FMC Corporation

Good morning and welcome to the third quarter of 2024 earnings call for SMC 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 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 headset before pressing the keys. I would now like to turn the conference over to Mr. Kurt Brooks, Director of Investor Relations for SMC Corporation. Please go ahead.

Good morning, everyone. Welcome to SMC Corporation's third quarter earnings call. Joining me today are Pierre Rondeau, Chairman and Chief Executive Officer, Andrew Sandifer, Executive Vice President and Chief Financial Officer, and Reynaldo Pereira, President. Following our 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 those factors identified in our earnings release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's understanding. Actual results may vary based upon these risks and uncertainties. Today's discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, 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 other non-GAAP financial terms to which we may refer during today's conference call, are provided on our website. I'll now turn the call over to Pierre.

Thank you, Kurt, and good morning, everyone. Before we get into the details of the third quarter and the four gallons, I want to start by giving an overview of the company's performance and our view of the current market conditions. Overall, we report a strong third quarter with growth at the top and bottom line. The quarter unfolded mostly as expected in Europe and Asia. However, we operated in a weaker than expected market landscape in Latin America, which was offset by a stronger than anticipated performance in North America. Latin America faced some unanticipated challenges this quarter, but we still delivered growth. Markets in Brazil and Argentina were more challenging than expected due to the delayed rains and increased borrowing rates. The bankruptcy of a large customer in Brazil added specific challenges for FMC. Given that we believe we are only a couple of quarters away from a more normal market situation, we decided to take pressing actions to maintain our market position. In fact, about two thirds of the total company price decline in the quarter came from Brazil and Argentina. The rest of the region performed at or above expectations. While conditions are improving, it is clear that Latin America has not yet emerged from the down cycle as distributors and growers continue to manage their inventories carefully. On the other hand, North America performance was stronger than expected. More than half of the region sales growth was due to increased order by a diameter partners. I would add a note of clarification here. While the sales to these partners are recognized in North America, the final product is not always sold by the partner in that region. This creates the potential for North America sales to appear higher at the expense of other regions. The North America region also benefited from distributors shifting purchase from Q4 into Q3 in response to lower than expected inventory levels in the channel. On the product line front, sales appear one of the two diamite products reported growth in every region and was a fastest growing molecule with 58% higher sales than the prior year. Strong branded sales appear sales and increased orders from the partners led to the diamites outperforming the overall portfolio. As we mentioned on the Q2 earnings score, the performance of new product is critical to a second half growth expectation. These products include new formulations of the diamites as well as two of the four new brand new active ingredients we highlighted during our Q2 earnings score. Fluentapir based fungicide and herbicides containing isoflex active are already receiving strong interest and demonstrating their growth potential. We expect combined sales of Fluentapir and isoflex based products to reach over $100 million in sales in the second half of the year. The launch of Fluentapir is especially important as fungicide are a product category in which SMC has historically been underway. These products are opening up new markets for SMC. As I mentioned earlier, we saw more challenging markets than expected in Latin America, especially Brazil and Argentina. With expected channel inventory improvement on the horizon, we made the conscious decision to protect our market share in those countries even if it created price pressure beyond what was forecasted. This strategy is validated by North America where price pressure was the lowest this quarter as its channel normalized. Looking ahead, our view on the timeline of channel inventory recovery is relatively unchanged from what we communicated during our August earnings score. The US and most countries in Europe are normalizing the fastest and Latin America is expected to be much improved in the second quarter of 2025. Asia markets are still expected to be challenging in 2025 with no recovery expected until 2026 as India continues to work through excess channel inventory. On a cost basis, we are accelerating the delivery of savings and increasing our targets. We are now targeting cost benefits from restructuring of $125 million to $150 million to be reflected in the P&L in 2024 with greater than $225 million of gross run rate in 2025. To accomplish this, we are accelerating restructuring, taking new critical initiatives to realign a manufacturing footprint and using attrition as a key tool to drive further savings. We are confirming a full year guidance adjusted for the sale of the global specialty solutions business, which we are now expecting to be sold in early November. This translates to fourth quarter sales growth of 19% at the guidance midpoint. Despite continued channel inventory issues in India and less than optimal early season conditions in Brazil and Argentina, we are confident in our ability to deliver on our guidance based on our strength, on the strength of our new products, as well as cost benefits from the restructuring actions while market conditions improve. With that, let's review the company's third quarter performance in more detail. Slide three through five provide an overview of our third quarter results. Sales growth of 9% was above the midpoint of a guidance range with organic sales growth of 12%. Volume grew by 17% led by Brazil and the US. In addition, sales to our diamond partners grew strongly in North America. Pricing was lower by 5% with approximately two thirds of the decline attributed to Brazil and Argentina due to the challenging conditions I mentioned earlier. On the regional basis, North America sales increased 48% because of strong volume growth. Insecticide delivered significantly higher sales due to increased order from diamond powder and gains in branded sales appear products. Latin America sales grew 8% with 15% growth excluding currency. Sales were higher across all product categories due to volume growth versus the prior period, mainly in Brazil, more than offset lower pricing and FX headwinds. New products were a key factor growth most notably from the fluentapir based on suva fungicide now commercialized in Brazil, Argentina and Paraguay. We also saw increases in the new diamond formulation Corregeant Evo in Argentina and the silphentrosone based herbicide Borofur in Brazil. The robust sales of new products in a challenging market environment reflect the strength of FMC R&D pipeline. In Asia, the 10% sales decline was mostly due to lower sales in India. Distalking in that country's channel is making good progress aided by favorable weather. Finally, in the NEA, sales declined 7% driven by lower volume from expected registration losses. Branded diamonds showed very strong growth especially ex-urals in Germany. Excessive wet weather in central Europe acted as a moderate headwind especially in herbicides. Turning to slide 5, adjusted EBITDA grew 15% year over year above the high end over a GANs range. Increased sales volume, FX tailwinds and above target cost savings from restructuring more than offset lower pricing and unabsorbed fixed costs from prior periods. Slide 6 provides an update on these restructuring actions. We are pleased to report continued solid progress on this front. As I stated in my opening, we now expect cost savings of $125 million to $150 million delivered to the PMR in 2024 with gross run rate savings greater than $225 million in 2025. Earlier this year, we announced our agreement with Enview to divest our global specialty solutions business for $350 million. We expect this deal to close in early November. As such, we are confirming a full year GANs less the foregone revenue and earnings from this business after the sale closes. This equates to an impact of $20 million in revenue and $10 million in EBITDA. This adjustment for GSS has been made to the full year outlook on slide 7. Other than this adjustment, the outlook for the full year remains unchanged. We expect revenue to decline 2% as volume growth is more than offset by lower price and FX headwinds. EBITDA is expected to be lower by 8% and growth in the last nine months of the year is not expected to fully offset the lower results from the first quarter. EPS is gathered to be lower by 12% at the midpoint from lower EBITDA. Slide 8 provides our expectations for the fourth quarter which has been revised from the prior GANs to adjust for the GSS sale and the over delivery in Q3. At the midpoint, we expect revenue growth of 19% driven by higher volume in all regions. Price is expected to be a big single digit headwind as challenging market conditions persist mostly in Asia and Latin America. FX is expected to be a low single digit headwind. New products are expected to be a key contributor to growth including new formulations of diamides across the region such as Core Genivu in Argentina, Fondi Cides such as Onsuba in Brazil, and Cywer in the US, and Azugu in Brazil, the herbicide based on Isoflex active. New product sales are expected to contribute about half of the sales growth for Q4. They are key to overall growth as they were in the Q3 performance despite suboptimal market conditions. EBITDA in the quarter is expected to grow by 32% at the midpoint due mainly to higher sales as volume more than offsets lower price and FX headwinds. The unabsorbed fixed cost and sale through of higher cost inventory that have acted as cogs headwinds for most of the year are expected to have a much smaller impact in Q4 and will be more than offset by lower raw materials and restructuring benefits. EPS is expected to grow by 54% at the midpoint mainly from higher earnings. I will now hand the call over to Andrew to cover some financial items including a cash performance and outlook.

Thanks Pierre. I'll start this morning with a review of some key income statement items. FX was a 3% headwind to revenue growth in the third quarter, largely stemming from the Brazilian REI. For the remainder of 2024, we anticipate continued low single-digit FX headwinds at revenue, again driven primarily by the Brazilian REI. Interest expense for the third quarter was $58.7 million, down nearly $6 million compared to the prior year period driven by lower debt balances. For full year 2025, we continue to expect interest expense to be in the range of $235 to $240 million, essentially flat year on year at the midpoint with the impact of higher rates on domestic debt offset by lower overall borrowings. We've lowered our outlook for effective tax rate on adjusted earnings for full year 2024 to a range of 13 to 15%, reflecting improved clarity on the impacts of recent tax law changes on FMC's 2024 tax rate. In light of this, our effective tax rate for the third quarter was 11.8%, bringing our -to-date accrual for income taxes in line with the 14% midpoint of this range. Moving next to the balance sheet and leverage. Gross debt at September 30th was approximately $4.1 billion, down $110 million from the prior quarter. Cash on hand decreased $55 million to $417 million, resulting in net debt of approximately $3.7 billion. Gross debt to trailing 12-month EBITDA was 5.0 times at quarter end, while net debt to EBITDA was 4.5 times. Relative to our covenant, which measures leverage with a number of adjustments to both the numerator and denominator, leverage was 5.0 times as compared to a covenant of 6.0 times. As a reminder, our covenant leverage limit will step down to 5.0 times at December 31st, 2024. We expect covenant leverage to be approximately four times by year end, reflecting both year on year EBITDA growth in the second half, as well as the receipt of proceeds from the sale of our Global Specialty Solutions business, which as Pierre noted earlier, is expected to close in early November. We remain committed to returning our leverage to levels consistent with our targeted BBB VAA2 long-term credit ratings. We will do this through EBITDA growth and disciplined cash management, with all discretionary free cash flow directed towards debt reduction until we return to our targeted metrics. Moving on to free cash flow in slide 9. Free cash flow in the third quarter was $132 million, an improvement of $100 million versus the prior year period. Improved cash from operations and lower capital additions more than offset somewhat higher legacy and transformation spending, resulting from our ongoing restructuring program. Here to date, free cash flow of $225 million is an increase of over $1 billion compared to the prior year period. Cash provided by improved accounts payable and inventory more than offset increased cash used by receivables, lower EBITDA, and restructuring spending. We continue to expect free cash flow of $400 to $500 million for full year 2024, driven by significant cash release from rebuilding accounts payable and reducing inventory, partially offset by higher accounts receivable due to revenue growth in the second half of the year. I'll now hand the call back over to Pierre for some closing comments.

Thank you, Andrew. The crop protection industry is in the process of recovering, although at different paces depending upon the region. In this context, we delivered on our Q3 targets and had a positive momentum heading into Q4. The growth embedded in the guidance we put forward for the fourth quarter is sizable, but it is centered largely around sales of new product and improved costs, both of which are re-housed under our control. This should pave the way into 2025, where we continue to expect solid earnings growth, driven by cost favorability, along with moderate top line growth as demand continues to recover. Before we open up for Q&A, I want to provide a brief look forward to our earnings score, and two key areas we'll cover. I mentioned on our August call that we're introducing four new active regions and developing a post-pattern defense strategy for DIAmise. At our next call, we will focus on these two pillars of growth and how they will contribute to the new three-year target, which will demonstrate the strong revenue and earnings growth potential for the company. With that, we are now ready to take your questions.

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 are using a speakerphone, please pick up your headset before pressing the keys. Please limit yourself to one question. If you have additional questions, you can jump back in the queue to withdraw from the queue. Please press star and then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Joel Jackson with BMO Capital Market. You may proceed.

Good morning. Pierre, Andrew, you were very gracious a few months ago to give some building blocks for what the bridge for 25 looks like. I was hoping you could give an update on that. I think you talked about targeting 6% revenue growth next year, which would be volume growth with some price contraction and flash pricing. You talked about $150 million, $200 million of cost favorability. You talked about $35 million of lower EBITDA in the sale of the GSS. Are you able to update those numbers or reiterate today?

Thank you, Joel. Yes, we pretty much have the same view for 2025, but let me maybe give you some more detail around the latest thoughts. Yes, we believe in a growth of around 6%, 6% range. Next year, this being said, when we say 6%, we made no assumption on pricing, which was pretty much pricing flat and didn't make any assumption on effects. At this stage, could we be facing more challenging pricing? Possible, but frankly, we do not know yet. We have not been able to go deeper into those considerations. On the other hand, on the positive front, I think with the progress we have made on the cost front, we are heading more to the higher end of the range we gave at the last earnings call, so closer to the $200 million than the lower end. So, still 6% range, undefined pricing situation at this stage. We are not able to make assumptions. We need to see how Q4 is going to be unfolding and be stronger savings than we were expecting and toward the higher end of the range.

The next question is from the line of Alex Key, E. Frumloff

with KeyBank Capital Market. You may proceed.

Thanks and good morning everyone. Pierre, you stated that Latin America was worse than expected in Q3. Is it getting any better in the fourth quarter? Also, if you could just describe why Q3 was worse? Specifically, was it more weather issues? Was the drought in Brazil or was it just fundamentally the market is weak due to low crop prices?

Yeah, I think Q3 was a bit more difficult than we were expecting for multiple reasons. First of all, I think that the weather did not help the beginning of the quarter with delayed rain. Rain came in and it's actually right now in a pretty good situation that in Q3 and beginning of the quarter it was delayed. I think overall the pricing situation remains challenging. The region is still with a challenging inventory situation which needs another couple of quarters before going to normal. I also think that it was a bit more difficult for FMC than some of the competitors for multiple reasons. This is where I was when I gave the first call, just a couple of months coming back. I am more and more convinced that FMC was later than some of the other competitors in adjusting pricing. I believe we've lost market share. More to order some of the peers like the Bayer, BSF, or Syngenta of this world. There is pressure from generics but I don't see a big change versus the past. The lack of adjusting pricing is forcing us to keep a market share. We're making the intentional decision to keep a market share. We had to accelerate pricing adjustment. On top of that, we had to do it in the face of losing a very large customer. You know about the and we clearly did not want to lose that volume so we had to go get that volume elsewhere. There is always a price to pay when you have to go to find two other customers. The situation was not helping with increased rates, weather, delayed rain, the loss of a large customer for us, and the deliberate decisions we have made to keep our market share position and maybe get back more to order market share we had pre-downturn than where we are today.

The next question is from the line of Kevin McCarthy from VRP. You may proceed.

Yes, thank you and good morning. Pierre, can you elaborate on the forward price trajectory? Maybe you can comment on your experience in in diamonds versus non-diamonds. What is behind the competitive intensity that you alluded to and what does the path to zero price look like in your crystal ball as we progress into 2025?

Certainly, yes. I think the pricing situation is, the way we look at it, we believe that the number one correlation to pricing is the state of the channel. Certainly, farm income has an impact but by far when you are in a shrinking market and all of us suppliers of products trying to retain market share, you create a competitive situation which has a negative impact on pricing. That is why we want to stand our ground in Latin America because we do believe that pricing, the strongest correlation is with the state of the market. That is why we saw maybe the latest pressure on price in North America while Latin America and Asia were the places where we had the highest pressure. Diamonds, there is no more pressure on pricing in diamonds except maybe in places where we are in countries where there is not the same consideration for a patent protection. I am not saying that the pricing situation is not worse for diamonds than it is for other products. It is even better in the countries where there is a stronger respect for patent protection. The going back to zero, I think it is going to highly depend upon the recovery of the market. I do believe that the price pressure will be way less when we get to a more normalized cycle. Right now, crystal ball, I would see price pressure lighter potentially in the second half of 2015. That is when we should be in a situation where most of the regions, maybe we said Asia, will be in a more normal situation from a channel inventory standpoint.

Thank you very much.

The next question is from the line of Stephen V. Byrne with the Bank of America Neural Lynch. You may proceed.

Thank you. With respect to your volume gain in North America, can you split that into three buckets? How much of that increase was to your diamond partners? And then for the balance that is targeting the North American market, what fraction do you sell to wholesalers versus retailers that sell directly to growers?

The growth to the diamond partners, I think, is a percentage of the diamond growth. It has got to be more than half of the growth of the diamonds. In terms of the selling, I would say 100% of the sales are going to the wholesalers. Then from this point, it goes into the channel toward the growers. But wholesalers represent our customer base.

Thank

you. The next question is from the line of Lawrence Fave with BNP Parapas. You may proceed.

Yes. Good morning. My question is around R&D. I think all the costs reduction plan is about 15 million. I think this year that will come from lower R&D. I was wondering if you could talk about the approach that you're taking there, whether the reduction is temporary or whether you're actually structurally being more selective in the areas where you're investing. Thank you.

Yes. Thank you. I think it's more of a sustainable cost saving. We might decide at some point in the future to increase because of specific reasons. But let me talk to you about how and why we are reducing our R&D spending. First of all, just to make sure we are very clear on this one, there is absolutely no impact on the launch of the four products, new molecules Ronaldo described at the last earnings call. Second of all, a large part of the saving is coming from the discovery part of our process. We have now a process where we are much more strict on the decision to hold in the pipeline in discovery low probability products. We had a tendency maybe to keep them longer and usually it comes with significant expenses. We have a process which allows us to go faster in making those decisions. We also have developed better screening tools and I think I wasn't there, but I think they were presented at the investor day. But those are also allowing us to make faster and better decisions in early stage research. The last point is we've changed the governance process for R&D. You know that about if you take the spending in R&D about goes to central R&D and half spending goes to a regional R&D. We are increasing the coordination between the original research center and the central research center in order to make sure we do not have duplication and we create synergy. So we are just changing the way we work to make those savings not negatively impacting the quality of our innovation pipeline, but at the same time reducing our cost.

The next question is from Alon of JarSpectre with the UVS. You may proceed.

Hi, good morning. I wanted to ask a couple things about volumes. So 3Q came in better than expected. You talked a little bit about pull forward, but your fourth volume guidance is still kind of the same ballpark, -20s-ish plus year on year growth. So what happened there? Is there any increased confidence I guess in fourth quarter? And then related to that is with the diamide about next year or is that not at the magnitude where that's a risk?

Thanks. I think regarding sales, we pretty much took our full year forecast we gave in Q2 and removed the sales which we knew were expected to be delivered in Q4. So we just took the overselling in North America and removed that from a full year target in order to stay at the same level. We were initially planning, of course, adding the correction for the GSS business. Regarding diamide in 2025, I must confess that we have not yet done a 2025 precise budget. We are in this process right now. We are going through it. It's complex because we have to look at all of the branded diamides and the sales with the partners. All of those negotiations are taking place right now. I cannot answer specifically on the year on year growth of diamides in 2025 versus 2024 at this stage. I almost have one certainty is that sales up here will be doing very well in 2025. It's a good product. There is very strong demand. There is very little competition. There is no generic. But the overall diamide, it's a bit early for me to comment until we move more advanced in terms of a contract with our partners.

Okay. Thank you.

The next question is from Chris with the Wolf Research. You may proceed.

Good morning. Just thinking about things, I'm not going to ask you to forecast the weather for 2025. But at the same token, how should we be thinking about the new product introductions in terms of the cadence in 2025 as that relates to the growth rate you've already given as well as your own registration losses? As just a real quick corollary of that second part, do you view your competitors' registration losses or likely registration losses over the next two years as more of a potential tailwind for your new products? Thank you.

I think those are two separate events. We have the registration loss, which are mostly happening in Europe where we know it's been there for many years. It's going to be part of the forecast going into next year. Then there is the new product. New products are usually more than cover on a global basis, whatever registration loss we have. The new product also we are introducing next year and especially Fluent Appian and Isoflex, those two molecules will be a little impacted by the channel situation. Those products are not in the channel. They are new. So pretty much we believe that will be required, will be sold. So we do not believe it's hard for us to think about taking into account potential whether it's hard to do, but that's one of the parts which will be the most certain part of a forecast will be the product. Registration loss, we usually know them pretty well in advance, especially for Europe. We're expecting the balance of the two to be a significant positive. The more question we have looking into next year is how fast the channel will recover and the overall growth of the portfolio. As I said, we are not excluding a big bump in age to 2025. We just can't predict it. Bruno, do you have any other comments around new products and the registration side?

What I can share is where these products are expected to be sold in 2025. So registrations, Pierre already mentioned the importance of Europe. That is already embedded in our plans. You asked, Chris, about whether or not we benefit from those. The overall market in Europe has been flat despite of the registrations. So I think the short answer is yes for the products that remain in the market. There is an increased opportunity because of the lack of options driven by those registration losses across the entire industry. Same way that sometimes it is our products, it also benefits us throughout the quarters. For next year, we expect Fluentapir to continue to grow. I think the number one geography for that product will continue to be Latam followed by US. That means that most of that growth should come in the second half of the year just because of seasonality in Latam. The US portion of that will come probably between the second and third quarter of 2025 in US. We also expect to launch the first launches in Europe for Isoflex, but that is more on the UK side. The broader Europe registration we expect in a couple of years. So not for 2025, but for the near-term future.

Thank you for the call.

The next question is from the lawn of the Zimson Andrew with Morgan Stanley. You may proceed.

Thank you and good morning. Maybe on the fourth quarter, I just want to dig into two things you mentioned before. First, on the incremental costs out that you announced, how much of that was already achieved in the third quarter and how much of that can you count on for 4Q? Then at the same time, you referenced 4Q being heavily a function of new product introduction. What is your visibility on those sales or those orders? How much do you already have in hand versus how much are you still waiting to achieve?

Maybe I'll take the saving and then you'll take the orders in hand. I'm going to do high-level math under the console of my CFO here. So you correct me Andrew if I'm not correct. Off the top of my head, we saved $50 million of savings in H2. Think about it that way roughly. We beat Q3 by $20 million EBITDA. $10 million came from sales, which were higher than expected. We also faced about a $20 million price decline. That leads you to about a $30 million saving. So your $20 million EBITDA is plus sales in 10, plus 30 in saving, minus 20 in price. Which means that for the remainder of the year, 4Q4, we're expecting about $20 million. So the $30 million in Q3, $20 million in Q4 is about the break I would see for the overall $50 million additional savings. Andrew is not reacting, so he must be about right.

It's about right, Pierre. So that's for the orders. We track that more closely in Brazil, as you know. The other countries, we tend to get the orders and start shipping right away. In Brazil today, we have about 40% of the orders that we forecast for the quarter. This is better than we had last year. And it's lower than we had in the best years in the region. So it's more or less in between, which is in line with our view that that market is still recovering. Once again, about 40% of the orders that we need for the quarter.

Thanks for all the detail. Very helpful.

The next question is from the line of Jeb Zakakis with

JP Morgan. You may proceed.

Thanks very much. We think that prices, or it may be the case that prices of technical grade CTPR, the active ingredient in your diamides in China, have fallen from maybe, I don't know, $350,000 a ton to $30,000 a ton over the past two years. And it may be that new product registrations have, I don't know, tripled or quadrupled over that time. What do you see, if you think that's true, what do you see as the analytical significance of CTPR prices coming down so sharply in China? And if you can remind us, how big is your diamide business in China, roughly? And what's happening to it in terms of prices and volume?

I'll have Ronaldo helping with that question around the pricing. The size of the China market for us in terms of diamides is more. It is not a major, major market for us. But Ronaldo, around the pricing, you want to make your comments?

We have seen different references for pricing, way more references that we have seen products flowing around the world. So it's still unclear in terms of capacity and how much of those prices are real or not. What we have seen is in the two markets that they are commercializing, China and India, as you pointed out, the prices have come down. I'll just make a correction for the price that you mentioned. It's for the kilo of technical product, not for the ton of technical product. We do believe, though, that some of the prices that we have seen in reference are lower than the production cost of even the low quality providers, which would suggest more of a dumping of existing inventories in the market. We back calculate how low it can be. And some of those products are being offered, not necessarily sold, but offered at prices that are lower than the production cost. So I think that gives you a sense of how we think about this going forward. We do not believe those are the stable prices of the diamond.

I think I want to, and I hate to do that, but we are truly doing a deep dive in our diamond strategy. We intend to be very open at our February call on what future we see for diamond. We're actually pretty optimistic, but we're going to have to explain how we see a way to expand this market. I am not right now too much concerned by the kind of pricing we see in India or China. As Ronaldo said, a lot of inventory was built, which could not be sold because we want multiple litigation in other countries, creating very, very high inventory. People had to get rid of at price, which seemed to be incredibly low versus even the low manufacturing cost. As part of a diamond strategy, we do have a, we're working on a very aggressive manufacturing cost roadmap, allowing us to compete in a different way. So all of that is being put in place right now. We do have time because beside China and India, we do not have to worry about this kind of pricing, which do not seem to be sustainable and be the pricing will be facing when we are off patent in the future in the world we are competing. So head to that to you. I think it's a very valid question, but I want to come with a more complete and solid answer on diamond at the February call.

Well, if I could follow up just in terms of descriptively, what's happening to your business, you know, in Asia, what's happening to your diamide volumes and prices quantitatively, roughly?

So right now, what is happening to a market, to a diamond market right now? Okay. And it's difficult because we are combining a situation where we have two countries which are accepting illegal sales of product, bureau of production cost in the middle of a downturn. So it's not a very normal situation, but today overall, our diamide growing driven by a very strong demand of sales at PR. I think when we talk diamides, we have to separate sales at PR from Rolex at PR. 130 sales at PR, two-thirds is Rolex at PR. Sales at PR is growing very fast. Rolex at PR is because, and mostly because of Asia, has a negative growth in the low single digits globally driven by Asia. So think about it overall growing positively, but at the same time, I think our overall market for diamides globally is up 10%. It's driven by sales at PR being up in the 50 to 60% and Rolex at PR down in the single digits driven by Asia. That's what is happening today to the overall diamide portfolio.

Thank you very much. Please

answer your question.

Yes, thank you.

The next question is from the lawn of Lawrence Alexander with Jeffery. You may proceed.

Good morning. Could you just characterize how your production capacity is positioned for the signals you're getting from the distribution channel? That is, do you have any product areas where capacity is down and you won't be able to ramp up fast enough to meet what distributors are saying they may need this winter? Or do you think you're appropriately positioned to get the full operating benefit and the leverage that would come with a restock cycle?

No, I think we're good. We do have capacity now that being said. We are much more, I would say, manufacturing is much busier than it was a year ago. Most of the lines are actually operating, but we do have capacity to face the demand to come and the increase we are facing. We are not concerned about capacity from a raw material supply. We are also in a good shape. We are securing the product we need. As we said before, it's going to be a tailwind going into next year, but this is not a concern at this stage.

Thank you.

Thank you. The final question comes from Patrick Cunningham with City Group. You may proceed.

Hi, good morning. Thanks for taking my question. Just on the pricing challenges in Latin America, how should we think about additional incremental incentives to gain or maintain share in the

the forecast we've made for this, the fourth quarter includes a mid-single digit price decrease year on year for the fourth quarter. We still believe we are in a challenging situation. We say until the end of the second quarter of the season, which is the end of the first quarter in 2015, I believe the pricing pressure is going to start to relieve significantly as we move into 2025. As we say, the pricing is linked to how competitive the situation is versus the market. Plus, as I said before, it is very much also an FMC situation where we decided to reposition a market share where it was pre-down term. We had to do what we had to do to get to this position. Ronaldo, maybe you want to comment on anything else specific on pricing in Latin America?

Particularly in Brazil and in Argentina, what I can share is there are some products that we have been very stable in terms of market share traditionally. I can talk about soffenters on sugar cane, melathion on cotton. Those are products that are very traditional products from FMC. Those are the products that we priced at a point that we allowed growers to make a decision on replacement. We are now fighting back for share, getting back to the share that we had before the downturn on those products. Our pricing actions are specific to some products. They are primarily very traditional products in our portfolio. Those actions take us back to the share that we use it to hold before the downturn of the industry.

I will just add something I've already said. There have been many comments. Generic are not the drivers of what we do. Generic pressure is here. It's always here, but there is nothing which has fundamentally changed the last couple of quarters versus where it was before. It is truly positioning a pricing against our peers, competitors, also technology-based, where we think we've lost ground from a volume standpoint because of a more aggressive pricing strategy we need to reset.

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