Equipment Manufacturer Q3 2024 Highlights and Analysis

This week I am breaking down some key takeaways from the equipment manufacturers Q3 results and earnings calls, including:

• Upstream Ag Professional Q3 2024 Financial Snapshot

• Overviews of:

  • Inventory and Production Cuts

  • Outlook for 2025

  • Company Technology Insights

• Highlights and key takeaways from seven equipment manufacturers earnings results.

  • CNH Industrial

  • Titan

  • John Deere

  • AGCO

  • Lindsay

  • Valmont

  • AGI

• Five financial comparison trend charts of major equipment manufacturers including:

  • Revenue

  • Operating Margin %

  • SG&A to Revenue Ratio

  • R&D Expenditure

  • Inventory

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Q3 2024 Upstream Ag Insights Financial Summary

Notable takeaways

Inventory and Production

Inventory continues to be a major source of pain for dealerships and manufacturers.

CNH Industrial on inventory in the channel:

We estimate dealer and new inventory is about $1 billion to $1.5 billion or around 1 to 1.5 months too high. While we reiterate that in the current market our primary lever for achieving channel inventory reductions is through lower production.

And on production cuts:

We now expect global production hours to be down 36% year-over-year in Q4 on top of the 21% reduction we had in 2023.

We expect to underproduce retail in the fourth quarter by probably about 30% to 40% in the fourth quarter alone.

AGCO cut by 35%:

Executives went on to state the following about further production cuts:

Despite the significant production cut in quarter three 2024, which was the largest year-over-year AGCO cut has ever taken in over a decade, the market conditions have made the outlook more challenging. Our production decreased in the third quarter by approximately 35%, which was 19% more than we anticipated in our third quarter guidance. While we have brought dealer inventory down by 6% on a unit basis, sequentially from quarter two to quarter three with our significant production cuts, further weakening end market retail demand has resulted in an increase in months of supply on a forward-looking basis.

In response, we are cutting production even further. Our new 2024 production guidance now reflects a 25% year-over-year reduction in production hours. Even with this more aggressive reduced production schedule, our current outlook for 2025, North America and South America, will likely result in production less than retail demand in the first part of 2025. our 12-month sales outlook results in around five months of dealer inventory across all products, as the industry conditions continue to remain weak. Our goal is to have around three months of dealer inventory, which will likely require further reduced production in 2024 and 2025, based on the current environment.

John Deere was aligned:

Our goal for 2024 was to underproduce global large ag retail by a high single digit. In North American large ag, we successfully achieved our underproduction goals for the fourth quarter, reaching targeted inventory levels on most of our key products. New combine inventory was down mid-teens year-over-year on a unit basis and finished the year at 4% inventory to sales, in line with 2023 year-end levels. The 220-horsepower and above large tractors, we reduced field inventory by nearly 50% year-over-year, resulting in a year-end inventory sales ratio of 10%, a 500 basis point reduction year-over-year.

We're planning another year of underproduction for combines in Brazil in 2025, although to a much lesser extent, and with the majority of the inventory drawdown occurring in the first half of the year.

Our primary focus over the last few quarters and now heading into the new fiscal year is to diligently work to bring down used levels, especially late model harvesting equipment and row crop tractors. Broadly speaking, we're seeing used inventory to new sales ratios starting to plateau just above the long-term average.

Our goal is to have around three months of dealer inventory, which will likely require further reduced production in 2024 and 2025, based on the current environment.

When looking at the largest publicly traded dealership, Titan Machinery, we can see they are just beginning to get ahold of their inventory challenges:

We were able to decrease our total inventory by approximately $115 million. This result was achieved through our aggressive strategy geared toward enhanced sales incentives to drive retail demand.

As anticipated these proactive measures are compressing our equipment margins in the near-term. And margins could see further compression as we move through the first half of calendar 2025 depending on market conditions and if we see the opportunity to move more quickly toward our targeted equipment inventory levels.

The last statement from Titan on margins in 2025 reinforces what is being forecast by the major manufacturers for the coming year:

A Tough 2025

CNH Industrial: