FMC Corporation

Good morning and welcome to the fourth quarter 2018 earnings release conference call for FMC Corporation. Phone lines will be placed on a listen-only mode throughout the conference. After the speaker's presentation, there will be a question and answer period. I will now turn the conference over to Mr. Michael Worley, Director of Investor Relations for FMC Corporation. Mr. Worley, you may begin.

Thank you and good morning, everyone. Welcome to FMC Corporation's fourth quarter earnings call. Joining me today are Pierre Brondeau, Chief Executive Officer and Chairman, Mark Douglas, President and Chief Operating Officer, and Andrew Sanifer, Executive Vice President and Chief Financial Officer. Pierre will review FMC's fourth quarter performance and provide the outlook for 2019 in the first quarter. Andrew will provide an overview of select financial results, and then all three will address your questions. The slide presentation that accompanies our results along with our earnings release and the 2019 outlook statement, are available on our website, and the prepared remarks from today's discussion will be made available after the call. Finally, 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 press release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's information. 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, and free cash flow, all of which are non-GAAP financial measures. Please note that earnings shall mean adjusted earnings, and EBITDA shall mean adjusted EBITDA for all income state references. 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 will now turn the call over to Pierre.

Thank you, Michael, and good morning, everyone. 2018 was a critical and very successful year for FMC. In Ag Solutions, We delivered tremendous performance in both Q4 and the full year that significantly outpaced our peers and the broader ag market. Our sales team aggressively pursued revenue synergies made possible by the limited customer overlap and the strength of a broader product portfolio. They delivered 11% pro forma sales growth for the full year posting gains in all geographies. Our entire organization executed well against our growth goal. We achieved this performance in 2018 while taking great strides toward integrating the largest acquisition in FMC's history, separating a lithium business, which included a successful IPO, and advancing the implementation of the SAP S4ANA platform. We also reduced debt by $500 million and completed a $200 million share repurchase program. Turning to slide three, FMC reported over $1.2 billion in fourth quarter revenue, including lithium, which reflects a year-over-year increase of 24% on a reported basis and 17% on a pro forma basis. This increase was driven by strong commercial execution that enabled broad-based growth in every region in ag solutions, along with 6% sales growth in lithium. Adjusted EPS came in at $1.69 in the quarter, an increase of 54% year over year. This was two cents above the high end of a pre-announcement from January 31st, 2019, and 31 cents above the midpoint of a guidance given on our last earnings call. Slide four. will shed some light on this outperformance. The guidance bit was due to very strong operational performance in Act Solutions, which drove $0.08 of the outperformance, and lower taxes, which drove another $0.21 of the gain. The lower tax was primarily driven by a more favorable earnings mix by jurisdiction, and to a lesser extent, by the clarification of certain international tax provisions of the 2017 U.S. Tax Cuts and Jobs Act. We also gained two cents of incremental EPS from a lower share count due in large part to the repurchase of 2.4 million shares. Moving on to Ag Solutions financial results on slide five. Revenue of nearly $1.1 billion increased 27% year-over-year and 18% on a pro forma basis. Excluding an estimated 5% headwind from currency, the pro forma organic growth was a very strong 23% and far ahead of the market. Performance in the quarter and the year was driven by strong commercial execution and robust demand for industry-leading products. Our sales organization has leveraged valuable cross-selling opportunity due to minimal customer overlap between FMC and DuPont, to deliver significant sales synergies. Additionally, we reduced expected operating costs for the acquired business through accelerated functional integration, leveraging FMC back office capability, and reducing manufacturing costs in legacy DuPont plants. Fourth quarter segment EBITDA of $302 million increased 35% versus the year-ago period and was $13 million above our original guidance. Our EBITDA margins for Q4 increased 160 basis points year-over-year to 27.4%, and full-year margins increased 560 basis points to 28.4%. Turning now to fourth quarter regional financial results on slide six. Q4 revenue growth was sharply up on a pro forma basis, led by strong commercial performance in Latin America at 27%, followed by North America at 21%, EMEA at 13%, and Asia with 4%. In Latin America, price increases more than offset the effects of currency headwinds. The outperformance in the region was driven by strong demand from cotton growers in Brazil, with acreage expected to be up 25% year over year. And wheat farmers in Argentina, where acreage is forecasted to grow by 5%. Robust demand for insecticides in soybean applications was also a key factor in the region. In North America, despite an expected shift in acreage away from soybean, strong demand for pre-emergent herbicides remained a key to a growth, as glyphosate resistance continues to spread. We saw strong customer uptake of a pre-emergent herbicide, especially Authority Supreme, that was launched last year, in addition to strong sales of insecticide and new fungicide. EMEA experienced strong growth in France, Germany, and Russia with the combined sales of those three countries, growing 45% year over year. This growth was driven by a range of SU herbicides and Ronaxapyr insect control. In Asia, we continue to benefit from a commercial integration and strong demand in Pakistan, Vietnam, Philippines, and Malaysia. If we exclude the India restructuring, which included the discontinuation of certain products and the loss of sales from the required antitrust divestiture in Asia, sales in the region would have grown 14% on a pro forma basis. Moving now to lithium results on slide seven. Lithium fourth quarter revenue was $120 million, up 6% year over year. Segment EBITDA came in slightly above the midpoint of guidance at $46 million in the quarter. As you most likely saw in a separate press release yesterday, FMC's Board of Directors has officially declared the spin of the remaining stake in license to FMC shareholders, which will occur on March 1, 2019. This will complete the separation process. Please refer to that press release posted on FNC.com for details. Looking ahead at our 2019 outlook on slide eight. As we disclosed in the pre-release on January 31st, our 2019 earnings per diluted share are expected to be $5.55 to $5.75. This represents an 8% at the midpoints over recast 2018, excluding lithium, and the impact of any share repurchases in 2019. All comparative values from 2018 will now exclude the lithium business entirely. Shortly after the March spin, after the spin on March 1st, we will file a NET-K with recast 2018 results that strip out the lithium business. We expect 2019 revenue for FMC will be in the range of $445 to $455 billion, up 5% at the midpoint year-over-year, versus 2018 recast sales. Excluding an expected 3% FX Halloween, organic sales growth estimate is 8% at the midpoint. We also expect total company EBITDA of $1.165 billion to $1.205 billion, which represents 7% growth at the midpoint versus 2018 recast results. As a reminder, in 2019, our EBITDA guidance includes all corporate expenses. We will no longer delineate between ag segment results and corporate expenses, as we had in the past when we had multiple segments. For FMC, first quarter revenue is expected to be in the range of $1.18 billion to $1.21 billion, which represents growth of 8% at the midpoint. Excluding an expected 6% FX Edwin, organic sales growth estimate for Q1 is 14% at the midpoint. We are also forecasting EBITDA of $320 to $340 million in Q1, which will be flat year over year at the midpoint. This is despite significant FX and raw material cost headwinds. We expect first quarter EPS to be in a range of $1.58 to $1.68, up 3% versus recast results from Q1 2018. A 2019 expectation for the overall global crop protection market growth is that it will be flat to up low single digit. We expect North America, EMEA, and Asia will also be flat to up low single digit, driven by a variety of factors, and Latin America will grow in the low to mid single digit. In North America, growth will come from an increase in corn acreage and normalized pest pressures. In Latin America, Brazil is experiencing dry weather and important soybean and corn area to start the year. But we expect this will be offset by favorable climate conditions in Argentina and another strong soybean season across the region next fall. In the MEA, we expect recovery of the winter and spring cereals area and strong cereals pricing. Asia is expecting strong growth, driven by a more normal monsoon season in India, as well as a recovery from the drought in Australia. We expect that FMC's above-market growth in 2019 will be driven by the continued strength in global demand for diamides, pre-emergent herbicide growth, sales expansion in Brazil, issue herbicide growth in key European countries, as well as new product introductions. This new product will account for approximately $60 to $70 million, or 1.5% in incremental sales growth in 2019. In our third largest country, India, which had over $300 million in sales in 2018, we're expecting strong top-line growth in 2019, from our insecticide portfolio as well as new applications of our herbicide portfolio in sugar cane. A well-structured super distributor network in India drives increased market access and demand generation, further lowers our credit risk and requires less working capital while increasing profitability. Earlier this year, we launched our first new active ingredient from the legacy FMC R&D pipeline, Lucento fungicide, in time for the 2019 growing season in North America. Our R&D organization also reached a second very important milestone since our investor day in December. We advanced one of our insecticide active ingredients out of discovery phase and into the development pipeline. Launch for this product continues to be expected in 2026. This means we still have six AIs in our development pipeline after launching Lucento commercially. We will continue to update you with progress within our innovation pipeline on future calls. As you can see from this full-year 2019 EBITDA bridge on slide 9, the headwinds from FX and higher raw material costs are significant factors in 2019. The full-year headwind from FX is expected to be 7% at the EBITDA level, plus another 10% headwind from higher costs for raw materials. representing a total of about $190 million. We expect price increases will offset $130 million of these combined headwinds, or approximately 70%. Turning to slide 10, the first quarter EBITDA bridge reflects the pressure on profitability as we begin the year. Q1 headwinds from FX are expected to be 15% at the EBITDA level, plus another 18% headwinds from raw material costs, representing a total of about $110 million in headwinds. We expect price increase in Q1 will offset $65 million, or about 60% of these headwinds. we will absorb about half of the full-year impact from raw material costs in Q1 alone. The impact will diminish significantly in the second half of the year. Likewise, about two-thirds of the full-year headwind to EBITDA from FX is expected to occur in Q1, and this is also expected to diminish greatly in the second half. Our plan to offset A large part of these adverse costs, with price increase throughout the year, are in place, and the execution is taking place as we speak. I will now turn the call over to Andrew.