FMC Corporation

Good morning, and welcome to the second quarter of 2020 earnings call for FMC Corporation. This event is being recorded, and all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's prepared remarks, there will be an opportunity to ask questions. To be placed into the Q&A queue, please press the star key, then one, at any time. If you are using a speakerphone, please pick up your handset before pressing the keys. I would now like to turn the conference over to Mr. Michael Wortley, Director of Investor Relations for FMC Corporation. Please go ahead.

Thank you, and good morning, everyone. Welcome to FMC Corporation's second quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer, and Andrew Sandefur, Executive Vice President and Chief Financial Officer. Mark will review our second quarter performance and the outlook for the rest of the year. Andrew will provide an overview of select financial results and discuss the sustainability of FMC's tax structure. Following the prepared remarks, we will take questions. Our earnings released in today's slide presentation are available on our website, and the prepared remarks from today's discussion will be made available after the call. 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 earnings 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 from operations, pre-cash flow, and organic revenue growth, all of which are non-GAAP financial measures. Please note that as used in today's discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA. A reconciliation and definition of these terms as well as other non-GAAP financial terms of which we may refer during today's conference call are provided on our website. With that, I will now turn the call over to Mark.

Thank you, Michael, and good morning, everyone. At our last earnings call, we forecasted Q2 would be a challenging quarter. Despite this outlook, we delivered solid financial performance and navigated the challenges posed by COVID-19, severe headwinds from foreign currency, very dry weather in Europe, and an industry-leading comparison from Q2 2019. Our proactive cost control actions, along with price and volume increases, delivered earnings growth in the quarter. Our confidence in the outlook for the second half of the year has increased, which is why we are raising the midpoints of our EBITDA and EPS guidance and tightening those ranges. Underlying demand for our products remains healthy and we expect double-digit organic revenue growth in the second half of the year, driven by volume, market access expansion and the full effect of our pricing actions. We also continue to invest in innovation to support and enhance the long-term sustainable growth model we have built at FMC. In the past few months, we announced the launch of our Arc farm intelligence platform and a related agreement with Nutrien to increase the adoption of this technology. We launched FMC Ventures with an initial investment in trace genomics, and we announced a partnership with Cyclica that will enhance our R&D discovery engine. Let me now turn to the impact of the COVID-19 pandemic on our business. As we said last quarter, we have avoided significant plant closures and all our manufacturing facilities remain operational. The well-being of our employees is FMC's top priority. Although most FMC employees around the world have been working from home during these last few months, we are slowly bringing employees back to offices and laboratories in locations where health officials have deemed this to be safe. In addition, we have thousands of employees who continue operating our manufacturing sites and distribution warehouses. In all our facilities, we are using a variety of best practices to address COVID-19 risks and following the protocols and procedures recommended by leading health authorities. In Q2, sourcing of raw materials and intermediates was not a significant issue, although we continue to see some logistics challenges and related higher costs. We are seeing some pockets of reduced demand, as expected, due to food chain dislocations and labor availability. As we commented in May, we implemented cost-saving measures across the company and price increases to offset the impact of COVID-19 and the related FX headwind caused by a stronger US dollar. Turning to our results on slide three, FNC's strong financial performance the past several quarters continued in the second quarter, despite a robust prior period performance. Last year, our business grew 9% organically in Q2, This year, we reported approximately $1.16 billion in second quarter revenue, which reflects a 4% decrease on a reported basis, but 3% growth organically. After removing the FX impact, our business saw double-digit growth in Argentina, Brazil, Australia, Pakistan, and Canada. Adjusted EBITDA was $341 million, an increase of 1% compared to the prior year period. EBITDA margins were 29.5%, an increase of 150 basis points compared to the prior year, driven by significant cost containment measures and pricing actions. Adjusted EPS was $1.72 in the quarter, an increase of 4% versus Q2 2019. This year-over-year performance was driven equally by the increases in EBITDA, reduced share count, and the benefit of a lower tax rate. Relative to our Q2 guidance, however, the $0.06 B was driven almost entirely by our $9 million EBITDA outperformance versus the midpoint. Moving now to slide four. Q2 revenue declined by 4% versus prior year as a 7% FX headwind more than offset growth contributions of 2% from volume and 1% from price. We overcame a 3% volume impact from products that were discontinued either because of registration cancellations or rationalizations that we had planned for and forecasted earlier this year. We should note that 2020 has a higher than normal level of product discontinuations. Latin America sales grew 2% year over year and 24% excluding FX. Pricing actions across the region offset some of the currency headwinds while the underlying volume gains were very strong in Argentina and Brazil. Sales grew fastest in Argentina, driven by herbicide sales for wheat and soybean applications, including Finesse herbicide. In Brazil, sales grew double digits organically, led by continued robust demand for our products on sugarcane, including Boral herbicide and Altacor insecticide. Our channel inventories in Brazil continue to be at normal levels as we head into the new seasons. Mexico's sales grew organically but were impacted somewhat by COVID-19-related pressures on the growers that export fruit and vegetables. In Asia, revenue increased 2% year-over-year and 8% excluding FX. Volume growth in India, Australia, and Pakistan, as well as modest price increases across the region, were mostly offset by FX headwinds and some COVID-19-related impacts in India. Herbicide sales, including for the newly launched Authority NXT, were robust for soybeans in India. We also continue to see a strong market recovery in Australia, with the improved weather and record demand for hammer and affinity force herbicides due to strong broadacre season. In North America, sales decreased 6% year over year, driven by our continued focus on drawing down channel inventories of our pre-emergent herbicides following the wet spring last year. Coming out of this summer, we forecast our channel inventories will be in a much better position in this region, which should lead to a good restocking at the end of the year. We also saw robust sales of Lucento fungicide in our second U.S. season. Sales in Canada were strong, driven by herbicide blends from our precision-packed systems for use on cereals and insecticides to control early-season pests. Sales in EMEA were contracted 13% year-over-year and 10% excluding FX due to hot, dry conditions across northern and eastern Europe and Ukraine, as well as the expected registration cancellations and product rationalizations. This was partially offset by insecticide growth in southern Europe for specialty crops. Turning now to the second quarter EBITDA bridge on slide five. We had strong operational performance offsetting a $62 million FX headwind with a $46 million contribution from lower costs, a $16 million benefit from higher pricing, and modest volume growth. Moving now to slide six, where we've included first-half results to highlight the overall performance we've delivered in a very challenging market. We posted organic revenue growth of 6%. On the EBITDA bridge, balanced contributions from volume growth price increases, and cost reductions more than offset the FX headwind. I will now turn the call over to Andrew.