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.

Thanks, Mark. Let me start this morning with a few highlights from the income statement. FX was a modest tailwind for revenue growth in Q1 at 1% versus our expectations of a 2% headwind. as the U.S. dollar weakened against many currencies with the notable exception of the Brazilian reais. Interest expense for the first quarter was $32.4 million, down $8.4 million from the prior year period, with the benefit of lower LIBOR rates as well as lower foreign debt and lower term loan balances, partially offset by higher average commercial paper balances. We continue to anticipate interest expense between $130 and $140 million for the full year. Our effective tax rate on adjusted earnings for the first quarter was 13.5% as anticipated, and in line with our continued expectation for a full-year tax rate between 12.5% and 14.5%. Moving next to the balance sheet and liquidity, gross debt at the end of the quarter was $3.6 billion, up over $300 million from the prior quarter with the expected seasonal build of working capital. Gross debt to trailing 12-month EBITDA was 3.0 times at the end of the first quarter, while net debt to EBITDA was 2.7 times. Both metrics were above our targeted full-year average levels due to the seasonality of working capital. We expect that this will improve throughout the year, and we will return to target levels by year-end. Moving on to slide 10 in cash flow and cash deployment. Free cash flow for the first quarter was negative $354 million. Adjusted cash from operations was similar to the prior year period, with improved working capital offset by changes in non-working capital items and lower EBITDA. Capital additions were somewhat higher as we ramped up spending following deferral of projects last year due to COVID. Legacy and transformation spending was substantially lower with the completion of our SAP programs. We continue to expect to generate full year free cash flow within a range of $530 to $620 million, with the vast majority of this cash flow coming in the second half of the year. We return $137 million to shareholders in the quarter via $62 million in dividends and $75 million of share purchases, buying back 696,000 shares in the quarter at an average price of $107.73 per share. We continue to anticipate paying dividends approaching $250 million and repurchasing $400 to $500 million of FNC shares this year. And with that, I'll hand the call back to Mark.

Thank you, Andrew. Our Q1 financial performance was in line with our expectations. We are now focused on delivering against our full-year forecast. COVID-19 continues to be a factor to watch, and we're closely monitoring raw material and supply chain costs. We remain confident in our full year forecast that builds upon the new technologies and improved market access that are driving our growth. The market demand for our most recent product launches is important as it confirms the strength and value that our innovative R&D pipeline delivers to growers. We expect this momentum to continue to accelerate over the coming years with launches of new active ingredients and products, as well as outcomes from technology partnerships we've established in the past year. Finally, we remain committed to our cash deployment plan. We are on track to deliver more than $700 million to shareholders this year, building on a trend since 2018 of improving cash generation and returning excess cash to shareholders. I will now turn the call back to the operator for questions.

Thank you. We will now begin the question and answer session. To be placed in the queue, please press the star key then 1 on the touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. Please limit yourself to one question only. If you have additional questions, you can jump back in the queue. To withdraw from the queue, please press Start, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Adam Samuelson from Goldman Sachs. Please go ahead.

Yes, thanks. Good morning, everyone. Good morning. Good morning. So I was hoping to maybe dig in a little bit on price and cost and made some modest adjustments to the full year outlook that kind of netted to unchanged. But I'm trying to think about kind of what you're seeing maybe on a gross level in each of those buckets. It seems like both raw material inflation has been accelerating pretty meaningfully. Logistics is a challenge for many across the industry. And some of your peers do seem to be taking some more aggressive price action than what's implied in your guidance. And so I'm trying to just reconcile all those pieces and think about how that leaves you competitively positioned this year. And there's either more pricing opportunity or carryover cost inflation into next year, just thinking about all the different moving pieces.

Yeah, Adam, thank you. I'll start off and then I'll let Andrew talk a little bit more about some of the cost actions and items that we've got on the agenda in front of us. Listen, you're right. I mean, supply chain costs and raw material costs. And it's not just the cost element. It's actually availability that is causing some of that inflation that we're seeing. We are raising prices and we have raised price last year. We're raising price this year. Most of it will come in the second half because of the way it's falling. Although we did raise price in North America in Q1 and we didn't get as much price as we thought we would get in Latin America. You know, we were very clear that we were focused on drawing down inventory, and we've very successfully done that. We continue to do that as we enter Q2. But I feel very good where the inventory levels are. That is boding well for our ability to move price in the second half. And as you just alluded to, you know, the industry itself is moving because certainly FMC is not the only one facing these pressures. Everybody is. So, Andrew, do you want to talk a little bit about some of the cost elements and how it's flowing through the P&L?

Sure, certainly. Thanks, Adam. As you noted, it's a modest adjustment in terms of what net hits the EBITDA bridge for cost, an increase to $100 million headwind for cost on the full year versus $90 million when we gave initial guidance in February. The increase in raw materials and logistic costs is substantially more than that $10 million. We are taking additional cost control actions across all of our spending, whether it be in plant-level spending in COGS or in SG&A and R&D, really continuing the strong discipline we've had throughout the pandemic to partially offset some of that increase in raw materials and logistics inflation. So certainly the underlying increase in raw materials and logistics costs is much more than the $10 million. But again, we'll be taking some very aggressive actions to continue maintaining cost discipline to offset that. Net-net, you know, when we look at that $100 million increase year over year, I think, you know, directionally speaking, about $40 to $50 million of that is really raw material and logistics cost increases. Another $30 million to $40 million of it is a return to more normal R&D spending levels. Some variability there based on how we do the exact execution of certain project expenses, but in that range. And the remainder is increases in SG&A, again, against an artificially low 2020 when we're under very extreme controls for the COVID pandemic.

Thank you. The next question comes from Lauren Favre from Exane BNP. Please go ahead.

Yes, good morning all. Mark, I've got a question on the UPN agreement and what it means for the earnings trajectory. I think back when you did the technology day, you refrained from talking about financial performance post-2023. I was wondering now, with this agreement and all the other agreements you've been able to do over the years, are you feeling more confident that you can avoid an earnings pressure from the Diomide platinum eclipse after 2023? Thank you.

Yeah, thanks, Laurent. Yes, fundamentally. I mean, we made a statement in February that probably in the August call we're going to do a deep dive. You know, the August call is when we generally deep dive on one aspect of the business. We are going to do another deep dive on the diamides and the impact of all the programs we've put in place, whether it's defense from a legal perspective, where we've been very successful over the last year in litigating against people to move around our patents in India and China, to the whole third-party relationships. And I'm sure I'm going to get a question, so I'll head it off. On the third-party relationships, we have five global relationships now, UPL being the We have 12 more that we're in discussions with that will probably be put in place sometime this year. So we continue that expansion. And in August, we'll talk about the scale of this, how we see it growing. It's obviously very successful because we've been working on this since 2017 when we acquired the assets. It's been put in place. It's been driven regionally and globally. So we'll put in place a program where we'll show you how big it is, how it's growing. The bottom line is I do believe that in 2023, we will probably be at the very high end, if not above the high end of our expectations for diamines.

Thank you. The next question comes from Mark Conley from Stevens. Please go ahead.

Thanks. Mark, as you launch these new products, and they become an increasingly important part of the growth over the next couple of years, I was hoping you could give us a sense of how well those launches are performing against your expectations, whether you see a need to adjust your go-to-market strategy or what you're learning. And along with that, can you tell us more about the market access initiatives? Because some of those countries that you listed are pretty challenging places for U.S. companies to do business, but really attractive CP markets.

Yeah, thanks, Mark. It's a very good question, one that we've been working on a lot over the last couple of years, which is obviously the new technologies, the new products. Let me give you some numbers to sort of put this in perspective for you. I just said that $400 million of this year's revenue growth is coming from products that we've introduced since 2018. We usually take a five-year look at this, but 2017 was a very strange year for us because we made a major acquisition. So we kind of set in the clock at 2018. Of that $400 million, $118 million is growth that are coming from products that were launched in 2018. So it's real growth this year, year on year. Of the 180, 100 is coming from products that were launched this year, such as Vanticore, such as Zyway, such as Overwatch. So you can see that, think about it, this year we're projecting an 8% growth rate. 4%, so almost half of that overall growth, is coming from new products. And that's exactly the trajectory we want to see, and we expect that to continue as these major launches start to gather steam. So the products we've launched this year will obviously add to next year and continue for five years under this metric. I think it's a very important aspect that people are overlooking. I mean, we obviously focus on the diamides and they continue to grow very well for us, will in the future as we bring on more partners. But you've got to remember we're introducing brand new products into spaces that we've never participated before. For instance, Zyway. It is a systemic fungicide for corn in the US. We've never had a fungicide for corn in the US. It's a large market, and it's one that we can now go and exploit because the technology is so different. That's the growth algorithm that we're running. To your second point, Mark, on market access, we have invested over the last couple of years in more basic salespeople, boots on the ground, in the field, in places like Indonesia, India, Vietnam, the Philippines. These are all, as you just said, very, very attractive markets, but they're very local markets. You have hundreds and thousands of small retailers and distributors that need to be promoted to you only do that by having more people on the ground so we continue to invest in that and you've heard me talk over the last few quarters about how important the growth in asia is well it's coming not just from the portfolio it's coming from our market access expansions which were not slowing down even as we go through the covid 19 pandemic So it's a very good picture from a new product introduction standpoint. And don't forget, overall, new products, generally speaking, have a higher margin than products that are discontinued out of the portfolio. So, you know, as Andrew has talked about many times in our five-year plan, we have a 300 basis improvement in EBITDA margin. Not only is that related to the investment in SAP and how we run the company, it is also related to the new products we're introducing and how that mix changes over time. Super helpful. Thank you.

The next question comes from John Roberts from UBS. Please go ahead.

Thanks. Mark, you indicated that you didn't think COVID in India and Brazil would affect customers there, but you had a supplier issue in the fourth quarter related to COVID. And India is a huge active producer, and they've got actually a large global producer there as well. Do you think there'll be production issues that will be disruptive to the industry that might affect maybe the next quarter?

Yeah. John, I'm not so sure it's the next quarter. It's been there for a while. You know, I just alluded to the fact that it's not just the cost, it is availability. These things come and go as places get hit. We've not had our own facilities go down, but our procurement and supply chain groups are working hard behind the scenes to to source alternate raw materials where somebody goes down because of a COVID impact. So they're there, they're very real. It's not just India. China has also had issues, not necessarily related to COVID, but other areas of manufacturing. So yeah, it's something that we're very focused on. The supply chain groups and procurement groups work closely together. It's not something that you can predict. So the key is to make sure that your demand forecasts are as solid as they possibly can be so that you can procure forward as much as possible. And don't forget, our supply chains are long in nature. From the moment an active ingredient is manufactured to it getting through to a distributor or to a retailer and to a grower, that's a six- to eight-month supply chain. So it is a very, very complex area that takes a lot of managing.

Thank you. The next question comes from Frank Mitch from Fermion Research. Please go ahead.

Hey, good morning, folks. Mark, I'm trying to understand a little bit of arithmetic with respect to the shift in the Diomide third-party partner shifting from buying out of North America to Latin America. I believe you said that North American sales were down 8% year over year. However, if that shift had not occurred, it would have been up double digits. So then the expectation is that Latin America would have seen that sort of level of increase. Obviously, you were doing some pruning in your inventories there and so forth. But what was the net impact in Latin America? Or maybe it's a seasonal shift. Can you enlighten us a little bit there?

Yeah, it's about 30 million, Frank. You can do the math. The numbers are out there. I might as well say what it is. It's about a $30 million swing from North America to Latin America. It occurs in the quarter. It's recognized in the quarter. So it's not something that changes any other part of the year. And listen, it's something I'm going to talk a lot more about as we go forward in August. As our dynamite business gets much bigger and our third-party relationships get bigger, we don't control that demand. So it is going to move on us at times, and this is just one example. It doesn't mean to say that the overall company has lost any business. In fact, it's all good growth. It's just moved from one region to another because our third-party companies procure at different points in different regions. So it's really as simple as that. It's not complicated at all.

Got you. So just to be clear, so the Latin American revenues of $203 million would have been $170 million absent this shift?

Yeah, give or take, yes.

Thank you.

The next question comes from Steve Byrne from Bank of America. Please go ahead.

Hi, Mark. Your competitor yesterday highlighted a couple of insecticides that they used have withdrawn production. I don't know whether that has any opportunity benefit for you on your insecticide platform. And maybe a more general comment about your outlook for new product development. When you look at regulators around the world that are discontinuing registrations, is there a particular vertical that looks like there could become an increasing void in active ingredients. And does your pipeline reflect that longer-term opportunity, perhaps more so with your biologicals?

Yeah, thanks, Steve. With regards to the first part of the question, yes, there are some opportunities for us to replace the product that's being removed. Diomides would potentially take some of that market share. It all depends on what price point and what particular crop that is on. But yeah, the team is looking at what upside there is there. I think from a general regulatory perspective, whether it's a fungicide, a herbicide, or an insecticide, they're all under regulatory scrutiny, as they always have been. We just did a recent study where we looked at the insecticide overall market. And when we think about the classes of chemistry that are out there, I do think some of the older chemistries are going to come under pressure. And that's going to give great opportunity for things like the diamides, especially diamides and mixtures for different pests. And that's where I think we're going to see significant growth with some of our competitors in terms of how we're supplying products to the partners and how they will grow. So I'm not really focused on whether it's a herbicide or it's insecticide. We know the regulatory environment is getting more stringent. And as I've said before, for a basic R&D producer, that's not necessarily a bad thing. Because with a robust pipeline like we have, we're bringing the latest technologies to marketplace, which generally speaking, because of the environmental regulations that we have today, are better chemistries, they're more targeted, they're softer in nature. That leads itself to the second part, which is the biologicals. And our biological program is really heavily focused around fungicides. Secondary is the insecticide area. We don't really have anything yet in the herbicide space, but we do see that growth in our biological business. You know, that biological business is now just north of $100 million in revenue. It is growing in the very high double digits, and its EBITDA margins are strong, and we have good products coming in in the near future from the pipeline. So you will see us talk more and invest more in the biological space going forward. Thank you.

next question comes from mike harrison from seaport global securities please go ahead hi good morning um you mentioned uh that that europe was the only region where you uh were increasing your expectations or your market outlook uh my understanding is there's a drought going on in france How much exposure do you have in France? Maybe talk about your expectations for the weather impact in Q2 and the rest of the year in broader Libya as a region. Thanks.

Yeah, Mike, the reason we increased it is mainly because of FX. It's just a U.S. dollar translation. You're absolutely right. It's not necessarily a drought. It's been very cold in northern Europe. The season is probably delayed about three weeks, maybe even a month. And that's a lot at the beginning of the season. We're watching it very carefully. The south doesn't tend to be so impacted. So, you know, the whole specialty crop area through Spain, Italy, all the way across Greece and into Turkey. But certainly France and Germany, we're watching very closely at this point, UK as well. It's not what we predicted, so it's something that we saw last year, actually. The drought occurred at the same time last year. It's just part of the climate change that we're seeing in the very short term, that the weather patterns are moving on us. The good news is in our European business, we do have a very diversified portfolio and we have been growing in many of the smaller countries. I've mentioned Romania before. I've mentioned Greece. I've mentioned Turkey, which is becoming a much bigger market for us. So I think having that distributed model across many countries helps. But yeah, it is delayed and it's something we're watching.

Thank you. The next question comes from Joel Jackson from BMO Capital Markets. Please go ahead.

Good morning. We're seeing a lot of food and food ingredient companies start to explore the idea around sustainability and farming and look at whether they'll start grading the grain, the ingredients, the crops that they buy. on the sustainability practices that those farms follow. And maybe even down the road, and we're early, paying lower or higher premiums to the prices they pay. Can you talk about, are you having some discussions now as a crop input producer about some of the different crop protection products and other things that you offer and how that might factor into sustainability scores of farmers and play into this whole nascent dynamic?

Yeah, thanks, Joel. Well, listen, the food chain is something that obviously we pay close attention to. Our global marketing group and our sustainability group have various relationships throughout that food chain. I would say in the future, you know, we've talked many times about our sustainability index that we use for our research programs. I think a tool such as that as we go forward is going to be important to show the environmental impact that we have on the food chain in terms of the types of products we're selling. whether it be from a water usage in manufacture or residual levels in use. Those are all important elements. They're not necessarily at this point in time driving forces for revenue, but I wouldn't disagree with you that they won't become more important discussions as we go forward. And for us, we're happy to have that conversation because Because of the strength of the pipeline and the way we're developing those products, we believe there are advantages to have those discussions around the most efficacious products that have the lowest residues, and especially in the biological space, because that's where I can see biologicals playing a very important role.

Thank you. The next question comes from Michael Picking from Cleveland Research. Please go ahead.

Yeah, good morning. I know that you kind of held your guidance for kind of low single-digit percentage volume growth, and yet we're looking at, you know, crop economics for a lot of row crop farmers and other farmers around the world getting a lot stronger. At what point do you think we might see the trajectory of the growth rate for the industry change? go up and what factors need to come into play for the industry to maybe grow to faster rates over the next couple of years. Thanks.

Yeah, thanks, Mike. Yeah, we are projecting that growth rate in the low to mid single digits. That's higher than we've projected over the last few years. And we were reasonably spot on with our projections in terms of you know, flat markets over the last couple of years. I obviously think that over the longer haul, if commodity prices stay where they are, then yes, we should fundamentally see some uplift in the marketplace going forward. I think this year, obviously, it's come and we see, I think the supply chain side and the raw material side is what's weighing on our view of the world. I think growers, as you say, are obviously in a much better place. I'm more concerned about ability to supply products that are needed at certain times in the marketplace. I think if prices stay like this into the next year and we start to get through the COVID crisis and that manufacturing frees up and supply chains free up a little more, logistics become freer, then yes, I think maybe next year we might see FMC giving you a guidance that's slightly higher than where we are today.

Thank you. The next question comes from Alexey from KeyBank. Please go ahead.

Thank you. Good morning, everyone. Mark, you mentioned that supply chain constraints is something that lowers industry growth this year. Do you think it follows that maybe the market is somewhat under supply versus demand and that could impact growth in 2022 positively?

No, I don't fundamentally think so. I think the supply chains will be righting themselves as we go through this year. So I'm not concerned about significant supply constraints across the broad industry. Do I think there'll be pockets of constraints? Yes, more than likely. But that's what we have today and we're working through it. So I would hope that next year it becomes a little easier on the supply chain and procurement groups for all the companies involved.

Thank you. The next question comes from Kevin McCarthy from Vertical Research Partners. Please go ahead.

Good morning. Mark, I was wondering if you could comment on inventory levels in Brazil as well as the expected price inflection that you anticipate for the back half of the year and your degree of confidence in moving prices higher in that market. And then secondly, on Brazil, How much more volume might you anticipate with soybeans in the teens versus single digits? If you look at history, is there any sort of rule of thumb or experience on that cross-price elasticity?

Yeah, thanks, Kevin. Listen, on the inventory side, I can certainly tell you from FMC's perspective, we're in very good shape with all the activities that we've put in place. So I think the industry is generally getting better as well. We'll see as we exit Q2 and think about Q3 and Q4 as we enter the 21-22 season. But yeah, from FMC, we're in very good shape, very happy with what the team's done. I know it's been painful for everybody involved, but it was the right thing to do. You know, from a growth for our perspective, our market share on soy is reasonably low in Brazil. So, you know, when I talk about the second half of the year and I said expectations in the U.S. and Brazil, not only from a weak Q4 that we had, but generally speaking from good crop fundamentals, you know, soy is somewhere where we're growing. We're growing on insecticides for stink bug control, and that's not with Diomide. That's with other insecticides in our portfolio. A couple of the brands that I mentioned, Hero and Talisman, they're major growth products for us. So I do believe, and fundamentally I think most people would agree, that with higher crop prices, many growers are willing to invest in the best technologies to protect those crops. And that's one of the premises we're taking forward as we think about soy in the in the next season coming up in 21-22. I also think that... there is an opportunity on fungicides. We're gaining access to a new fungicide in Brazil that will be used on soybeans that will help us as we gain a more broader footprint there. And then the third piece around Brazil is sheer market access. We're inking some deals as we speak, getting ready for the next season going forward with major distributors where we're increasing our market access to those distributors to sell the product. So backdrop to your question is do we think we can do more with higher crop prices in in soy in brazil the answer is yes and it is one of those drivers for our strong second half thank you thank you the next question comes from vincent andrews from morgan sanders please go ahead

Thank you, and good morning, everyone. Mark, wondering if you could talk a little bit about, in North America, what you're seeing in the horseshoe with specialty crops against fourth quarter and one cube to sort of how you're expecting that to develop over the balance of the year.

Yeah, we are seeing it developing well, actually. And our growth has been very good, especially with the diamides and some of the new fungicide applications that we put in there. I think a watch out that I would say, and the team has made this vocal to me, is labor constraints. um you know especially in the california areas getting uh getting people into the fields into the packing stations it's something we're watching it's not been a disruptor yet but you know we're always trying to look around the corner but fundamental growth is good i have to say that generally speaking with the specialty crops and fruit and vegetables around the world you know we have seen a very good growth especially in asia many of the countries in asia are improving their inputs into many of the specialty crops, whether it's chilies or pulses in India. Mexico is doing well, a lot of exports from Mexico, so the Mexican specialty crop business is doing well. I know I'm expanding a little bit outside of North America and the horseshoe, but the reality is the markets are intertwined in terms of demand. So generally speaking, yes, very good, but one watch out would be labor in the U.S.

Thank you. The next question comes from Lawrence Alexander from Jefferies. Please go ahead.

Hi, guys. This is Dan Rizwan from Lawrence. Thanks for taking my question. Could you provide more color on if the labor shortage that we're hearing about from others is affecting you guys and to what extent?

Yeah, it's not really affecting us. It's more at the grower level. Many of the crops are picked by hand. The packaging stations that are on the farms are heavily labor-intensive in many cases. It's just a case of getting the labor into the facilities. COVID obviously had a major impact on that. Hopefully, we're coming towards the end of that, but it is something that we're very cognizant of and are watching.

Thank you. The final question comes from Arjun Viswanath from RBC Capital Markets. Please go ahead.

Great. Thanks for taking my question. I'm just curious on Brazil and Latin America. You know, you called out some challenges in cotton. How do you see that market kind of evolving over the next couple of quarters? Is it really dependent on kind of a full reopening and better textile environment? We're kind of hearing that that's already going on. And then also, maybe you can also comment on some of the customs issues you faced in Argentina, you know, if those are fully resolved or not. Thanks.

Yeah, I'll take the last piece first. Yes, the issues in Argentina, as I said at the last call, we were changing some of our supply chain manufacturing, formulating routes. Those are in place. So, yeah, that's behind us at this point. When it comes to cotton, two things are happening. First of all, we're thinking forward to the 21-22 season. We're already seeing raised prices for the next season, and that's something that we're driving. It gives us a lot of confidence as to the previous question on price in Latin America. So not only are prices moving, but more importantly, hectares are increasing. You know, 20 to 21 cotton hectares in Brazil were down about 15%, maybe a little bit more. We're actually seeing that rebound now on the back of better cotton prices, lower stock-to-use ratios around the world, and frankly, more people buying clothes as we come out of the pandemic and the demand for cotton going up. So this year has been a tough year for us on cotton, hence the Q1 that we've had. But we're very, very confident that as we go into Q4 and Q1 later this year in 2022, that we'll see that rebound. And the signs are already there for us.

Thank you. That is all the time that we have for the call today. Have a good day.

Thank you for attending.