Greg Peterson - AGCO Corp. Martin H. Richenhagen - AGCO Corp. Andrew H. Beck - AGCO Corp..

Steven Michael Fisher - UBS Securities LLC Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker) Andrew M. Casey - Wells Fargo Securities LLC Jerry Revich - Goldman Sachs & Co. Ann P. Duignan - JPMorgan Securities LLC Joseph John O'Dea - Vertical Research Partners LLC Nicole Deblase - Deutsche Bank Securities, Inc.

Robert Wertheimer - Barclays Capital, Inc. Timothy W. Thein - Citigroup Global Markets, Inc. (Broker) Michael David Shlisky - Seaport Global Securities Ross P. Gilardi - Bank of America Merrill Lynch Brett W. S. Wong - Piper Jaffray & Co. John D'Angelo - Macquarie Capital (USA), Inc. Lawrence De Maria - William Blair & Co. LLC.

Good day. My name is Jack, and I'll be your conference operator today. At this time, I would like to welcome everyone to the AGCO 2016 Third Quarter Earnings Release 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. Thank you.

Greg Peterson, AGCO's Head of Investor Relations, you may begin your conference..

Thanks, Jack, and good morning. Welcome to those of you joining us on the call for our third quarter 2016 earnings conference call. 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 appendix of that slide presentation.

We will also make forward-looking statements this morning, including demand, product development, capital expenditure plans, 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, we'll talk about production levels, share repurchases and our future revenue, price levels, earnings, cash flow, tax rates 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 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, 2015 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.

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

Thank you, Greg, and good morning. We appreciate everyone joining us on the call today. My comments start on slide 3, where you will find a summary of our third quarter and year to date 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. We met our quarterly financial goals and continue to make progress on our strategic plans. Our third quarter sales grew approximately 1.5% compared to the third quarter of 2015, while facing depressed market demand, low production levels and currency headwinds.

We're also managing for the long-term during this weak demand period by upgrading and expanding our product lines and improving service levels for our customers. Important product launches are ongoing including our new 500 horsepower tractor for both the Challenger and the Fendt brands.

New models from our lower horsepower Global Series tractors which are made in China are being launched around the world. During the third quarter, we also completed the Cimbria acquisition, which extends GSI's grain, storage and seed handling business into a leadership position in Europe and Africa.

Our balance sheet remains in solid shape and we are continuing to return cash to shareholders. During the third quarter, we paid a higher dividend compared to the third quarter of 2015 and repurchased more shares. Slide 4 details industry unit retail sales results by region for the first nine months of 2016.

Record global crop production and rising grain inventories are pressuring commodity prices and farm income in 2016. The farm equipment fleet remains relatively young in North America and industry retail sales have declined in the first nine months of 2016, with a significant drop in demand from the row crop segment.

Sales of high-horsepower tractors, combines, sprayers and grain storage and handling equipment remained well below last year's levels. Year-to-date industry retail sales in Western Europe have been more stable compared to 2015 levels.

Profitability remains strained for dairy producers, hurting equipment demand, while lower commodity prices have kept market demand soft from the arable farming segment.

In the first half of 2016, industry retail sales were lower in Germany and the UK, weakening demand in France due to poor retailers and less help from a tax incentive program are pressuring second half industry retail sales in this market. Market conditions in South America have been difficult during the first nine months of 2016.

More recently demand is starting to stabilize in Brazil where solid farm fundamentals are beginning to overcome previous weakness caused by political and economic challenges. More supportive government policies in Argentina have also contributed to higher sales in that market.

ACGO's 2016 production schedule for factory production hours is shown on slide 5. We lowered the seasonal build in our company and dealer inventories during the first nine months of 2016. Production hours declined about 9% in the first nine months of 2016 compared to the same period in 2015.

We expect production to be up in the fourth quarter over the prior year due to increases in Brazil and we expect full year production to be down about 6%. Globally, our order book for tractors is approximately flat at the end of this September compared to September 30, 2015.

Orders were higher in North America due primarily to increases in low horsepower tractors higher in South America over the very low levels last year and slightly lower in Europe. I will now turn the call over to Andy Beck, our CFO, who will provide you more information about our third quarter results.

Andy?.

Thank you, Martin, and good morning to everyone. I will start on slide 6 with a look at AGCO's regional net sales performance for the third quarter and first nine months of 2016. Weaker industry demand pressured sales results, especially in North America during the quarter.

The negative impact of currency translation reduced third quarter sales by approximately 1.2% compared to the third quarter of 2015, offset by increases from sales from new acquisitions of approximately 2.5%.

For the third quarter of 2016, the Europe/Africa/Middle East segment reported an increase in net sales of approximately 4%, excluding negative impacts of currency translation compared to the third quarter 2015. Sales growth in Germany and the United Kingdom was partially offset by declines in France.

North American sales were down approximately 8%, excluding the unfavorable impact of currency translation during the third quarter of 2016 compared to the levels experienced in the third quarter of 2015.

Lower sales of high horsepower tractors, hay tools, as well as grain storage and handling equipment were partially offset by growth in small and mid-sized tractors. AGCO's third quarter 2016 net sales in South America increased approximately 14% compared to the third quarter of 2015, excluding negative currency translation impacts.

Market demand in Brazil improved from very low levels in the third quarter of 2015 and growth in Argentina was also very strong. Net sales in our Asia Pacific segment increased about 17% in the third quarter of 2016 compared to 2015, excluding the negative impact of currency translation.

Significant growth in Japan and Australia accounted for most of the increase. Parts sales were $323 million for the third quarter of 2016 and were flat compared to the same period in 2015, excluding the negative impact of currency translation. Slide 7 details AGCO's sales and margin performance.

Our third quarter results were highlighted by solid margin performance in our Europe/Africa/Middle East and Asia Pacific regions where operating margins improved during the third quarter compared to the same period in 2015.

Consolidated third quarter operating margins were negatively impacted by lower levels of demand and production, as well as a weaker sales mix. These impacts were partially offset by our ongoing efforts targeted at labor productivity and material cost.

The Europe/Africa/Middle East segment reported operating margins of 8.6% during the third quarter of 2016, up nearly 100 basis points from the third quarter of 2015. The benefit of higher sales accounted for most of the improvement.

North America's operating margins were significantly lower in the third quarter of 2016 compared to the same period in the last year. The negative impacts associated with lower sales and production and a weaker sales mix contributed to the decline.

Margins in our South America region were lower due to low levels of production and material cost inflation. Margins in our Asia Pacific region improved significantly, as production continues to ramp up in our new Chinese manufacturing facility. Slide 8 details GSI sales by region and by product.

GSI sales were up about 11%, excluding currency impacts and including the benefit of acquisitions for the first nine months of 2016 compared to the same period last year. Growth in protein production on a constant currency basis was partially offset by declines in grain storage equipment in North America, Europe/Africa/Middle East and South America.

We are targeting a GSI sales increase of roughly 15% compared to 2015 on a constant currency basis. Excluding the positive impact of acquisitions, we expect GSI sales to be down approximately 9%. As Martin mentioned earlier, AGCO completed the acquisition of Cimbria on September 12.

Cimbria is a leading manufacturer of products and solutions for processing, handling and storage of seed and grain. Slide 9 looks at the increase investments we've made in our business over the last decade through both capital expenditures and research and development.

After completing a number of major productivity projects in our plants, meeting Tier 4 emissions requirements in both Europe and North America and making heavy investments in new products, we reduced our CapEx and R&D programs during 2014 and 2015.

However, we are continuing to make strategic investments to refresh and expand our product lines, upgrade our system capabilities and improve our factory productivity.

Despite the softer demand environment, we intend to increase the level of investment to execute our product development plans, resulting in increased CapEx and engineering spend in 2016. We expect our engineering expense to exceed 4% of sales this year.

Our spending plan in 2016 is needed to maintain our competitiveness and to support the long-term growth of our business. Slide 10 addresses AGCO's free cash flow, which represents cash resulting from 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 the first nine months of 2015 and 2016.

We're targeting inventory decreases by the end of the year in North America and Europe/Africa/Middle East, offset by increases in South America to build the necessary Tier 3 emissions transition stock.

After covering spending on our strategic investments, and the South America Tier 3 inventory, we're targeting another strong free cash flow year for 2016. At September 30, 2016, our North America company and dealer inventories were lower than they were a year ago.

In addition, the dealer month supply on a trailing 12 month basis was lower for combines and high horsepower tractors, while higher for all tractors due to inventory increases for low horsepower tractor introductions. Tractor inventories were over eight months and combines were about 6.5 months.

Losses on sales receivables associated with our receivable financing facilities, which are included in other expense net, were approximately $4.3 million during the third quarter of 2016 compared to $4 million in the same period of 2015. We continue to make cash returns an important component of our long-term capital allocation plan.

In the third quarter, we repurchased $50 million of shares under our current authorization and we expect to complete the remainder of the $500 million authorization during the remainder of 2016. Our outlook for three major regional markets is captured on slide 12.

Our forecast is unchanged from the last quarter for North America and Western Europe, and improving in South America.

In the United States, the USDA estimates that farm income will be down again in 2016, and as a result, our North American industry forecast calls for a decline of 10% to 15% from 2015 levels, with a more significant decline in higher horsepower equipment.

Reflecting the recent stabilization in the Brazilian market, we have increased our forecast for the South American region, and now expect demand to be down about 10% to 15% from the 2015 levels. Lastly, we expect a decline in Western Europe market due to lower dairy and cereal prices that are pressuring farm income in 2016.

Slide 13 highlights the assumption underlying our 2016 outlook. Our 2016 forecast assumes softer industry demand across all regions and sales of about $7.2 billion. Our plan includes price increases in the 1.5% to 2% range on a consolidated basis, and at current exchange rates, we expect currency translation to negatively impact sales by about 2%.

We are targeting approximately 2.5% of acquisition related sales in 2016, including sales from Cimbria. In 2016, engineering expense is expected to exceed 4% of our sales, which amounts to an increase of about $10 million to $15 million on a constant currency basis compared to 2015.

We also expect lower sales and production as well as a weaker sales mix to negatively impact gross margins. These negative impacts are expected to be partially offset by the benefit of new products and our productivity and purchasing initiatives.

After the change in the tax accounting treatment relating to the write-down of deferred tax assets for the U.S. that we announced last quarter, our effective tax rate for the full year will be in the 47% to 49% range. Excluding the charge we took last quarter, we are now forecasting an effective tax rate of between 32% and 34% for 2016.

Slide 14 lists our view of selected 2016 financial goals. We are projecting 2016 sales to be about $7.2 billion with softer market conditions reducing overall sales volumes. This sales impact is expected to be partially offset by pricing, modest market share gains and the new acquisition related sales.

We expect gross and operating margins to be down from 2015, reflecting the negative impact of lower sales volumes and a weaker sales mix. The benefit of our cost reduction efforts are expected to partially offset the volume-related impacts. Based on these assumptions, we're targeting 2016 adjusted earnings per share of approximately $2.30.

We expect capital expenditures of about $250 million and free cash flow to range from $150 million to $175 million. And with that operator, we're ready to take the questions..

Your first question comes from the line of Steven Fisher with UBS. Steven, your line is open..

Thanks. Good morning. Your implied sales is flattish year-over-year for the fourth quarter, but the implied EPS is down.

So given the cost reductions and positive pricing, what's the expected EPS decline? I mean, is it mix or is it something else that I'm missing? Because I think you said also production is going to be up year-over-year in the fourth quarter..

Yes, Steve, on an operating margin basis – operating income basis, we should be relatively flat compared to a year ago. We are projecting our operating margins to be relatively flat as well. So where we're getting a little hurt is on the tax rate.

Last year, we had a very favorable tax rate of kind of unusually low of about 15%, and this year, it's going to be in the high 30%s in the fourth quarter as a result of the change in the tax accounting treatment, as a mentioned in my remarks around the U.S. deferred tax asset.

So that's a big change in the tax rate, which is driving mainly the difference in our EPS between Q4 2015 and Q4 2016..

Okay. So operating profit flat. All right. I'll stick to the one question. Thank you..

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

Hi. Good morning..

Good morning, Jamie..

Hi. Good morning. A follow-up question on – I know you said production, I think is supposed to be up in the fourth quarter. Can you comment whether or not there's been any changes by region? For example, I know last quarter you spoke about North America potentially being up on easy comps and new product introductions.

And then more – and just broadly your view on – the data points out of Brazil have been more constructive, which would obviously help you guys; your view on whether or not that's sustainable and how to think about normalized incremental? I know the margins this quarter were a little disappointing, but I assume that's an anomaly. Thank you..

Jamie, as usual when you ask questions to get my straightforward answer, I would think that we didn't raise the guidance because we want to be conservative and careful here. When it comes to South America, we speak, of course, more optimistic when we are there and talk to the media in order to try to motivate farmers to get out of the depression.

And it looks like it's too early to talk about 2017, but it looks like as if Brazil bottomed out and potentially will look better next year..

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

Larry?.

Larry gave up..

Okay.

Why don't we move on to the next question?.

Your next question comes from the line of Andy Casey with Wells Fargo Securities. Your line is open..

Thank you very much. Just a question on Q4 back on the operating margins.

Is there an elevated amortization of intangibles that we should expect because of the Cimbria acquisition?.

Yes. This quarter, we're at about close to $13 million. Next quarter, we're expecting it to be around somewhere between $14.5 million to $15 million. So as a percent of sales year-over-year, it's up about .2 points on the margin. So that is an impact.

That will probably be a little higher than our run rate next year, but our run rate will be up about $10 million on an annual basis because of the Cimbria acquisition..

Okay. Thanks.

And if I could sneak one more in, does it also impact SG&A in Q4 versus Q3?.

It will. SG&A will be up because we'll be adding Cimbria into our results in the fourth quarter. As a percentage of sales, probably won't make much of a difference. So....

Okay. Thank you very much..

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

Hi. Good morning, everyone. I'm wondering if you could talk about your list price increases that you're contemplating for 2017 in light of the steel cost increases we've seen.

And do you think you'll be able to offset any material inflation with pricing next year based on the pricing environment?.

Well, we're still working those price increases and probably not ready to give any numbers at this point, but for sure we've talked with our marketing teams about monitoring the steel price increases, and understanding that we need to make sure our pricing offsets that completely next year.

So that'll be our intent, but we don't have firm numbers to give you yet, Jerry..

My idea is that the industry would need something like 5%..

And do you think that's feasible based on the price discipline you're seeing in the marketplace?.

It will be difficult for sure, but on the other hand we also – let's say, everybody is hit by inflation, as Andy mentioned steel and things like that, so we need it..

Thank you..

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

Hi, guys. At least they got my first name correct. Can we talk about the inventory build in Brazil a little bit? I think on the Q1 call you said that that would be probably somewhere close to $80 million in inventory build, but your inventories were up closer to $100 million year-over-year this quarter.

Can you just quantify the impact of the pre-shipping on the emission standards in Brazil?.

Yeah. So, Ann, the increase you saw in inventories, most of that was not related to Brazil. Most of that'll take place in the fourth quarter. We had about – yeah, we had about half of that increase was related – is a function of currency and the other half was acquisitions.

So, we do expect to offset, as you said, about $80 million of inventory build in the fourth quarter that'll take place in Brazil. We hope to offset a good part of that in reductions in both North America and Europe..

And do we just back out that $80 million out of Q1 2017 then? Is it just a pull forward of shipments?.

It'll be probably throughout 2017, I would say mainly first half. It will be longer than just the first quarter, though, Ann..

Okay, appreciate that. And, Martin, can you talk a little bit about the fundamentals in Europe? We know how bad it is on the dairy side and cereal side, particularly in France.

Can you just talk about what your expectations are for 2017, specifically France, and how bad could it be?.

Yeah. We don't want to talk too much about 2017 yet, but we feel, of course, I do, and my take on Europe right now is it will be flattish I would call it. So we looked into the various markets and it's a very mixed picture as usual, so some markets well do better and some will be more difficult.

So therefore, I think Europe already this year was rather stable and I'm expecting the same also next year..

And no comment on France specifically given how important it is a market for you?.

No, I would say, what – let's say, I talked about the overall blended view, and part of that view is that France will most probably go down and other markets will go up slightly, so therefore the mixed picture..

Okay and I'll wait for the December meeting. Then I'll get back in queue. Thanks..

Your next question comes from line of Joe O'Dea with Vertical Research Partners. Your line is open..

Hi. Good morning. Could you talk about demand trends in Europe over the course of the third quarter? The registration figures were really strong in Germany and France in September.

It sounds like maybe there were some stage for impact there, but whether or not that affected your results, and if it hasn't an impact on the fourth quarter?.

That wouldn't have had any impact on our specific results. I think there were some unusual activity in some of the industry demand numbers. I think most of that'll get washed out here in the fourth quarter..

Okay. And then just on the inventory situation in North America. You commented on, I think, tractor inventory over eight months, but saying it that was driven by low horsepower.

Are you able to talk about months of inventory, specifically in high horsepower tractors? Where that stands, what targets are, and what you consider a desirable level?.

Yeah, the high horsepower tractor month supply is probably fairly similar, but it is coming down, and so we're making progress there. Overall – the overall month supply as we said, we haven't made as much progress because it's being offset by some new product introduction inventory that on a low horsepower side that's going into the market.

So we've lowered our dealer inventory in North America through the first nine months by about 15% or so. And then on the high horsepower side, it's over 20% reduction. So we're making progress, but as the market continues to soften, that makes it a continuous process that we're going through.

We'll check our progress at the end of the year and determine what further actions if any we need for next year..

Okay. Thank you..

Your next question comes from the line of Nicole Deblase with Deutsche Bank. Your line is open..

Thanks. Good morning, guys..

Morning..

morning..

So just a question on the South America margins. I was a bit surprised to see the year-on-year contraction with the revenue strength.

So what drove that? And then, as we move into 2017, if we start to see real recovery in South America, what sort of incremental margins do think you can get in that region?.

Well, Nicole, in the third quarter, we did have some lower margins. I think one of the main reasons was the mix was different. We had some high margin business outside of Brazil that was in the third quarter of 2015, which we didn't get in 2016. So it's kind of unusual geographic mix change there.

And then also, we did expect to get some of the price increases that we were focusing on in Brazil. In our results in the third quarter, we didn't get as much as we had expected. And that's offsetting some of the material cost inflation that we're seeing in the market. And so as a result, our margins were a little tighter than we wanted them to see.

We're hoping to make more progress here in the fourth quarter on our margins..

Okay. Thanks. And then just the outlook on incrementals into next year if we get a substantial improvement in the region..

Well, in Brazil, our incrementals are typically a little lower. We're not as vertically integrated in Brazil. But everything being equal, they should be over 20%. We've got a lot of activity going on in Brazil next year with new products with the Tier 3 models coming in.

And so it will be – we have to go through all that detail to see where we end up and we'll be able to share more of that in our December Analyst Meeting..

Okay. Thanks, Andy. I'll pass it on..

Your next question comes from the line of Robert Wertheimer with Barclays. Your line is open..

Yeah. Good morning. Thanks. The question is just on North American 40- to 100-horsepower category, the lower power. Sales seemed to be perfectly fine and yet industry inventories are at multi-decade highs. I'm just curious if that inventory series is distorted or if you have market related explanation as to why that inventory remains stubbornly high..

Well, Rob, for us, we can – and I usually speak for us. We're in the process of introducing our new Global Series. So we're in the process of adding dealers. So, for us, that tends to increase our numbers. I can't really speak for the other guys.

We have seen a slowdown in the commercial hay business, which that category of tractors lends itself somewhat and then also we see those tractors sold into kind of residential, construction and more general economy, more general economy – weekend farmer kind of activity.

So, some of that relates probably to some slowing down in the general economy as well..

Okay. Thanks, and if I can ask another North American question. Grain storage, I mean, obviously farmers have less money and yet good harvest means less the storage.

Do you guys feel as though there's still multiple years of growth there as people fill out the investment they want in their farms to sort of manage the commodity flow or do you have any sense that the market is actually saturated rather than just struggling with low crop prices?.

Well, I think what we're seeing in that market right now is certainly a pullback in demand in the grain storage equipment. That usually everyone is focusing just on the silos, but a lot of that business is also in the conditioning, drying equipment, also the conveyance equipment as well. So there are multiple aspects to that.

What we're seeing is a pullback – a significant pullback in the conditioning equipment because the harvest have been quite easy and the grain has been relatively dry. So the hours on the equipment don't require any replacement this year.

We're also seeing a pullback in commercial activity as some of the big processors are pulling back on CapEx right now.

And so as we look forward, I think there is still a stable amount of on-farm storage demand and equipment for on-farm, but also very important in this is the activity levels and the commercial area, ports, processors and their project CapEx.

And that's where we're hoping to see some recovery at some point, but that's the main reason why we're down right now..

Thanks. Perfect..

Your next question comes from the line of Timothy Thein with Citi Research. Your line is open..

Thank you. The first was just on the pricing environment globally. There was a small, albeit a small tweak, but in terms of your full year pricing guidance, and if all else equal, I don't think if you're incrementally a bit more positive on South America that that should buy us that pricing number higher, just given the inflation down there.

So, can you maybe just kind of step us through the pricing landscape that you've seen across the key geographies?.

Sure. We're running a little behind in most of the markets, but also we're performing better on the material cost side as well. So it's not really impacting our margins too significantly. It's a competitive environment in all of the markets we're participating in.

I would say the main reason for the decline is the, as I said, delay in some of the pricing that we're expecting to get in South America. I mean, your point's right that the pricing is heavier there than our other markets, and we are expecting some sales increases there, but for the most part, we had expected that.

And so we pulled back a little on our expectation on Brazil pricing. And that's the main source of the slight change in the pricing guidance that we gave..

Okay. And then just following up on Brazil, just in terms of the overall credit environment, some of the feed and chemical companies here recently have flagged a little bit more challenging from an availability standpoint.

Just maybe what your dealers are saying in terms of the overall kind of credit backdrop in Brazil?.

I would say, it is a little more challenging, but for the most part the farmers are still doing quite well in Brazil. With the real weakening and a lot of their ability to export their crops, their margins are probably better than farmers in other parts of the world. And so from that standpoint, I think there is a healthy sector down there.

Also, the sugar sector is kind of recovering at this point because the prices in sugar are way up. And so there are some more positives right now in the market. So I would expect that to carry through into the credit availability as well..

Okay, appreciate it. Thank you..

Your next question comes from the line of Mike Shlisky with Seaport Global. Your line is open..

Good morning, guys. Just wanted to check in on the Challenger 1000; wanted to see how that's performed this year so far.

And more broadly speaking, could you comment on your efforts to kind of chip away at market share in North America in 2016? How is that going so far?.

This is, as you know, the most advanced and most efficient and lowest lifetime cost conventional wheel tractor in the world. We developed it for mainly the markets of Europe and Eastern Europe, but saw quite some traction and interest from American farmers. We actually will sell about 100 or so this year. We could sell more if we could produce more.

So it's a pretty good start and I think this tractor helps in various area. One, it helps to improve our brand image. This low weight and low soil-pressure tractor will change the market in America quite a bit from this four-wheel – big four-wheel drive articulated into more intelligent solutions.

And therefore, we are optimistic that this will also see growing demand in the years to come..

Okay, great. I also wanted to ask, secondly, I didn't see it in the slides or in the release.

Maybe I'm crazy, but were there any one-time costs around Cimbria for the quarter that we should be aware of?.

Yeah. There was some modest one-time costs, but it was offset by the income that we got for the 20 or so days of the year. So there was no real impact to our bottom line results because of that..

All right. Great. I'll leave it there, guys. Thank you..

Your next question comes from the line of Ross Gilardi with Bank of America Merrill Lynch. Your line is open..

Yeah. Good morning, guys. Thanks.

Just on Cimbria, I mean, have any of your – the preliminary accretion assumptions that you had shared a quarter or two ago changed just based on broader weakness in the European ag markets?.

No, we're obviously working on our 2017 budgets and projections right now with them. So it's early days in getting our plans together there, but there's nothing that we've seen so far to change our expectations..

Okay. Thanks.

And then just is there anything new in France in terms of regulations and tax incentives being extended and so forth? And are there any key dates that you're looking to or key events to know what's happening in the next year?.

Nothing new..

Yeah. So, Ross, it's probably pretty self-explanatory, but the tax benefits that the farmers have had this year are being minimized just by the fact that the harvest was so bad and their income levels are going to be down. So much like Section 179 in the U.S. kind of ran out of steam that's kind of what we're seeing in France..

Got it. Thanks, guys..

Your next question comes from the line of Brett Wong with Piper Jaffray. Your line is open..

Great. Thanks for taking my question. I was wondering if you can talk to the high horsepower Tier 3 transition that's happening in Brazil in the next calendar year.

And are you seeing interest in this Tier 3 equipment or are you seeing a pickup in demand or pull forward of lower Tier equipment prior to that transition and really the price lists that are associated moving to Tier 3?.

In general, you could say that there's a trend towards bigger and higher horsepower equipment in tractors and combines in Brazil. We also basically try to get more intelligence by showing the new Fendt tractor in this market, which did get a lot of attention.

So I think within the next year, you will see the average horsepower getting closer to what we have already in the U.S. or in Europe..

And with regard to the market trends, I think that our team in Brazil believes that there has been some increased demand in 2016 as a result of buying ahead of the higher-priced Tier 3 equipment, but they don't believe it's that substantial. So I think there's a modest pull forward, but nothing that should impact significantly 2017..

Great. Thanks..

Your last question comes from the line of John D'Angelo with Macquarie. Your line is open..

Hey, guys. Thanks for taking my question. I saw during the quarter that receivables increased sequentially and historically, there's usually a drawdown in receivables in the third quarter. If you could just provide any color there, that would be great? Thanks..

Sure. The receivables, as you say, typically would come down a little, mainly it's a geographic mix issue.

And we have, as you know, in our footnotes, you can read about the fact that a lot of our receivables are transferred to AGCO Finance, our retail finance subsidiary, a JV that we have, that's not consolidated, so a lot of those receivable do come off our books.

We saw a – our gross receivables are actually down, but the amount that we sold into AGCO Finance and was down is in more than our gross receivables are down, so that makes the net receivables go up. So I would assume most of that'll get sorted out here in the fourth quarter and won't be a full year impact to our cash flow..

I do apologize. There is one more question from Larry De Maria with William Blair. Your line is open..

Hi. Thanks. Sorry about that before.

Curious on the China factory, how do we think about maybe capacity utilization there and the ramp we're seeing, just trying to gauge where the margin potential is? And also related to that, what kind of share changes are we seeing in those categories the last few years? Obviously, some other entrants have come into the market, but you'll be looking to regain share.

So, can you help on the China factory?.

Sure, Larry. We're in the middle innings of getting that factory ramped up. During 2016, we're very close to having almost all the models that we're going to produce in that factory be released, but certainly not having them in all our markets ready to be sold for a full year. So that should be a help for us in 2017 and a help for our factory in 2017.

Don't have the volume improvements yet for 2017, but it'll be another step up in volume and another step up in margins that we would expect as a result. In terms of market shares, it's still early days. As I said, we're not getting – we don't even have all the products introduced yet.

But we are making progress in our market share in the low horsepower sector as a result of these new models and we expect that to continue..

I think the impressive part is when you visit the factory that this is again we learned from other investments we made like the big Fendt factory in Germany, the factory in China is better again. The layout would allow us to assemble Fendt tractors there in theory (45:33).

So it's a state-of-the-art super efficient factory, and you will like what we are doing there in the future..

Thanks. I guess Greg will have to take some points. If I could sneak one last one in.

The buyback appetite, sorry if you already addressed this, I missed it, but would that coming to a close? What's the appetite or any change in capital allocation going forward, or should we probably think about on the board meeting by year-end and possibly another buyback plan?.

Yes. We're addressing that with our board in the next few meetings and we'll have more information on what our plans and new authorizations will be in our Analyst Meeting in December.

So that's on the table for discussion, and we certainly expect to continue to do share repurchases, some of that needs to be balanced with our new acquisition and additional debt we just took on, so something that we'll determine in the next month or so and report back to you..

Great. Thank you so much..

We also – just to let you know, we manage our – the interest of visitors into China by inviting them for very authentic food. So, you're welcome to come and visit..

Okay. Thanks. We'll keep that in mind then. Thanks and good luck..

Thanks, Larry..

Bye..

There are no further questions at this time. I'll turn the call back over to Greg Peterson. (47:05-47:25).

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