AGCO Corp. | 2023 Technology Event Takeaways

AGCO (OW/AFL) hosted its 2023 Precision Ag Field Event last week in Nashville, TN and Pembroke, KY. The company provided updates on its technology stack and displayed its precision ag technology at Bollinger Family Farm in KY. Management reiterated the long-term financial targets which were introduced at AGCO’s 2022 Analyst Day, including 4-5% annual growth above industry, ~12% mid-cycle adj. operating margin by 2026, and 75-100% annual FCF conversion. Below are our key takeaways:

Management remains confident that it will achieve its goal of $1B in precision ag sales by 2025E, and it expects to stay ahead of schedule with precision ag sales of $800-850MM in 2023E. The TAM for precision ag offerings across the crop cycle is estimated at >$150B with ~7% attributed to customers buying new equipment, while AGCO’s retrofit first strategy unlocks ~93% of the incremental opportunity. R&D spending is expected at ~4% of sales over the long-term (up ~$100MM YoY in 2023E), and precision ag R&D levels would likely be preserved even in a downturn. The total benefits of AGCO’s precision product offerings are expected to increase net farm income by 31%, translating to $275K of farmer profitability improvement.

AGCO’s retrofit autonomous grain cart offering is expected to improve harvest efficiency by up to ~33% and increase net farm income by ~9% by avoiding yield losses, labor shortages, and delays in the harvest process. Grain harvest automation features are expected to deliver benefits of $3.76/acre from reduced grain loss, $3.83/acre from the automation system (IDEALharvest), and a 10% reduction in fuel costs. This solution is still in testing phases, and the product is expected to be in limited production in 2025. The autonomous baling system is projected to have a $60-120/acre benefit through ensuring timely harvest, to reduce direct labor costs by $1/acre, and to minimize rain damage which can decrease hay value by up to ~50%. Looking ahead, ACGO expects to introduce autonomous solutions across the crop cycle by 2030.

The company’s clean energy strategy targets battery electric for <150hp, higher efficiency powertrains using renewable fuels and hybrid systems for >100hp, and green/gaseous fuels such as hydrogen ICE and biomethane for 150-250hp. The Fendt e100, a 67hp battery electric tractor, will be launched in Europe in 2024 and in NA in 2025. The tractor has a ~five hour run time and can recharge 80% in ~40 minutes, and its target customers include municipalities, dairy and poultry producers, and organic vegetable growers. Additional battery electric platforms and multiple new renewable fuel options for higher efficiency powertrains will be launched through 2030 and beyond. Meanwhile, the first green/gaseous fuel solution will be launched in 2027 and hybrid-electric systems are targeted for production by 2030. See Figure 1 for alternative propulsion expected use cases.

AGCO showcased its local dealership network in the area, which contains 7 brick and mortar locations across KY and IN and >29 remote workshop trucks. The mobile trucks promote direct contact with customers, improve service quality and technician availability, and support a farmer-focused strategy. The channel is wholly owned by AGCO, with an integrated full-line of both Massey Ferguson and Fendt products. Since January 2021, the network’s revenue CAGR was +78% through 2022, and it is expected to grow 58% YoY in 2023. Over the same period, its market share increased 5x and absorption rates were up 50% (with goal of 100% by 2023E).

5. Additional innovations displayed included Symphony Vision targeted sprayers, Momentum Planters, soil analysis by Precision Planting, and GrainVue storage. See Figure 2 for the products’ net farmer income impact and key benefits. Note, AGCO expects to offer the retrofit targeted sprayer in 2024 and the OEM targeted sprayer in 2026.