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

Michael D. Shlisky - Global Hunter Securities, LLC Brandon Jaffe - Goldman Sachs & Co. Michael J. Feniger - Bank of America Merrill Lynch Ben E. Xiao - Credit Suisse Securities (USA) LLC (Broker) Ann P. Duignan - JPMorgan Securities LLC Larry T. De Maria - William Blair & Co. LLC Vishal Shah - Deutsche Bank Securities, Inc. Sara A.

Magers - Wells Fargo Securities LLC Seth R. Weber - RBC Capital Markets LLC Richard Leigh Haydon - Tipp Hill Capital Management LLC.

Good morning, my name is Beth and I will be your conference operator. At this time, I would like to welcome everyone to the AGCO 2015 second quarter earnings release 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. Thank you.

I will now turn the call over to Greg Peterson, Director of Investor Relations, you may begin your conference..

Thank you, Beth, and good morning. We welcome those of you joining us on the call for our second quarter 2015 earnings review. 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 presentation.

We will also be making forward-looking statements this morning including the projections of earnings per share, sales, industry demand, market conditions, grain prices, currency translation, farm income levels, margin levels, investments in product and market development, operational and cost reduction initiatives, production volumes, tax rates and general economic conditions.

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 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..

Perfect, thank you very much. Did Beth call you great? Good morning to those who join us on the call. My comments start on slide three. You'll find a summary of our second quarter results.

Demand for agricultural equipment declined in all the major world markets during the second quarter as the expectation of lower farm income continued to impact our industry. We felt the effect of weaker market demand, lower production levels and currency headwinds and AGCO sales were down approximately 25% compared to the second quarter of 2014.

AGCO's performance demonstrates our ability to deliver solid results despite difficult market conditions. Our quarter was highlighted by strong execution on our inventory reduction plans and cost reduction initiatives.

By lowering production compared to the second quarter of 2014 and curtailing the seasonal build in working capital, inventories were lower by over $245 million on a constant currency basis from June 30, 2014 levels. Our results also reflect the benefits of the recently completed workforce reduction program.

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 second quarter, we paid a higher dividend compared to the second quarter of 2014 and made progress on our share repurchase program. Slide four details industry unit retail sales results by region for the first half of 2015.

Lower commodity prices and more challenging farm economics are putting pressure on demand for agricultural machinery especially for larger models.

Retail sales in North America declined with the largest drop in high-horsepower tractors, sprayers and combines partially offset by growth in small tractors and 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 8% in the first half of 2015 compared to industry's sales in the same period last year. 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 changes to Brazil's 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 half of 2015 and there will be additional production cuts in the remainder of the year.

On a year-over-year basis production hours were down 22% in the second quarter and contributed to the significant decline in our company inventory compared to the second quarter of 2014. The lower production also contributed to weaker earnings compared to last year.

We expect third quarter production to be down 10% to 15% while full-year production is expected to be lower by about 15% compared to 2014 levels. The 2015 production mix will be weaker than last year with more significant reductions in higher horsepower equipment.

Globally, our order board for tractors was down about 15% at the end of June compared to June 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 second 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 second quarter and first half of 2015 which are outlined on slide six.

The weaker euro and Brazilian real resulted in an adverse currency translation which negatively impacted sales by 13.8% during the second quarter compared to the prior year. Weaker industry demand also pressured sales results across all of our regions.

The Europe, Africa, Middle East segment, reported a decrease in net sales of approximately 9% excluding the impact of currency during the second quarter of 2015 compared to the second quarter of 2014. The largest declines were in Germany, the UK and Russia.

North American sales were down 16% excluding the unfavorable impact of currency during the second quarter of 2015 compared to levels experienced in the second quarter of 2014. Lower sales of high-horsepower equipment and grain storage products were partially offset by growth in protein production equipment.

AGCO's second quarter net sales in South America were down 14% compared to the second quarter of 2014 excluding negative currency translation impacts. Sales declines in Brazil were partially offset by growth in Argentina and other South American markets.

Net sales in our Asia Pacific segment were flat in the second quarter of 2014, excluding the impact of currency translation. Lower sales in the Australia/New Zealand market were mostly offset by growth in China.

Part sales were $342 million for the second quarter of 2015, which were up about 2% compared to the same period in 2014 excluding the negative impact of currency translation. Part sales were approximately flat for the first-half of 2015 compared to the same period last year on a constant currency basis.

Slide seven details AGCO's sales and margin performance. Second quarter operating margins were negatively impacted by a lower demand and production environment. Our head count reduction efforts and ongoing material cost saving programs mitigated some of the margin erosion.

On a consolidated basis, second quarter adjusted operating margins declined about 230 basis points compared to the second quarter of 2014. The Europe, Africa, Middle East segment reported operating margins of 11.8% which were down only about 50 basis points from the second quarter of 2014.

The negative impacts of lower sales and production volumes were partially offset by operational efficiencies, lower SG&A expenses and higher margins on new product sales. North America's operating margins were 10.3% in the second quarter of 2015 compared to 13.9% in the second quarter of 2014.

Softer industry demand, dealer inventory actions and a weaker product mix contributed to the lower operating income. In the 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 eight details GSI's sales by region and by product. GSI's sales were down about 2% excluding currency impacts for the first half of 2015 compared to the same period in 2014. Sales declines in Eastern Europe and China were partially offset by strong growth in South America and in North America protein production segment.

Demand for grain storage equipment in North America slowed considerably in the second quarter of 2015. We have reduced our forecast for GSI's sales in 2015; we now expect sales to be down modestly in 2015 compared to 2014 on a constant currency basis. Slide nine 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 in 2014 and 2015.

For the full year of 2015, 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 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 result in negative free cash flow in the first half 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 six months was lower by nearly $340 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 spending on these strategic investments, we are targeting significantly improved free cash flow for 2015.

At the end of June 2015, our North America dealer months supply on a trailing twelve-month basis was higher for tractors and combines and lower for hay equipment resulting in seven months for tractors and hay equipment and about nine months for combines. We expect combines' months supply to be below five months by the end of 2015.

Losses on sales receivables associated with our receivable financing facilities, which is included in other expense net, were approximately $4.4 million during the second quarter of 2015, compared to $6.7 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 second quarter, we continued to repurchase 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. 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. As a result, we expect softer equipment demand with row crop equipment expected to be down more significantly and lower horsepower equipment to be relatively flat.

We've lowered our forecast for the South American region and now expect industry demand to be down about 20% 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 America industry demand in 2015 compared to 2014.

Lastly, we expect a decline in the Western European market impacted by lower dairy and cereal prices, reducing farm income in 2015. Slide 13 highlights the assumptions underlying our 2015 outlook.

While we are optimistic about the long-term growth opportunities for our industry and our business, the priority for 2015 continues to be controlling our expenses and dealer and company inventories. Our 2015 forecast assumes softer industry demand across all regions and a sales decline ranging from 19% to 21%.

Our plan includes price increases ranging from 1.5% to 2% on a consolidated basis and at current exchange rates we expect currency translation to negative impact sales by about 11%. In 2015 engineering expenses are expected to run about 3.7% of 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 adjusted operating margins ranging from 5.75% to 6.0% in 2015 and are targeting an effective tax rate of approximately 33% for 2015. Slide 14 lists our 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 our cost reduction efforts and a lower tax rate are expected to partially offset the volume-related impacts.

Based on these assumptions, we are targeting 2015 adjusted earnings per share of approximately $3.10. We expect capital expenditures to be approximately $300 million and free cash flow to be approximately $300 million.

In the third quarter of 2015, sales and earnings per share expected to be significantly lower than reported for the third quarter of 2014 due to lower sales and production levels discussed earlier. Third quarter 2015 earnings per share are expected to be in the range of $0.50 to $0.55. And with that, operator, we're ready to take questions..

Your first question comes from the line of Mike Shlisky, Global Hunter Securities. Your line is open..

Good morning, guys..

Hi, Mike..

Good Morning..

I wanted to make sure I understood what you just mentioned about the order boards in Europe.

Did you say that they were up, are they up over the prior quarter or over the prior year and could you maybe tell us whether there is a change in the size of the tractor that's in your order boards there?.

The order board is up over the same period versus last year, so June versus June. So our orders are up. I would say that the mix of orders is basically the same as what we've seen in the first half of the year..

Okay, okay, great. And, maybe if you could just also touch on the used market in North America.

Can you give us an update as to how that's progressing do – are dealers kind of working down some of their inventory on the combine side or is it still pretty elevated at the current time?.

Yeah, Mike. So, as we've talked about on prior calls, that's been a major focus for us in the industry. Last year we saw pricing soften on used equipment, probably in the 10% to 15% range this year, probably low single-digits, depending on which market and which products.

We have seen – so that's been our major focus is to support our dealers as they continue to work down inventory levels, both new and used.

And so as we look at this year compared to last year, our new equipment inventory at the dealers are down, ranging across the regions from – to high single-digits to low double-digits and our used equipment is down similarly across the region. So, as we've talked about, we are making progress there..

Our dealers outperform competition..

Okay, great. I will pop back in queue. Thank you so much..

Yep..

Your next question comes from the line of Jerry Revich, Goldman Sachs. Your line is open..

Good morning. This is Brandon on behalf of Jerry. Can you provide some color on the CapEx guidance for the year? For example, what type of spending you anticipate? Just based on the first half spend, your guidance would imply a big increase in CapEx in the back half of the year..

Well, I think it's mainly timing of our projects typically around new product introductions. That's where most of the CapEx is going. And we also have some system implementations we're doing in the back half of the year which use some capital as well. So, it's mainly timing-oriented rather than anything that's one major project or anything like that..

And it might be some conservative point of view we share with you..

Great, thanks.

And, on your pricing outlook of 1.5% to 2%, are you able to push through price increases in all regions or do the competitive dynamics allow you to increase pricing only in some regions over others?.

No. we're seeing positive pricing in all regions. With the market being softer, I would say that it is more competitive and little more difficult, but we're certainly seeing positive pricing in the all regions; that pricing also includes the pricing necessary to offset Tier 4 introduction costs.

So, the product costs associated with our new Tier 4 models are higher with the new technology that's on there to meet the Tier 4 regulations, and we have added the pricing necessary to cover those costs. And so that's also in the pricing numbers that we're giving..

Great. Thank you..

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

Thanks, guys. Just wanted a quick question – if we could discuss on the GSI business, looks like grain storage was little weaker.

How should we think about the mix of a weaker grain storage and a bit stronger protein for North America?.

Yes. You're right. What we're seeing in the market is kind of along with what we see with the row crop equipment that on the grain storage side we're seeing conservative investment sentiment amongst farmers.

So, the biggest reduction is in the on-farm storage business and we're seeing fairly substantial reductions in demand there and so we have had to lower our expectations for grain storage sales in North America for the balance of the year. As it relates to protein, that net area is up.

With the lower grain prices and input prices for our protein producers, we are seeing increased demand there which is offsetting some of the impact we're seeing on the grain storage side. The margins on grain storage are a little better than on protein so it's hurting our mix a little in North America as well..

Okay. Fair enough. And how should we think about with production? I mean your full year production, you think it's going to be down 15%; I think last quarter for the full year you were thinking down 12% to 14%.

Where is, regionally, where should we be thinking is the biggest cut to production? Is that more North America related?.

Yes, the production cuts are larger in North America and South America and less so in Europe; that's the most stable market that we're seeing right now..

Thanks, guys. Appreciate it..

Your next question comes from the line of Jamie Cook, Credit Suisse. Your line is open..

Hi, good morning. It's actually Ben Xiao on for Jamie. My first question is just a clarification on the guidance increase. By my math, the $0.10 is just all tax, is that the right way to think about it or are there other puts and takes with, for example, share repurchase.

Is that still $0.15 to $0.20 for the year?.

No. I would say that most of the guidance, as you can tell by comparing what we had last quarter to this quarter, is fairly consistent, so the biggest difference is the tax rate change and that's being caused by a little change in the mix of where our income's coming in.

So, we're expecting a little better results in Europe and bringing down our expectations a little in North America and that's reflected in our outlook and balancing out quite well, but it is also improving the tax rate that we believe we'll have by the end of the year..

Okay, got it. And then for my follow up, the E margins in the quarter were pretty impressive again. You talked about orders being up and given all the initiatives you guys have taken in that region.

Is it reasonable to expect that full-year margins this year could be flat with last year?.

Yeah. I believe that that's probably a reasonable expectation at this point. So, we have seen that margins have stayed very strong in Europe. We have gotten a lot of benefit from our cost reduction efforts. We've restructured some of the organization there.

We've moved a lot of our operations in our factories to one shift which allowed us to be more productive in the facilities. And also our material costs are being managed very well there as well.

And so with those benefits coming through, it's enabling us to offset the impact of the lower sales and lower production; and so I think that's a good estimate for the year..

All right. Thanks a lot..

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

Hi, good morning everyone..

Good morning, Ann..

Hi, Ann..

Let's see, maybe you could talk a little bit about how confident you are that you will have inventories at the dealers at – right-sized by the end of the year? And what might the ramifications be if you have to under produce at least in North America into 2016?.

This is all baked in our numbers. So that means actually nothing really new to report on this..

Okay.

Could you talk then maybe about Europe where you are seeing the strength just given the weakness we've seen recently in the cereal markets and also in the dairy markets? Where exactly are you seeing the growth in orders by country or by farm application?.

Well, I think that the orders are, across the board, up; would suggest that a year ago we were probably at a weak point in terms of orders so the comparable is somewhat an easy comp But the market is down fairly consistently between 8% to 12% in most of the major markets and it really hasn't moved a whole lot throughout the year.

So, it's fairly steady, which is allowing us to manage inventories, manage production quite well so far this year..

Okay. I'll leave it there and get back in queue. Thanks..

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

Hi. Good morning everybody. Thanks. Just want to understand the actual orders a little bit better. I think the order book you talk about, is it backlog, might be skewed a little by the lower production levels.

Can you help us with actual orders, maybe by region, are they improving versus getting worse as we go through the year? It sounds like you use that year-over-year, but is it stable sequentially and how would you just characterize the actual orders as you go through the year here?.

Well, the orders that we're quoting are actual orders from our dealers, and they are free orders that we get as they project out what they think they'll need to meet their retail demand in their business.

From a standpoint of trends, I would say that we're continuing to see softer orders in North America and in South America; those markets continue to show a lot of weakness, particularly on the large equipment, the row crop side of the business. We are seeing a stronger order situation in hay equipment and small tractors in North America.

And then in Europe, again the orders were relatively weak this time last year and so they are stronger and they enable us to have pretty good visibility into the third quarter in Europe..

Okay. Thank you for that. And then secondly, can you help us understand the impact and the cadence of the material costs flow, I guess in the quarter and then through the rest of the year.

It that the biggest driver of the better margins in Europe in terms of the buckets – of why the margins better – is that the biggest one and will we get the same kind of benefit through the year?.

Yeah. I would say that that's a big contributor is the pricing versus the material cost, that's probably the biggest contributor. Also I would say a lot of the cost reduction actions that we took benefited Europe maybe more than some of our other regions and so that's also a contributor.

And then in the second half, we actually see the mix improved a little. If you recall last year, we produced fairly heavily in the first half of the year and then started making cuts in the second half.

This year we were much more cautious coming into the year in our production as you can tell from our production stats, was fairly low in the first half of the year and so our comparables in the second half versus 2014 are little easier and so that'll enable us to look like – have our margins look pretty good in the second half versus last year..

Okay. Thank you guys..

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

Yeah. Hi. Thanks for taking my question.

Just wanted to better understand the market share dynamics especially from some of the international players; are you seeing them becoming more aggressive at these levels?.

Well, actually, when it comes to market share globally we are doing pretty well. So, we are gaining share basically in most of the markets. No big gains, but smaller ones and we're optimistic that we can do similar things also in the future because we have certain new products coming in between this year and 2018.

So, therefore, I'm optimistic that we can gain market share in Europe, South America, but also here in North America..

Okay, can you maybe talk about how you should be thinking about the parts business in the back half of the year and where this pressure's coming from?.

Yeah. So as we talked about it on the call this morning, Vish, were our sales were about flat year-over-year and typically, part sales that is, and typically when you have softer sales of new equipment it's not unusual to see part sales be a little more resilient.

Typically, you see part sales move in the same direction, so we would expect to see modest declines in the back half of the year, but mostly stable I would say as you look across the regions in terms of part sales.

And that's good news as margins on those part sales are higher, as you know, than our finished goods and so that will help us maintain our margins as we go through the year..

What Greg is saying is certainly true but we also have a very structured and systematic approach to our parts business and I think we will show this trend also in the long-run because we think we can do better in our parts business and sell more original parts through our distribution network in the future..

Thank you..

Your next question comes from the line of Sara Magers with Wells Fargo securities. Your line is open..

Hello. Thank you, and good morning. I just wanted to come back to the production question just one more time.

If there's more uncertainty with respect to Ag going into 2016 and corn were to, say, down to, say $3.50 again, how should we think about production and inventory levels going within the fourth quarter of this year?.

Well, first of all, I do not see more uncertainty as of today. Second, we don't talk about 2016 yet. And third, we have basically a very conservative plan and, therefore, you should not see any major changes in the fourth quarter of 2015..

Great. Thank you very much..

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

Hey, good morning..

Good morning, Seth..

Following with that, I mean, I know you're not talking about 2016 yet, but can you just directionally talk about where you think CapEx could go from here? I mean it's been at around $300 million for the last couple years. The industry is clearly – I mean, I know you have initiatives, better, you're getting deeper into the process there.

Could we see CapEx step down materially, do you think, in 2016?.

One is we had peaked in CapEx, as you might remember, and we had planned for a reduction already starting two years ago or something like that, we started to talk about it. Second, we think that a normal usual demand would be flat, compared to last year and this year around $300 million or something.

And third, I think, worst case, we could maybe spend less and that means maybe 10% or something like that. Our factories are all in very good shape. We did do everything we needed, so, therefore, I think this is not an area of concern for management..

Okay. Thank you.

And then from a cash perspective on the share repurchase, I mean, is there – is a lot of your cash offshore or are you doing anything to try and bring cash back on shore that you could accelerate the repurchase, is there anything going on with that?.

Yeah. We do, as you know, Seth, generate a lot of our cash offshore with the high profitability of our European and South American businesses. And so one of the things that we do have to focus on is finding ways on a tax-efficient basis to get the cash out of those subsidiaries back into the U.S. in order to fund dividends and share repurchases.

And we did a major repatriation of earnings and brought cash back over about a year ago and that was very successful and we believe that we have more potential to do that again this year as well. So right now, we're not in any situation where we're worried about continuing to have trouble funding the share repurchases.

We think we have enough tax efficient strategies that we can employ to get the cash back and to fund our share repurchases on an efficient basis..

This being said, the U.S. needs to consider the unique tax loss and we need a tax reform for sure; business needs to gather change in repatriation of foreign earnings..

Understood. Thank you very much, guys..

Thanks, Seth..

Your next question comes from the line of Jerry Revich, Goldman Sachs. Your line is open..

Hi. Thanks again. Still Brandon here.

Could you provide some commentary on new product sales that help margins in Europe? Are you rolling out those products in any other regions as well?.

Yeah. One of the most successful ones that we can point out is the improvement in our Valtra business which is focused most of the market share up in Finland and the Scandinavian markets. We introduced some new products this year that have been very successful and the margins of those that have been above expectations and so that's helped us a lot.

And we're also seeing margin improvement in our Massey Ferguson business with some new products there as well and what we're selling into the African market as well. So, a lot of good news coming out of both our Massey Ferguson and Valtra brands in Europe this year..

Within the next three years, you should see basically the results of the investments we made in small tractors for mainly Massey Ferguson but also Valtra and some also for Challenger.

You should see some positive results from the hay and forage business we bought some years ago in Germany, which now we start to – we will get, we will see more traction in distribution and you will see more because also we will use this product in combination with Fendt and Fendt will be developed more and more in a tool full liner and you will see more new product in the area of harvesting in the next years..

Great, thanks.

And then just one more, what are your longer term goals for doing inventory, you've mentioned you're targeting five months for combines during this year, but what about after 2015 or for any of the other equipment types?.

Normally, you should see those numbers go down. The more efficient you are in production and in your supply chain management, the shorter that timeframe should be..

Great. Thanks a lot..

Your last question comes from the line of Richard Haydon, Tipp Hill Capital. Your line is open..

I was going to ask you about your thoughts on 2016 and 2017 but I don't think the question is going to be answered. So, thank you..

Yeah, you are welcome. But it's still a very good question..

I will now....

Yeah. So with that, we'd like to thank everyone for your interest today and free to follow up with us later. Have a great day. Thank you..

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