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AGCO Corp (NYSE:AGCO)
Q2 2019 Earnings Call
Jul 30, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Natalia, and I will be your conference operator today. At this time, I would like to welcome everyone to the AGCO 2019 Second Quarter Earnings Release Conference Call. [Operator Instructions]

I will now turn the call over to Mr. Greg Peterson, Head of Investor Relations. You may begin your conference.

Greg Peterson -- Vice President, Investor Relations

Thanks, Natalia, and good morning. Welcome to those of you joining us for AGCO's Second Quarter 2019 Earnings Conference Call. We will refer to a slide presentation this morning that we 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 presentation. We'll also make some forward-looking statements this morning, including demand, product development and capital expenditure plans and the timing of those plans; acquisition, expansion and modernization plans, and our expectation with respect to the costs and benefits of those plans and the timing of those benefits.

We will also discuss production levels, share repurchases, dividend rates 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 the 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 ending December 31, 2018. This document discusses important factors that could cause the actual results to differ materially from those contained in our forward-looking statements.

We disclaim any obligation to update any forward-looking statements, except as required by law. We will also have a replay of this call on our website. So on the call with me this morning are Martin Richenhagen, our Chairman, President and Chief Executive Officer; Andy Beck, our Senior Vice President and Chief Financial Officer; and Eric Hansotia, our Senior Vice President and Chief Operating Officer.

And with that, Martin, please go ahead.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Thank you, and good morning. Special welcome to Eric, our almost brand-new COO, not so new anymore. My remarks begin on slide three, where you will find a summary of our second quarter and year-to-date results. We posted another quarter of strong margin performance and despite market headwind in North and South America, we expanded our consolidated adjusted operating margins by over 150 basis points and grew adjusted earnings per share nearly 38% in the second quarter. With technology-rich products being well-received in the market, our pricing and cost control initiatives are contributing to higher operating margins.

In addition, we increased our earnings outlook for the full year on the basis of our first half performance and our margin projections for 2019. AGCO's long-term performance remains a key focus. We are investing in projects that will drive long-term benefits from raising our efficiency of our factories, improving our service levels and strengthening our product offerings. During the first half of 2019, we continued to return cash to shareholders by completing [Technical Issues] in stock repurchases. Slide four details industry unit retail sales [Technical Issues] by region for the first half of 2019.

Concerns over delayed crop development and lower harvest forecast negatively impacted North American industry retail sales in the first 6 months of 2019 compared to the same period in 2018. We expect North American industry retail tractor sales to be relatively flat in 2019 compared to last year. Modestly higher sales of small tractors and hay and forage equipment are expected to offset lower retail sales in the row crop segment. Continued dry growing conditions across much of Europe has stressed the development of the winter wheat crop, while milk prices remain supportive of the dairy sector. Industry retail tractor sales in Western Europe increased in the first 6 months of 2019.

For the full year, industry demand in Western Europe is expected to be flat. Industry retail sales in South America decreased during the first 6 months of 2019. The benefits of improved grain production in Brazil and Argentina were partially offset by interruptions in the government-subsidized finance program in Brazil and weak macroeconomic conditions in Argentina. For the full year of 2019, industry demand in South America is expected to be flat.

While negative in the short term for farm income and farm equipment demand, forecast for lower global crop production and lower ending inventory of grain has moved commodity prices higher, which will be positive for global farm income in the future. AGCO's 2019 schedule for factory production hours is shown on slide five. Total company production was up approximately 2% for the second quarter. Production was higher in Europe, lower in North and South America; and for the full year of 2019, we are targeting a production increase of approximately 1%. And finally, our June order book for tractors is up in North America, while being down in Europe and South America.

I will now turn the call over to CFO, Andy Beck, who will provide you more information about our first quarter results.

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Thank you, Martin, and good morning. I'll start on slide six, which looks at AGCO's regional net sales performance for the second quarter and first half of 2019. AGCO's sales were flat compared to the second quarter of 2018, excluding the negative impact of currency translation, which lowered sales by approximately 5%. The Europe/Middle East segment net sales were also flat, excluding the negative impact of currency translation compared to the second quarter of 2018. Sales growth in France and Germany was offset by declines in Scandinavia and the U.K. AGCO's second quarter 2019 net sales in South America decreased approximately 10% compared to the second quarter of 2018, excluding negative currency translation impacts. Funding interruptions in the government-subsidized loan program as well as weaker demand in Argentina contributed to the decline.

Sales in North America increased approximately 4%, excluding the unfavorable impact of currency translation compared to the levels experienced in the second quarter of 2018. Increased sales of high horsepower tractors were partially offset by declines in the sales of protein production equipment. Net sales in our Asia/Pacific/Africa segment decreased about 1% in the second quarter of 2019 compared to 2018, excluding the negative impact of currency translation. Lower sales in Australia were mostly offset by higher sales in Africa. Part sales were approximately $384 million for the second quarter of 2019, were up about 4% compared to the same period in 2018, excluding the negative impact of currency.

Slide seven examines AGCO's sales and margin performance. AGCO's adjusted operating margins expanded approximately 150 basis points in the second quarter of 2019 compared to the same period last year. Margins benefited from pricing, increased production, cost management and the timing of our engineering expenses compared to the prior year. Europe/Middle East margins improved over 80 basis points compared to the second quarter of 2018, resulting from the benefit of pricing, higher production, the timing of varying expenses as well as ongoing cost control efforts. North America operating margins expanded 200 basis points in the second quarter compared to the second quarter of 2018.

Increased sales, improved net pricing and a positive sales mix contributed to the higher margins. Third quarter margins in North America will be negatively impacted by the cost associated with launching new products, lower production due to our reduced market forecast as well as a weaker product mix. In South America, the second quarter operating results improved compared to the same period in 2018, as we continue to make progress in the transition of our product offering to Tier 3 technology in that market. Our South America business is expected to be profitable in the second half in 2019.

In our Asia/Pacific/Africa segment, operating margins expanded over 160 basis points on a relatively flat sales due to primarily expense control efforts. Slide eight details AGCO's grain, storage and protein production equipment sales by region and by product. Sales in this product group increased about 4%, excluding negative currency impacts in the first half of 2019 compared to 2018. Globally, grain and seed equipment grew over 12% on a constant-currency basis with the growth achieved in the Europe/Middle East, Asia Pacific, Africa and South American regions. Protein production sales decreased approximately 7% on a constant-currency basis, the largest declines in the Asia Pacific, Africa and North America regions.

The global trends toward growing population and increased protein consumption should make our GSI business an attractive source of profitable growth for AGCO in future years. Slide nine looks at AGCO's investments in both capital expenditures and research and development. We're continuing to make strategic investments to refresh and expand our product lines, upgrade our system capabilities and improve productivity in our factories. We intend to increase the level of engineering expense in 2019 on a constant-currency basis to execute our product development plans and meet new emissions requirements in both Brazil and Europe. Our spending plan is needed to maintain our competitiveness and to support the long-term growth of our business. Our 2019 capital expenditure plan reflects investments to support our product plans and is projected to be higher in 2019 and 2018.

Slide 10 addresses AGCO's free cash flow, which represents cash to use in 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 in both the first half of 2018 and '19. For the full year of 2019, we are targeting another year of strong free cash flow. At the end of June 2019, our North American dealer month supply on a trailing 12-month basis was improved for tractors, hay equipment and combines. Losses on sales receivables, associated with our receivable financing facilities, which are included in other expense net, were approximately $11 million during the second quarter of 2019 compared to $9.7 million in the same period of 2018.

As we focus on return for shareholders, we expect cash distribution to continue as an important component of our long-term capital allocation plan. Over the past 6 years, we've executed share repurchases of nearly $1.3 billion, which had the effect of reducing our share count by approximately 25%. During the first 6 months of 2019, we completed $70 million of share repurchases and expect cash generation to fund additional share repurchases through the balance of the year. Our updated 2019 outlook for 3 major regional markets is captured on Slide 12 and reflects lower forecast for both North and South America.

In North America, 2019 industry unit tractor sales are now expected to be flat compared to 2018 levels, our prior forecast call for the North America market to be up 0% to 5%. The late planting and slow crop development as well as ongoing trade concerns are laying on sales of large equipment. Low horsepower equipment sales, which tend to be tied to more general economics have been more resilient and are now expected to be up modestly in 2019. Warm, dry conditions across much of Western Europe are expected to pressure yields and contribute to softer demand in the back half of 2019. The dairy and livestock fundamentals continue to be supportive and overall demand in Western Europe is expected to be -- is expected to remain healthy.

Based on these assumptions, we expect full year 2019 industry sales to be flat in Western Europe compared to 2018. Harvest in the first half of 2019 in both Brazil and Argentina are improved from 2018 levels. However, interruptions in the government-supported finance program in Brazil and ongoing macroeconomic issues in Argentina limited sales in those markets during the first half of 2019. We now expect South American industry retail sales to be flat in 2019 versus 2018 versus our prior forecast of -- up 0 to 5%. Slide 13 highlights the assumptions underlying our 2019 outlook. The priority for 2019 continues to be managing our costs and continuing investments in our products and in business improvement opportunities.

Our market forecast assumes relatively stable industry demand across all regions. Our plan includes market share improvement with price increases of 2% to 2.5% on a consolidated basis. At current exchange rates, we expect currency translation to negatively impact sales by about 3.5%. In 2019, engineering expenses is expected to be up approximately $10 million on a constant-currency basis as compared to 2018. Operating margins are expected to improve by approximately 100 basis points due to the benefit of our pricing, productivity and purchasing initiatives with margin expansion projected across all regions.

Below the operating income line, we are targeting an effective tax rate of 31% to 32% and interest and other expense to be down about $10 million in 2019 after excluding the debt extinguishment cost incurred in 2018. Slide 14 lists our view of selected 2019 financial goals. We are projecting 2019 sales to be in the $9.4 billion range. We expect growth and operating margins to be improved from 2018. Based on these assumptions, we're targeting 2019 earnings per share of approximately $5.10.

We expect capital expenditures to be up approximately $25 million compared to 2018 levels and free cash flow to be in the $275 million to $300 million range. For the third quarter, our results will reflect the sales and margin impacts of lowering our market forecast for both North and South America as well as an effective tax rate that is expected to be approximately 40%. As a result, third quarter earnings per share is projected to be in the $0.70 to $0.80 range.

That concludes our prepared remarks. Operator, we're ready for questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question is from the line of Jerry Revich with Goldman Sachs.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

No Jerry. Jerry?

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Are you there?

Jerry Revich -- Goldman Sachs -- Analyst

Yes, can you hear me?

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Yes, Jerry, we can hear you now.

Jerry Revich -- Goldman Sachs -- Analyst

Okay. Sorry about that. I'm wondering if you could talk about the margin trajectory that we should be thinking about in South America exiting this year as you folks complete the product transition? And talk to us about where the supply chain ramp stands exiting the quarter, please?

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Sure, Jerry. In terms of margins in South America, you can see that we did improve over last year in the first half of the year. And in the third and fourth quarter, we're projecting margins to be relatively flat compared to what we experienced last year. As we said in our remarks, we made some adjustments to our production levels, and as you recall in 2018, we had elevated production to build some inventory to carry us through some of the changes we're making because of the emission changes. So our production levels are down, and that's contributing to the flatter margins.

Going forward, we -- by the end of the year, we'll be pretty much done with a lot of these new product introductions that have been so challenging for us. And with the exception of the IDEAL Combine, which comes online next year, we'll be really more stable in terms of our product portfolio and our production. And so with that in mind, I think we'll continue to show steady progress in improving our cost structure in South America and seeing some margin improvement year-over-year.

Jerry Revich -- Goldman Sachs -- Analyst

And Andy, just to put a final point on that, should we be thinking about the margin run rate in the 5% range that you folks have achieved historically? Or are we talking about better margins than that as you complete the transition?

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

We talk about better margins. This is basically a focus Eric Hansotia works on. Eric, do you want to talk a little bit about it?

Eric P. Hansotia -- Senior Vice President, Chief Operating Officer

Sure. I mean, overall, Brazil is included in the overall effort. It really boils down to process, product, smart machines and fendt globalization, and South America is part of all 4 of those. Process standardization and automization and digitization globally is a big area of focus, and we still have opportunity this year and beyond. Product cost reduction is an area as we went through so much rapid change over the last few years with the emission changes and so on. We still have some areas where we can take our product cost down.

Smart machine development is what our customers are most excited about. The new fendt machines, the IDEAL Combine, the momentum planter that we launched in South America, Fuse, Precision Planting, all of those are great examples of the whole portfolio of smart solutions that we continue to invest in. And that's why our investment in R&D is up. And lastly, as Fendt globalization, we launched Fendt in South America at Agrishow with the new tractors, the new combine and the new planter, and it was a big hit at the show. So it's South America's representation but it's really a global effort on all those areas.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

The product -- project -- and it works on is called Project 10. And this basically is because our internal strategic target is 10%.

Jerry Revich -- Goldman Sachs -- Analyst

And Martin, based on that comment, even in South America, you can get the 10% where you have more of an assembly business in other regions? You can get the 10% on your framework?

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

You heard everything from Andy about South America and Eric, so the 10% is for the consolidated AGCO results. So -- but there's no reason why South America shouldn't be there, sooner or later. That's, by the way, was your third question.

Jerry Revich -- Goldman Sachs -- Analyst

I appreciate the discussion. Thank you.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Thanks, Jerry.

Operator

Your next question is from the line of Seth Weber with RBC Capital Markets.

Seth Weber -- RBC Capital Markets -- Analyst

Hey. Good morning. I wanted to ask -- in Brazil, again, I guess, with the FINAME program now back in line, have you noticed trends kind of returning in July? And then, I guess, just on your revenue performance in South America was actually a little better than the market. Do you feel like you're really capturing some share in the region?

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

The answer is yes and yes. The details come from Andy.

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Yes, let's say, on the 2 questions, the FINAME program kicked back in probably mid-July. Their funding started again, so we're starting to see activity, and as funds are now starting to flow, the market is returning to a normal activity level. So a little slow start beginning of July, but now things have ramped up here in the back end of the month. So we'll see how the market goes for the full quarter.

In terms of sales growth, the one thing that I would point out beyond what Martin said was, where we're seeing improvement on our sales is in non-tractor products. We focus a lot and we've been talking about North -- South America about our tractor sales because our market shares are so strong, but we're really growing in some of the products that Eric mentioned, we saw substantial growth in sprayers and planters during the second quarter, and we expect that to continue for the balance of the year.

Seth Weber -- RBC Capital Markets -- Analyst

Okay. That's helpful. And then just my follow-up on North America, the strength in margin. I mean, how much of that would you attribute to Precision Planting? And I guess, is that -- you kind of noted that mix is going to drop back off here in the third quarter. Can you just give any color on what's going on with the Precision Planting business, North America?

Eric P. Hansotia -- Senior Vice President, Chief Operating Officer

Sure, Seth. You are absolutely right. Precision Planting is very seasonal, although the first quarter tends to be the heaviest. So we had a much bigger contribution from Precision Planting in the first quarter. So second quarter was -- we talked about sprayers, that's a very good market for us in North America. So that was a big contributor, and then also, bigger, higher horsepower tractors was also up year-over-year. So that was a contributor. Those were the 2 biggest contributors. So thanks for your questions, and we'll -- operator, go on to the next question.

Operator

Your next question is from the line of Stephen Volkmann with Jefferies.

Stephen Volkmann -- Jefferies -- Analyst

Hi. Good morning. Andy and Martin, you both mentioned pricing as a positive impact on your margins, and I guess, that must mean price cost is positive here, but can you just talk a little bit more about what you're seeing in price cost and how that progresses for the rest of the year?

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Sure, Steve. In terms of pricing, as we noted, our price target for the year is up 2% to 2.5%. That's with strong pricing in North and South America and little lower pricing in Europe and kind of reflects the inflation -- inflationary conditions in those markets. From a net pricing position, where you offset with what's happening on a material cost, we're looking at about a 100 basis point improvement. We've been seeing that in the first half of the year and expect that to continue in the back half.

Stephen Volkmann -- Jefferies -- Analyst

Great, that's helpful. And then can you just refresh my memory on what's left for repurchase authorization? And would you expect to follow that up with another one?

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Yes, we have about $70 million left, and we'll be working with our Board here in the second half of the year to get a new authorization.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Yes, we plan to have another one at around $300 million.

Stephen Volkmann -- Jefferies -- Analyst

Great. Thank you, Martin. Bye-bye.

Operator

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

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Ann Duignan?

Tom Simonitsch -- J.P. Morgan. -- Analyst

Good morning, guys. It's actually Tom Simonitsch on for Ann. So you've lowered your North America market outlook and production hours for 2019. Just curious with the details of the market facilitation program announced last week by the USDA factored into our outlook? And do you expect those direct payments to translate into new equipment orders? If so, when?

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Yes. So it is factored into our forecast. What we're seeing in the market for North America is still a fair bit of uncertainty in our customer base. They had -- as we all know, they had a very challenging spring season causing lots of late planting. The summer hasn't been as warm and productive as last summer was to do some catch up like last summer did. And so a lot of farmers are expecting lower yields, and there's also a higher degree of unplanted acres. So farmer uncertainty is fairly high right now. And as we talked to our customer base, they are saying that their buying decision will be put off to later in the year this year than is typical. They are going to wait until they have their harvest and that they know what kind of pricing they can expect.

Tom Simonitsch -- J.P. Morgan. -- Analyst

Okay. That's helpful. Thank you. And if I can also ask a question on GSI. Given the impact of ASF on China's hog herd, are you seeing any new opportunities for GSI as the world attempts to fill that protein deficit?

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

I can take that one. I think there's a few areas. In the short term, it's actually been a negative to our results and that much of our poultry production is down. We had planned orders with our pipeline of relationships with customers in many of the regions for a normal business, but then when ASF came, many of those producers, because of needing to kill their herds, had to put those orders on hold and those expansion plans on hold. So in the short term, it's been a pullback. In the midterm, we see protein replacement opportunity where protein will shift to broiler production and other forms of protein, which we are also providers of and leaders in, and so that's where our focus is in the short term.

In the midterm, swine production will come back, and it will be biased more toward more professional protein production facilities that have better biocontrols and those types of things. So we think in the mid-to- -- let's call it, midterm, this will be a net positive for swine production facilities and the growth there. In North America, in grain storage, we also see opportunities where late planting means a risk of harvesting crops with higher moisture levels. And so we're -- now that we have Precision Planting, we have some of the best planting intelligence in the market. We are joining that up with our grain business to save where are those farmers most at risk for having high moisture conditions and how do we help them with drier solutions, and then finally, would be the bins that were damaged with flooding, where can we go help farmers with replacement storage facilities.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

What I would like to add is that in western society and western countries as the requirement for animal welfare is going up, we have already very interesting solutions in that area and we invest more into developing animal-friendly state-of-the-art solutions also in the future. I think it's a trend.

Tom Simonitsch -- J.P. Morgan. -- Analyst

That's great. Thank you very much.

Operator

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

Jamie Cook -- Credit Suisse -- Analyst

Can you hear me?

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Yes, now. You were late.

Jamie Cook -- Credit Suisse -- Analyst

I know. I am sorry. I am managing between 2 calls. So I guess, Martin, I just wanted -- but I didn't want to miss your call. But Martin, just understanding it's probably too early to think about 2020, but there's a lot of different views on how 2020 could be shaping up with where commodity prices are now and then still we're waiting to hear on more so on China trade war, but could you give any initial thoughts? Where you stand relative to perhaps 6 months ago? And then I guess just my other question is, I understand you cut production a little bit, but how are you thinking about sort of channel inventory heading into 2020? Thank you.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Thank you very much. So you know that we don't talk about it, but you never miss a chance to ask. And so I give you a kind of rough view on 2020. I personally believe that for AGCO, 2020 will be another good year, and we want to show some more improvement, certainly, also in the area of margins. So you should expect us doing a good job as we do this year. When it comes to the other factors you talk about, I do not see them being -- having really a big impact on our business, so I'm positive.

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

And Jamie, on the channel question...

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

We manage the channel very well. Sorry, I missed that.

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Yes, we -- as you pointed out, we did reduce some production in the North America region, and that was all to work on our channel, make sure that we don't end up with higher dealer inventories than a year ago. And so these adjustments we made will keep us on target for where we want to be at the end of the year.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

And with the COO, we have more horsepower now also. So you should expect a major improvement.

Jamie Cook -- Credit Suisse -- Analyst

Okay. Thank you. I'll get back in queue.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Thank you, Jamie. Have a wonderful day. Back to the other call.

Operator

[Operator Instructions] Your next question is from the line of Ross Gilardi with Bank of America Merrill Lynch.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

Thanks. Good morning, guys.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Good morning.

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Good morning.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

I just wondered if you could comment on the SIMA index and its relevance for your businesses as you see it. I mean you characterized the European market as healthy. That particular index has been trending lower. So I'm just wanting to get your take on how good you think it is for following your business?

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

I followed this index for more than 20 years now. It's very complicated, and it's basically made in a way that it's always right. So it's been positive. It's also showing some negative trend and the other way around. So overall, I think Europe is doing fine, and I see the opportunity of a comeback in important markets next year.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

Based on what, in particular, Martin?

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Based on talking to my dealers, my people and farmers, which is much better than just an index.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

Okay. Fair enough. And then I just wanted to get your take off, so just on the relevance of the German tractor registration data. I mean there seems to be a real disconnect between your top line, and that data, obviously, you produced in a lot of different countries, but Germany is very, very important. So what has it been most recently that caused that disconnect? I mean, for many quarters, you guys were outgrowing the overall market. It seems like this quarter, your organic is flattish, which is more what I would have expected given the overall environment. If you could comment on that, too, that would be very helpful?

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Yes, we had some extraordinary issues to get all tractors shipped because of basically quality problems and performance problems of some important suppliers. So you should see numbers more normal next quarter.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

Okay. Got it. Thank you. That's my two.

Operator

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

Andy Casey -- Wells Fargo Securities -- Analyst

Good morning. And thank you. Could you help with a clarification, first, on the SG&A and the engineering expense line items in Q2? Those were down year-over-year. I'm wondering if that was all due to currency.

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Yes, that's right, Andy. Without currency, the expenses have been relatively flat.

Andy Casey -- Wells Fargo Securities -- Analyst

Okay. And then on the revenue outlook, if I'm doing the math right, it looks like the implied second half revenue growth embedded in the assumption is -- it seems like it's set to reaccelerate to 2.5% from Q2's 0.6% organic. Could you help me understand the main growth assumptions within that? Meaning, is the second half expectation, more or less, all price?

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Yes, I would say that most of that growth is in pricing. As we said, our price will be up 2%, 2.5% for the balance of the year.

Eric P. Hansotia -- Senior Vice President, Chief Operating Officer

And then, Andy, as we talked about, too, in Brazil, with the financing coming online, the year-over-year growth in Brazil is going to be pretty significant in the back half of the year. So there's pent-up demand in Brazil. So that's also going to drive a good part of it.

Andy Casey -- Wells Fargo Securities -- Analyst

Okay. And then the Q3 comments suggest earnings growth for the second half is going to be pretty concentrated in the fourth quarter. I understand the comments about Q3. What are you expecting in the fourth quarter to drive that reacceleration?

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

It's a little bit the usual cycle. So the fourth quarter is always the strongest one, but do we have any more details, Greg or Andy?

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

No, I think what we see in the fourth quarter is, particularly in North America, we talked about how North America will be relatively weak in the third quarter with a weak mix and higher expenses. The fourth quarter is kind of reverses that trend, and so we'll see better mix and better margins than what we saw in the fourth quarter of 2018. And then, we see margin improvement across the other regions as well. So it's mainly driven by margin improvement in the fourth quarter.

Andy Casey -- Wells Fargo Securities -- Analyst

Okay. Thank you very much.

Operator

Your final question is from the line of Chad Dillard with Deutsche Bank.

Chad Dillard -- Deutsche Bank -- Analyst

Hi. Good morning, everyone.

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Good morning, Chad.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Deutsche Bank still in existence.

Chad Dillard -- Deutsche Bank -- Analyst

We are. We are still standing.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Yeah.

Chad Dillard -- Deutsche Bank -- Analyst

I just wanted to get an update on the potential per share gain in Europe. Can you just talk about like how your planning increased penetration of the Valtra brand; it's regarding this year versus last year?

Eric P. Hansotia -- Senior Vice President, Chief Operating Officer

So Valtra continues to perform well in the market, but actually all our brands are doing well in the market and that's both a tractor story as well as the non-tractor business. We bought Lely a couple of years ago and that filled in our -- a few gaps that we had in our product line. We now have the largest green harvesting product line in the business.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Including loader wagons, round balers and things which are very important for Europe.

Eric P. Hansotia -- Senior Vice President, Chief Operating Officer

Exactly. And then we're -- the idea of Combine continues to perform very, very well and the wide variety of crops and conditions that we have throughout Europe. And finally, Precision Planting is establishing itself nicely in Western Europe. So that whole combination is creating a partnership with our customers in all brands and strengthening AGCO's position.

Chad Dillard -- Deutsche Bank -- Analyst

Great. And just actually switching over to the IDEAL Combine, I just wanted to get an update on the rollout? How it's going, particularly in Europe, since that's the first region followed by North America? I guess, like, what are you expecting for this year? And how are you thinking about the next, like, 1 to 2 years here?

Eric P. Hansotia -- Senior Vice President, Chief Operating Officer

Yes, our projections and experiences are unchanged from all the previous comments. Volume is unchanged, and the machine continues to perform very, very well in all crops and conditions. We run it very, very often against competition, and our customers are really happy with the results that they are seeing from the machine in each region.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

And we don't talk about volumes for next year yet, but they will be up substantially.

Chad Dillard -- Deutsche Bank -- Analyst

Great. Thank you.

Operator

We do have an additional question from the line of Larry De Maria with William Blair.

Larry De Maria -- William Blair -- Analyst

Thanks. Good morning. And apologize in advance because I jumped on late. So if you've discussed this already, I apologize, but 2 things. First, you guys have been fairly vocal about the Fendt, and it looks like you've been in Ziegler, etc., in North America, and you've been growing up brand in different markets as well. So can you maybe talk about the financial impact for this year and then maybe longer term on the Fendt side? And then secondly, Martin, you've talked about 8% margins in '19, 10% in 2020, given that the guidance is still considerably below that. Can you discuss this on -- to rectify those public comments versus the guidance? Thank you.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

My margin numbers are internal targets, and as you can imagine, they are, of course, stretched, to make life a little difficult for my team and myself. So therefore, the official numbers you always hear from Greg and Andy, and you know the numbers for 2019. The 2020 numbers have not yet been communicated. And the first question, to be honest, I did not understand.

Larry De Maria -- William Blair -- Analyst

I was just curious more about your Fendt plans that you've discussed. Obviously, Fendt is a big brand for you in a way. You're going to outgrow the markets. You've gotten with Ziegler distribution North America. You've done some distribution deals, I think, in Brazil. So if you could talk about the broader strategy of Fendt and what the financial impacts could be in terms of sales, margins, etc., as this brand gets rolled out more meaningfully around the world over the next couple of years?

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Sure, I'll take that one, Larry. So Fendt is a brand that has gotten great reputation in Europe and a strong brand globally, actually, but we didn't really move it strongly into the other regions in the past years as a tractor brand because of its design not fitting so directly as a row crop application. With our new rollout of the 1000 series and now the 900 series, those are designed to be a globally applicable tractor now, still great for Europe conditions, but now versatile enough to fit perfectly for North America and South America conditions as well.

In addition to the tractor portfolio, we've brought out the IDEAL Combine and in South America the momentum plantar and helping our dealers change their game to match the Fendt experience overall. So that's the strategy and it's really just filling out the Fendt experience around the world. From a financial standpoint, it's still relatively modest in the early years as we want to make sure that we do this very, very well as we get out of the gates.

Larry De Maria -- William Blair -- Analyst

Thanks. Did that really close the gap for you guys versus competitors in the professional farmers segment having the IDEAL Combine, the Fendt tractor and planters and things that you mentioned? Is that a full-on solution? Or is there more work to be done to provide a solution to the largest format farmers?

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Well, it does. We leap frog. We basically are in a position now to offer better technologies as we do already for many years in Europe, and this is the plan also for the Americas.

Larry De Maria -- William Blair -- Analyst

Okay. Thank you.

Operator

There are no further questions. I will turn the call over to Mr. Peterson for any closing remarks.

Greg Peterson -- Vice President, Investor Relations

Thank you, Natalia. And we'd like to thank all the participants and would encourage you, if you have follow-up questions, to get back in touch with us later today. Thanks, and have a great day.

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

The AGCO team wishes you a wonderful summer.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Greg Peterson -- Vice President, Investor Relations

Martin H. Richenhagen -- Chairman, President and Chief Executive Officer

Andrew H. Beck -- Senior Vice President and Chief Financial Officer

Eric P. Hansotia -- Senior Vice President, Chief Operating Officer

Jerry Revich -- Goldman Sachs -- Analyst

Seth Weber -- RBC Capital Markets -- Analyst

Stephen Volkmann -- Jefferies -- Analyst

Tom Simonitsch -- J.P. Morgan. -- Analyst

Jamie Cook -- Credit Suisse -- Analyst

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

Andy Casey -- Wells Fargo Securities -- Analyst

Chad Dillard -- Deutsche Bank -- Analyst

Larry De Maria -- William Blair -- Analyst

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