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Earnings call: FMC Corporation outlines Q2 growth, revises full-year outlook

Published 2024-08-01, 03:46 p/m
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FMC Corporation (NYSE: NYSE:FMC), a leading agricultural sciences company, reported a 2% revenue increase in its Second Quarter 2024 Earnings Call, with CEO Pierre Brondeau highlighting a 14% volume growth driving the figures. Despite a positive outlook for continued growth in the remaining quarters of 2024, FMC revised its full-year revenue guidance due to slower demand recovery than initially expected. The company is implementing cost-saving measures to counter this slowdown and remains confident in achieving its full-year guidance, supported by signs of demand recovery, new product sales growth, improved partner orders, and effective cost management.

Key Takeaways

  • FMC Corporation reported a 2% revenue increase in Q2 2024, driven by a 14% volume growth.
  • Full-year revenue guidance has been revised due to slower demand recovery, with increased cost-saving targets to mitigate impact.
  • Q3 revenue is projected to be between $1 billion and $1.09 billion; Q4 revenue is expected to range from $1.34 billion to $1.45 billion.
  • The company anticipates 15% revenue growth and 28% EBITDA growth in the second half of the year, with strong Q4 sales.
  • FMC is launching new products, including four new active ingredients, and expects a $1 billion revenue contribution from pheromone products by 2033.
  • Cost challenges include raw material cost benefits offset by unabsorbed fixed costs and higher distribution expenses, with improvements expected in Q4.

Company Outlook

  • Revenue and earnings growth are projected to accelerate through 2024 and 2025.
  • Revenue split for the second half of the year is projected to be 43% in Q3 and 57% in Q4, higher than historical splits.
  • Confidence in achieving full-year guidance stems from demand recovery, new product sales, partner order improvements, and cost management.

Bearish Highlights

  • Full-year revenue guidance revised due to slower demand recovery.
  • Q3 to face challenges with significant unobserved fixed costs impacting profit and loss.
  • Normal business activity in LATAM, Europe, and North America not expected until Q1 2025, and later in Asia.

Bullish Highlights

  • Strong volume growth and new product introductions driving revenue.
  • Positive leverage metrics anticipated to align with target credit rating by 2025.
  • New active ingredients and pheromone products expected to significantly contribute to future revenue.

Misses

  • Despite raw material cost benefits, the company faced unabsorbed fixed costs and higher distribution expenses.

Q&A Highlights

  • FMC has repositioned prices to regain market share without changing overall strategy or compromising margins.
  • One-time incentives in Brazil and North America helped move products without the risk of overstocking.
  • In India, promotional activities were aimed at moving high-cost products and freeing up space, aligning prices with market expectations.

FMC Corporation remains focused on its growth trajectory, with an emphasis on innovation and market adaptability. The company's strategic approach to pricing, cost management, and product development positions it to navigate market challenges and capitalize on emerging opportunities in the agricultural sector. Investors will be watching closely as FMC progresses towards its targets in the coming quarters.

InvestingPro Insights

FMC Corporation, a key player in the agricultural sciences sector, has been navigating a complex market environment with a strategic focus on growth and innovation. As investors look to understand the potential of FMC's stock, certain metrics and insights from InvestingPro can provide a deeper analysis of the company's financial health and future prospects.

InvestingPro Data shows that FMC has a current market capitalization of approximately $8.09 billion and is trading at an attractive P/E ratio of 5.82, with an adjusted P/E ratio for the last twelve months as of Q1 2024 standing at 5.58. This valuation suggests that the company's stock may be undervalued relative to its near-term earnings growth, especially given its low PEG ratio of 0.11 during the same period. Furthermore, FMC's dividend yield stands at 3.98%, reflecting the company's commitment to returning value to shareholders. This is supported by the fact that FMC has raised its dividend for 6 consecutive years and has maintained dividend payments for 19 consecutive years.

An InvestingPro Tip worth noting is that FMC is expected to remain profitable this year, despite the fact that 6 analysts have revised their earnings downwards for the upcoming period. This profitability, confirmed by the company's performance over the last twelve months, aligns with the CEO's confidence in achieving full-year guidance amidst market challenges.

For those seeking additional insights, InvestingPro offers more tips on FMC, which can be found at https://www.investing.com/pro/FMC. These tips can provide investors with further guidance on the company's stock performance and potential investment opportunities.

Full transcript - FMC Corp (FMC) Q2 2024:

Operator: Good morning and welcome to the Second Quarter 2024 Earnings Call for FMC Corporation. This event is being recorded and all participants are in listen-only mode. [Operator Instructions]. After today's prepared remarks, there will be an opportunity to ask questions. [Operator Instructions]. I would now like to turn the conference over to Mr. Curt Brooks, Director of Investor Relations for FMC Corporation. Please go ahead.

Curt Brooks: Good morning, everyone and welcome to FMC Corporation's second quarter earnings call. Joining me today are Pierre Brondeau, Chairman and the Chief Executive Officer, Andrew Sandifer, Executive Vice President and Chief Financial Officer, and Ronaldo Pereira, President. Following our prepared remarks we will take questions. Our earnings released in today's slide presentation are available on our website and the prepared remarks from today's discussion will be made available after the call. Let me remind you that today's presentation and discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors including but not limited to those factors identified in our earnings release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's understanding. Actual results may vary based upon these risks and uncertainties. Today's discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, free cash flow, and organic revenue growth, all of which are non-GAAP financial measures. Please note that as used in today's discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA. A reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today's conference call are provided on our website. With that I'll now turn the call over to Pierre.

Pierre Brondeau: Thank you, Curt. And good morning, everyone. Since resuming the CEO role, I have taken an in-depth look at the company and the crop protection market which has led to revise full year outlook. To share my views, today's call will be more wide-ranging than a typical earnings call. We delivered a solid Q2 helped by a successful execution of a restructuring program. We expect continued growth in Q3 and Q4 from demand recovery led by the Americas where we expect channel inventory to approach normal levels by year-end. Q2 through Q4 also show higher revenue driven by volume with the rate of growth accelerating in Q4 as we shift into the next crop season. The markets have begun to recover as channel inventories are starting to normalize, even if not as fast as we had previously expected. We plan for FMC's pace of revenue and earnings growth to accelerate through the rest of 2024 and throughout 2025. We continue to firmly believe in the strength of the Diamides portfolio, new product recently introduced, and the technology pipeline. Later in the call, our newly appointed president, Ronaldo Pereira, will provide our views on the strength of the portfolio and how this positions us to take a full advantage of the demand recovery. Full year revenue EBITDA guidance has been reduced to a slower demand recovery than we originally anticipated. To help mitigate the slower recovery in the second half, we have increased our cost saving target and speed of execution. The lower guidance is more of a timing impact and is not a fundamental issue with the market or with FMC. We'll address the Q3 and Q4 profiles in more detail, but I want to quickly touch on two key points. First, the EBITDA margin gathered for Q3 is not representative of the current company performance and operations. There is an expected COGS headwind in that quarter of about $40 million, mainly due to an absorbed fixed cost in relation to a reduced manufacturing activity in the second half of 2023 that are now flowing throughout P&L. Second, the strength of Q4 compared to Q3 is an exaggeration of the typically stronger sales report in the fourth quarter. Historically, Q4 has always been stronger than Q3, but it's magnified this year by the shape of the demand recovery. Our intent for the call is to share information that will demonstrate a confidence in the Q4 forecast. Overall, I am feeling positive about the company. Having said that, I see a number of areas where we can improve on our execution, and we are already implementing changes. I will share more detail in future conversations. I hope this helps position my views of the company and market and provide context for the rest of the call. Slide 3 through 5 provide an overview of our second quarter results. Revenue increased by a modest 2% with volume growth of 14%. In part, the stronger than initially planned volume growth was enabled by strategic pricing actions made during the call. The 10% price decline was mainly driven by three things. One is competitive pressure, which is a normal market dynamic when demand starts to return. Two is a strategic intent to take back market positions in less differentiated products that we intentionally left to competitors by holding to a high-priced strategy when demand was low. And third is one-time incentives to address high-cost inventory in the channel. We began making these one-off adjustments as a way to speed up de-stocking ahead of the next crop season, which will begin in September. With demand returning, we do not plan to make these kinds of one-off adjustments going forward. It is important to recognize that from Q4 2021 to Q2 2023, we raised price every quarter. Even considering the recent price adjustment, we are still substantially ahead in pricing. And now that demand is returning, we can take strategic action in pricing as a lever for sales growth in certain markets. With one full year of de-stocking completed, we saw a return to volume growth in many countries, particularly in the U.S., Brazil, and Germany. As expected, we saw many more small orders to fill immediate needs as customers continue to actively manage inventory. There are a few original sales highlights I want to call out. North America sales were up 24%, mainly from volume in the U.S. with strong growth in herbicides. We are seeing customers waiting to order insecticides and fungicides until they observe pests in the field. In Latin America, sales were up 14%, mainly from volume growth in Brazil. The region also showed strong gains in new products, including Coragen eVo and Premio Star diamide insecticide, Burrow Food, and Stone Herbicide and Onsuva, a newly launched fluindapyr based fungicide. Lower price was driven by three factors I mentioned earlier, competition in the market, strategic pricing on less differential products, and one-time price adjustment. Asia sales were down 28%, and that was largely driven by volume in India. Channel volume in India remains high, especially in insecticide, which has built up over successive aforementioned seasons. Sales of generic Rynaxypyr are acting as smaller secondary headwinds while we pursue litigation for process patent infringement. Ronaldo will speak more to the diamides in a few minutes. We do not see the India channel inventory resolving until at least 2025. In other areas of Asia, Asian countries reported the strongest growth while China declined. Sales in the EMEA were down 3%. Excluding sales to a diamide powder, the region reported overall sales growth in the low 10% driven by volume. The region delivered strong growth in branded diamides and fungicides. Looking at the EBITDA Bridge on slide five, we delivered EBITDA of $202 million, which is at the highest end of our guidance range. The increase of 8% versus the prior year was due to volume growth, cost benefits from the restructuring actions, and FX tailwinds. These three factors more than offset lower pricing and COGS headwinds related to the self-rule of higher cost inventory. Slide six provides an update on the progress in our restructuring actions. We are making excellent progress and have already realized considerable cost benefits through June. We now expect between $75 million to $100 million of cost benefits in 2024, net of inflation, and are on pace to achieve over $150 million of gross run rate savings by 2025. On July 11th, we announced that we entered into an agreement to sell a global specialty solution business for $350 million to Envu. We're expecting the transaction to be completed by the end of the year. We will continue to include the results of this business in our reported figures until the deal has closed, as it does not meet the criteria to be moved into discontinued operations. Our guidance for the second half includes earnings and cash flow from this business. Looking ahead to the rest of the year, we have updated our full year revenue guidance to a range of $4.3 billion to $4.5 billion, which is 2% lower than prior year at the midpoint. This is $200 million reduction between the midpoint of our new and prior guidance, and about half of that attributed to lower first-hand sales that we do not expect to make up this year. The remaining reduction is mostly the result of a slower than expected demand recovery. Although demand recovery is slower than originally anticipated, we do not see improvement in most geographies - sorry, we do see improvement in most geographies, with the exception of India. A revised EBITDA guidance of $880 million to $940 million reflect the lower revenue outlook, and is a 7% reduction at the midpoint against prior guidance and prior year. We expect third quarter revenue to be between $1 billion and $1.09 billion, which is 6% higher at the midpoint versus prior year. Volume is the key driver, with pricing expected to be down low single digits. Year-over-year pricing headwinds are lower compared to the second quarter, as we do not plan to continue one-time incentives now that much of the high-cost inventory in the channel has been reduced. Overall, pricing levels in the third quarter are expected to be similar to the second quarter. Third quarter EBITDA is expected to be between $165 million and $195 million, representing 3% growth at the midpoint. EBITDA margin midpoint of 17% reflects the outsized impact of a $40 million COGS headwind we expect during the quarter. The headwind is mostly attributed to unabsorbed fixed costs related to reduced manufacturing during the second half of 2023. Absence of this headwind would put our implied third quarter midpoint EBITDA margin in line with the historical Q3 average. Fourth quarter revenue is expected to be between $1.34 billion and $1.45 billion, which is 22% higher at the midpoint. Volume is expected to be the key driver of sales supported by new products, improving demand, and growing market share. Price and effects are both expected to be low single-digit headwinds. Fourth quarter EBITDA is expected to be between $353 million and $383 million, up 45% at the midpoint, almost entirely attributed to higher sales. Costs are expected to be favorable from restructuring benefits. The quality pace of results this year is forecasted to be different from what we reported in the past. Typically, the third quarter is the lowest revenue quarter in the year. This year, it is expected to be higher than the first and second quarters due to the timing of the demand recovery. Our second half revenue split between Q3 and Q4 has historically been about 46% third quarter and 54% fourth quarter. This year, we are getting to a quarterly revenue split in the second half of 43% third quarter and 57% fourth quarter. The higher than usual sales in Q4 are due to the shape of the demand recovery. To achieve the midpoint of our full year guidance, we expect to grow in the second half by 15% revenue and 28% in EBITDA with a strong fourth quarter. There are four reasons we are highly confident in those numbers. One, there are signs that demand is recovering. Our second quarter volume is evidence of that. What we're seeing in our second half order books also reflect that improvement. For example, in Brazil, we have about a third of the orders in a book that we'll need to reach that country's second half targets. At this time last year, it was almost zero. Early indications after one month of second half operation show that the regions are on track to reach that target. Two, a large portion of the sales growth we expect in the second half is coming from products launched in the last five years. We see solid demand for these products due to their differentiation from other technologies. Some examples include Onsuva fungicide and Coragen eVo insecticide in Latin America. Overwatch herbicide in Asia based on the new active ingredient Isoflex and new diamides formulation in North America like Elevest and Vantacor Evo. Three, improved orders from diamide partners. Similar to FMC, our partners have been attempting to work down high level of inventories. Levels are now reaching a point that are supporting higher purchases. And four, cost management. We have shown the ability to effectively control cost and deliver on a restructuring savings commitment. That will continue in the second half. I will now hand the call over to Andrew to cover some financial items including our cash performance and outlook.

Andrew Sandifer: Thanks, Pierre. I will start this morning with a review of some key income statement items. FX was a 2% headwind to revenue growth in the second quarter with the most significant headwinds coming from the Indian rupee, Brazilian real and Turkish lira. For the remainder of 2024, we anticipate continued low single digit FX headwinds driven primarily by the Brazilian real. Interest expense for the second quarter was $63.6 million, down slightly versus the prior year period. But lower foreign interest expense offsetting higher domestic interest expense. For full year 2024, we expect interest expense to be in the range of $235 million to $240 million, essentially flat year-on-year at the midpoint. With the impact of higher rates on domestic debt offset by lower foreign borrowings. Our effective tax rate on adjusted earnings for the second quarter was 15.5%, in line with the midpoint of our continued expectation for a full year tax rate of 14% to 17%. Our GAAP provision for income taxes in the second quarter benefited from the transfer of intangible assets to our Swiss subsidiaries, where we recently were awarded OECD Pillar 2 Compliant Tax Incentives. This asset transfer will allow us to take further advantage of these new incentives and will help ensure FMC maintains a structurally advantaged tax rate for at least the next decade. Moving next to the balance sheet and leverage. Gross debt at June 30th was approximately $4.2 billion, down $157 million from the prior quarter. Cash on hand increased $54 million to $472 million, resulting in net debt of approximately $3.7 billion. Gross debt to trailing 12-month EBITDA was 5.3 times at quarter end, while net debt to EBITDA was 4.7 times. Relative to our covenant, which measures leverage with a number of adjustments to both the numerator and denominator, leverage was 5.4 times as compared to a covenant of 6.5 times. As a reminder, our covenant leverage limit was raised temporarily to 6.5 times through June 30th this year. It will step down to 6 times on September 30th and then again to 5 times on December 31st. We expect covenant leverage approaching four times by year-end, reflecting both the year-on-year EBITDA growth in the second half, as well as receipt of proceeds from the recently announced sale of our Global Specialty Solutions business to Envu. We remain committed to returning our leverage to levels consistent with our targeted BBB BAA2 long-term credit ratings, or better. While we will still be meaningfully above this level at the end of 2024, we are confident that with EBITDA growth and disciplined cash management, we can reach leverage metrics consistent with our target credit rating in 2025. Moving on to free cash flow in slide 11. Free cash flow in the second quarter was $280 million, an improvement of over $187 million versus the prior year period. Nearly all of this improvement came from adjusted cash from operations, which improved by $184 million from a reduction in inventory, as well as a build of payables. Collections continued to be strong and ahead of our internal forecast. Capital additions were lower as we continued to constrain investment to only the most critical high-return projects. Legacy and transformation cash spending was up due to costs related to our restructuring program. Through the first half of 2024, free cash flow is up $915 million versus the prior year. We now expect free cash flow of $400 million to $500 million for full year 2024, a positive swing of nearly $1 billion from the 2023 performance at the midpoint of the range. This year-on-year increase is expected to be driven by significant cash release from rebuilding accounts payable and reducing inventory, partially offset by higher accounts receivable due to revenue growth in the second half of the year. Relative to our prior guidance, this free cash flow outlook reflects the updated EBITDA guidance provided today, as well as a modest reduction in anticipated capital investment. With that, I'll hand the call over to Ronaldo.

Ronaldo Pereira: Thank you, Andrew. Before I begin, I want to take a moment to describe the four components that drive our portfolio's growth. The first is innovative formulations of our non-diamide products, some of which are patented. The second is our diamide franchise. Growth of the diamides is supported by existing IP protection and our actions to transition to unique patented formulations. This is enabled by our extensive knowledge of the diamides and their target insect populations. Third is bringing to market four new active ingredients, with two having a new mode of action and a new family of products, the pheromones. Finally, our expanding platform of biological products. Today, I'll focus my discussion on diamides and the new active ingredients and what gives us confidence in our ability to keep growing. Diamides have been a core part of our business since we launched at FMC as a pure play agricultural sciences company in 2018. In these almost seven years, we have grown our partner base and expanded our geographic footprint. Through new product registrations, we have introduced brand new patented formulations that allow us to enter new market and crop segments. From the time we purchased the diamides, there have been concerns regarding a perceived cliff on revenue. This is absolutely not how we see it. Rather, we expect the diamides to be a growth platform for FMC well into the future. Discussions about the strength and resilience of our diamides usually start with the composition of matter patents for the active ingredients. These have largely expired for Rynaxypyr and Cyazypyr active ingredients. But there are many other factors that support the strength of our diamides. One such factor is other patents, which includes manufacturing processes and specific intermediates. These patents provide protection that continues through mid-2026, varying byproduct and geography. In countries like India and China, these patents have been harder to enforce, which is not the case in most other geographies. This is evidenced by recent legal victories and the lack of generic players attempting to sell in these other geographies. Another factor is data protection. Providing studies for necessary registration can be time-consuming and costly for competitors. If a generic player wants to reference our proprietary data to save cost and time in registering their own products, they will need to wait until the data is no longer protected, which can be as long as 10 years from the original registration. We sell our diamides in nearly 100 countries. Each country has its own regulatory agencies, and the time to register a generic can vary from one year in some countries to more than five years in others. As such, in many countries, competing companies are prevented from registering a generic version of our Cyazypyr actives because FMC's data protection has not expired. After all compositions of matter, process, and intermediate patents and data protection expire, we know that generics will come to the market, most with solo-diamide products that mimic our original products. What they will find is that FMC has not been standing still. We have been actively working to advance our diamides technologies through new formulations. First, through the development of new and, in many cases, patented solo-enhanced formulations. Solo formulations are Rynaxypyr or Cyazypyr molecules formulated to be convenient to farmers, more sustainable, and more cost-effective, allowing FMC diamide products to be more competitive while remaining highly profitable. These new enhanced solo-formulations that we are now introducing in the market are often patented and include high concentration and solid formulations, such as the large effervescent granule product we showcased at our November Investor Day. The second and most important advancement stems from our innovation in developing mixture formulations, which combine diamides with complementary active ingredients. These mixture formulations not only mark a substantial leap forward in performance for growers, but also play a crucial role in preemptively addressing potential insect resistance. At FMC, our proactive approach involves extensive monitoring of insect populations through molecular biology, allowing us to anticipate and mitigate resistance issues. Our expertise in this domain informs the development of superior products tailored to meet the specific needs of each key market. Because we own these products, we have more knowledge about the diamides than any other company, and we are using this knowledge to create superior products. This work is highly tailored to each key country, which, again, significantly diminishes the likelihood of any sudden widespread impact on sales. Simply put, we are confident that there is no impending revenue cliff for these key assets. There are layers of protection for both Rynaxypyr and Cyazypyr-based products, making them an important growth platform for FMC for years to come. We have talked about the diamides many times over the last year. To recap the key points, our current patent state is strong and will remain in place for some time. We are successfully defending our patents and will continue to enforce our IP. We are extending and further protecting the lifecycle of diamides through new formulations to ensure our portfolio remains convenient to growers, highly cost competitive, and performance differentiated. Today, we're developing and launching products that will be needed to help fight insect resistance now and in the future. FMC is best positioned to do that because we have consistently used advanced techniques to monitor insect populations for years. These are the reasons why we believe that diamides will continue to be a meaningful contributor to FMC's growth throughout this decade and beyond. In addition to the diamides, the continued introduction of new molecules and new formulations will support our long-term growth. This includes the launch of four new active ingredients, which we spoke about during our 2023 Investor Day. Fluindapyr, a patented fungicide that we have recently launched in the U.S., Paraguay, Argentina, and Brazil with future registrations expected for Mexico and India. This product gives us access to the large corn and soybean fungicide segments where we played only marginally until recently. Isoflex, the herbicide we launched in Australia and Argentina. Isoflex will also be launched in Brazil later this year and continue to expand into other crops throughout 2025. In India, we just received product registration this week and plan to launch soon. In Great Britain, we have received the active registration and anticipate product registration shortly. Dodhylex, a patented rice herbicide and the first herbicide with a new mode of action in over 30 years. We have submitted regulatory registration in seven countries in which these make up close to 30% of the global rice market. Commercial launches are expected in 2026. Dodhylex is a big innovation in rice and as we advance its development, we continue to find new opportunities on additional crops. Rimisoxafen is still in its earlier stages. Rimisoxafen is an exciting herbicide effective against resistant weeds like Palmer amaranth, in corn and soybean markets. It's another unique product with a new dual mode of action. Finally, pheromones, a platform of products that can potentially change the way growers manage and protect their crops from insects. We have already applied to register the first pheromone product for row crops in Brazil, Mexico, U.S. and Philippines. We estimate this product platform will contribute about $1 billion in revenue by 2033. Years from now, when solo diamide products are fully exposed to the market, in the market, we expect that FMC will be well beyond those original products with patented new formulations and innovative diamide mixtures. Regarding the five new products I have just mentioned, two have launched. Two are awaiting registration and one is pending regulatory submission. Combined, these products will give us access to segments we do not play in today, significantly expanding our addressable market in the future. Our growth story is one of innovation. It is strongly rooted in the strength of our current portfolio and the significant growth we anticipate from our new products. These are sales that will be in addition to our legacy portfolio, including the diamides. I will now turn it back over to Pierre.

Pierre Brondeau: Thank you, Ronaldo. Before we move to Q&A, I want to make a few high-level comments on 2025. It is too early for any formalized guidance, but I will share some factors that we believe could influence our results. We are expecting demand in the market to continue to accelerate from where we end 2024. That would lead to a volume growth for FMC, especially in the first half of the year, where prior comps will be weaker. We also expect continued strong growth over new products. Pricing is uncertain, as in the case during any period of demand recovery. The pricing actions we have taken this year should position us well in 2025. Overall, we expect 2025 revenue growth at around 6%, excluding the GSS business. On the cost side, there is about $150 million to $200 million in expected favorability. That's coming from lower raw materials, the absence of an absorbed fixed-cost headwinds that is forecasted in 2024, and a full year of restructuring benefits. There is some uncertainty, depending upon how raw materials move, but overall, the 2025 cost story is shaping up to be positive. The cost favorability will be partially offset by the loss of about $30 million to $35 million of EBITDA from the sale of the GSS business. That gives us growth at the top and bottom line in 2025, with further growth coming in four years as the new products in the pipeline that Ronaldo spoke about are launched and or expand into new countries and markets. With that, we are now ready to take your questions.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Chris Parkinson from Wolfe. Your line is now open.

Christopher Parkinson: Thank you so much for taking my question. So, Pierre, as much as I'd really love to focus on some of the intermediate and longer-term factors which you've been highlighting on a preliminary basis, I'd love to just dig in a little on the second half and just the cadence between the third and the fourth quarter. I mean, the ag markets are still pretty difficult. There's still some uncertainty in Brazil, but just any color you could offer to give investors a little bit more comfort on the split there and kind of the puts and takes that you outlined on slides 8 and 9 would be especially helpful. Thank you so much.

Pierre Brondeau: All right. Thank you, Chris. I'm going to try to be concise on answers, but I might be a bit longer on this one because I think it's the right question. The sequence is important. Q4 is an important quarter. First, I'm going to make an answer which is not a business answer. I'm just back. I do not need to take a risk as a CEO just back to miss my first two quarters. I could have gathered a different level. Nobody would have been surprised with a full year guidance at 890 or 900. So, if I gathered where I did for the fourth quarter, it's because I did a very strong due diligence and it's a true bottom-up process. We went through to define sales and earnings. For Q4, we have a much-improved visibility today in Latin America and mostly Brazil, in North America and in EMEA. As an example for Brazil, we believe that the orders we already have in hand and the Q2 action to prepare for the season put us in an excellent position to meet the Q3, Q4 target. North America, I'd say the visibility is good for the short term. It's an easier market to forecast short term in a sense that we have fewer customers. They are mostly large distributors. So, it's a much easier place to define your short-term potential sales. I would say that the least comfortable in terms of visibility for us would be Asia, driven by the channel situation in India. And I can tell you that that has been reflected in the way we have been forecasting the quarter, the fourth quarter. Third point I would make is the channel is getting closer to normal and demand is picking up. Additionally, we know and we've seen and we've talked to our customers and we know some of the customers have pushed Q3 demand into Q4. They're buying as late as they can so that is inflating the Q4 sales number. On the price, we do not see risk. We have taken very strategic decisions, bringing a price down in the second quarter. We have repositioned pricing. That's being proven by the volume we're able to reach in Q2. So, we believe Q3, Q4, we should see price quite slight versus Q2 and we do not see many risks, especially in Latin America. Finally, and most importantly, in the second half, 60% of the growth in the second half is new product introduction. This is actually quite in line with what we saw in Q2. The demand for those products, some of them which were introduced and market tested in 2023, is very strong. Importantly, it gives us access to market we did not have access to. So that is a very large component over H2 and Q4 growth. And maybe, Ronaldo, you want to say a couple of words about the new product we're introducing to give some confidence about Q4 forecast?

Ronaldo Pereira: Sure, Pierre. I would highlight too, in the U.S., we're talking about these enhanced formulations of the diamides, as well as some herbicide platforms that continue to grow for FMC. We just launched an industrial fungicide in North America and that is gaining a lot of steam and speed. And in South America particularly, we're very excited with the introduction of the Fluindapyr-based Onsuva, a fungicide that puts us to play in the soybean rust segment. And also, we don't talk much about that, but there are two new formulations of our Sulfentrazone franchise that are also growing fast in Latin America, particularly in Brazil. One for sugarcane, [ph] Borolfo, and the other one more on the control-to-control resistant weeds on soybean in Brazil. That is a storm, as Pierre mentioned.

Pierre Brondeau: So, in a few words, I'm going to say it again. Trust me, I don't want to miss neither Q3 or Q4, so there is a very solid due diligence behind those numbers and strong confidence.

Christopher Parkinson: Excellent, color. Thank you so much.

Pierre Brondeau: Thanks, Chris.

Operator: Thank you. The next question comes from Josh Spector from UBS. Your line is now open.

Josh Spector: Hi. Good morning. I was wondering if you could talk a little bit on the cost side of things a little bit more. So, you talked about a headwind in 3Q from some higher product costs due to the downtime you took later last year. When do you roll through that? So, is that a tailwind into fourth quarter, or is that more of a tailwind into next year? And I guess any other weird cost movements we should be thinking about between 3Q or 4Q that maybe drives some higher confidence in that 4Q pickup?

Andrew Sandifer: Hey, Josh. It's Andrew. I'll take this one. I think certainly Q3 has been an aberration, just the lumpiness of how some of this cost is flowing through. Just a reminder, everybody, we do have raw material cost benefit throughout the year for newly purchased materials. We've had headwinds that offset that in different ways throughout the different quarters. As we look to the third quarter, the big issue is a big slug of unobserved fixed costs that are now flowing through our P&L from downtime we took in manufacturing facilities in the last year. That is really the big offset to raw material cost favorability. We do also have a little bit higher distribution and freight costs because we're doing higher volumes, but it's really that flow through of the unfavorable variances. In Q4, we still have a little bit of those volume variances flowing through that unabsorbed fixed cost flowing through. We do have higher distribution costs, but we still have raw material cost favorability from the prior year. So, that gross margin costs become much more of a flattish issue in Q4. Some of the additional benefits on total costs, you'll see a modest tailwind on overall costs in Q4 with restructuring benefits and a lack of a headwind on COGS. So, Q3, really it's the carryover of unobserved fixed costs from last year. It's lumpy, it's flowing through, and this is the last big slug. But unfortunately, it's large enough to where it offsets any of the restructuring benefits year-on-year in Q3. Q4, we get out from under the biggest pieces of that, and the COGS headwind gets to be pretty flat.

Josh Spector: Got it. Thank you. Thank you.

Operator: The next question comes from Vincent Andrews from Morgan Stanley (NYSE:MS). Vincent, your line is now open.

Vincent Andrews: Thank you. Andrew, maybe I'll just follow up on that. On the foreign exchange impact on the back half of the year, if I read this right, Q3 has a revenue hit from foreign exchange, but there's a tailwind to EBITDA, and then Q4 also has a hit on the revenue line, but it seems to be neutral on EBITDA. Can you just update us on how that flow through works, or is there something sort of specific to the second half and some of the issues that you mentioned in terms of timing of raw and inventory flow through that's maybe impacting this as well?

Andrew Sandifer: Yeah, thanks, Vincent. No, it's really more of an issue in SG&A and RD, quite honestly, the currencies that are just the most in play in those quarters. And it's a basket of currencies, but in Q4 in particular, it's the REI. And while we have a revenue headwind, it's an SG&A benefit. So, net-net, we end up with a - it's a minor tailwind to EBITDA in the fourth quarter, but we wanted to highlight that because it might not - given that it's a modest, low-single-digit FX headwind at revenue, we didn't want to mis-signal people that it would actually go the other way in Q4. Q3, you see more alignment where you have the revenue and EBITDA headwinds, both minor, low-single-digit revenue for FX. So that's really the difference in Q4. Its which currencies are hitting and the fact that there are benefits in SG&A from those currency changes that offset what happens at revenue.

Vincent Andrews: Thank you.

Operator: Thank you. The next question comes from Arun Viswanathan from RBC (TSX:RY) Capital. Your line is now open.

Arun Viswanathan: Thanks for taking my question. Good to speak with you guys, and good to hear you again, Pierre. So, I guess my question is really around some of the learnings that you've unearthed and maybe some of the topics you've touched on earlier as far as due diligence. Were there any personnel changes other than yourself, and do you think that's necessary? And then maybe you can also highlight the go-to-market strategy in some of these areas. I mean, obviously, the credit issues were a factor in South America last year that potentially exacerbated some of the destocking that you've seen. Yeah, maybe you can address those issues. Thanks.

Pierre Brondeau: Sure. In terms of personnel issues, I think the team is in place. We're well-organized. We do due diligence. I think what I've been looking deep into is the forecasting process, selling process, and execution. I think it's pretty clear that we've missed quite a few quarters where we've missed our own selling target, and I think that's a place where we need to be highly vigilant. And Ronaldo and myself, we're looking deep into that. And I can tell you that I've spent a long, long time with each of the four regional presidents to validate the forecast for Q3 and Q4. Another topic where I see change, I would like is regarding Diamides. I think Diamides franchise is good. I think we have very interesting solo and mutual formulation. We need a more aggressive Diamides global and regional marketing strategy. We also need to accelerate new product invention for Diamides. So that is also a place where I'm going to be looking into very carefully, and we have started to do some work. I'd say point number three, I am, of course, pleased with the results of the restructuring program. I still believe we are operating at a cost which is too high. The corporation is back to sales number of 2018-2019, but we have a cost structure which is more of a 2022 cost structure, 2023 cost structure. So, no need to implement a new restructuring program, but I can tell you there is attrition, which if it's used strategically, can truly lower your cost of operation and very quickly at no cost. So that's going to be a part we are looking into right now to lower our cost. Maybe last, I'm quite pleased with the R&D organization, I would put, but I still want to have maybe a stronger coordination between the work which is done in the regions and at the global level to have an even more efficient R&D organization. So, some of the places where I'm focusing my attention right now, the strategy of the company is in place, is solid. I'm not planning major change, but execution and short-term marketing strategy is important. I don't know, Andrew, you want to address the question on Brazil?

Andrew Sandifer: Yeah, look, Arun, I'd say simply this. Certainly, the availability of credit to our customers did impact perhaps some buying last year, but I would emphasize the quality of credit in our own receivables is very high. Our past dues are down. Our collections have been ahead of our own internal forecast. So, while that availability of credit may be a rate-limiting step on purchases, particularly last year when there was such the heat of the correction, we don't believe that that's either a risk to our revenue or a risk to our balance sheet at this point.

Arun Viswanathan: Great, thanks a lot.

Operator: Thank you. The next question comes from Frank Mitsch from Fermium Research. Your line is now open.

Frank Mitsch: Yes, good morning, and yes Pierre, good to hear from you again. And I really appreciate the answer to the first question, given that there was some sense perhaps that the 4Q guide was more on the aspirational side, and clearly you don't believe that to be the case. You indicated that one of the things that gives you confidence is that in Brazil, a third of the order book is already booked as opposed to last year where it was zero. I'm curious as to what that typically is, because obviously last year was an anomaly. So, what is more normal? So, we have a kind of a benchmark there. And then also, obviously on the cost side, you're doing a lot of work, and I noticed SG&A was particularly light in the second quarter. If you could give us some color as to your expectations on the SG&A side as we progress through the year and into 2025? Thank you.

Pierre Brondeau: Sure, thanks, Frank. The first one -

Andrew Sandifer: The normal pace.

Pierre Brondeau: Oh, yeah, normal pace. Yes, sorry. Yeah, we have about 30, probably 35% of orders. Last year was zero. I would say that in period of high demand, when your markets are growing at a strong pace, a 45% up to 50% of orders in hand would be a normal ratio you could expect. I'm talking when you have a very healthy market with low inventories in the channel. I think the numbers you've seen are not much different from what we said in the script. I think we're increasing north of $75 million, the target, with the last part coming from SG&A. I do believe that we're going to reach the $150 million by the end of 2025 in run rate, in overall cost saving, with a significant part coming from SG&A. But once again, I want to emphasize, as much as $150 million, whether it's on the COGS side or the S&R side, is a good number. We're going to need to do better. We're going to need to do better. We're going to need to operate at a lower cost. And we have in place a strategy program around attrition, because that's an opportunity for us. We have tools which allow us to work differently, and I think we have to use them.

Frank Mitsch: Thank you so much.

Operator: Thank you. The next question comes from Richard Garchitorena from Wells Fargo (NYSE:WFC). Your line is now open.

Richard Garchitorena: Great, thanks. And welcome back, Pierre. My question basically is a bigger picture in terms of, Pierre, you're coming back to the industry and looking at where the industry has gone. You know, we saw peak earnings in 2022. Obviously, you've done some restructuring and some divestitures. I was just wondering what your thoughts are in terms of where we are in the cycle, given where crop prices have been moving weaker through 2024. And then I know you gave some high-level comments around 2025, but I'm just curious in terms of when you think we see an inflection point in terms of pricing getting better. And do you really think we are at the trough here in the second half of 2024? Thank you.

Pierre Brondeau: Yeah, I think we've, you know, the cycle, we've seen them, we've seen them before. There is always the seven, eight years of growth, followed by a one to two year down cycle. Every indication we had, and we try to be very scientific and maybe more than usual in analyzing the market, we believe we reached the bottom in Q2 2024. That being said, we do not see getting back to a more normal business activity and a more normal channel until the first quarter of 2025 for LATAM, Europe, and North America. I think for Asia and mostly driven by India we're going to have to wait well into 2025 to have more normal activity. I believe by the end of 2025 we are off the downturn. Mostly, mostly, the recovery is going to be mostly driven by non-Asia regions in the first quarter of 2025.

Operator: Thank you. We have our next question, comes from Edlain Rodriguez from Mizuho. Your line is now open.

Edlain Rodriguez: Thank you. Good morning, everyone. Pierre, so one quick question. I mean, I think in terms of pricing, I think you mentioned in the opening remark about like the strategic intent to lower prices to regain the less differentiated products. That was a key driver of the lower prices. The question that I have is, why the shift in strategy there? And also, how is that going to improve margins? I mean, are you chasing volume at the expense of profitability? If you could address that a little bit, please.

Pierre Brondeau: Absolutely. I think we acknowledge that we were aggressive on pricing to recover raw material cost increase. This period of inflation in cost is now mostly behind us. But we intentionally kept prices at a very high level across the board because we saw a market where demand was poor. There was no real demand. So, fighting with price in time when there is no demand, we felt was not the smartest thing. But we also have to face that now we have more than recovered cost through the period of raw material inflation. And we do have a tool to take back position we should have and get back to market share we had in places where we've been artificially keeping price high even if there was no differentiation. So, it is not a change of strategy. We're not going to become a company which is going to be chasing volume at any cost. I think we used Q2 to reposition our prices in order for us to be able to grow and benefit from the growth of the market. But this is it. You will not see us continuing this in Q3 or Q4. But I have the feeling that we needed that repositioning of our pricing after quarters of aggressive price increase. But absolutely no change in the strategy. No chasing of volume at any cost and we’re not going to pay less attention to the margins of the gross margin or EBITDA margin of the company.

Edlain Rodriguez: Okay. Thank you.

Operator: Thank you. Our last question comes from Benjamin Theurer from Barclays (LON:BARC). Benjamin your line is now open.

Benjamin Theurer: Good morning and thanks for squeezing me in at the end. I just wanted to follow up real-quick on some of the promotional activity that you've mentioned what’s happening in India and how that's impacting. Anything you can share on how consumers or farmers are reacting to that and if there's any risk of overstock in the future given those discounts that you're putting in? Thank you very much.

Pierre Brondeau: If I understand well the question, you're asking about the one-time incentive we gave to our customers and in Brazil to some extent in North America. We're holding high-cost products and those products were stocked in the channel. We needed to see those products move through the channel to go to the end customers. And we had discussion with them. They needed help. We helped them and that allowed us to free space with a product going on the ground and moving through the channel. So, it was very clear with them. It's a one-time incentive which is done toward the end of a down cycle. Customers need help. We were there for them. It helped us too for the following of the year and it's cleaning up the channel. I think everybody's clear on the market on why we do it. I don't think there is any risk of channel stocking because our prices right now are where they should be and are not lower than what the market is commending.

Benjamin Theurer: Thank you very much.

Operator: Thank you. This concludes the FMC Corporation conference call. Thank you for attending. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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