealand market.

Parts sales were $260 million for the first quarter of 2015, which is down about 4% compared to the same period in 2014, excluding the impact of currency. Slide 7 details AGCO's sales and margin performance. First quarter margins were negatively impacted by a lower demand and production environment.

Our head count reduction efforts and the ongoing benefits of global purchasing mitigated some of the margin erosion. On a consolidated basis, first quarter adjusted operating margins declined over 300 basis points compared to the first quarter of 2014.

Europe/Africa/Middle East operating margins held up relatively well at 8.9%, down about 90 basis points from the first quarter of 2014. Higher margins on new products and purchasing benefits offset most of the negative impacts of lower sales and production volumes.

North America's operating income declined about $38 million in the first quarter 2015 compared to the first quarter 2014. Softer demand, dealer inventory actions and a weaker product mix contributed to the lower operating income. In South America region, weaker margins resulted from lower sales and production levels as well as material cost inflation.

Margins in the Asia/Pacific region were impacted by startup costs associated with our new factory in China. Slide 8 details GSI sales by region and by product. GSI sales were up about 2%, excluding currency impacts for the first quarter of 2015 compared to the same period in 2014.

Sales growth in North America and South America was offset by lower sales in Eastern Europe and China. We have reduced our forecast GSI sales in 2015 but still expect sales to be up in 2015 compared to 2014 on a constant currency basis.

GSI's countercyclical nature is evident this year, with weakening grain sales being mostly offset by stronger protein sales. Slide 9 looks at our depreciation and capital expenditure trends.

After completing a number of major plant productivity projects and making heavy investments in new products over the last few years, we reduced our CapEx program last year.

In 2015, after factoring in the stronger dollar, we expect our CapEx to be about flat compared to 2014 as we continue to make strategic investments to refresh and expand our product line, upgrade 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 in the first quarter of 2014 as well as 2015.

The benefit of our inventory reduction efforts that Martin mentioned earlier is evident on this slide. We cut production to curtail the seasonal build, and our use of cash during the first quarter was lower by over $250 million compared to 2014.

In 2015, we plan to continue investing for long-term growth and profitability improvement as well as making additional investments in new products. After covering the spending on these strategic investments, we are targeting significantly improved free cash flow for 2015.

At the end of March 2015, our North America dealer month supply on a trailing 12-months' basis was higher for tractors and combines and lower for hay equipment. Tractor inventories were in the seven- to eight-month range, and combines were about six months.

Losses on sales of receivables associated with our receivable financing facilities, which is included in other expense net, were approximately $5 million for the first quarter of 2015 compared to $7.5 million in the same period of 2014.

Moving onto the next slide, we continue to make cash returns an important component of our long-term capital allocation plan. In the first quarter, we repurchased shares under a $500 million authorization, which is expected to be utilized through 2016. The share repurchases and our dividend are expected to be funded with operating cash flow.

Slide 16 highlights the assumptions underlying our 2015 outlook. While we're optimistic about the long-term growth opportunities for our industry and our business, the priority for 2015 continues to be controlling our expenses in dealer and company inventories.

Now our 2015 forecast assumes softer industry demand across all regions and a sales decline ranging from 19% to 21%. Our plan includes price increases of approximately 2% on a consolidated basis. And at current exchange rates, we expect currency translation to negatively impact sales by about 11%.

In 2015, engineering expenses are expected to run about 3.6% of our sales. We also expect lower sales and production levels as well a weaker sales mix to 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 operating margins ranging from 5.75% to 6% in 2015 and are targeting an effective tax rate in the range of 35% to 36% for 2015. Our outlook for 2015 for the three major regional markets is captured on slide 13. Our forecast anticipates softer market conditions in all three regions.

In the United States, the USDA estimates the farm income will be down again in 2015. As a result, 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 lowered our forecast for the South America region now expect industry demand to be down about 15% from 2014 levels. In April, the Brazilian government raised the interest rate on its subsidized financing programs that run through the first half of 2015.

There is also uncertainty on the funding levels of the financing programs caused by budgetary constraints. Unfavorable economics for sugar producers in Brazil and the impact of lower commodity prices are also expected to contribute to the weaker South American industry demand in 2015 compared to 2014.

We also expect a decline in the Western European market, impacted by lower dairy and cereal prices, reducing farm income in 2015. In addition, the weak European economy is expected to weigh on equipment demand this year. Slide 14 lists our preliminary view of selected 2015 financial goals.

We are projecting 2015 sales to range from $7.7 billion to $7.9 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 gross and operating margins to be down from 2014 levels, reflecting the negative impact of lower sales volumes and a weaker sales mix. The benefit of cost reduction efforts are expected to be partially offset by volume-related impacts.

Based on these assumptions, we are targeting 2015 adjusted earnings per share of approximately $3 per share. We expect capital expenditures to be approximately $300 million and free cash flow to be approximately $300 million.

In the second quarter of 2015, sales and earnings per share expected to be significantly lower than reported for the second quarter of 2014, due to lower sales and production levels discussed earlier. Second quarter earnings per share are expected to be approximately $1 per share. And with that, operator, we're ready to take questions..

one, quality, where the target is to become number one in perceived quality; second, the reorganization of our internal distribution and also the dealer network in Europe, in EAME; third, a very important initiative in research and development platform solutions, where we show substantial progress.

And the fact that we do that while the markets are a little slower helps basically to focus in this area. We also put a lot of emphasis and focus into precision farming and Fuse, where we want to be the leader in our industry, and we will be there soon. You can see that on the latest press releases.

IT, where we show progress in the consolidation of the various IT systems globally. And finally, very important in 2015 is our Purchasing Excellence program where we really try to benefit from the lower commodity prices and the low oil prices. With this, I finally hand over back for Q&A.

Okay. Thank you, Martin. Ryan, we're ready to go ahead and take some questions..

Our first question comes from the line of Jamie Cook from Credit Suisse. Your line is open..

Hey, guys. It's Andrew standing in for Jamie. Can you just comment a little bit more on your Europe results? It appears that most of the – on margin line, most of it is driven by AGCO-specific efforts. So could you just comment a little bit more what we're seeing in the region? It sounds like things are tracking a little bit weaker since Q4.

And then given the margins were pretty impressive, were you surprised at how well the cost initiative have worked out in the quarter? And that you mentioned new products.

Is that tracking ahead of schedule? And just how do you anticipate that margin going forward? Is it at a sustainable level?.

Yeah. One, I certainly believe it's sustainable. Second, when you do something important like this and it's a major reorganization and a core process redesign, we went through some of the results come in also a little bit as a surprise.

So that means we obviously did a very good job in Europe, and we think that we can also perform on the same level during the rest of the year..

Okay. That's helpful. And then can you comment a little bit more on your dealer inventory levels? I know you said they were down over $175 million, but how this tracked to your expectations for the quarter.

And then what are you expecting for the remainder of 2015 in that regard?.

Yeah. The $175 million is actually on our company inventory. So the inventory on our balance sheet is $175 million below last year when you take currency out of the equation, so on a constant currency basis. When you look at our dealer inventory, which we're also focused on, we're making good progress.

Our North America dealer inventory is down a little less than 10% compared to about a year ago. Our Western European inventories are down 5% to 10%. And in South America, our dealer inventories were down about 5% compared to a year ago. We still have work to do in North America.

Most specifically, we'd like to get about a one month reduction, our dealer inventory out this year. And so we are impacting our sales. As you noticed, our sales in North America were down fairly significantly here in the first quarter. And part of that was because we did not build up as much dealer inventory as we did a year ago.

And so that affected our sales, but it's also showing out in cash flows and the dealer inventory results that we have. So we're confident that we continue to make progress in this throughout year..

And I'm proud of the achievements because I think I'm pretty sure we outperform our peers..

All right. Thanks, guys..

Your next question comes from the line of Stephen Volkmann from Jefferies. Your line is open..

Thank you. Good morning..

Good morning, Steve..

Good morning, Steve..

Good morning. A couple end market questions, if I may. I'm curious about, you talked about the GSI being sort of countercyclical and so forth. But there's been some signs of the dairy and livestock sector kind of weakening a little bit, especially here in North America.

And I guess I'm wondering sort of how you think about that; how much visibility you have.

Is that the next shoe to drop, or do you feel fairly confident that, that segment that impacts your smaller tractors in GSI and so forth is still sustainable?.

We are fairly confident that we perform as indicated. But when it comes to the details, that I would like to hand over to Andy..

Sure. What we're seeing is, as we said is in GSI, some strength on the protein side. And you have to recall that for GSI, that's poultry equipment and equipment relating to pigs – pig production. And we're seeing some weakness softening on the pig side, but on the poultry side, still very positive. And so that's where most of the growth's coming from.

On the grain side, we're doing quite well in markets like South America. We're much weaker in Eastern Europe because of the political situation there. And then in North America, we're seeing a good activity on the commercial side but some weakness on the on-farm farmer grain storage side.

So overall, our grain storage business should be relatively flat with some increased sales on the protein side..

Okay. Great. That's helpful. And then maybe my follow-up – maybe this is for Martin. It's on Europe, and I know you spend a fair amount of time over there. But some of the other companies we cover are seeing some modest signs of life in Europe, as they've done various types of QE and they have, obviously, the benefits of currency.

And given that European farmers generally sell I guess in dollars, any chance that there's some risk to the upside in the European end market assumptions?.

Not really. So that means overall, my careful impression is that we somewhat seem to bottom out globally. So I think we more or less are, I think, at the end. And we can see some light at the end of the tunnel, not only in Europe. So therefore, I'm slightly optimistic and I'm very positive about us making what we promised this year..

Okay. Thank you..

Your next question comes from the line of Steven Fisher from UBS. Your line is open..

Hey. Thanks. Good morning, guys. It's Eric Crawford on for Steve..

Good morning, Eric..

Good morning..

Hey. So just real quick, I guess housekeeping question first.

Share repurchase, is that still expected to contribute $0.07 to $0.10 towards the EPS guidance for the year?.

Yeah. I think it'll be above that at this point. It still depends on the rate that we go. But as we see it today, I would say it's going to be north of that estimate at this point..

Okay.

Any order of magnitude to help us?.

I would guess more like $0.15 to $0.20..

Okay. Great. Thank you for that. And then I guess the sales guidance ex the currency impact was really only taken down a touch, so I'm curious. I think you mentioned orders in some of the regions, but how orders are coming in relative to expectations across the board and any regional color would be great..

The order intake is pretty much in line with our sales forecast, which I think we took down more substantially in South America. Maybe you didn't get that, but this is a more – a bigger variance to our budget..

Yes. So from the order standpoint, as Martin said in his comments, our orders are down in North America but actually up from a year ago in Europe..

Yeah..

And so therefore, we're seeing the most upside. But our order coverage is reasonable for North America and Europe. South America, as Martin said, is where we're seeing a weakness. The order board is down significantly, and our order coverage is not as strong.

And that reflects why we brought down our industry assumption and we brought down our sales forecast in South America here for the balance of the year..

Right. Well I guess, just with orders up – I thought I heard Martin mention that. With orders up, I guess this ties into Steve's question earlier on and Andrew's, really, potential upside to the margins that you're getting in Europe. They're already at the high end of the 8.5% to 9% range that you called out.

So just wondering with orders up, if you're going to get some possibility of upside to that..

I think we've already reflected that in our new – in our forecast. We are facing headwinds on currency. We're facing headwinds in South America, bringing the market down. And the source of offsetting that is the European results. So, yes, we're more positive in what we can accomplish in Europe this year.

A little on the sales side, but more importantly on the margin side..

When you ask for some more flesh to the bone, overall, I think we came in with a very well-balanced plan, and we share with you a very well-balanced forecast. If you now ask about the risks and opportunities, I think that there are most probably more opportunities than risks seen as of today..

Excellent. Well, really nice execution. I think you should be commended. And thanks for the time..

Can I have that in writing please? Thank you..

Thank you..

Your next question comes from the line of Ann Duignan from JPMorgan. Your line is open..

Hi. Good morning, guys..

Good morning, Ann..

Good morning..

It's still Ann Duignan. I'm not sure where that last name came from..

I like "Annie Dini.".

Well, back to reality here. As I look at your outlook by region, I mean and look at where we are year-to-date, we're already kind of at the low end of your guidance almost across the board.

And in particular, how comfortable are you that you've taken down South America sufficiently? I mean with all the changes that are going on in the financing programs, if anything, there might be some pre-buying going on out there right now. We're looking into a dark hole in the back half of 2015.

Does South America represent the greatest risk to the downside, do you think, at this point?.

Yeah. I think the most uncertainty right now is certainly South America because it's not just looking at the economic situation of the farmers; it's more of the uncertainties around the financing programs in terms of what the rates the FINAME programs will have in the back half of the year and the availability of the funding.

So some of the weakness we're seeing currently is because the BNDS is not funding the deals on a consistent basis, and that's causing uncertainty in the market. Dealers aren't getting paid as quickly they'd like, so they're not putting as many orders in. So it's causing the market to be disrupted to some extent. So that's where the uncertainty is.

And as I've said, our order boards look at a little better in North America and a lot better in Europe. So we have more confidence there..

And what we are doing now is we put our North American guy in charge of South America, and we basically work towards a major reorganization. So that means, I think, we look really into all corners and all details. And I think, therefore, we are doing the right things..

Okay. So, it will be more self help rather than industry support. And then I'm wondering....

Yeah. I think so..

Yeah. Thank you. On Western Europe, once again, industry sales are below, kind of on the low end of your guidance, below your guidance, you had stated on tractors.

Where are you seeing the strength in orders, specifically?.

Ann, it's across the board, but I think the first couple months of the year were relatively weak. The month of March and the industry was actually down about I think 6% or 7%. France was down very significantly in the first two months of the year but much flatter in March.

So it's still little early to tell, but I think we're seeing some of those first couple months get offset now by a little stronger conditions. So I think we're still in line with what our industry assumption is. In terms of orders, it's across the board. There's not one specific market that is driving that order board..

And is it your sense that farmers getting used to the notion of the CAP reforms and maybe the cereal side a bit better than the dairy side?.

Yeah. I think the CAP reform is not a real issue. So farmers know it, and it's not a surprise..

Okay. I'll get back in line, guys..

Your next question comes from the line of Larry De Maria from William Blair. Your line is open..

Okay. Thanks. Good morning. Couple questions..

Good morning, Larry..

Hey. Good morning. First on price, mid-teens, I guess the 2% positive price.

Can you break that down a little bit by region and where maybe there is some pressure or not?.

Yeah. So, so far, early in the year, Larry, we're looking at – in the first quarter, we had somewhere between 1% and 1.5% pricing. A little lower in North America; a little higher in Europe and South America. So as we go through the year, we would expect to kind of see that unfolding it.

Makes sense as you think about our inventory reduction efforts that Andy was talking about. So we're still looking at 2% for the full year, probably a little more in Europe and a little less in North America..

And when we think about the risks to the year, do you consider that a relatively major risk into the second half on price?.

Well certainly, as our inventory reduction plans go, I think, and the way the rest of the industry succeeds or doesn't succeed in lowering inventory levels will dictate what pricing looks like I think. But right now, we're still optimistic that, that 2% is what we'll achieve..

Yeah. Most of it is already implemented, and the rest is basically how we handle discounts. Because our inventories are pretty much in shape, we don't have to do some special efforts like some of our competitors..

Okay. Thanks. That makes sense.

And then just curious, North America ex GSI in the traditional core business, are you losing money there? And if so, is there a line of sight to improve the profitability?.

Of course not..

No. We're not. Forecast is to be very profitable for the full year in North America without GSI..

Without GSI. Okay..

Yes..

Thank you..

(35:36)..

Your next question comes from the line of Andrew Kaplowitz from Barclays. Your line is open..

Hi, guys. It's Alan Fleming in for Andrew today. Nice quarter..

Good morning, Alan..

Maybe you can just talk about your company-level inventory across the regions.

Are there any regions where you maybe have a little bit more work to do versus others, Europe versus North America? Are you a little bit further in terms of wanting to get your inventories down in Europe?.

No. It's usually where the market's the weakest. So inventory levels are pretty much in line where we want them to be in most regions. A little more challenged in North America and South America, and our European inventories are in good shape..

Okay. And then maybe just a quick question on your Asia – the startup costs in Asia this quarter.

How is that facility and the startup of that facility trending versus your expectations? And when should we start to see those startup costs moderate?.

Yeah. What's going on in our new factory in China is that we're on-boarding new ranges of the low-mid horsepower tractor line that we're putting in that facility. And so this is a important year where we're getting – get a lot of the new products and down the line and start to sell them this year.

But we won't fully complete that process until next year. And so – but we should see some improvement in 2016 because we'll have a relatively good complement of tractors going down the line and being produced and shipping around the world.

And that will enable us to absorb the fixed costs that we have in that facility, and we'll start to see good results out of APAC as well..

And actually, 2015, too, will get better as we go through the year. So closer to breakeven as we go through the year..

Okay. I'll leave it there. Thanks, guys. That's helpful..

Your next question comes from the line of Tyler Etten from Piper Jaffray. Your line is open..

Hi, guys. Nice quarter. I was wondering if you can talk about the production reductions being more front-end loaded.

If we see another large crop coming out of North America, do you think that there's risk to further production reductions in the back half?.

Well I think our production schedule is all dictated by what our industry assumptions are and what our sales assumptions are. If those change, then positive or negatively, we'll have to change production and the like. So it all comes down what those industry assumptions are.

I think they're reasonable, and that's where we think it's going to go at this point. Obviously what the crop is this year, where crop prices go are an important factor that drives industry demand. And so it'll be something that we'll keep a close eye on during the year..

Okay.

I guess a better question would be to ask if there are further levers you guys can pull to reduce production costs without having to do any major restructuring, if that were to happen?.

Yes. What you have in many factories is already in place, so we are in the process of negotiating our flexible working hours. So we have it now in most of the European factories, we have at in Brazil and we are in the process of getting to an agreement here in the U.S., which then would help us to basically handle both directions..

All right. Thank you..

Your next question comes from the line of Rob Wertheimer from Vertical Research. Your line is open..

Hi. Good morning. It's Joe on for Rob. First question, just your comment about parts globally being down 4% ex currency.

Are you able to comment by region in terms of the parts activity you're seeing? I think at SEMA earlier in the quarter, the sentiment seemed to be a little bit downbeat, reflecting maybe a little bit more downward pressure on parts activity there. So just curious what you're seeing sort of around the world..

I think that's pretty much across the board what we see. And typically, when you have a weaker market, the dealers do some de-stocking of their inventory levels. So I think that's what we're seeing right now. But I think the parts sales will be relatively stable as we get into the real activity periods of planting and harvesting throughout this year..

Okay. And then just a second question on the production plans and what you lay out on slide five and seeing that 2Q looks sequentially flattish with 1Q and then another step down into the back half of the year.

Could you talk about the actions that sort of offset some of the production headwinds in terms of what is an implied margin raise from 1Q, and sort of where you might feel a little bit more pressure on lower production.

What's going to help offset that, whether it's mix by region or other actions?.

In terms of our margins, we're getting positive benefit from pricing and really very modest material cost increases. So we're doing – and we've improved our forecast in terms of where we think our component costs will be. And so that's helping us. We do have increased cost related to Tier 4, and some of that pricing relates to Tier 4.

But overall, a net positive on pricing and cost, material cost. We also have the restructuring actions and the savings that we have going on in our plants. We took down significant amounts of our overhead structure. We moved to one shift in a lot of our facilities this year, which helps our labor productivity.

And as a result, those are the things that are offsetting the negatives that you've talked about. One is the lower production which reduces our ability to absorb fixed cost. And also, we're also facing a lot of headwinds on mix.

So as the market decline is mainly in the high-horsepower sector and much more flat sales in the lower horsepower sector, that's not helping us from a mix standpoint. So those two things are driving the margins down..

Great. Thanks very much for the detail..

Your next question comes from the line of Michael Feniger from Bank of America. Your line is open..

Hey, guys. Just filling in for Ross at BofA. Martin, back to one of your earlier comments.

So do you believe we are bottoming out in Europe, or is that a comment about global demand potentially bottoming out this year?.

Yeah. It would also include Europe, but it's I think pretty much globally based on the latest view we shared with you..

Okay. Well, fair enough. And then you mentioned how your inventories are down, but that's not really the case with some of your competitors.

Do you guys have a view of how used equipment prices are trending so far?.

Well, maybe, Greg, you can talk about it..

Yes....

Our equipment..

Right. So after being down probably 10% or 15% in 2014, depending on which survey you look at, they're probably down low single digits so far this year. So I'd say pretty stable in terms of used equipment pricing. A little different depending on region and models and stuff, but relatively stable so far..

And then I guess if I could just ask one more. You guys did make a comment – you gave us great color on Europe that the first two months were weak but it was better in March. I was hoping you could give us that kind of color of how the order book trended through the quarter and maybe even April for North America and the other regions..

Well, in terms of order book, I think it's been fairly consistent in North America. And in South America, it's been declining as a result primarily of the increase in the interest rates of the FINAME program that were announced during the month. And so that's put a decline on our order intake rates. And as a result, we reduced the industry forecast..

Great. Thanks, guys..

Your next question comes from the line of Vishal Shah from Deutsche Bank. Your line is open..

Yeah. Hi.

Can you hear me?.

Yes..

Yeah. Hi. I just wanted to really better understand the inventory situation and the impact on pricing. I understand that some of your competitors are lowering prices.

So how is that impacting the market and your guidance of two points of (45:05) utilization?.

Is all baked in, so that means we don't see a bigger effect basically during the rest of the year..

And just on the overall different regions.

I mean do you see aftermarket (45:30) down as much, given sales of the service charge, cost and price? Or do you think the (45:38)?.

Yeah. It's difficult to understand you, but the line is not good. So we just talked about the parts business, and the service business actually is pretty stable as far as we hear from our dealer. So no issue there..

Thanks so much..

Your last question comes from the line of Seth Weber from RBC Capital Markets. Your line is open..

Hey. Good morning, guys..

Hey, Seth..

I just wanted to go back to the cost initiatives. SG&A and engineering were both lower than what we were expecting for the quarter. Are these good run rates from here, or are those numbers going to continue to come down from here? As that I know these programs started last year, so I'm just trying to figure out where we are in the cadence there..

The run rates are probably pretty good for now. Some of the moves may be currency driven, but we got all the head count reductions and the restructuring done mainly by the end of the year. So that had our first quarter be pretty much intact in terms of what we were trying to accomplish.

There was some additional work that we accomplished throughout the quarter. But for the most part, yeah, you can use that as the run rate..

And when it comes to engineering, we basically don't want to change our strategy. So we try to do what we had planned to do in our strategic plans, but we try to do it in a more efficient and cost-effective manner..

Right. Okay. So – thank you.

So, Andy, is there a percentage of revenue that we should think about for SG&A, or do you think about it as a dollar number?.

Well, I was referring to dollars because the....

Okay..

The percentage of sales are going to move with the various seasonal changes in our in our sales level..

In engineering, we think it should be between 3% and 4%..

Yeah. This year is....

Right..

Is 3.6%..

Yeah..

Yeah..

Right. And I got that. Thank you.

And then maybe just, Greg, on used equipment inventories, have they started to moderate or come down at all?.

Yeah. They've moved similar to the direction that our dealer inventories have moved. So we talked about typically down 5% to 10% across the regions..

Okay. Great. Thank you very much..

You're welcome. And....

We'll now turn our call back over to Greg for offline questions..

Thanks, Ryan. I want to thank everybody for your participation today, and I encourage you to follow up if you have any additional questions. Thanks and have a great day..

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