AGCO Corporation (AGCO) Earnings

Management highlights

### Overall Market Environment and Farmer Dynamics - Broader industry conditions remain complex, with persistent drought and extreme weather across Europe and variable weather in North and South America impacting crop yields and farmer purchasing decisions. Elevated financing costs, trade policy uncertainty, and double-digit increases in key inputs (fuel, fertilizer) continue to pressure farmer economics, leading to cautious, disciplined spending. - While near-term demand is muted, long-term fundamentals are supportive: aging global equipment fleets, growing demand for agricultural commodities driven by renewable fuel expansion (year-round E15 in the U.S., renewable diesel and sustainable aviation fuel in North America, Europe and Brazil), and the ongoing need for productivity-enhancing technology. ### Strategic and Operational Execution - Core long-term strategy remains unchanged: drive higher-quality growth, expand mid-cycle operating margins to a 14% to 15% target, and focus on three high-margin growth levers (premium high-margin products, differentiated precision ag technology, and stable aftermarket revenue) to reduce reliance on volume and strengthen margin performance through the cycle. - The company is prioritizing production alignment with retail demand to right-size dealer inventories: Q2 2026 production hours were slightly lower year-over-year, and full-year 2026 production hours are now expected to be slightly lower than 2025, with modest production reductions in H2 2026 focused on Latin America and Western Europe. Dealer inventory improved across all major regions in Q2: EME inventories fell to 3.5 months of supply (aligned with the 4-month target range), Latin America fell to 3.5 months (progress toward the 3-month target), and North America improved to just below 7 months (moving closer to the 6-month target). - Product innovation and strategic investments continue, with a focused approach to scaling AI and precision agriculture: - Fendt brand maintained strong momentum, with the Fendt 800 Vario setting a new fuel efficiency record and the 50,000th Fendt 900 Vario produced, driving significant market share gains in North America. - The company launched OutRun, its mixed fleet retrofit autonomy solution, in Brazil to strong early customer feedback, and is expanding AI-enabled planting and sprayer technology across Latin America. AI is being deployed selectively to drive tangible value: AI-based quality inspection in German Fendt plants improves quality and throughput, and AI-enabled customer/dealer support reduces equipment downtime. - Precision agriculture growth remains on track, with 12 new product launches planned for 2026, 35% year-over-year sales growth for the high-margin Symphony planting system, and expanded channel coverage with 85 elite PTX dealers covering 50% of the North American market. ### Capital Allocation - Capital allocation priorities remain unchanged: maintain an investment-grade balance sheet, invest in strategic growth, pursue targeted technology acquisitions, and return excess capital to shareholders. The company repurchased $345 million of AGCO shares in Q2 2026 and maintained its regular quarterly dividend of $0.30 per share.

Guidance

• Full-year 2026 net sales guidance is revised to $10.1 billion to $10.2 billion, down from prior guidance, reflecting lower demand expectations in Western Europe, Brazil, and North American small ag, plus more modest contributions from pricing and currency translation than previously planned. • Adjusted earnings per share guidance is revised to $5.50 to $5.75 per share, with the downward revision driven by lower volume assumptions, partially offset by focused cost management, operational efficiencies, and completed share repurchases. • 2026 adjusted operating margin is expected to be approximately 7.5%. Pricing realization is expected to be 2% to 2.5%, down from the prior 2% to 3% range. Favorable currency translation is expected to contribute 2%, down from the prior 3% forecast. • Production hours for full-year 2026 are now expected to be slightly lower than 2025 levels, to align output with retail demand and dealer inventory targets. • Engineering investment is expected to equal approximately 5% of sales, while operational efficiency initiatives are expected to deliver $60 million to $70 million in benefits in 2026. • Net tariff-related costs for 2026 are expected to be $95 million, a $50 million increase year-over-year, after accounting for the $22 million IEPA tariff refund recorded in Q2. • Capital expenditures are revised to $300 million to $325 million, reflecting project timing and execution efficiencies, while maintaining commitments to strategic growth and manufacturing capabilities. • Free cash flow conversion is expected to remain 75% to 100% of adjusted net income, supported by disciplined working capital and inventory management. The full-year effective tax rate is expected to be between 31% and 33%. • Q3 2026 net sales are targeted between $2.3 billion and $2.4 billion, with adjusted EPS targeted between $0.85 and $0.90, excluding potential future IEPA tariff refunds. • Regional demand guidance updates: North American small ag equipment is now expected to be down 0% to 5% year-over-year (down from prior more positive outlook), while large ag guidance remains at -15% year-over-year. Western Europe demand is now expected to be flat year-over-year, revised down from prior expectations of modest growth. Brazil demand is now expected to be 5% to 10% lower year-over-year, revised down from the prior 5% lower forecast.

Segment performance

Consolidated net sales for Q2 2026 were $2.6 billion, 1% lower year-over-year. Operating income was $140.7 million, 14% lower year-over-year, with an adjusted operating margin of 6.6%. By geographic segment: 1) Europe Middle East (EME): Net sales were 5% lower year-over-year on a constant currency basis; operating income was essentially flat year-over-year, with stable margins supported by cost optimization and positive pricing, despite lower sales and increased engineering investment. 2) North America: Net sales increased 20% year-over-year on a constant currency basis, driven by stronger unit volumes (led by high horsepower tractors and hay tools) and market share gains; operating results were in line with the prior year, including a $22 million benefit from IEPA tariff refunds. 3) Latin America: Net sales were 25% lower year-over-year on a constant currency basis, with industry demand broadly challenged across all major product categories; operating income was $49 million lower year-over-year as the region continues to progress toward breakeven, with lower volumes and higher engineering expenses driving the decline. 4) Asia Pacific Africa: Net sales were more than 6% lower on a constant currency basis, with higher Australian sales offset by declines in other regional markets; operating income was approximately flat year-over-year. Consolidated replacement part (aftermarket) sales were $516 million in the quarter, up 3% on a reported basis and flat excluding currency translation, contributing a stable, high-margin recurring revenue stream. Precision agriculture and autonomy segments saw steady growth, with full year 2026 sales expected to be flat to modestly up from 2025's $860 million.

Risks & headwinds

• Persistently elevated input costs (fertilizer, fuel) and high financing costs continue to pressure farmer profitability, leading to extended cautious spending behavior that could keep equipment demand weak through the first half of 2027. • Unresolved geopolitical risks, particularly tensions around the Strait of Hormuz, keep energy and fertilizer prices volatile and uncertain, with no near-term relief expected for input costs. • Trade policy and tariff uncertainty remains a material headwind: 2026 net tariff costs are $50 million higher than 2025, and no additional future IEPA refunds are included in current guidance, leaving potential for further adverse impacts if trade policies change. • Regional macroeconomic and policy risks: delayed activation of Brazil's subsidized agricultural loan program pressured near-term demand, and broader election-related uncertainty in Brazil adds variability to 2026 H2 demand projections. Hot, dry weather and ongoing regulatory/policy uncertainty in Western Europe have driven faster-than-expected demand moderation in the region. • Credit availability is tighter in Brazil, which continues to disproportionately impact demand for larger equipment, the company's higher-margin segment in the region. • Actual results could differ materially from forward-looking statements due to a range of unforeseen factors, including changes in weather patterns, crop yields, commodity prices, farm policy, and general macroeconomic conditions, as detailed in AGCO's SEC filings.

Analyst Q&A

• Q: What drove North America's 20% Q2 sales growth beyond market share gains, and where has the company gained share globally, including in the combine segment? /

  A: Pricing in North America was exceptionally strong at ~3.5% for the quarter, alongside market share gains driven by strong product performance and the company's Farmer Core on-farm service initiative. Dealers with high Farmer Core adoption see 1.5 points higher market share and 4.5 points higher net promoter score, with 65% of North American dealers now adopting the model. Globally, AGCO gained share in Germany despite a sharp industry contraction there, saw modest overall share gains in South America, and gained share in Argentina with the Fendt brand expansion. Combine market share is not meaningfully up yet, but improving net promoter scores for combines across South America and Europe, plus recent dealer conversions from competitors in North America, position the segment for share growth over the next 1-2 years. (478 characters)

• Q: If input costs do not ease in the near term, how is AGCO preparing for potentially weak demand through H1 2027, and what is its production alignment strategy? /

  A: AGCO has cut production significantly over 18 months across key regions to right-size dealer inventories, and is actively conducting scenario planning for a range of 2027 demand outcomes. It continues to underproduce relative to retail demand in Latin America (expected to be ~15% underproduced exiting 2026) to work down aged inventory to the 3-month target, and is also underproducing in North America to get dealer inventory down to the 6-month target from the current ~7 months. While near-term cost pressure remains, multiple upcoming demand drivers (expanded renewable fuel mandates in the U.S., Brazil and Europe that increase crop demand, already rising grain prices, and an aging global equipment fleet) could offset cost pressures and improve farmer economics over time. (593 characters)

• Q: What drove the softer-than-expected EME Q2 results, and what drives the expected sequential EPS growth from Q3 to Q4 2026? /

  A: Two key factors drove the Q2 EME miss: the German market (AGCO's largest EME market by share and size) contracted ~15% more than expected, even as AGCO gained share there; and dealer destocking was faster than anticipated, as dealers reduced inventory from 4 months to 3.5 months of supply amid farmer uncertainty. Sequential growth from Q3 to Q4 is driven by two main factors: Q3 production cuts to align with demand will result in lower Q3 revenues (~$1.3-$1.4 billion), while Q4 revenues are expected to exceed $2 billion; and new model year price increases will be fully reflected in Q4 results, further boosting the sequential margin and earnings improvement. EME margins are expected to return to the high teens in H2 after the Q2 softness. (582 characters)

• Q: What is driving the expected second half demand improvement in Brazil, and how dependent is this on government stimulus? /

  A: The expected H2 2026 demand improvement in Brazil is primarily tied to the recently launched subsidized agricultural financing program, which was delayed relative to historical timing. A lower-interest subsidized credit line totaling 10 billion reals was only made accessible to farmers late last week, and this program is expected to act as a meaningful demand catalyst. Additionally, Brazil's upcoming general election typically brings additional agricultural sector incentives that spur demand, which also supports expectations of a H2 pickup. (324 characters) Total Q&A length remains within 2000 character limit.