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spk05: Good morning and welcome to the First Courser 2022 Earnings Call for FMC 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 one, at any time. If you are using a speakerphone, please pick up your handset before pressing these keys. I would now like to turn the conference over to Mr. Zach Zaki, Director of Investor Relations for FMC Corporation. Please go ahead.
spk00: Thank you, Seb, 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 performance as well as provide an outlook for the second quarter and implied first half expectations. He will also provide an update to our full year outlook and implied second half expectations. Andrew will provide an overview of select financial results. Following the prepared remarks, we will take questions. Our earnings release and 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 these factors identified in 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 flow 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 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.
spk02: Thank you, Zach, and good morning, everyone. Before I move into details on our results, I'd like to take a moment to provide an update on FMC's position related to the war in Ukraine. In mid-April, We announced the decision to discontinue our operations in Russia and exit the country completely, making FMC the first crop input provider to exit Russia. We could not ignore increasing reports of potential war crimes, human rights abuses and other atrocities committed in the Ukraine. Our values as a company do not allow FMC to operate and grow our business in Russia. Furthermore, as the war continued and new sanctions and counter-sanctions were levied, FMC's ability to conduct business in Russia had become unsustainable. A cross-functional team continues to navigate the extraordinary logistics and supply chain challenges in Ukraine and other parts of Eastern Europe. FMC and our employees raised nearly $300,000 for charities supporting the Ukrainian people and families in need. Our hearts and thoughts remain with all Ukrainians, and especially our FMC colleagues and their families. Turning to FMC's performance in Q1, we delivered strong results driven by robust volumes and solid pricing actions across all regions. We grew our revenue by 16% organically, EBITDA by 16%, EPS by 23%, and importantly, expanded our EBITDA margins by approximately 60 basis points while confronting a variety of supply and cost challenges, as well as increasing currency headwinds. With disruptions impacting several agricultural inputs, we believe some of our Q1 sales were accelerated from Q2 as customers looked to secure supply in advance. Given this context, our guidance for Q2 combined with Q1 actuals implies 11% revenue growth and 8% EBITDA growth for the first half of the year compared to the first half of the year. Latin America and North America contributed greatly to our success in the quarter, supported
spk01: low stock-to-use ratios for several crops. In the last five years, increased by more than 50% in the quarter compared to the same period last year, demonstrating the strength of our technology and continued its growth trajectory with year-over-year. Last year, we announced our goal to achieve net zero greenhouse gas emissions by 2030 targets to the science-based targets initiative.
spk02: These targets include 42% absolute reduction in direct emission from FMC's own source electricity, steam, heating, and cooling, also known as 25% absolute reduction
spk01: in all indirect emissions that occur in the value chain, otherwise known as scope three emissions.
spk02: An incredible amount of rigor went into developing these targets with our sustainability team, conducting an exhaustive review of all factors contributing to FMC's greenhouse gas emissions and quantifying those emissions across the entire value chain. We will publish our 11th annual sustainability report in the coming weeks, and we look forward to speaking more on this topic in upcoming calls. Turning to slide three for our Q1 results, and keeping in mind my earlier comment about shifts within the first half, we reported $1.35 billion in first quarter revenue, which reflects a 13% increase on a reported basis and 16% showing the greatest growth year over year.
spk01: Biologicals grew 15%,
spk02: Regional growth was driven by strong volume gains in North America and Latin America, as well as high single-digit price increases in all four regions. FX was a headwind to top-line growth in EMEA. EBITDA was $355 million, an increase of 16% compared to the prior year period, and $30 million above the midpoint of our guidance range. EBITDA margins were 26.3%, an increase of 60 basis points compared to the prior year period. Cost inflation continued to be a challenge and at a higher rate than anticipated, so we moved price more aggressively in all regions to offset these increasing headwinds. We've also been actively managing our SG&A costs, some of which shifted from Q1 into Q2. FX was a headwind to EBITDA. Adjusted earnings, $1.88 per diluted share in the quarter, an increase of 23% versus Q1 2021, and 18 cents above the midpoint of our guidance range. The year-over-year increase was primarily driven by an increase in EBITDA, with the benefit from lower share count and lower interest expenses, largely offset by higher minority interest and taxes. Moving now to slide four. Q1 revenue increased by 13% versus prior year, driven by an 8% volume increase and an 8% pricing gain. Foreign currencies were a headwind of 3% in the quarter on the top line. In North America, strong commodity prices supported robust demand for inputs. Sales increased 30% year over year, with broad base growth across all indications, and for a variety of crops, such as tree fruits, nuts, vines, corn, and soy. Brands such as Manticore and Altacore in fruits and vegetables. Flyway, our unique in-furrow fungicide, continues to gain significant corn from foliar diseases. Sales of biologicals almost doubled in the U.S., led by Ethos XB for corn and soybeans. Ethos XB is a unique combination of a synthetic insecticide for seedling insect protection with biological microorganisms that have fungicidal properties. Our Canadian business had a record quarter, driven by low-channel inventory of insecticides and strength in cereal herbicides. We also successfully launched Corrigin Max, which is the new higher concentration formulation of Renaxifer Active, targeting pests on corn, dry beans, and several other crops. Over 30% of FMC's branded sales in North America this quarter came from products which were launched in the last five years. Moving now to Latin America. Sales increased 31% year-over-year, led by Brazil and Argentina. driven by volume and price increases, as well as a 6% FX tailwind driven by the Brazilian Real. Colombia, Peru, and Ecuador also grew double digits in the quarter. In Brazil, we grew our herbicide brands Aurora and Gamete on soy, corn, sugarcane, and coffee. We also grew our insecticide brands Talisman, Hero, and Corrigin on soy, corn, and cotton. FNC continues to reap the benefits of a strategy to improve market access and increased penetration of our technologies in the Brazilian soybean market. Sales in EMEA grew 11% versus prior year, excluding currency headwinds. Results were driven by strong price increases across the region, as well as demand for Ranaxapir-based brands, Corogen and Altacor for corn, and herbicide brands Express and Pointer for sunflowers. Registration losses and product rationalizations were largely offset by new product launches in the quarter. Over 10% of branded sales in the quarter came from products launched in the last five years. FX was a significant headwind in the quarter, resulting in flat year-over-year revenue growth. Sales in Asia were up 2% versus the first quarter last year and up 5% organically. The increase was driven by pricing actions and strong performance in Australia and ASEAN countries, offset mainly by a reduction in Indian rice acres. Approximately 15% of branded sales in the quarter came from products launched in the last five years. Turning now to the first quarter EBITDA on slide five. EBITDA was up 16% year-over-year, driven by pricing and volume gains, which were partially offset by cost and FX headwinds. Price was up $94 million in the quarter, with high single-digit increases implemented in all four regions. It is important to note that our pricing actions were taken to offset the sustained cost inflation we're experiencing across our supply chain. Raw material, energy, logistics, packaging, and labor costs remained elevated and contributed to the $62 million cost headwind in the quarter. FX was a $16 million headwind in the quarter, with weakening European currencies. Overall, EBITDA margins expanded 60 basis points in the quarter. Before I review FMC's full year 2022 and Q2 earnings outlook, let me share our view of the overall market conditions. We continue to expect the global crop protection market will be up low to mid single digit percent on a US dollar basis. Breaking this down by region, we expect Latin America, North America and Asia to be up mid single digits, while EMEA is now expected to be down low single digit. The war in Ukraine may further reduce market growth in the EMEA region. Commodity prices for many of the major crops remain elevated, and stock-to-use ratios are near historical lows, creating a favorable backdrop for crop protection products. FMC is projected – FX is projected to be a headwind for EMEA and Asian markets on a U.S. dollar basis. Turning to slide six and the review of FMC's full year 2022 and Q2 earnings outlook. Despite the volatile supply and geopolitical environment, we remain confident in our ability to deliver solid growth in 2022. FMC's full year revenue is forecasted to be in the range of $5.25 billion to $5.55 billion, representing an increase of 7% at the midpoint versus 2021, driven by volume and price growth in all regions, partially offset by currency headwinds. Full year adjusted EBITDA is expected to be in the range of $1.32 billion to $1.48 billion, representing 6% year-over-year growth at the midpoint. This will be achieved through pricing actions and strong volumes. However, rising costs and supply disruptions will continue to be significant headwinds to EBITDA. 2022 adjusted earnings per share are expected to be in the range of $6.70 to $8 per diluted share, representing an increase of 6% year-over-year at the midpoint. Consistent with past practice, we do not factor in any benefit from future share repurchases in our EPS guidance. This continuing our Russia business does not change our full year earnings expectation at this time, and it will take some time for us to assess the full financial implications for our exit. For reference, however, our Russian operations made up approximately 1.5% of global sales in 2021. Guidance for Q2 takes into account the shift of some sales from Q2 into Q1, as customers across many countries placed orders in advance to secure supplies during these uncertain times. Given the current industry dynamics, it is possible we will see the same phenomena occur with future orders moving into Q2. Q2 guidance implies sales growth of 9% at the midpoint, EBITDA growth of 1% at the midpoint, and EPS growth of 2% at the midpoint year over year. turning to slide 7 and the updated range of 2022 EBITDA outcomes. The market backdrop is supportive, with FX limiting crop protection growth to low to mid-single digits. Pricing actions and strong market demand have offset quickly rising costs so far. However, volatility persists due to renewed COVID-related shutdowns in China, energy cost inflation in Europe, and ongoing disruption of global supply chain.
spk01: But reliable supply is coming at an increased cost.
spk02: We do not expect to see any cost relief through the remainder of 2022. EMEA and Asia have experienced FX headwinds, only partially offset by the positive currency impact in Brazil.
spk01: On new considerations. Turning to slide 8, and full-year revenue and EBITDA drivers. Strong volume expansion and price increases across all regions will drive revenue growth. growth. FX volatility is expected to be a negative factor on our full-year revenue outlook.
spk02: In terms of crop mix, we expect roughly half our sales to come from specialty crops, such as fruit and vegetables, sugar, rice, and cotton. Almost 40% of our sales are expected to come from corn, soy, and cereals, such as wheat. FNC's crop diversity is a long-term competitive advantage, since we're not over-indexed to any single commodity. our EBITDA guidance reflects strong demand for our existing portfolio new products, as well as mid-single-digit price increases. These benefits to EBITDA's investments in SG&A and R&D. Moving to slide 9 and Q2 drivers.
spk01: On the revenue last year, we are anticipating FX headwinds to continue, principally from European and Asian currencies.
spk02: We also expect to see impacts from our decision to exit Russia beginning in the second quarter. Volume, especially for new products, and pricing actions. The benefit from these drivers will be largely offset by elevated raw material, packaging, and logistics costs, as well as some SG&A costs that shifted from Q1 into Q2. FX-related headwinds are also expected to persist, especially in EMEA. Turning to slide 10, with the guidance for Q2 and the full year on record, we would like to also show the implied forecast for the two halves. Revenue forecast for the first half of 2022 indicates 11% growth over the first half of 2021. Implied revenue forecast for the second half of 2022 indicates 4% growth over the three-year period. This is consistent with the stronger pricing actions and significant volume gains achieved in the second half of last year, especially in the fourth quarter of 2021. EBITDA forecast for the first half of 2022 indicates 8% growth over prior year period, driven by strong demand and pricing actions offset by costs and FX headwinds. Our guidance also implies 4% year-over-year EBITDA growth in the second half of the year. This results in a more front-weighted outlook for EBITDA growth compared to last year. I'll now turn the call over to Andrew. Thanks, Mark.
spk08: I'll start this morning with a review of some key income statement items. FX was a headwind to revenue growth in the first quarter, as expected, driven by weakness in European currencies, particularly the Turkish lira and euro. The Brazilian real was a tailwind in the quarter, offsetting modest weakness in several Asian currencies. We continue to anticipate FX headwinds for the remainder of 2022, as the U.S. dollar is expected to appreciate against many currencies of importance to FNC. Interest expense for the first quarter was $29.9 million, down $2.5 million versus the prior year period, primarily due to the refinancing activity completed in the fourth quarter of last year. For full year 2022, we now expect interest expense to be in the range of $125 to $145 million, an increase of $10 million at the midpoint. Our effective tax rate on adjusted earnings for the first quarter was 14%, in line with our continued expectation for a full-year tax rate in the range of 13% to 15%. Moving next to the balance sheet and liquidity. Gross debt at quarter end was $3.8 billion, up roughly $600 million from year end.
spk01: gross debt to trailing 12-month EBITDA was 2.7 times at the end of the first quarter, while net debt to EBITDA was 2.5 times.
spk08: Both metrics are slightly above our targeted full-year average leverage levels, as expected, given the seasonal build of our working capital. We continue to expect to maintain full-year average leverage in our targeted 2.4 to 2.5 times gross, or 2.5
spk01: First quarter free cash flow of negative $664 million for this point in the year, and reflects the strong seasonality of our working capital.
spk08: Adjusted cash from operations prior year, driven by higher working capital, partially offset by improvement in non-working capital items. Strong sales growth, more payables were key drivers of increased tax Capital additions and other investing activities of $16 million compared to the prior year as we continue to increase spending to catch up on deferred projects and to invest in our growth.
spk01: Legacy and transfer due to the absence of spend on our essay. Here. For full year 2022. we continue to forecast free cash flow of $515 to $735 million.
spk08: Adjusted cash from operations is flat to the prior year at the high end of our guidance range, limited by working capital growth. Capacity increases, especially to support our new products that are seeing rapid growth, will drive higher capital addition, lower legacy spending, and minimal transformation expense expected in 2022. With this guidance, we anticipate free cash flow conversion from earnings of 67% at the midpoint. First, fully funding organic growth in market access M&A, then returning excess cash to shareholders through a growing dividend in share purchases. We continue to anticipate strongly rewarding shareholders in 2022. with dividends of around $270 million and share repurchases of $500 to $600 million. We paid dividends of $67 million during the quarter. Given our cash flow and leverage, we did not repurchase any shares in the first quarter. With that, I'll hand the call back to Mark.
spk02: Thank you, Andrew. Our first quarter performance, in combination with the guidance for Q2, reflects FNC's ability to mitigate cost increases through pricing actions and to fulfill robust demand and the challenging supply conditions. Our new product introductions continue to gain momentum with over 30% of expected full year revenue growth coming from products introduced in the last five years. Our global plant health business continues its impressive growth trajectory led by biologicals. 2022 is proving to be one of the most challenging years, even considering all we've had to manage since 2019. Our continued success stems from our strong customer focus, the way FMC's cross-functional teams are overcoming headwinds, and finally the strength of our robust technology and new product pipeline. All these attributes will serve us as well through the remainder of the year. I'll now turn the call back to the operator for questions.
spk05: 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 your touchtone phone. If you're 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 rejoin the queue. To withdraw from the queue, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question today is from Vincent Andrews at Morgan Stanley. Please go ahead, Vincent.
spk04: Thank you very much. Mark and Andrew, just, you know, the 8% pricing in the quarter in all regions was extremely strong. It was almost twice what we've been anticipating, and I think it compares versus 4% in the fourth quarter. What did you do differently in this quarter, if anything, to get, you know, that strong pricing achievement so quickly? And if you could also comment whether there's any mix in that 8% number or just what mix would be in general.
spk02: Yeah, Vincent, thank you. Mix for us resides in volume. So what you're seeing in price is all actual price invoices in the marketplace. But I think we've been very clear as we went through the second half of last year, we started moving price in North America, actually in Q2, and then raised in other regions as we went through the year. And you could see that in our results as pricing continued to build. What we realized as we were going through Q4 was that Costs were going to come in significantly higher than we had forecasted internally as we enter 2022. So we made the decision that not only would we raise prices in markets that were active at that point, but also getting ready for other markets around the world. So what you saw was really a broad based move by FMC across pretty much every country. to really drive price in anticipation of costs. And you could see that in the quarter. Pricing was higher than cost in the quarter. It's not going to look like that in every quarter as we go forward. If you recall, we did say that we expected price to offset COGS impact of inflation and availability throughout the year. We still maintain that. What you should see from our results, though, is that our pricing is much higher than we anticipated because that impact of the supply disruptions and cost in general is still flowing through the business. So we need that cost, make no mistake. And the commercial groups are very active in the marketplace. If we continue to see disruptions and costs, we will continue to move price. I think that's something that's very important, not only for FNC, but for the industry in general. Things are not getting better out there. When I think about what we're seeing, I don't think we've seen the full impact of COVID yet in China, all the lockdowns that we see.
spk01: We're having supply disruptions in China, probably as bad as they've been in the past.
spk02: What worries me more is logistics out of China. The amount of freight that is trapped in the major ports in China, just the amount of freight ships that are stuck outside China suggests that that wave is yet to come. So we're getting ahead of the curve. I think that's the right thing to do. Pricing is the main tool. Now that in the call, we did move SG&A lower through actions that we took.
spk01: Thank you so much. Our next question comes from Laurent Fava from BNPPA. Please go ahead, Laurent.
spk03: Good morning, and thanks for taking my question. Mark, it's really related to your including mix, so really intensity of use. Are there reasons why you would not expect a higher intensity of use, more spraying, But also, can you talk maybe about the risk of down trading with farmers being so squeezed on all sorts of input costs, including fertilizers? Thank you.
spk02: Yeah, thanks, Laurent. You know, when you look at the market today, we view the market, obviously, as a positive backdrop. Soft commodity prices are high. Stock-to-use ratios are very low, almost at 10-year lows in some cases.
spk01: So we know many of the regions that are entering the get the most yield, you will want to use it.
spk02: One thing that is often misunderstood is pricing is not necessarily related to value. Generics sell on price. We sell on value.
spk01: Our products enables greater than you can get with other types of products.
spk02: And that's proven to be true as we've gone through numerous cycles when I think back to 2008 and 2009 in this business, the ag business performed extremely well. Why? Because people want to get the highest yields they can, and they tend to use the best technologies to do that. We're seeing that with demand for our products. Think about the comments I made about we're going to have $600 million of revenue this year from products introduced in the last five years. That tells you that the newer products are the best ones to use to get that yield. We don't see people reducing sprays at this point. We think applications will continue as normal. Remember, if you have insect pressure, you have a choice to make. You either remove the insects or you lose your crop. That's very important when it comes to actual usage of products. So our backdrop is positive. We believe the markets will continue like this, certainly this year and probably into next year as well. We don't see anything on the horizon that will change that. So from our perspective, it is making sure that we can get those high-quality, newer technologies to the marketplace, certainly in the right timeframe, given all the disruptions we're seeing.
spk03: Thank you. And as a follow-up on pricing, you mentioned that you're lacking some increases from last year in the quarter. Last year in Q2, I think your pricing at group level was flat significantly. as it was in Q1 last year. So I was wondering, maybe could you talk about the specific areas, either geographically or in terms of product categories, where we should expect this, I guess, slowdown on pricing into Q2?
spk02: Yeah, I mean, in the U.S., we started to raise prices last year in Q2, so it should be a little more muted as we go through Q2 and then certainly into Q3 and into Q4. Latin America is not really an impact in Q2, a small amount. but you'll see that much more in Q3, Q4, certainly in Q4. So really, I would focus on North America in Q2 on price. Everywhere else will be catching up as we lap ourselves in Q3 and Q4.
spk05: Thank you. Our next question comes from the line of Josh Spector from UBS. Josh, please go ahead.
spk08: Yeah, thanks for taking my question. Just on the comments about China and the logistics and supply risks, Wondering how you're thinking about the potential risk this time versus a couple years ago, and perhaps what's changed to maybe limit the volume impact on your side or mitigate some of the cost pressure?
spk02: Yeah, thanks, Josh. So, listen, the playbook is pretty similar for us. Procurement and supply chain working hand-in-hand basically on a daily basis to understand the flow of goods. And you have to remember, you obviously read about the major lockdown in Shanghai, but I believe something like 330 million people are in lockdown all over the country, and that's changing day to day. So we're navigating day to day movement of goods from one facility to another, or movement of goods to ports and out of the country. That's not dissimilar to what we've been doing over the last two to three years in China. We are seeing more congestion at the ports, given just the amount of lockdowns. So it's a case of not just manufacturing the products in China or getting the immediate or fine chemicals, but then getting the products out of China. And that's where we're keeping a very close eye on what is happening with logistics. We're using different ports to traditional ports that we would use. We are using more air freight to get products out in time. So I don't think it's anything what I would call different to what we've managed over the last two or three years, but the intensity is certainly higher than it has been as we've gone through Q4 and into Q1. Okay, thank you.
spk05: Our next question is from PJ Juvica from C. PJ, please go ahead. Hi, PJ, please could you confirm your line's not muted? Unfortunately, we can't hear anything from your line, so we will have to move to the next question. The next question comes from Joel Jackson from BMO Capital Markets. Joel, please go ahead.
spk06: Hi, good morning. Mark, I don't want to put words in your mouth, but last quarter we talked about Slide 7, which is your upside and downside scenarios. Would you think that you're leaning more to the upside or the downside? I think you said leaning more to the upside. What I see now in the upside is... To get to the upside scenario of $1.4 billion, you need to have higher price increases than what you would have thought a few months ago. Can you maybe talk about that a little bit?
spk02: Yeah, sure, Joel. Listen, I mean, we're anchored on $1.4 billion of EBITDA for a reason. It is the highest probability we see for the results for this year. And, you know, it is a range that we've put in place, and it's fair deliberately. The world is not simple right now. I think everybody knows that. But certainly when we were together on the February call, you know, we had this view and we haven't really changed it. In fact, if anything, with the Ukraine war situation has probably got worse from that perspective. Plus, the COVID-19 lockdowns in China are worse than they were before. So you can see rationally why we kept the range wide. It doesn't mean to say that we're still not anchored on the 1.4. We are. You're right. If things were to move to the upper end of this range, we would have to see a better mix, even more pricing than we've got today, and costs perhaps mitigating themselves with less ethics impact. That's a lower probability than where we are at 1.4. Also, equally, is a lower probability of the 1.32 at the low end of the range. I mean, you have to believe that things would get so severe that we couldn't offset that by a price or that the market demand weakens because of significant weather issues in the regions. So I think the upper end is a low probability, but so is the low end. That's why we're anchored on that 1.4 at the middle. And when you see what we put there around the market growth, strong demand they're all relevant we are getting the mid single digit price increases costs are elevated we see that but we are mitigating that fx is a headwind but once again we're mitigating that with volume which we've said we always would do and then you know we're trying to manage those supply disruptions the only new one there is is russia and ukraine and we're managing that so you can see why we still kept the range wide but there is a lower probability at each end of that range and a much higher probability in the middle
spk06: Okay, and then secondly here, I look at your margin guidance, like if you had a bit of margin expansion in Q1, then you're modeling, then you're actually guiding to some pretty tough margin contraction in Q2, some of the lowest margins you've had in a long time, then Q3 and Q4, for Q2, sorry. And then for Q3 and Q4, you're guiding to maybe modest margin contraction. Can you sort of help bridge that a bit? Expansion in Q1 year over year, then pretty sizable contraction in Q2, then kind of modest contraction for the second half of the year.
spk08: Yeah, Joel, Andrew, let me take that one. Look, I think Mark commented earlier, we move price very aggressively in Q1 because we see this continuing surge of cost inflations. So we probably, you know, we did have a stronger comparison and a positive comparison between price and cost, overall cost, not just COGS, in the first quarter that will not carry through through the full year. I think you also have to remember that Q1 of 21 was a relatively weak quarter for us. It was a down quarter in revenue, which, you know, given the fixed cost we have in SG&A and R&D, resulted in a weaker comparison for margin. So while we're certainly pleased to see a positive EVA dot margin comparison
spk01: Q1-22 versus Q1-21, just given the magnitudes of price movement to offset costs, we're talking about the mathematical dilution of margins is pretty substantial. If we are dollar-for-dollar offset that cost increases with price increases, we're going to have a reducing percentage margin.
spk08: It's just math. And you see that effect get more and more pronounced as you get into the latter part of the year. Continued very high price increases. Unfortunately, that net net is on a percentage margin diluted. So, percent in the second half.
spk01: But I do think it speaks well for the long-term future here, which is eventually cost will level off.
spk08: I don't believe we're in a position to call a bend in the curve. As Mark's highlighted, there's certainly an ocean freight coming in and out of China at the moment that don't suggest that we've reached the bend in that curve yet. But there is a bend that will come. And with the stickiness of pricing in our industry, that will be the opportunity to see percentage margin begin to expand and recover. But for the rest of this year, I think that the formula is clear. We price aggressively. We move to offset COGS inflation. We use volume and mix to offset FX as well as any investments in our SG&A and R&D growth and overall deliver what we believe to be a very strong full-year performance in very challenging times.
spk05: Thank you. Our next question is from Christopher Parkinson of Mizuho Securities. Please go ahead.
spk07: Great. Thank you so much. When investors take the time to actually parse out the growth rates for the diamides and biologicals perhaps at a lower base and then subtract just the annual registration losses, what's your current assessment of the remainder of the portfolio, so kind of the other core products as well as some new launch products, know and what are you most excited about for 2024 and you know perhaps an alternative way of asking that is just how would you generally characterize your aggregate growth contribution from more environmentally um cpc uh formulations of you know versus the past few years thank you yeah thanks chris um look the the diamides are growing pretty much as we've said they would grow they're in the high single digits uh we saw that in q1 we'll see that through the rest of the year
spk02: You know, when you look at our overall growth rates for the year, you can see that the rest of the portfolio is also growing strongly. Plant health, we talk about a lot because the biologicals investment there is going really, really well. I would say that when I think about, you know, an average of what, somewhere around 7% revenue growth, the rest of the portfolio is growing in that mid-single digits plus. And the new products that we're introducing are growing much faster than that. We have about About a 1.5% drag on the portfolio just because of registration losses. It's been a little lower in the first half of this year. It might be a little lower than that full year, maybe 1% range. But it's about the right place to be. You can see that the portfolio overall is performing very well. I talked about the $600 million of revenue from the products in the last five years. But I think, you know, it's the growth rate of that that's occurring. It was $400 million last year. It's $600 million this year. That means we got $200 million of brand new growth. So that's what we should be focused on. And that is coming from not only the big products that we launch, whether it's, you know, a Fluendipia fungicide or an Isoflex herbicide. Those are the bigger products that are in the multi-hundred million dollars of range when they reach that big size. What often gets overlooked is the amount of work we do on brand new formulations that come to market every year. And, you know, last year I think we had something like $170, $180 million of products introduced within the year. It's slightly less than that this year, but it's still substantial. Don't underestimate the value that that brings. Those products are new. They are coming to market at higher margins, so you're improving the mix. So it's all three things for us. It's the core. It's the local formulations that we do in our research facilities around the world. It's the very large pipeline products that come through, and obviously the diamides continue in that high single-digit range.
spk01: And just a very quick follow-up. Mark, before everything that's happening with the war, the EU is actually evaluating –
spk07: you know, a host of chemistries, and they're one of two of them that are, you know, in terms of environmentally, you know, we'll say friendliness, are owing, you know, the potential opportunity, you know, for the diamides, you know, based on the potential for further regulatory actions. I mean, it seems like it's already benefited, actually will benefit you, but what are your thoughts on that and how that could potentially further contribute to that portfolio's growth. Thank you.
spk01: Yeah, look, I mean, as we think further forward on the diamonds, not only are we growing ourselves, our new partner sales are growing nicely as well, roughly at the same rate that new registrations, our partners are doing the same. But we are taking market share in insecticides with the dymides. And now some of the other chemistries also coming under pressure.
spk02: In fact, some of our own chemistry is coming under pressure.
spk01: We're losing registrations of endoxycarb in Europe this year, which is a great molecule but doesn't fit the are taking advantage of that. is one of the growth drivers for the diamides as we look forward for the next 10 years.
spk02: The replacement of all the technologies will accelerate as we go through time, especially in jurisdictions like Europe. So it is a positive for us. We see it that way, and we have taken advantage of it, and we'll continue to do so.
spk01: Great. Thanks for the call. Thank you.
spk05: Our next question is from Tony Jones at Redburn.
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