The operator introduces the First Quarter 2024 Earnings Call for FMC Corporation, and the Director of Investor Relations, Curt Brooks, welcomes attendees. The President and CEO, Mark Douglas, will provide an overview of the first quarter performance and outlook for the second quarter and full year. The Executive Vice President and CFO, Andrew Sandifer, will discuss select financial results. The presentation will include forward-looking statements and non-GAAP financial measures.

The speaker, Mark Douglas, discusses the first quarter results for the company and provides a reconciliation and definition of non-GAAP financial terms. He notes a decline in revenue and volume, driven by channel destocking and changes in grower behavior. However, EBITDA was in the high end of the guidance range and there was a significant improvement in free cash flow. Sales in North America declined due to lower volume, but new products showed resilience. In Latin America, sales were down 20%, or 22% excluding FX.

In the third paragraph, the article discusses the decline in volume in most countries, with the exception of LATAM. The company's differentiated products performed well, particularly branded diamides and new products like Onsuva fungicide. Asia saw the largest decline in sales, primarily due to poor weather in China and channel destocking in India. EMEA sales were also lower, driven by volume and weather-related factors. Adjusted EBITDA declined, but costs were favorable due to restructuring actions and lower input costs. The company is working on transforming its operating model and reducing costs.

FMC has made changes to their business without sacrificing strategic investments and has seen significant cost savings in the first quarter. They expect to continue delivering cost savings and anticipate the sale of their Global Specialty Solutions business by the end of the year. The company's full year outlook remains unchanged and they see a healthy agriculture industry with progress being made in reducing inventory levels. North America and EMEA are furthest along in this process, with customers aiming to operate with lower-than-normal inventory levels.

In Latin America, inventories are expected to return to normal levels throughout the year. India is still destocking, but other parts of Asia have made progress. North America is receiving orders for products that were previously depleted. Brazil is discussing next season's volumes. The second quarter outlook includes a 6% increase in sales driven by higher volume, with price and FX being a headwind. EBITDA is expected to be 1% higher due to volume growth and restructuring benefits, offset by lower price and COGS. New products will contribute to volume growth in the quarter.

The company's adjusted earnings per share is expected to increase by 15% due to lower interest expense and D&A. Their full year financial outlook remains unchanged, with sales expected to increase by 2.5% and volume growth driven by new products. The company also plans to launch new formulations in various countries. They anticipate moderate pricing pressure and a minor FX headwind. Their EBITDA outlook for the year is flat, but adjusted earnings per share is expected to increase by 1%. The company expects strong growth in the second half to meet their full year guidance, with revenue and EBITDA growth of 23% and 46% respectively. They believe these targets are achievable considering the low comparison from the previous year.

Slide 10 outlines the factors that will impact the company's results within the EBITDA guidance range, with the magnitude and timing of improving market conditions being the biggest variable. The company expects new products to continue showing resilience in sales, flat raw material costs, and a modest pricing headwind in the first half. The company is confident in their ability to successfully launch new products and deliver restructuring benefits. In terms of income statement items, FX was a minor headwind in the first quarter, and interest expense was higher due to increased borrowings. The company expects full year interest expense to be slightly lower than the previous year.

The company's effective tax rate for the first quarter was in line with their full year expectation and they anticipate a slight increase in tax rate for the year. Gross debt increased from the prior quarter but the company has ample headroom under their covenant leverage limit. They expect to see improvements in leverage in the second half of the year through positive EBITDA comparisons and the divestiture of their Global Specialty Solutions business. The company remains committed to reducing leverage to levels consistent with their targeted credit ratings.

The company is confident that with EBITDA growth and disciplined cash management, they will approach their targeted leverage by the end of 2025. Free cash flow in the first quarter has improved significantly compared to the previous year, and they expect a substantial increase in cash flow by 2024. This will be driven by a release of cash from rebuilding accounts payable and reducing inventory, offset by higher accounts receivable and other expenses. The company anticipates a 104% free cash flow conversion rate in 2024 and expects market conditions to continue improving throughout the year and into 2025.

FMC is seeing growth in their new products, with 17% of their revenue coming from products introduced in the last 5 years. Despite challenges in the industry, growers are valuing these new technologies. During the Q&A portion of their earnings call, they addressed a question about their first quarter sales, citing an issue with a distributor in Argentina and unexpected bad weather in Northern Europe. They also mentioned that they expect volume growth in the second quarter to come from their new product initiatives.

The UK, Scandinavia, Germany, Holland, and Belgium experienced their wettest spring in 200 years, leading to a decrease in revenue. However, the overall market for crop protection products and technologies remains strong, with growers showing increased interest and orders for the next season. This has allowed FMC to bring back manufacturing lines and extend payables for raw materials.

In Europe, growers are now thinking more long-term about their needs for the season rather than just the next week. This indicates that there is better visibility for the company going forward. In the US, there is still a high demand for products that are typically used early in the season, which suggests that inventories have been depleted. This is a positive sign for the company's new product launches. The company is confident in its forecast for the year due to better understanding of customer needs. The diamides product line remains a strong performer for the company.

The CEO of FMC Corporation discusses the company's expectations for the performance of their diamides products in the first quarter. They have seen double-digit growth in Brazil due to the success of new formulations and a brand-new insecticide called Premio Star. The company is focused on gaining market share and growth through these new products. During a conference call, an analyst from Wolfe Research asks about potential adjustments to rebate structures in North America, but the CEO explains that the company's focus on introducing new, higher-priced and higher-profitability products has led to a change in their revenue mix, which is driving their business in the region.

The speaker explains that they will not be making any changes to their rebate programs in North America. They believe their growth is dependent on technology and are satisfied with the state of their North American business despite a drop in the first quarter. The next question asks about their second half guidance and the speaker mentions that they are expecting flat pricing compared to the previous year, but acknowledges that there have been price reductions in Latin America and they do not anticipate significant shifts in pricing going into the new season.

Adam Samuelson from Goldman Sachs asks for more information about the market expectations and performance in India, where destocking has been a trend for the past two years due to weather and dislocated monsoons. Mark Douglas, the speaker, explains that this is a unique phenomenon in India and it will take time to remove the high channel inventories. The market is good in areas with good weather and Indian growers prefer to use advanced technologies, such as online spray services with drones.

The speaker discusses the rapid adoption of technology in the Indian market and how it has allowed the company to use drone spraying on over 5,000 acres. They also mention a decrease in internal inventory and plans to bring manufacturing back online to meet demand.

The company's revenue has been reset and should be in good shape by the end of Q3. They have taken steps to reduce inventory and will continue to do so in a delicate balance with ramping up production. This will contribute to free cash flow generation for the year. The company will also need to work with raw material suppliers to feed their pipeline.

The CEO of a company discusses the challenges of restarting their manufacturing operations after a shutdown due to the pandemic. They mention the complicated supply chain and how their customers have become accustomed to the company holding their inventory. They also address changes in management in Brazil and reconcile two seemingly contradictory statements about order visibility and inventory levels.

The company has a strong human capital process and has recently brought in an experienced industry veteran. This has allowed them to expand their customer presence and improve their offers in the retail and distribution channel. The lower levels of inventory may be due to both distribution and retail holding lower levels, but they work together. In the past 5 years, there has been a difference in volume trends between the first and second half, with the second half being driven by LATAM. However, in the first quarter, volumes were lower than the 2-5 year growth rate, but it is expected that second half volumes will return to 2022 levels by reversing 2023.

The speaker is addressing a question about the difference between the first and second half of their outlook. They explain that the first quarter of 2024 is the last quarter where they will be comparing to a pre-channel inventory disruption world. They also mention that their Q1 performance is in line with the previous four quarters of channel correction. They believe that the second half of the year will see a return to normal levels of revenue and EBITDA, similar to 2021, before the overbuying in 2022.

The company is not expecting a major correction and is focused on returning to normalcy. The second half of the year will be driven by the LATAM and U.S. markets, which have taken corrections but are improving. The absolute dollar size of the business is comparable to previous years. The company expects cash flow to be back-end weighted, with the second quarter typically being a source of free cash flow. There will also be continued deleveraging in 2025.

The speaker explains that the company's free cash flow is heavily weighted towards the second half of the year, with reduced inventory and rebuilding of payables being the key drivers. The company is carefully balancing the restart of manufacturing lines and selling through at a higher rate to bring down inventory levels while also increasing payables. It will take the full second half of the year to see the cash benefit from these actions.

The speaker discusses the company's plan to use available cash to pay down debt and expects to see growth in EBITDA in 2025. They anticipate a more normal level of market growth and an increase in acres in Latin America and Brazil. They also mention the potential for inventory destocking to come to an end and for volume growth to occur in 2025 and 2026.

The market for the company is expected to grow at a rate of 2-3% per year, but the company's differentiated portfolio allows them to outgrow the market. Despite current challenges, the company expects the market demand to remain strong and their NPIs to continue growing rapidly. In 2025, the company anticipates a more stable and robust external market, as well as tailwinds from cost headwinds turning into tailwinds for their P&L. The unabsorbed fixed costs from low manufacturing activity will no longer be a significant headwind in 2025, providing a stronger base for performance.

The speaker discusses the expected performance of new product launches and how they contribute to the company's overall portfolio. They note that it takes several years for new products to reach peak sales and that they have seen success with their fungicides in North America, with plans to launch them in other regions in the coming years. The company anticipates growth in these products through 2027.

The company has launched new insecticides and herbicides, such as Premier Star and Isoflex, which have been successful in the market. They expect continued growth in Brazil and plan to expand into other regions. They also have a new rice herbicide coming in 2026, which is a game changer for the industry. Additionally, they are making progress with their biological and pheromone products, with plans to launch in Brazil in 2025 and expand in the following years. The company's R&D and supply chain are also progressing well.

Andrew Sandifer responds to a question about the company's second half guidance and how it relates to 2025. He cautions against annualizing a seasonal business, but believes that the company will return to sales and EBITDA levels similar to a few years ago. He also mentions the current situation of light inventories downstream and a steady increase in grower use of crop protection chemistry. The company had an overbuying and overcorrection in 2022 and is now rapidly drawing down excess inventory.

The company expects to see healthier demand in 2025 as manufacturing supply and consumption by growers become more balanced. They anticipate lower costs and increased bottom line growth due to new product introductions. While they are not yet giving a firm outlook for 2025, they are confident in a positive outlook. The company is also working on reducing inventory and payables, but they are comfortable with their current level of receivables.

The company expects to use more cash in the second half of the year due to returning growth, but they have managed their balance sheet carefully. They have been disciplined in their pricing and not chasing volume to avoid building up receivables and collection risk. They have taken some losses in pursuit of volume, but they are confident in their strong balance sheet and healthy receivables going into the future. There is always room for improvement in working capital efficiency. The company feels confident in the quality of their balance sheet.

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