The operator introduces the Fourth Quarter 2023 Earnings Call for FMC Corporation, with Zack Zaki, Director of Investor Relations, moderating the call. Mark Douglas, President and CEO, and Andrew Sandifer, CFO, will discuss the company's fourth quarter performance and provide an outlook for 2024. The presentation and discussion will include forward-looking statements and non-GAAP financial measures, with a reconciliation and definition of these terms provided on the company's website.

Mark Douglas, the speaker, discusses the fourth quarter and full year 2023 results, which can be found on Slides 3-6. While market conditions and buyer behavior were as expected in North America, EMEA, and Asia, there was a negative impact in Latin America due to a channel correction and drought conditions in Brazil. However, sales of differentiated products remained strong, with branded diamide sales up 5% and products launched in the last 5 years outperforming the overall portfolio. The channel inventory correction is expected to continue through the first half of 2024, but the underlying fundamentals of the business remain solid. North America and Latin America experienced a decline in sales, while Asia remained flat due to offsetting factors.

Despite a 24% decline in revenue in the EMEA region, branded diamide sales remained consistent with the previous year. This was driven by strong growth in sales of Verimark in Spain and Presto Core in Turkey. EBITDA for the fourth quarter was 41% lower due to lower sales, but cost management and price increases helped maintain an industry-leading margin of 22%. The decline in sales volume was offset by cost reductions and the success of new and innovative products, with NPI sales making up 13% of total revenue. In Brazil, new products such as Premier Star insecticide and stone herbicides for sugarcane and soy drove this performance.

In addition to using Coragen Max insecticide for canola and fruits and vegetables, and Overwatch herbicide for cereals, the company has implemented various measures to improve visibility into channel inventory. This includes surveys in Europe, utilizing digital platforms in Asia, integrating systems with retailers in Mexico and Brazil, and increasing data updates in Argentina. For 2024, the company expects revenue to increase by 2.5% at the midpoint, with the global market expected to be flat to down low single digits, except for India where it is expected to be down due to channel inventory.

In 2024, FMC expects revenue growth through volume growth, driven by new product launches such as Coragen Evo insecticide and Overwatch herbicide. There may be some pricing pressure and FX headwinds, but EBITDA is expected to be between $900 million and $1.05 billion. Adjusted earnings per share is expected to increase by 1% due to low interest expense and D&A. FMC is undergoing a global restructuring plan to better align with the current market conditions.

FMC is implementing structural changes to position the company for success beyond 2024 and towards their 2026 goals. These changes include a global restructuring program, workforce reductions, reducing indirect spend, selling a noncrop business, and examining their global and regional footprint. These changes are expected to result in $50-75 million in cost savings in 2024 and $150 million in run rate savings by the end of 2025. The company will continue to prioritize investments in critical growth areas such as plant health, engaging with growers, and R&D. Slide 10 outlines the factors that could impact FMC's EBITDA outcomes within their guidance range.

The pace of market recovery is the main factor influencing the company's performance. The company expects to see overall market growth in the second half of the year, aided by steady application rates and inventory management. The first quarter is expected to have lower revenue and EBITDA compared to the previous year, but the company plans to achieve its full year guidance through higher sales volume of new products, market recovery, and benefits from restructuring. The company's plan is not solely reliant on market recovery.

The paragraph discusses key income statement items for the fourth quarter and full year of 2023, including the impact of foreign exchange rates, interest expense, and effective tax rate. It also mentions two extraordinary events that affected the company's GAAP provision for income taxes in the fourth quarter, including the granting of new tax incentives for Swiss subsidiaries. The company expects minor FX headwinds for 2024 and a decrease in interest expense due to expected interest rate reductions and lower borrowings. The effective tax rate for the full year was slightly better than anticipated.

FMC recorded deferred tax benefit assets of $830 million and released a valuation allowance position in Brazil, resulting in a GAAP income tax benefit of $1.2 billion. The company's estimated tax rate for 2024 is 14% to 17%, up 1 percentage point from the prior year. Gross debt decreased to $4 billion and leverage was 4.0x at year-end, with ample headroom under the covenant limit of 6.5x. FMC expects to improve leverage through positive EBITDA comparisons, free cash flow generation, and proceeds from the divestiture of their Global Specialty Solutions business.

The company expects to lower its covenant leverage to below 3.5x by the end of the year and is committed to reaching its targeted BBB/BAA2 long-term credit ratings. Their midterm leverage target is 2x net on a rolling 4-quarter average basis, which they believe they will reach in 2025 with EBITDA growth and disciplined cash management. Free cash flow for 2023 was negative $524 million, but they anticipate a significant improvement in 2024 with a forecasted range of $400 million to $600 million. This is a swing of more than $1 billion from 2023 performance at the midpoint of the range.

The company expects an increase in adjusted cash from operations and a decrease in capital additions for 2024. They also anticipate spending on capacity expansion and restructuring. The first quarter is expected to see a decline in volume, but the trend is expected to level off afterwards. NPI sales are expected to drive revenue growth and the company is not solely relying on market growth for success in 2024.

The company's restructuring program is progressing well and they are taking steps to increase visibility into inventories and strengthen relationships with growers. They anticipate a transition year for the crop chemicals market, but their outlook for 2026 remains strong. The company's branded diamides business is doing well, with new product launches and strong sales, while their non-branded business is not performing as well.

The company's diamide franchise is expanding, but their partners are currently drawing down their inventories. The company does not have visibility into their partners' revenue growth or pricing. They anticipate moderate headwinds from pricing in 2024, with the first quarter likely to be worse than the previous quarter's 5% decrease.

The company expects to face challenges in Latin America due to price increases, particularly in Brazil in the first quarter. However, these headwinds are expected to decrease as the year progresses due to lapping of price increases. The company also plans to extract working capital in 2024, mainly from accounts payable and inventory. This may affect earnings due to potential fixed cost absorption challenges. The company is intentionally slowing down manufacturing in the first quarter but plans to ramp up production in the following quarters.

The company is selling off higher-cost inventory and expects to see benefits from this in terms of cash flow and P&L. The first quarter will be impacted by carryover of higher-cost inventory from last year, but as the year progresses and they buy at lower costs, this impact will decrease. By the end of the year, they expect to have a more balanced inventory and payables with lower costs, which will be a positive for the future. The company expects EBITDA contraction to turn into growth midyear, and Q2 will be an interesting quarter as they work towards this goal. They will need significant growth in the last three quarters to reach their $975 million midpoint, and the timing of when they expect to see this growth is unclear.

The company expects to see a shift to growth in Q2 of 2024 as they anniversary the initial drop that started the channel inventory correction phenomenon. The second half of 2024 will be driven by new product introductions, which will contribute significantly to revenue growth. The company's Investor Day targets of $1.2 billion to $1.5 billion EBITDA in 2026 remain unchanged.

Mark Douglas, speaking about the company's performance in 2024, acknowledges that it is a transition year and that their lowered numbers are due to finishing 2023 lower than expected. However, he believes they can catch up in 2025 and 2026 through various factors such as the dissipating impact of high-cost inventory, the mix impact of new products, and a restructuring plan. He also predicts that the market will rebound from its current depressed state and provide a tailwind for the company in 2025. Therefore, the company has not changed its projections for 2025 and 2026.

The company has set goals for a 6-9% revenue CAGR and a 9-14% EBITDA CAGR by 2026, with a slight increase due to lower results in 2023 and a slower start in 2024. The company expects to see improved fixed cost absorption as production lines come back online in Q2, but there may still be some tension between sales and demand forecasts.

The company is seeing a decrease in inventory levels in certain areas and plans to resume production in the second quarter. This will help reduce the impact of fixed costs on EBITDA in the first half of the year. The company expects raw material prices to remain flat, but there may be a deflation benefit once production is fully ramped up. The exact amount of this benefit is uncertain at this time.

Mark Douglas, CEO of the company, was asked about the performance of new products and their impact on the company's growth and profitability. He mentioned that they have been seeing success with product extensions, particularly in the diamides area, with significant new business in Q4 alone. In 2024, they expect around $200 million in new growth, with about half of that coming from products launched within the year. This is in line with their historical performance and is spread across all regions.

The company is seeing growth in different geographies and crops, rather than relying on one big hit with one product. Their new fungicide, fluindapyr, is gaining traction in Brazil and Argentina, and they expect it to continue growing. They also mention high channel inventories in India, which is a common issue due to bad monsoons and low pest pressure, and it will take a while to work through them. This will likely be a topic of discussion for the company and others in the industry for the next year or so.

The speaker clarifies the assumptions for the full year on price and distinguishes by region. They mention the severity of pricing competition in Latin America and India and discuss the balance between price and cost. They emphasize that the company is not chasing volume and is managing price carefully. They also mention the impact of price reductions in Brazil and how the company's strategy will serve them well in the second half of the year.

The speaker discusses their strategy for tackling the current market conditions, which involves having a solid price base and then growing into the volume space when it returns. They mention that there will be a low single-digit price headwind in the first quarter, mainly in Lat-Am and Asia, but prices will be flat for the remainder of the year and there will be a positive net price/cost relationship. They also mention that they are assuming a 15% increase in revenue after Q1 and a double-digit volume increase on the legacy business for the rest of the year.

The company expects strong growth in the second half of the year, driven by new products and a strong core portfolio. The growth is not expected to be excessive, considering the recent market reset. The company has partnered with nonbrand diamide producers to prevent competition, but has no visibility into their sales.

Mark Douglas, CEO of FMC, responds to a question about understanding the overall diamide consumption in the channel. He explains that their partners are still selling products from their inventory, but they are not replenishing it due to the partners not buying it. Douglas also mentions that a large portion of the diamide market is used for seed treatment and that they do not always know where the products are going due to the fragmented market. He also notes that forecasts can change and that their partners have worked well since FMC acquired the assets in 2017. Finally, Douglas provides an update on the plant health outlook and its impact on the company's 2024 forecast.

The Plant Health business saw a decline in 2023 due to a segment in Brazil, but is expected to return to normal growth rates in 2024. The company is investing in new business models for this segment and has created a dedicated plant health business in Brazil. The diamide business has higher margins and is expected to rebound along with the rest of the company in the second half of the year. The company does not disclose the percentage of global diamide volume that comes from seed treatment.

The speaker discusses the expected growth of the company in the coming years, mentioning the potential impact of new product introductions, restructuring efforts, and the absence of current headwinds. They also mention that it is too early to provide specific guidance for 2025, but the company is expecting a significant acceleration in growth during that year.

The speaker discusses the factors that will contribute to strong growth in 2026, including restructuring benefits and higher cost inventory. They also mention the seasonality of cash flow, noting that it will be different this year due to a limited working capital build in Q1. They clarify that covenant leverage is expected to be below 3.5x, which includes the assumption of a divestiture of GSS.

The company is preparing to divest its GSS business in the second half of the year and has received a lot of interest in the property. In order to meet a covenant leverage, they need to have proceeds from the divestiture. They have implemented new measures to increase visibility into channel inventories and have already seen some insights into how distribution is managing their own supply chain. Inventory levels in the US are at or below normal levels, and they expect to have a better view of Europe's inventory levels after their upcoming seasons.

The paragraph states that there are hundreds of retailers and growers throughout Europe that FMC Corporation works with. The operator then announces that there are no further questions and the conference call is concluded.

This summary was generated with AI and may contain some inaccuracies.