The operator welcomes participants to the Second Quarter 2024 Earnings Call for FMC Corporation and informs them that the event is being recorded. After prepared remarks, there will be an opportunity for questions. Curt Brooks, Director of Investor Relations, introduces the speakers and reminds listeners that the discussion will include forward-looking statements and non-GAAP financial measures. He then turns the call over to Pierre Brondeau, Chairman and CEO of FMC Corporation.

Pierre Brondeau, CEO of FMC, discusses the company's revised outlook for the year due to a slower demand recovery in the crop protection market. Q2 showed solid performance and Q3 and Q4 are expected to show growth as channel inventories normalize. The company plans for revenue and earnings growth to accelerate in 2024 and 2025, thanks to their strong portfolio and technology pipeline. The reduced guidance is due to a timing issue and not a fundamental problem. The EBITDA margin for Q3 is not reflective of the company's current performance.

In the third paragraph, the speaker discusses an expected COGS headwind of $40 million in the upcoming quarter due to reduced manufacturing activity. They also mention that Q4 is historically stronger than Q3, but this year it is exaggerated due to the shape of the demand recovery. The speaker expresses confidence in the company's Q4 forecast, but also acknowledges areas for improvement in execution. They then move on to discussing second quarter results, including a 2% increase in revenue and 14% volume growth. The 10% price decline was driven by competitive pressure, strategic pricing actions, and one-time incentives to address high-cost inventory. The speaker clarifies that these one-off adjustments will not continue in the future and highlights that the company has consistently raised prices in previous quarters.

The company is seeing a return to volume growth in many countries, particularly in the U.S., Brazil, and Germany, after a year of de-stocking. North America and Latin America saw strong sales growth, driven by new products and strategic pricing. However, sales in Asia were down due to high channel volume in India and ongoing litigation. Sales in EMEA were also down, but excluding sales to a specific product, the region saw overall growth. The company's EBITDA for the quarter was $202 million, which is at the highest end of their guidance range.

The company's 8% increase in revenue was due to volume growth, cost benefits, and FX tailwinds, which offset lower pricing and COGS headwinds. They have made progress in their restructuring actions and have announced the sale of a global specialty solution business. The company has updated their full year revenue guidance to reflect a slower than expected demand recovery, with a revised EBITDA guidance of 7% lower than prior year.

The company expects third quarter revenue to be between $1 billion and $1.09 billion, with volume being the main driver. Pricing is expected to be down low single digits, but this is an improvement from the second quarter. EBITDA is expected to be between $165 million and $195 million, with a 17% margin. The fourth quarter is expected to have higher revenue, up 22% at the midpoint, driven by new products, improving demand, and market share growth. EBITDA for the fourth quarter is expected to be between $353 million and $383 million, with restructuring benefits helping to offset costs. This year's results are expected to be different, with the third quarter having higher revenue than the first and second quarters due to the timing of demand recovery. Historically, the third quarter accounts for 46% of the second half revenue, while the fourth quarter accounts for 54%.

The company is expecting a higher revenue split in the second half of the year, with 43% in the third quarter and 57% in the fourth quarter. This is due to signs of demand recovery and a large portion of sales coming from recently launched products. Improved orders from partners and effective cost management are also contributing to the company's confidence in achieving their full year guidance. The call will now be handed over to Andrew to discuss financial details such as cash performance and outlook.

In the second quarter, FX had a 2% negative impact on revenue growth, mainly due to the Indian rupee, Brazilian real, and Turkish lira. Interest expense was slightly lower due to lower foreign interest expense offsetting higher domestic interest expense. The effective tax rate on adjusted earnings was 15.5%, in line with the expected full year rate of 14% to 17%. The transfer of intangible assets to Swiss subsidiaries helped lower the GAAP provision for income taxes. The company's gross debt decreased to $4.2 billion and net debt was approximately $3.7 billion. Leverage was 5.3 times gross debt to trailing 12-month EBITDA and 4.7 times net debt to EBITDA. The covenant leverage limit was temporarily raised to 6.5 times through June 30th and will decrease to 6 times on September 30th and 5 times on December 31st.

The company expects to reach covenant leverage of four times by the end of the year due to EBITDA growth and proceeds from a recent sale. They are committed to returning to their targeted credit ratings by 2025. Free cash flow in the second quarter improved significantly compared to the previous year, driven by reduced inventory and increased collections. The company is constraining investments to critical projects and has seen an increase in cash spending for restructuring. Free cash flow for the full year is expected to be $400 million to $500 million, a positive increase from the previous year, driven by reduced inventory and increased revenue. The updated outlook reflects updated EBITDA guidance and a slight decrease in capital investment.

The company has four main components driving their portfolio's growth: innovative formulations, the diamide franchise, new active ingredients, and a platform of biological products. The diamides have been a core part of their business for almost seven years and they have expanded their partner base and geographic reach through new product registrations. While there have been concerns about a decline in revenue, the company sees the diamides as a long-term growth platform. The strength of the diamides is supported by factors such as patents for the active ingredients, manufacturing processes, and specific intermediates, which provide protection until mid-2026.

FMC's patents for their diamides have been harder to enforce in countries like India and China, but have been successful in preventing generic versions from being sold in other countries. This is due to data protection, which can delay generic registration for up to 10 years. FMC is constantly working to improve their diamide technologies through new, patented formulations that are more convenient, sustainable, and cost-effective for farmers. These new formulations, such as high concentration and solid forms, are often patented and remain highly profitable for the company.

FMC's innovation in developing mixture formulations of diamides and complementary active ingredients has led to a substantial leap forward in performance for growers. This proactive approach also helps to address potential insect resistance and ensures the company's products remain convenient, cost competitive, and performance differentiated. FMC's strong patent state and consistent monitoring of insect populations make them best positioned to fight insect resistance now and in the future.

FMC believes that diamides will continue to drive their growth in the coming years, along with the launch of four new active ingredients: Fluindapyr, Isoflex, Dodhylex, and Rimisoxafen. These products will expand their presence in key markets such as corn, soybeans, rice, and pheromones. FMC has already launched Fluindapyr in multiple countries and plans to launch the other products in the near future. They also have plans to expand into new crops and markets with these innovative products.

The company estimates that their product platform will generate $1 billion in revenue by 2033. They expect significant growth from their new products, which will expand their market. The CEO also mentions factors that could influence their results in 2025, including expected demand growth, strong growth from new products, and potential pricing uncertainties. They anticipate a 6% revenue growth in 2025 and expect cost savings of $150-200 million due to lower raw materials and restructuring benefits.

The speaker discusses the financial outlook for the company, mentioning a partial offset in cost favorability due to the sale of a business, and expected growth in the top and bottom line in 2025. They also mention upcoming new products and expansion into new markets. The speaker then addresses a question about the second half of the year, noting that the fourth quarter is important and that they have done a thorough due diligence to determine sales and earnings.

In the fourth quarter, the company has improved visibility in Latin America, North America, and EMEA. The orders in hand and preparations for the season put them in a good position to meet their targets in Brazil. North America has good short-term visibility due to fewer customers and large distributors. However, Asia, particularly India, has less visibility due to channel situations. The channel is getting closer to normal and demand is increasing. Some customers have pushed their Q3 demand into Q4. Price is not a concern as the company has made strategic decisions and repositioned pricing. 60% of the growth in the second half is from new product introductions, which have strong demand and provide access to new markets. A new product introduction is expected in Q4.

Ronaldo Pereira and Pierre Brondeau discuss FMC's performance in the U.S. and South America, highlighting the growth of enhanced formulations of diamides and herbicide platforms. They also mention the launch of a new industrial fungicide in North America and the success of two new formulations of their Sulfentrazone franchise in Latin America. They express confidence in the company's Q3 and Q4 earnings, and address a temporary cost increase in Q3 due to downtime taken last year. They clarify that this cost will not be a factor in Q4 and express overall confidence in the company's financial performance.

In the third quarter, there will be a negative impact on revenue due to foreign exchange, but a positive impact on EBITDA. In the fourth quarter, there will also be a negative impact on revenue, but it will be neutral on EBITDA.

During a recent earnings call, Andrew Sandifer, a company executive, discussed the impact of currency fluctuations on the company's revenue and EBITDA. He explained that while there will be a minor headwind in the fourth quarter, there will also be a benefit in SG&A due to the REI currency. This will result in a net tailwind for EBITDA. In addition, the company's CEO, Pierre Brondeau, addressed some personnel changes and the go-to-market strategy in certain regions, such as South America where credit issues may have contributed to destocking.

The team at the company is well-organized and diligent in their work. However, there have been issues with forecasting, selling, and execution in the past. The CEO and other leaders are closely monitoring and making changes in these areas. They also want to improve the marketing and product development for the Diamides franchise. The company has successfully completed a restructuring program, but there is still room for improvement in reducing costs. The CEO is pleased with the R&D organization, but wants to improve coordination between regional and global efforts. Overall, the company's strategy is solid, but there are areas for improvement that are being addressed.

The speaker, possibly Pierre Brondeau, is confident in the company's future plans and short-term marketing strategy. They address a question on Brazil, stating that while credit availability may have impacted purchases last year, the company's own credit quality is high and not a risk to their revenue or balance sheet. They also mention that a third of the order book in Brazil is already booked, compared to zero last year, and that the normal pace is around 35%. The speaker also mentions that the company is doing a lot of work on cost management and that SG&A was particularly light in the second quarter, but does not give specific expectations for the rest of the year and into 2025.

The speaker discusses the expected ratio of orders in a healthy market, as well as the company's target for cost savings and the need to operate at a lower cost. They also mention their strategy program for attrition and the use of tools to work differently. The questioner asks about the industry's current position in the cycle and the speaker states that they have seen cycles before and discusses the impact of crop prices on pricing. They also mention their high-level comments on 2025 and the potential for an inflection point in the second half of 2024.

The company has a strategic intent to lower prices in order to regain less differentiated products, which has been a key driver of the lower prices. The shift in strategy has been made in response to a period of inflation in cost, but now that the market demand is poor, the company is intentionally keeping prices high. However, they have recovered costs from the period of raw material inflation and do not want to fight with prices when there is no demand.

The company has a tool to regain market share and has used Q2 to reposition prices. There is no change in strategy and they are not chasing volume at any cost. There has been promotional activity in India and Brazil to help move high-cost products through the channel.

The speaker states that they were there to support their customers and it also benefited them in terms of cleaning up their channel. They believe that there is no risk of channel stocking because their prices are in line with the market. The moderator then thanks everyone for attending and ends the conference call.

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