FMC Corporation

Good morning and welcome to the first quarter 2019 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 first quarter earnings call. Joining me today are Pierre Brondeau, Chief Executive Officer and Chairman, Mark Douglas, President and Chief Operating Officer, and Andrew Sandefur, Executive Vice President and Chief Financial Officer. Pierre will review FMC's first quarter performance and provide the outlook for its 2019 and the second quarter. Andrew will provide an overview of select financial results, and then all three will then 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 statement 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. As you saw in our earnings release, FMC continued to outperform the market, as we have for the past six quarters. We are especially pleased with the strong volume growth. This, in addition to a price increase in all regions, as well as cost control, which led to strong top and bottom line results. Our outperformance relative to the market is driven by three key elements. A balanced geographic exposure, the strength of a product portfolio, and finally, a diverse crop exposure. Turning to slide three. FMC reported $1.2 billion in the first quarter revenue, which reflects a year-over-year increase of 8% on a reported basis and 14% excluding FX headwinds. This increase was driven by strong commercial execution that enabled growth in every region. Adjusted EBITDA was $343 million, an increase of 4% compared to recast financials from the year-ago period and $13 million above the midpoint of the guidance. Company EBITDA margins were nearly 29% despite $95 million in combined headwinds from raw material costs and foreign currencies. Adjusted EPS. was $1.72 in the quarter, an increase of 9% versus recast Q1 2018, and 9 cents above the midpoints over guidance. The strong EPS was driven by higher volume, price increases, and product mix. Moving now to first quarter revenue analysis on slide four. Q1 revenue grew by 8% with volume contributing 9% growth and price mix another 5% growth for a total of 14% organic growth. This was offset partially by a 6% headwind from FX. Performance in the quarter was driven by strong commercial execution and demand for a product which led to above-market growth. The strongest growth came from Latin America at 30%, followed by North America at 7%, EMEA at 3%, and Asia with 1%. Excluding foreign currency headwinds, organic growth was even stronger, with Latin America up over 40%, EMEA up 11%, and EJA up 8%. Although Q1 is a seasonally smaller quarter of the year in Latin America, the outperformance was broad-based. A gold weevil infestation and increased acreage drove strong demand in Brazil for cotton insecticides. Demand for herbicides and insecticides in sugar cane, as well as robust demand for insecticides in soybean applications, were also key contributors to the growth. Our price increases in the region offset nearly all the impact of effects on both the top and bottom lines. Over the past three years, we have implemented a disciplined channel inventory management system in Brazil so that we can maintain visibility on inventory levels of FMC products throughout our distribution channels. The FMC sales team conducts monthly checks of all third-party warehouses, retailers, and growers, and then capture the data in our inventory tracking system. This data indicates that channel inventories of FMC products are low and in line with levels typically expected during this time of the year, despite very strong growth in 2018 and in Q1 2019. In North America, despite the weather issues in the quarter that caused a late start to the season and an expected shift in acreage away from soybeans, demand for pre-emergent herbicides remain one of the growth drivers as glyphosate resistance continues to spread. We saw good customer uptake for pre-emergent herbicides, especially Authority Supreme herbicide that was launched last year. We saw robust cells of Ronaxapyr insect control for fruit and vegetable applications, including Atacor insect control for tree nuts. Anthem herbicide and Top Guard EQ fungicide also had strong cells. Also in North America, in Q1, we launched our first new active ingredient from the legacy FMC R&D pipeline. It is gaining traction already in corn, soybean, and peanut applications, and the successful launch suggests we can reach peak sales of $30 million to $50 million sooner than previously expected. Growth in EMEA was driven by favorable weather with very strong sales in Turkey and southwestern Europe, as well as new direct market access in Belgium and the Netherlands. Herd-diamide products, including Collagen, Atacor, and Privathon insect control, had robust demand across the region, and pricing actions helped offset a significant portion of the FX headwind. In Asia, We saw double-digit growth in Pakistan, China, Japan, and Southwest Asia. China growth was led by dynamite products, including Coragen and Vanilla insect control. In India, we are seeing the benefits of a commercial restructuring last year as we are gaining sales traction across more of the portfolio. In addition to reviewing our regional business, I would like to highlight our plant health business, which is globally managed with financial results embedded in all the regions. It consists of biologicals, micronutrients, and seed treatment products and continues to grow over 20% per year. This part of our portfolio is approaching revenues of $200 million in 2019. Slide five shows the balance of our revenue across geographies and crops. From a geographic standpoint, our revenue is spread nearly equally in four regions, which provides a natural edge against the effect of microeconomic and weather events in a region or country. These types of events impact our industry on a regular basis. Our geographic diversity provides a certain amount of insulation from specific events, as we have demonstrated during the recent flooding in parts of the US and the drought in Australia. As you can see on the right side of this slide, The spread of FMC revenue in each region across the four quarters of the year is relatively balanced in North America and Asia, while the seasonality in EMEA and Latin America are complementary. This means we have a meaningful revenue contribution from three regions every quarter of the year, which also gives us some protection from adverse events in one region or country. When considering crop exposure, 60% of FMC revenue is in a wide variety of higher value niche crops with a remainder of the revenue on raw crops. FMC does not rely too heavily on any one crop or any one region. making a performance more predictable and sustainable. Turning now to slide six. First quarter EBITDA was $343 million, up 4% versus recast results from Q1 2018. Strong demand led to year-over-year volume increase of $55 million of EBITDA. We achieved price increases in all regions, which contributed $53 million to year-over-year EBITDA growth, with the strongest contribution from EMEA and Latin America. Volume and price together more than offset the headwinds from raw material costs and effects, which totaled $95 million in the quarter. Looking ahead to our 2019 outlook on slide seven. Given the strong performance in Q1 and more clarity on the outlook for the year, we are raising our guidance for 2019 revenue EBITDA and EPS. We expect 2019 revenue for FNC will be in the range of $4.5 to $4.6 billion, up $50 million at the midpoint, versus per gallons and reflecting 6% year-over-year growth at the midpoint versus 2018 recast sales. Excluding a forecasted 3% FX headwind, organic sales growth estimate is now 9% at the midpoint. We also expect total company EBITDA of $1.18 to $1.22 billion at $15 million at the midpoint versus per gallons and representing 8% growth versus 2018 recast results. As a reminder, in 2019, our EBITDA gallons is for the total company and includes all expenses. We are also raising our gallons for 2019 earnings per dilded share to a new range of $5.62 to $5.82, an increase of 7% at the midpoint compared to a prior guidance. This represents growth of 9% at the midpoint over recast 2018 and only includes the impact of the $100 million in share repurchase completed in Q1. For the second quarter, We expect revenue to be in the range of $1.185 to $1.215 billion, which represents growth of 4% at the midpoint. Excluding an expected 4% FX headwind, organic sales estimate is 8% growth at the midpoint. We are also forecasting EBITDA of $325 to $345 million in Q2, which would be an increase of 5% year-over-year at the midpoint. This is despite significant FX and manufacturing cost headwinds. We expect second quarter EPS to be in the range of $1.60 to $1.70 up 10% at the midpoint versus recast results from Q2 2018. For 2019, we expect the overall crop protection market will be flat to up low single digit. We expect Latin America to grow in the mid to high single digit. North America and Asia to be flat to up low single digit, and EMEA to be flat to down low single digit. All these estimates are in U.S. data terms. In Latin America, continued strength in cotton in Brazil, recovering conditions in Argentina, and an expected strong soybean season across the region next fall will drive the market growth. In North America, market growth will come from an increase in corn and wheat acreage and more normalized press pressure. In the MEA, we expect recovery of cereals acreage But the strength of the US dollar relative to the euro is likely to reduce the market growth rate in the region by 200 to 300 basis points. We expect growth in Asia to be driven by more normal weather conditions across the region. FX is expected to be an headwind in Asia, which is embedded in our outlook for the market. As you can see, this full year 2019 EBITDA bridge on slide eight, the headwinds from FX and higher manufacturing costs are significant factors for 2019. The full year negative impact from FX is expected to be 7% at the EBITDA level, plus another 13% headwind from higher raw material costs. representing a total of about $220 million. We expect price increase will offset the $145 million of these combined headwinds, or approximately 65%. As was widely reported in late March, there was an explosion in an industrial park in China. One plant operated by one of FMC's contract manufacturing tollers is located near the explosion. That plant has been shut down temporarily as the government shut the entire park down to investigate the root cause of the blast. It is important to note, however, that FMC's global manufacturing network provides us with significant supply chain flexibility. Due to the strength of our partnerships and our alternate sourcing options, we are confident that we can continue to secure supply of the FNC active ingredients normally manufactured at the impacted solar location as needed. We have already included the impact of this situation in our guidance. Turning to slide nine, the second quarter EBITDA bridge reflects a $55 million cost headwind, similar to Q1, but lower FX headwinds of $20 million, representing a total of about $75 million in headwinds. We expect price increase in Q2 will offset $60 million or about 80% of these headwinds. I will now turn the call over to Andrew.