FMC Corporation

Good morning and welcome to the first quarter 2021 earnings call for MXC Corporation. This event is being recorded and all participants are in 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 in the Q&A queue, please press the star key, then 1 at any time. If you are using a speakerphone, please pick up your handset before pressing the key. I would now like to turn the conference over to Mr. Michael Verlee, Director of Investor Relations for FMC Corporation. Please go ahead.

Thank you, and good morning, everyone. Welcome to FMC Corporation's first quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer, and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Mark will review our first quarter results and provide our outlook for 2021 and the second quarter. Andrew will provide an overview of select financial items. 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 released 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, free 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 any 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 Mark.

Thank you, Michael, and good morning, everyone. Our first quarter results were in line with our guidance and expectations. Revenue and earnings were down as forecasted, though earnings were modestly above the midpoint of our guidance. We continue to expect a good second quarter and a strong full year. We had two important product launches in the quarter, Overwatch Herbicide based on our Isoflex Active in Australia and Zyway Fungicide in the US. Isoflex is one of 11 new active ingredients we plan to launch this decade. Both launches have exceeded our expectations and have delivered approximately $50 million of Q1 sales. In March, we announced an important agreement with UPL to toll manufacture Ranaxapur insect control in India and to distribute products based on the active ingredient in selected markets. In the future, FNC will supply Ranaxapur active to UPL for use in product formulations developed and marketed by UPL around the world. This agreement is the next step in growing our important Diomide franchise and accelerating FNC's long-term plans to expand the franchise in diverse geographies and crops with differentiated formulations. It also reaffirms the strength of our patent portfolio that protects our Diomide franchise far beyond just the composition of matter patents. We returned over $135 million to shareholders in the quarter through our recently increased dividend and share repurchases. Our guidance for Q2 indicates an expected return to mid-single digit growth on the top line with slightly lower earnings growth because of higher costs compared to Q2 2020. These higher costs are principally related to increasing raw materials and logistics. Additionally, we will be spending more on SG&A and R&D compared to the abnormally low spend in Q2 2020. I'd like to take a moment to provide a COVID-19 update on our business. All our manufacturing facilities and distribution warehouses remain operational and properly staffed. Our research laboratories and greenhouses also have continued to operate throughout the pandemic. While many of FMC's other employees continue to work from home, plans are in place to resume in-office operations where permitted by local authorities. Finally, we are all aware of the challenges India is facing with significant increases of COVID cases across that country. Last week, FMC announced it will donate seven pressure swing absorption oxygen plants to hospitals across five states in India to help address the rapidly increasing demand for medical oxygen. This program focuses on rural areas where we are providing further community support. Turning to our Q1 results on slide three, we reported $1.2 billion in first quarter revenue, which reflects a 4% decrease on a reported basis and a 5% decrease organically. As planned, we saw slower sales in Brazil as we drew down channel inventories in that country, as well as the shortfall in EMEA due to Brexit-related sales that occurred in Q4 2020. In North America, we saw very good demand based on strong fundamentals in row crops and commodity prices, offset by a shift of Diomide third-party sales to Latin America. In Asia, double-digit sales growth in Australia, Japan, and our ASEAN sub-region drove revenue performance in that region. Adjusted EBITDA was $307 million, a decrease of 14% compared to the prior year period and $2 million above the midpoint of our guidance range. EBITDA margins were 25.7%, a decrease of 290 basis points compared to the prior year. Adjusted earnings for $1.53 per diluted share in the quarter, a decrease of 17% versus Q1 2020, but also 3 cents above the midpoint of our guidance range. The year-over-year decline was primarily driven by the decrease in EBITDA, partially offset by lower interest expense. Moving now to slide four. Q1 revenue decreased by 4% versus prior year, driven by a 4% volume decrease and a 1% price decline. Foreign currencies were a modest tailwind in the quarter on the top line. Sales in Asia increased 18% year-over-year and 13% organically, driven by double-digit growth in Australia, Japan, the Philippines, Thailand, and Vietnam. We had strong overwatch herbicide sales for cereals, and sales of our diamides were robust for fruit and vegetable and rice applications. Insecticides also performed well in Indonesia, helped by our recent expanded market access in that country, and improved weather helped sales across the ASEAN sub-region. EMEA sales were down 4% year-over-year and 8% organically. We had strong sales of diamides and other insecticides, as well as fungicides, but these were more than offset by headwinds from the Brexit-related UK sales in Q4 that we described a quarter ago, as well as discontinued registrations. In North America, sales decreased 8% year over year. Our herbicide business grew double digits, partially due to the timing of some sales that shifted from Q4 to Q1, as well as the continued strength of Authority Edge and Authority Supreme herbicides, We also had a strong launch in the U.S. of Zyway fungicide for corn and Vanticor insect control for specialty crops. These were offset primarily by a shift of Diomide third-party partner sales from North America to Latin America, as one of our key partners adjusted the way it purchases from FMC globally. This was simply a move of purchasing location and not a change in demand. Excluding this shift, our North America sales were up low double digits. Moving now to Latin America. Sales decreased 22% year over year and 13% organically. As a reminder, we were facing a particularly difficult comparison in Latin America, where sales increased 26% year over year and 38% organically in Q1 2020. Brazil's cotton business was very strong for us a year ago, which did not repeat this season, as cotton hectares were down 15%. We also proactively reduced channel inventory of FMC products as planned in Q1, improving our inventory situation in Brazil. And our Andean Zone subregion continued the momentum from 2020 with double-digit sales growth. Turning now to the first quarter EBITDA bridge on slide five. EBITDA in the quarter was down $50 million year over year due to a very strong Q1 2020 comparison. Volume headwinds in Latin America and the MEA were partially offset by new product launches in Asia and North America. In Latin America, we focused on reducing channel inventory to set ourselves up for a much stronger pricing environment in the second half of 2021. Cost headwinds were slightly higher than expected, while FX headwinds were far lower than in the prior four quarters. Turning now to our view of the overall market conditions for 2021. We continue to expect the global crop protection market will be up low single digits on a U.S. dollar basis. Relative to this time last year, commodity prices for many of the major crops are higher and stock-to-use ratios are much improved. All regions are seeing some benefit from better crop commodity prices, while the negative impacts from COVID on crop demand appear to be modest. The only change to our regional forecast is that we now forecast mid single digit growth in the EMEA market versus low single digit growth before. This improved view is due to the strengthening of currencies in that region relative to the US dollar. Market growth in Asia is still expected to be in the low to mid single digits driven by India, Australia and ASEAN countries, while growth in the North American and Latin American markets is still projected to be in the low single digits. Basic crop fundamentals remain strong. However, our overall forecast for the total crop protection market remains low single digit growth due to signs of supply chain constraints in the industry, as well as modest channel inventory overhang in certain countries. Although Brazil and India are facing significant increases of COVID cases, we are not seeing signs that this is impacting their respective agricultural markets at this time. This is, however, something we are continuing to watch closely. Turning to slide six and the review of FMC's full year 2021 and Q2 earnings outlook. FMC full year 2021 earnings are now expected to be in the range of $6.70 to $7.40 per diluted share, a year-over-year increase of 14% at the midpoint. This is up slightly versus our prior forecast, reflecting the share count reduction from our Q1 share repurchases. Consistent with past practice, we do not factor in any benefit from future share repurchases in our EPS guidance. Our 2021 revenue forecast remains in the range of $4.9 to $5.1 billion, an increase of 8% at the midpoint versus 2020 and 8% organic growth. We believe the strength of our portfolio will allow us to deliver this organic growth, continuing a multi-year trend of above-market performance. EBITDA is still expected to be in the range of $1.32 billion to $1.42 billion, representing 10% year-over-year growth at the midpoint. Guidance for Q2 implies a year-over-year sales growth of 6% at the midpoint on a reported basis and 5% organically. We are forecasting EBITDA growth of 1% at the midpoint versus Q2 2020, and EPS is forecasted to be at 3% year-over-year. Turning to slide seven and full year EBITDA and revenue drivers. Revenue is expected to benefit from 6% volume growth with the largest growth in Asia and a 2% contribution from higher prices. FX is now forecasted to have no impact on the top line. We continue to expect broad growth across all regions and a very strong second half of 2021. New products like Overwatch herbicide, Zyware fungicide and Vanticore insect control are already making meaningful contributions. We are also planning to launch fluendipia fungicide in the U.S. for non-crop applications later this year. We expect new products to contribute $400 million in revenue this year. This includes all products launched since 2018. We are forecasting strong growth in each of our product categories in the year. In addition to the continued growth of Renaxiper and Cyaziper insect controls, We expect growth from other key insecticide brands in our portfolio, including Avatar, Hero, and Talisman. Our herbicide portfolio is also expected to grow, led by brands including Authority, Gamut, Spotlight Plus, and Overwatch. Zywa is expected to lead growth of our fungicide portfolio, building on the successful launch of Lisento fungicide a couple of years ago. Our EBITDA guidance reflects significant volume and pricing benefits offset partially by increases in R&D spending, the reversal of some temporary cost savings from 2020, as well as increase in raw material and logistics costs. As we stated in February, we are forecasting an increase in R&D to bring us to a level of funding that keeps all projects on a critical path to commercialization. We are taking cost control actions to limit the net cost headwind to an incremental $10 million versus what we showed in February. We also intend to offset the higher raw material costs with an additional $10 million in price increases, which will come primarily in the second half of the year. Moving to slide 8, where you can see the Q2 drivers. On the revenue line, we are expecting positive contributions from all categories, volume 4%, pricing 1%, and FX 1%. We're expecting solid sales growth in Asia, EMEA, and Latin America. Asia growth is expected to be broad-based across the region, with particular strength in India, Australia, and China. Growth in EMEA will be driven by improved crop conditions for cereals and sugar beets. Latin America growth should be supported by improved conditions in both Brazil and Mexico, and a continuation of strong growth in the Andean zones. We see good conditions in North America for row crops and a positive outlook for our new products. Regarding EBITDA drivers, positive contributions from volume, price, and FX more than offset the increased costs, which we previously discussed. Turning now to slide 9, with the guidance for Q2 and the full year on record, we would like to also show the implied forecast for the second half. We have a very strong outlook for H2, and let me outline the drivers for that growth. We forecast year-over-year revenue growth of 15% in the second half, driven by five main elements. First, our expectations are strong for the U.S. and Brazil, following our weak Q4 2020 performance in those countries. Second, price increases, primarily in Brazil, with contributions from numerous other countries, will help offset the FX headwind from last year and the higher costs from raw materials this year. Thirdly, new products will continue to be a major factor. Overwatch in Australia, Zyway and Diamide formulations, Elevest and Vantacor, and Fluendipir for non-crop applications in the U.S., and Authority NXT herbicide in India. Fourth, improved crop fundamentals. Cotton in Brazil is the most obvious to us, as growers have indicated a 15% increase in hectares for next seasons. And we also expect a strong Q4 in North America and Latin America, driven by good fundamentals for soybeans and corn. And finally, fifth, improved market access and expansions into new geographies and crops. This is having a significant impact in Asia, with recent initiatives in India, Indonesia, Philippines, and Vietnam all forecast to drive high growth rates. Our guidance also implies a 30% year-over-year EBITDA growth in the second half of the year, Much of that will come directly from the volume and pricing growth I just described, but we also expect to limit the raw material and supply chain cost headwinds with sustained cost discipline in other areas. I will now turn the call over to Andrew.