FMC Corporation

Good morning and welcome to the third quarter 2019 earnings release conference call for FMC Corporation. Phone lines will be placed on 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 third 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 third quarter performance and provide the outlook for the remainder of 2019. Mark will take an in-depth look at our Latin America business, followed by Andrew, who will provide an overview of select financial results. We will then address your questions. The slide presentation that accompanies our results along with our earnings release and our 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 understanding. 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 flow operations, and pre-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 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. FMC continued to deliver strong financial performance in the third quarter and navigated difficult market conditions, particularly in North America and Europe. This performance is consistent with prior quarters due to our unique blend of balanced geographic exposure, strong sales in specialty crops, and a technology advantage portfolio. A good example of how all these elements drive strong growth is our Diomide franchise that has grown 35% since we acquired the business two years ago. This growth was enabled by the previously mentioned elements in addition to robust commercial approach that has led to volume demand in previously untapped markets. We believe that our business is well positioned to consistently deliver strong growth. Turning to slide three. FMC reported more than $1 billion in third quarter revenue, which reflects a year-over-year increase of 10% on a reported basis and 12% organic growth, excluding FX headwinds. This increase was mostly driven by double-digit organic growth in Brazil, Argentina, Mexico, France, India, China, and Pakistan. as well as price increases across all regions. Adjusted company EBITDA was $219 million, an increase of 18% compared to recast financial from last year, and $19 million above the midpoint over guidance. Company EBITDA margins were 21.6% up 140 basis points year-over-year despite $42 million in combined headwinds from raw material costs and tariffs. Adjusted EPS was $0.94 in the quarter. an increase of 32% versus recast Q3 2018 and 14 cents above the midpoint over guidance. The strong outperformance versus our guidance was driven primarily by higher volume and pricing, which led to a 12.5 cent bid on the EBITDA line. Moving now to third quarter revenue on slide four. Q3 revenue growth by 10% versus prior year with volume contributing 8% growth and pricing another 4% growth. This was offset partially by a 2% headwind from FX. This was the third consecutive quarter that we posted year-over-year price increase in every region of the world. Growth in Q3. was stronger than expected due to unforecasted demand opportunities. We saw no shift of demand from Q4 as the growth in the third quarter was due entirely to Q3 demand. As expected, Latin America made up 45% of its third quarter revenue. Sales in Latin America grew 21% year-over-year or 22% organically, continuing the trend from the first half of 2019. We posted very strong growth across the region, driven by higher volumes and price increases. Our pricing actions more than offset the impact of FX. Demand was high for applications on cotton and sugarcane in Brazil. It is important to note that we continue to monitor channel inventory levels in Brazil, which are well controlled and in line with expectations for this point in the season. Market access continues to improve in Argentina, which allows us to take advantage of increasing demand for a product, especially for an acceptor, insect control, and authority herbicide. Growth in Mexico came from more normal weather conditions compared to earlier in the year. Year-to-date, our sales in Latin America grew 29% organically. In the MEA, herbicide and insecticide demand drove year-over-year revenue growth of 4%, despite another very hot summer and fall. for a new battle delta herbicide benefited from a stronger-than-predicted cereal market across Europe led by France and Germany. Sayazapir insect control continued to benefit from new country registrations. Price increases more than offset the 4% FX headwind. Organic growth was 8% in the quarter, and stands at 10% year-to-date. In Asia, revenue increased 5% overall and 9% organically year-over-year. Following a strong Q2, India again delivered commercial outperformance driven by demand for insecticides to combat fall army worm as well as share gains in the rice granule market with their Naxapur-based Fratera insecticide. Syazapur intake control was also strong on fruits and vegetables. We continue to benefit in India from a new commercial organization structure, which we put in place about a year ago. We also had significant revenue growth in Pakistan, driven by strength in diamide demand and new product introductions. Year-to-date, our sales in Asia grew 7% organically, excluding significant FX headwind across many currencies. In North America, revenue was down 3% year-over-year in a seasonally smaller square. As expected, we saw reduced demand for herbicides in the Midwest and Canada as the weather issues this spring resulted in higher channel inventories of those products. This was partially offset by continued price increases and by share gains for a diamide for specialty crop applications. Despite the extreme weather-related challenges in this region, our year-to-date sales in North America are up 1%. Turning to slide 5, third quarter EBITDA was $219 million dollars, a year-over-year increase of 18% compared to recast results from Q3 2018. Price increases in all regions and volume demand in Latin America, Asia, and the MEA were drivers of this very strong performance. Looking ahead at the full-year earnings outlook, we are raising a full-year guidance for 2019. Revenue is now expected to be in the range of $4.58 billion to $4.62 billion. Total company adjusted EBITDA is now expected to be in the range of $1.2 to $1.22 billion. We are also raising gallons for 2019 adjusted earnings to a range of $5.8 to $5.9 per devoted share. EPS estimates include the impact of $300 million in share repurchases completed year-to-date through September 30th, as well as an additional $100 million in share repurchases expected into fall 2019. Fourth quarter revenue is now expected to be in the range of $1.17 to $1.21 billion, representing 8% growth at the midpoint compared to RECAS fourth quarter 2018. Total fourth quarter company adjusted EBITDA is now forecasted to be in the range of $300 to $320 million, representing a 13% increase at the midpoint versus recast Q4. We expect adjusted earnings for the outage share to be in the range of 1.46 to 1.56%. in the fourth quarter, representing an increase of 3% at the midpoint versus recast 2018 and assuming due to shares outstanding of approximately 130.5 million. Year-over-year EPS growth will be constrained by the very low tax rate in Q4 2018. Looking at the global market for the crop protection products, We continue to expect 2019 will be flat on a U.S. dollar basis compared to 2018. We expect the Latin American market to grow in the high single digits and the North American market to be down in the mid single digits. We expect both EMEA and Asia markets to be flat to down low single digits. Our forecast for the Asia market is slightly reduced due to the strengthening of the U.S. dollar over the past few months. This market forecast does not change our expectation that FMC will continue to deliver financial outperformance relative to the market. Turning now to a full year EBITDA breach and revenue drivers on slide 7. The main driver of the improved forecast is volume gains, which now contribute 17% year-over-year EBITDA growth. Pricing actions around the globe are expected to offset about two-thirds of the combined cost and effects headwinds. Supply from China has improved throughout the year, but some challenges remain. The last of a strategic tolerance that was impacted by the recent shutdown in China is set to restart its production in two weeks. I would also like to highlight the full year revenue drivers. We now expect revenue growth of 7% overall and 11% organically. Both the volume and pricing gains have been consistent throughout the year. As a reminder, This full year growth in 2019 follows organic growth of approximately 13% in 2018 on a pro forma basis. Moving to slide eight, we provide the key drivers for EBITDA and revenue growth in Q4. As stated earlier, we saw no shift in demand from Q4 into Q3. In fact, we raised our Q4 revenue guidance by $15 million at the midpoint. However, we reduced our EBITDA guidance for the quarter by $10 million at the midpoint due to higher costs and less favorable FX benefits as compared to our July guidance. The positive combined impact over Q4 EBITDA from volume and price mix is exactly the same as we showed in our prior guidance. Fourth quarter performance will be driven by strong volume growth in all regions. Included in this volume are new product launches which are expected to deliver about 20 million dollars of a total revenue growth of 90 million dollars in the quarter. These launches include Lucento fungicide, Ethos insecticide biofungicide in North America, and Thalesapur insect control in South Africa, Malaysia, and Vietnam. Pricing actions are expected to fully offset the FX headwinds at the revenue level. We would also like to highlight the rapid growth of Cyazapyr insect control, which has become our fastest growing molecule and is now our fourth largest by revenue. Forecasted 2019 sales of Cyazapyr insect control are expected to be around $300 million, driven by registration in new countries and crops. I will now turn the call over to Mark to take an in-depth look at our Latin America business.