FMC Corporation

Good morning and welcome to the third quarter 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 FMC Corporation. Please go ahead.

Good morning, everyone. Welcome to FMC 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 forward guidance, 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 the 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 a 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 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 diamide 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 diamide products reported growth in every region and was the 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 diamides 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 diamides, as well as two of the four brand new active ingredients we highlighted during our Q2 Earnings Score. Fluendapyr-based fungicide and herbicides containing Isoflex active are already receiving strong interest and demonstrating their growth potential. We expect combined sales of Fluendapyr and Isoflex-based products to reach over $100 million in sales in the second half of the year. The launch of Fluendapyr is especially important as fungicides are a product category in which FMC has historically been underway. These products are opening up new markets for FMC. 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 a 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 call. 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're 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 continual 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 the strength of our new products, as well as cost benefits from restructuring actions while market conditions improve. With that, let's review the company's third quarter performance in more detail. Slide three through slide five provide an overview of the 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 a diameter partners grew strongly in North America. Pricing was lower by by 5% with approximately two-thirds of the decline attributed to Brazil and Argentina due to the challenging conditions I mentioned earlier. On a regional basis, North America sales increased 48% because of strong volume growth. Insecticides delivered significantly higher sales due to increased order from diameter powder and gains in branded sales up here 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 year period, mainly in Brazil, more than offset lower pricing and FX headwinds. New products were a key factor to growth, most notably from the Fluendapyr-based Onsuva fungicide, now commercialized in Brazil, Argentina, and Paraguay. We also saw increases in the new diamide formulation, Corrigen Evo, in Argentina, and the sulfentazone-based herbicide Borofool 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. Destocking 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 diamides showed very strong growth, especially in Germany. Excessive wet weather in central Europe acted as a moderate headwind, especially in herbicides. Turning to slide five, adjusted EBITDA grew 15% year-over-year above the high end over a gallon's range. Increased sales volume affects 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 a global specialty solutions business for $350 million. We expect this deal to close in early November. As such, we are confirming a full year gains, less the foregone revenue and earnings from this business after the sale closes. This equates to the 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 seven. 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 from lower EBITDA. Slide 8 provides our expectations for the fourth quarter, which has been revised from the prior guidance to adjust for the GSS cell and the over delivery in Q3. At the midpoint, we expect revenue growth of 90% 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 Coregenevo in Argentina, fungicides, such as Onsuva in Brazil and Saewoo in the US, and Azugro in Brazil, the herbicide based on Isoflex active. New product cells are expected to contribute about half of the cells 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 effects headwinds. The unabsorbed fixed cost. and sell-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.