In a Nov. 9 note to investors, JP Morgan analysts broke down the highlights of their meeting with AGCO CFO Damion Audia and VP of Investor Relations Greg Peterson at SIMA in Paris, France.
Massey Ferguson Consolidation of Products & Dealers
AGCO has spoken before about repositioning the Massey Ferguson brand and at SIMA, said they plan to target budget cautious farmers with it. They also plan to reduce its product offering, from 18 tractor series currently to 10 by next year. AGCO will also consolidate the North American network of 500 dealers (200 of which have only one location) without reducing its total number of touchpoints "by expanding relationships with larger dealers willing to commit to long term growth and goals that align with AGCO’s strategy."
AGCO also told JP Morgan analysts it planned to double Massey Ferguson sales by 2025 compared to 2020.
AGCO plans to also expand its North American Fendt dealer network to 100 dealers within the next 5 years, "with plans to expand touchpoints through utilizing mobile fleets as well." The manufacturer stated it is not converting Massey Ferguson dealers to Fendt and is using demoes to convert growers to the Fendt brand, boasting a conversion rate of 70%.
"The latest 700 Series tractors are compatible with North America row width, while the IDEAL Combine and further upcoming product launches are positioning Fendt to better offer a full line of products to North America/South America customers," the analyst note says.
In South America, AGCO plans to grow the Fendt dealer network from 25 to 50 dealers in the next few years.
$900 Million in Precision Sales by 2025
AGCO stated farmer education is the key to boosting precision sales, with a goal of more than doubling sales to over $900 million by 2025. According to the note, Precision Planting's aftermarket/OEM mix is 80%/20%.
"As a reference, management noted there are ~90K planters in Europe with ~7% typically replaced with new machines each year, while the remaining ~93% is the core addressable market for AGCO’s retrofit strategy," the note said.
Precision Planting will grow to 60 dealers in Europe by the end of 2022 and expects 25% growth next year.
"By more than doubling sales of precision ag to $900MM by 2025, we see the opportunity to improve enterprise operating margin by 30-50 bps on FY22E sales as a base. PP products were not historically made for use in European brands, but now AGCO is investing in R&D to ensure compatibility and thus accelerate growth," said JP Morgan analysts.
The note stated that in the U.S. market, 70% of AGCO's products are made in the U.S., while 15-20% are imported from Europe. In AGCO's European market, 90% of machines are manufactured locally and the other 10% come from the U.S. and Brazil.
AGCO also boasts an "industry leading fill rate" of over 96%, which JP Morgan analysts say is a key way the company can grow parts and service revenues. AGCO's Brazil parts fill rate has risen from 56% to 97% over the last 3 years.