Q1 2020 Earnings Call
Your conference will begin momentarily please continue to hold.
[music].
Good morning, and welcome to the first quarter 2020 earnings call for FMC Corporation.
Thank you and good morning, everyone.
Welcome to FMC Corporation's first quarter earnings call.
Joining me today, our Pierre Brondeau, Chairman and Chief Executive Officer, Mark Douglass.
Right.
Well I liked and Andrew Stanifer Executive Vice President and Chief Financial Officer.
Peer review, our first quarter performance, Andrew will provide an overview of select financial result.
Mark will discuss the outlook for the rest of the year. We will then address your questions.
Earnings release in today's slide presentation are available on our website and their prepared remarks from today's discussion will be made available after the call.
Please note we publish an updated slide presentation. This morning to add one slide on that flew into pure acquisition.
Finally, let me remind you that today's presentation 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 FCC.
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 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 earnings show mean adjusted earnings and EBITDA show mean, adjusted EBITDA for all I can say references.
A reconciliation definition of these terms as well into other non-GAAP financial terms to which we may refer during today's call are provided on our website with that I'll now turn the call over to Pierre.
Thank you Michael and good morning, everyone.
It's in she didn't even another very strong performance in the first quarter.
With 9% or getting really organic revenue growth.
By all the challenges.
By the Koby 19, pending meek underlying human fourth products remained very healthy in the quarter.
These results were driven by the exceptional workover global supply chain alterations in coomer still teams.
Before going into detail that Q1 results.
We felt it was important to provide the high level you well the state of a company in these uncertain global economic environment.
We are in agriculture sciences companies and a product could equal the Google would supply chain.
See agriculture is confused or an essential industry in the company's will pay rate.
[laughter] we up.
If you can plant closures and all facilities operational.
Sorry.
Oh keep plant in China will be rates through the Chinese new year holiday and continue to do so today.
The wellbeing.
Employees is it since he's top priority.
Uhhuh most employees around the world has been working from home. During these last several weeks, we undergo employees, who continue to reaching a manufacturing sites mending and packaging facilities and distribution warehouses.
Besides as when a certain non manufacturing locations with limited employees and you'll fees.
Using is very interesting best practices to address could be 19.
These include the use official pp social distancing protocols expanded cleanings puts us in other precautionary measures recommended Beijing authorities.
[laughter].
Due to this day in home orders around the globe.
Commercial teams use.
Did you don't technologies, including workshops.
Yes.
And virtual she'll days to continue working closely with the customers engineering unions.
We successfully mitigated the impact of Koby 19 in Q1, but even the spread of the pending making much and increase ethics and wins.
We have conscious of potential risks in the rest of the year.
Therefore, we have already implemented price increases and cost saving measures across the company.
Mark will describe the potential headwinds as well as a pricing and cost containment actions in more detail later.
Turning to slide.
Three.
It's been seen strong financial performance from 2019 continued into first quarter.
Against an industry, leading comparison last.
Last year.
Business grew 14% organ equally in Q1.
This year.
We reported one point $25 billion in first quarter venue, which reflects 5% year over year growth on a reported basis and 9% organic growth.
You think reason.
Thanks double digit growth in India, like Houston, France, UK, Russia, Brazil, Mexico, Argentina in Canada.
Hi, just any me down with $357 million.
Increased 4% compared to the prior year period.
EBITDA margins were 28.6% essentially flat.
Prior year.
This by $52 million in combined headwind from FX and cost in the quarter.
I just any business was 1.84 downturns in the quarter, an increase of 7% versus Q1 20 thinking.
This year over year performance.
We've been largely as a 14 million there's increasing EBITDA.
Reduced share count and the benefit of a lower tax rate, partially offset by higher interest expense.
Moving now.
Slide four.
Q1 revenue grew by 5% versus prior year with volume contributing 7% growth and price, adding 2% offset partially by a 4% headwind from FX.
We achieved higher pricing in all regions.
New product launches this year generated 1.5% of the 5% topline growth we posted in Q1.
Offsetting.
Over the 3% headwind from product that we discontinued.
It goes overages tuition cancellations or rationalizations that we had planned for and discuss you know last earnings call.
Latin America grew 26% year over year and 38% excluding FX.
Driven by double digit growth in Brazil, Mexico and Argentina.
Insecticides.
Especially strong in Brazil.
Catherine sugarcane and soybean and early side growth in Brazil was visa and best sugarcane replanting.
As we have commented for many quarters, we monitor products in the channel in Brazil very closely.
Channel inventories.
We continue to be at low levels as we come to the end of this season.
In Argentina solely demand for 60 side draw new sales and in Mexico fruit and vegetable exports continue to present increased opportunities for that portfolio.
In North America sales increased 3% year over year, driven by strong demand for next appear insect control.
As well as Fuji side, and our new pre emergent herbicide also re th.
In Canada.
Besides continue to gain adoption.
Yes.
Right.
And caution.
Over the past couple of years.
We have invested.
Grading three T for me said franchise to focus on new were more 60 formulations combat changing weed resistance.
These that's allowed us to reduce sales of less isnt aktiv older formulations and lower channel inventories.
Plus channel inventories in North America continues to improve.
And with a new seasons toning, we do not see reason for concern going forward.
[laughter].
Sales in EMEA.
Grew 1% year over year.
And 4%, excluding FX due to robust demand for newly introduced fungicide and solid growth in herbicides for cereals.
We saw growth in over 10 countries.
And new products drove a 2% increase overall revenue.
Registration concentrations and product rationalizations, where a headwind.
In Asia revenue decreased 3% year over year, but was flat excluding FX.
The decline was driven primarily by foreign currency headwinds and product rationalization as well as Coveas 19 related challenges in China.
Which impacted both supply and demand.
These were partially offset by broad base level in growth in India and Pakistan.
Along with a return to growth in Australia as weather improved.
Turning to the first quarter EBITDA reached on sex. Thank.
Do you see the $40 million volume contribution.
Which drove the year over year growth.
We also realized price increases of 26 million debtors against 45 million letters in FX headwinds.
I will now turn it over to Andrew.
Yes.
Thanks, Pierre let me start this morning with a few brief highlights from the income statement.
The U.S. dollar strengthened against virtually all major currencies important FMC during the first quarter, reducing revenue growth by 4%.
The level, we had anticipated when we last gave guidance.
It is important to note that the BRL represented only half of the Q1 FX headwinds on revenue.
With a broad set of European and Asian currencies accounting for the remainder.
As Mark will discuss further when he shares our outlook. We now expect these FX headwinds to continue at an elevated level throughout 2020 with pricing trailing FX impacts in Q2, the catching up during the second half of the year.
Interest expense for the quarter was $40.8 million up $6.3 million from the prior year period.
Primarily due to the impacts of our third quarter 2019 debt offering and higher foreign debt balances, partially offset by lower term on a commercial paper balances.
With the decrease in interest rates since the beginning of year.
Anticipate interest expense between 155 $165 million for the full year somewhat better than our prior guidance.
Our effective tax rate on adjusted earnings for the first quarter was 13.5% consistent with our expected full year tax rate of 12.5% to 14.5%.
Moving next to the balance sheet and liquidity.
Global credit market saw significant disruption and volatility in March driven by the covered 19 pandemic.
Despite this FMC had and continues to have more than ample liquidity to support our operations.
FMC is historically relied on commercial paper to finance working capital.
You asked commercial paper markets are the most cost efficient source of working capital financing in the world.
Additionally, we also have 1.5 billion dollar revolving credit facility that serves both as a backstop to our commercial paper program and as a direct source of borrowing when needed.
As covered became a more clear crisis in the U.S. in mid March out of an abundance of caution FMC drew down $500 million on our revolver to ensure we had sufficient liquidity regardless of any near term volatility and commercial paper markets.
However, we continue to place commercial paper to stay active in the market.
That market has now returned to more normal conditions as such we've reduced our revolver borrowing to $250 million through mid May one we anticipate taking them to zero presuming commercial paper market conditions remained stable.
Gross debt at quarter end was $3.8 billion, including the $500 million and revolver borrowing.
The cause of this revolver draw we had surplus cash on the balance sheet at quarter end in excess of $300 million.
Considering the surplus cash gross debt to trailing 12 month EBITDA was 2.8 times at the ended the first quarter.
Above our targeted 2.5 times annual average leverage and reflecting the seasonal working capital build intrinsic to our business and the first quarter.
As many of you may be aware, our maximum leverage covenant was set to tighten from 4.0 to 4.0 times debt to EBITDA at March 30, Onest to 3.5 times on June Thirtyth.
As the covert crisis became more pronounced during March we assessed a wide range of potential downside scenarios for the company.
We did not see any other scenarios, resulting in greater than 3.5 times leverage as being likely.
And we are confident that we have levers that we could pull to further conserve cash if the situation really began to deteriorate.
However, again out of an abundance of caution.
Sided to reach out to our bank group to discuss the Covenant Amendment.
Our bank group was very supportive and we quickly aligned on moving our debt to EBITDA covenants to 4.25 times for the remainder of 2020 stepping down to 4.0 times on March 31, 2021, and 3.5 times on June Thirtyth 2021.
Moving on to slide six and specifically cash flow and cash deployment.
Free cash flow for the quarter was negative $371 million.
The primary driver of the variance versus the prior year period was increased working capital, which is partially offset by positive cash benefits and other operating assets and liabilities.
Receivables increased on higher sales, partially offset by the catch up of collection is delayed from Q4.
Inventories improve somewhat payables, however were significantly lower than the prior year period, which benefited from elevated payables related to delayed site transfers.
Looking ahead to the full year, we are maintaining the free cash flow guidance range of $425 million to $525 million.
Due to increased uncertainty in the global business environment, we are taking several prudent steps to reduce cash outflows in 2020, such as deferring discretionary capital investment and aggressively managing the balance of collections and payables to protect our cash position.
While we continue to expect to generate substantial free cash flow in 2020, we are temporarily suspending share repurchases until we have a more clear line of sight to normalization of covet related disruptions.
Our board remains committed to the dividend as evidenced applied the dividend Declaration made last week and we do not anticipate any change to our dividend policy.
We will also continue to fully fund our growth plans, including making smaller technology driven investments such as the transaction we announced this morning.
Mark will describe this compelling investment in more detail in a few moments.
To be clear our capital deployment policy has not changed we are only pausing share repurchases given the current environment.
Over the mid and long term, we are firmly committed to returning cash beyond what is required to fund growth as a company to shareholders through share repurchases and growing dividends, while maintaining solid investment grade credit metrics.
Finally, let me also give an update on progress and implementing our new ssds for honest system.
At our last earnings call, we're literally in the midst of going live across the business acquired from Dupont, which represents roughly 40% of efficacy.
That go live has been extremely successful.
This quarter's close was the first quarter end, where we close at 60% of the company on the new asked for honest system.
Additionally, due to covered related workplace restrictions. This close process was completed with nearly all of our finance team working remotely, reflecting the agility of our organization.
We are focused on completing the implementation of the new S&P system across the remainder of SNC by year end, which will give us a thoroughly modern system across the entire company and will enable enable further efficiencies and our back office processes.
So with that I'll turn the call over to Mark.
Thank you Andrew.
Shifting to the global crop protection market, we previously forecasted the global market to be up low single digits in twentytwenty.
We now project the markets will be flat versus the prior year due to the various impacts from cobot 19, and the strength of the U.S. dollar.
All these focus so for the market not FMC and are in us dollars.
We forecast that the North American market will grow in the low single digits same as we call three months ago.
Based on the assumptions of the increased acreage for row crops and the recovery in Canada. After two years of dry conditions.
We expect the markets in Europe will grow a little faster than we thought before but still low single digits driven by strength in eastern Europe, and then the cereals and coal markets.
We now expect the Asian market will be down slightly versus our prior estimate at low single digit growth.
Based on the impact we've already seen from covert 19 in China, India and other countries.
In addition to FX headwinds.
We also lowered our forecast for the Latin American market significantly as we now expect to contract by low to mid single digits versus slight growth in our prior view.
This decline is driven by weaker currencies rather than lower demand.
Moving to slide seven and the review of our full year Twentytwenty on Q2 earnings outlook.
Factoring in certain potential challenges brought on by the covert 19 pandemic and FX headwinds.
The company is widening guidance ranges to incorporate more risks to the downside of our prior guidance.
FMC full year Twentytwenty adjusted earnings are now expected to be in the range of $6.05 to $6 70 per diluted share a year over year increase of 5% at the midpoint.
EPS estimates do not include the benefit of any share repurchases in Twentytwenty, which the company is spending as Andrew indicated.
Twentytwenty revenues now forecasted to be in the range of 4.65 billion to $4.85 billion, an increase of 3% at the midpoint versus 29 team.
And 8% organic growth.
We believe the strength of our portfolio will allow us to deliver high single digit organic growth.
Continuing a multiyear trend of above market performance.
Adjusted EBITDA is now expected to be in the range of 1.23 billion to $1.34 billion, which represents a 5% year over year growth at the midpoint.
We believe Q2 will represent the most challenging and uncertain conditions related to covert 19 and currencies.
Adjusted earnings per diluted share are expected to be in the range of $1.58 to $1.70 full flat at the midpoint versus Q2 2019.
We forecast Q2 revenue to be in the range of $1.17 billion to $1.23 billion.
Which is flat to the midpoint compared to second quarter 19.
Excluding the significant FX headwinds revenue is expected to increase 5% organically driven primarily by an improvement in western Europe strength in Latin America, a new products getting traction around the world.
Adjusted EBITDA is forecasted to be in the range of $317 million to $347 million.
Representing a 2% decrease at the midpoint versus the prior year period.
Turning to slide eight and full year revenue drivers.
Revenue is expected to benefit from 4% volume growth with the largest growth expected in North America in Asia.
New products are driving about one of the half percent in total revenue growth.
With the largest contribution coming from EMEA.
With the significant shifting global currencies, you can see that FX is now forecasted to be a 5% topline headwind.
For reference in February we were only forecasting a 1% revenue headwind from currencies.
However, we expect to offset most of these headwinds with price increases throughout the year.
Regarding EBITDA, we're expecting covert related impacts to supply chain costs pockets of demand on global currencies.
To help mitigate these we quickly implemented proactive cost saving measures to offset approximately $60 million of the anticipated headwinds.
In addition to significant price increases.
When you nets out the expected covert 19 impacts, including currencies without cost saving measures in price increases.
Slide 19 could still reduce EBITDA by a range of zero to $70 million.
Therefore, the midpoint of our current EBITDA guidance is $1.285 billion or 35 million lower than our prior guidance.
I should note that if we see the headwinds pushing the net impact towards the higher end of the range. We will implement further cost saving measures in the second half of the year.
Foreign exchange is obviously, a critical factor in our outlook.
We now foresee an impact of $170 million for the full year.
Driven by numerous currencies, including the Euro Indian rupee, Indonesian rupee Brazilian real on the Mexican peso et cetera.
This broad based movement is an important factor in the timing for how we will recover price versus FX.
In the second quarter, we expect an FX impact to $45 million.
Price recovery of $15 million or 33%.
This price to FX gap is driven by two main elements.
First is the relative lack of pricing power in the second quarter in Latin America, specifically in Brazil.
This is driven by the fact that it is the tail end of the seasonal in Brazil, and historically very little pricing changes are made in the season at this time.
As volumes tend to be lower on growers are focusing on the harvest.
Second is our approach to the market in Asia.
In market significantly impacted by Cobot 19, we did not feel that it would be appropriate to increase prices at this time and as such we will be looking to recover pricing over the lots of parts of the year rather than in Q2.
Looking at the full year pricing actions of $160 million are expected to cover approximately 95% of the FX headwind.
This changing coverage is mainly the recovery of price in Latin America, as we set prices for the new season in Q3, which will reflect the exchange ways, we're seeing and is a normal pattern.
Pricing recovery in Asia in the latter part of the year is another element as previously discussed.
Supply chain is also an important factor for our outlook.
As we have already seen some temporary shutdowns around the world.
As you know we in the industry have been managing plant shutdowns in China over the past two years at FMC has successfully met the demands of our customers.
The same teams that helped us successfully navigate those situations.
Very active in managing covert 19 induced restrictions.
In addition, we're taking a conservative approach that we may see pockets of reduced demand due to food chain dislocations and labor availability.
Our cost saving measures will help offset these headwinds.
We began implementing them in early March and we will realize savings in each quarter. This year.
The cost savings are focused on two elements SGN day, an R&D.
We are eliminating or delaying all nonessential expenditures and have frozen hiring.
In R&D, we don't canceling any projects, but we are facing some differently to allow a lower cost this year without fundamentally impacting loan term timelines.
These cost saving actions will be temporary most of these costs will returning 2021 and.
And we can confidently say that we will not impact the growth of our company.
On slide nine you see the main reason EBITDAR is expected to full 2% in the second quarter is due to the significant FX headwind as discussed previously.
New product launches in Europe, North America Asia will all contribute to solid overall volume gains in Q2, and we expect to organic revenue growth of 5%.
Turning to new technologies, and our strategic intent to expand our fungicide portfolio on slide 10.
Please note. This is the slide we added to the updated debt this morning.
Earlier today, we announced a binding offer to acquire the remaining rights for fluent funky side for geographies, we didnt already control from the site growth for 55 million euros.
You may recall is talking about flow into peer is one of the trust active ingredients coming out of our R&D pipeline.
We have been co developing this broad spectrum fungus side with the site growth for several years and are set to launch the active ingredient in Paraguay This fall and in the US next spring.
With the full global rights, we now believe peak sales within the range of $350 million to $400 million, including estimates for Sagres key European or Asian, and Latin American territories.
As a couple documented flow into Pierre belongs to one of the newest classes of fungicides targeting a broad range of plant diseases, including Asia soybean rust in row crops specialty crops and turf applications.
Following the launches in Paraguay, and the US we expect to launch fluent appear in China in Twentytwenty to Europe, and Argentina in 2023, and Brazil in Twentytwenty.
We expect to close the acquisition by the end of the third quarter of Twentytwenty.
Additionally, the second you active ingredient from our R&D pipeline Bixler zone now branded as ISO flex active is also progressing towards the launch.
We recently received full registration for Overwatch herbicide with ISO flex active in Australia, and the set to launch in the Twentytwenty warm winter crop season.
It offers a new mode of action for growth suites in cereals.
We intend to launch I saflex activity in all four regions by 2025, and we anticipate peak sales of $450 million to $500 million.
ISO flex is an exciting addition to our herbicide portfolio.
Will serve as a centerpiece to many of our herbicide crop segment a mixture strategies.
Finally in the US we recently received EPA approval for new Diamante based formulated product.
Hello, Vest insecticide allows grows to upgrade the superior residual control over next Super insecticide, while keeping the rapid action of by centric.
It will play an important role in our plans to expand the dive on franchise.
While the U.S. it the first country to receive the registration we expect to launch this product in all key geographies.
Before I close I would like to highlight FMC is recent recognition as the American chemistry councils responsible care company of the year for the third time since 2017.
This annual award is the highest HCC distinction for excellence and leadership in environmental health safety and sustainability.
While FMC has undergone many changes over the past few years, our commitment to operating safely and sustainably remained steadfast.
Ill now turn the call back to peer.
Thank you Mark.
We realize that forecasting engaging in a difficult process in such an uncertain environment.
Even the forecast range, even broader than what we usually show at this time, we felt that it was important to share views on that business end markets.
Underlying demand for products is strong.
And our ability to recover the adverse impact of FX, we price remained intact. Despite the difficult situation we are facing today.
FMC will face challenges through the year.
But we believe that a company will continue to adapt quickly to what comes at us and once again delivered another strong year on growth above the market.
Even with the challenges we're facing in Twentytwenty.
We expect to close.
Two years over a five year plan solidly within our long term targets for revenue.
And as growth.
This is my last earnings call.
Two of the company.
I am proud of the transformation, we have accomplished over the last 10 years.
FMC is stronger than ever.
And the transition to new leadership in place.
Thank you for your support questions and challenges over the years.
I will now turn the call back to the operator for questions.
If you like to act. The question. Please pass one then there'll on your telephone keypad. Please limit yourself to one question only if you have additional question could you can jump back into the Q2 withdraw yourself from the Q. Please pass one then theyll well pause from all into compiled the Q.
In a roster.
Thanks.
And our first question comes from the line of Chris Parkinson with Credit Suisse. Please go ahead.
Great. Thank you first of all Pierre congratulations.
Little bit of a crazy time, but either way, obviously wishing you the best of luck.
And as far as the question is concerned.
Can you talk a little bit more.
About the fungicide acquisition you made this morning.
And what the products growth trajectory was before and after your acquisition on a global basis.
Just given the broader market access and then also.
It's safe to say that FMC is still willing to further add to the fungicide portfolio, just how should we be thinking about this transaction.
And as well as just enhancing your competitive positioning thank you very much.
Yes, Chris it's Mark.
When we when we started to work on fluent appear many years ago. We we've built over the years an appreciation for what we believe this molecule can do and as we said today. We think we're in the $350 million to $400 million range frankly speaking I think it's closer to 400 400, 350, FMC had a view that our.
The pipeline of flow into peer the ones that we developed together we're in the $250 million range. So you can see we're adding somewhere in the region of 150 plus million dollars of peak revenue with this acquisition.
Overall, the fungicide portfolio for us continues to grow.
I'm doing some interesting things with third parties around getting access to new.
Fungicides and certainly as we scale of the World and look at what is available we will add.
Acquisition targets to our list and continue to build out fungicides.
I've said for many quarters and set at the last few years. It is an area for us to build out it is fast growing we like where we are we think we have a very good position.
But more to do as we go forward.
Thank you.
Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please go ahead.
Yes. Thank you good morning, everyone.
I was hoping just to maybe you get to those data all the deeper into the revised market outlook and clearly FMC.
Hi is keeping their the organic revenue growth outlook that you shared lowered the kind of global market outlook in us the a little bit but maybe.
Frame, a little bit kind of the areas of strength, where you're more encouraged by by market traction in the first half of the year and areas that you're watching most closely and specifically around just any color on specialty crops and fruit and vegetables that.
Here, a lot of issues around labor issues and crops getting right under and.
Thinking about the demand outlook in that part of the channel.
Yes. Thank you I'll ask mark to going to there may be the details of the the crops.
Opportunities, but let me make a statement around.
So beat where we are in these forecasts how it is deal tender.
And when we believe the situation is I think it's important to say.
That we created the forecast.
With the intent to be cautious we are four months into the year end.
Underlying demand for product today.
We speech and year to date is very strong. So we do not have had this stage of the year, where we are specific commsuite on full one has been happening so far from the logistical and manufacturing standpoint, we had issues like everybody else, but nothing we couldnt.
To address so when we build a forecast we looked at.
Well the places where we could have issues.
From NRG seacoast endpoint, and where are the places where we could have weaknesses from the demand standpoint, knowing that in many cases.
We've heard a mode corn, you've heard about cutting.
In many cases those area of weakness is balanced by Rio hopefully communities. So.
We've build these forecast total prudence.
Sure.
Being cautious today I have to say first week of me we are four months into into the year things are going well, but you know it's a very fluid situation. So we had to build into the forecast.
Possibly issues, which could be coming at us.
We had two to counterbalance with opportunities.
Got you want to go maybe on the detail of some growth opportunities sure yes.
Adam It has you all know it's a very complicated marketplace.
I'll try and hit some of the highlights and some areas, where we're really focused on in terms of where we think we may see a slowdown.
Certainly in the US right now when you look at the balance of corn and soy.
I have to sale at pre emergent business is doing very well, especially with our newer products such as authority edge, which are extremely high performing not only in the U.S., but also in Canada.
I would say wheat is also a positive right now with what we see going on around the world we have a very strong portfolio.
So from urea herbicides on wheat.
Sugarcane in Brazil is another area that is actually some people viewed as a negative we actually don't view it as a negative.
The big Brazilian producers of sugar or actually benefiting from an extremely weak BRL, which allows them to participate to a great to be great.
The on the wells market, obviously somewhat offset by lower ethanol demand in in the us, but it was very strong frozen Q1, and we expect to see that continue.
The fruit and veggie area is somewhere we've been focused on you know, it's an important part of our portfolio.
We continue to see growth.
Couple of the reasons, we see growth part of our product launches that we talk about where we believe we have about 1.5% of growth a lot of that is coming from new applications in fruit and vegetables. I'll give you. An example, we have about 300, new registrations this year across the world for all sorts of different crops. Many of those focus.
On the specialty and niche crops. So yes, when we talk about demand destruction or.
Dislocations in the food chain or labor availability I would think fruit vegetables is one of the areas, where we're keeping a very close island.
In other parts of the world, we're expanding into new areas.
For instance in soy in.
And sugarcane in particular in India, where we have new herbicides, we're seeing growth so for us once again, the portfolios very fragmented, it's well balanced across the world. So we do see areas of.
Of lower demand one of the obvious ones for US right now is cotton.
The cotton market is extremely challenged given where well demand is given the.
The situation from Cobot 19, I expect Brazil will have a lower planted area. This year, probably India as well. So we're watching those two places potentials for for lower demand.
Well that color is very helpful. Congratulations on the retirement helpful color. Thank you.
Thank you.
Your next question comes from the lineup PJ, who will be car with Citi. Please go ahead.
Hi, Thank you good morning, everyone and clear. Thank you for your how of first federal Menasha, and then at FMC and good luck.
Thank you.
And our your commentary about getting pricing to offset us dollar strength.
Given that there is lack of credit in the system in some areas, particularly in emerging markets im going to discovered impact.
What would they expect some kind of price concessions.
And secondly, our you extending credit to any of your customers in Latin America or other regions. Thank you.
And then the sell through the.
The pricing question marks you can go in more detail what we are doing in this we won't have but.
Yes, I mean pricing is is a sensitive topic when when when you are in search.
Relation.
And.
If you look at the first half of the year, we do have a pricing differentiates.
Versus the FX headwind.
It is a conscious decisions division, we have made first of all as Mark sale.
It's difficult to recover pricing and FX headwind in Latin American when especially Brazil. When you were at the end of this season.
So you don't have a lot of leverage price offset but we made a conscious decision.
Because of the economic situation to not push too hard on pricing in Q1 in Q2 in Asia, or even Yemeni, where we had adverse effects we.
We gave a break to customers. We are preparing those two region of the will choose to take a little bit of the lag in the pricing strategy and we will be targeting those regions more.
Two of the civil and Hustle to you.
Brazil is a different situation, it's just a country where pricing and currency.
There is a business model EDI deals in that business model and.
You know we've been operating quite well in the fourth quarter last year with that ill close to five being operating very well in the first quarter. This year with of BRL between five to 257 I think there is a mechanism for it and when we're going to get into the new season.
So we'll have some do you don't wear.
You are preparing for orders you reset the pricing and Thats just in mechanism, which have been so youre right.
It's a bit of a different situation thats why we are prepared to take a lag on pricing in Asia.
In EMEA in the first half of the year end focused into that into single huh.
Yes, I think PJ to the second part of your question around terms.
Liquidity is not bad everywhere.
A lot of people tend to focus on the stress that we use market's been under for some time, but you look at places like Brazil.
Local currencies the grows or doing extremely well.
So in those particular markets, which are large for us.
We're not looking at extending terms.
If you look at our Dsos, you will have seen them grow a little bit over the last year. The reality is we're growing in some jurisdictions that have longer natural terms and thats something that we're willing to accept it's obviously profitable growth for us. So a mixture of price and then growth in different jurisdictions causes that DSL.
To move out a little bit, but it's not something that were.
Unconcerned with we're watching very closely and obviously, we will react to the market as the markets move we will move and in some cases, we lead the markets, especially on price.
Great. Thank you.
Your next question comes from the line of low rent filed with Exane. Please go ahead.
Hi, Good morning, All my question is on your comments on ceding a bit better about Europe in the market I was a bit surprised given the weaker euro.
So the sank Thats your peers seem to have only mentioned the sandy sides as an area where they are seeing strength and this is not is one of I believe one of your strongholds. So I was wondering if you could tell us a little bit more bounce your comments on Europe.
Yes Laurel.
Yes, we are feeling a little more confident in Europe I mean, obviously the season has started very dry although it is rating now involved in Europe, which is good southern Europe is being much better uneven during even during the extensive lockdown in Italy, our businesses being very good.
Teams using very different tools to actually sell.
We do have new product launches.
Really an herbicides in Europe, which are for cereals that is a big market that FMC is growing into so we don't necessarily have to be linked to the market growth for us to grow very well and then we continue to see an extension of our insecticides, but diamante sales continue to grow in Europe as well.
Now.
So a combination of herbicides and insecticides and some new third party fungus sides that we're putting in place as well you're right. We're not very big in in fungicides in Europe. So anything we can do that will help boost our growth.
I would say that the other piece to that is we're growing in Russia.
Brain Eastern Europe, where we've never over the last two years had a huge presence, but we put a lot of effort into those countries. The team in Europe is expanding the number of people on the ground and we are growing in those areas that also boost seller confidence for our growth in Europe.
That's great. Thank you.
Your next question comes from the line of Vincent Andrews of Morgan Stanley. Please go ahead.
Thank you and congratulations Pierre.
My question would just be on the.
The cost side of equation raw material cost in particular.
Obviously, you showed in the full year bridge.
That they're moving into right direction, just wonder if you can contextualize.
So the timing lag that you might be seeing just as crude oils move down and I assume that some of the chemical intermediates that you buyers are going to move lower with it but what what sort of embedded in that guidance range versus what might might happen and sort of provide some some help to 2021 as well.
Sure event that I think looking at 2020, we do still have some modest increasing costs and part.
Fair remember cost increases that we see light and the second half of last year roll forward into the first half of this year.
We are seeing some opportunities for cost improvement, where with lower Petro petrochemical oil costs and these are really for some of the non active ingredient segment at the low lower value in our kind of things that are part of our formulations, but there's definitely some room there I would caution not to forget that they cost savings program.
Sam that Mark discussed earlier in the call directly impacts our cost line. So there is about $60 million and cost savings and the rest of the thats built into that improved cost outlook.
So if you backed that out we actually see an increase versus our prior guidance at about $25 million in costs.
Versus our prior guidance and Thats really covert driven costs additional logistics costs dealing with.
More just in time shipments advocate, a difficulties and managing logistic networks.
And that is net of benefit that we're anticipating coming from lower raw material costs, yes, it's hard to anticipate just yet all the way to 2021, but certainly if we have normalization of.
Global product flows some of these increased costs that were seeing due to covert disruption should fade away if not be outright gone in 2021.
And we with the easing of some of the petrochemical inputs and otherwise easing of.
Other disruptions that impacted cost over the past two years, we should also see of a tailwind on underlying raw material costs as well so a bit early to dimension fully but certainly add absolutely. There are some solid tailwinds on the cost side again to 21.
Your next question comes from the line of Frank Mitsch with Permian Research. Please go ahead.
Good morning in pure team Pharmedium weren't wants to wish you obviously, all the best as you move onto the executive Chairman.
Thank you Frank.
I was wondering if you could.
And a little more color worse with respect to the products that are not being re registered or rationalize I believe you said that there was a 3% negative impact.
So I don't I believe that was mainly coming from Europe, and Asia was that a twoq comment was that a rest of the your comment it anymore color you can give on some of the on some of the decrement you're seeing from some of those products rolling off would be great.
Yes, Frank we're going to go into the detail.
Just want to remind what we say that the last quarter end.
It's a bit more pronounced this year because his specific product Mark will talk ability income this year, and we decided to set us to discounting you around the world birds.
Every year every year when when we announce a growth rate there is 2% of negative growth due to registrations, which are being lost or two product we decide not to continue to sell so.
It is not a.
It is not a very unique situation. We are facing is this situation we have been facing for years now the difference being more pronounced this year because there is a product we decided to serve which was a media and there is more of a concentration on EMEA and.
In Europe than in the past Mark you want to go into more detail you hit the highlight piracicaba fewer on at the end of last year, we decided to exit that older insecticide I would say it's.
The combination of some smaller products and then a couple of big ones. This year Carbofuran.
Europe has been hit with the removal of dimethyl it which is another insecticide tibby Connors, all which is a fungus side.
Asia also was hit by the cover a few around removal.
So when you think about it it's really related to older insecticides that we're moving out of the portfolio, but I would expect to the vast majority of that to occur in Europe as we go through the rest of the year.
Side of the cover a few around removal.
Thank you very helpful.
Thanks Ray Thanks, Frank.
Your next question comes from the line of Steve Byrne with Bank of America. Please go ahead.
Yes, I'd like to drill in the Latin America region. Your results there the last few quarters outperformed your peers.
What is it that you see that you're having your commercialization.
Strategy down there or your portfolio that that gives you an edge in that region.
Also wanted to ask a little bit about 13 herbicide you mentioned the Replanning Thats a multiyear crop was there a surge re planning and therefore thats maybe not recurring.
Just just would like to.
Any any details that might help us assess the sustainability of the growth that you're showing going in there.
Yes sure Steve.
So listen Latin America.
Most people Associate Latin America, and Brazil, with FMC, which is which is fine, but I think what we've seen over the last two years as a return to growth in many parts of Latin America, we talked a lot about Argentina, how we've restructured the business Argentina is growing very rapidly for us.
We have a very good portfolio that meets the crop needs down the good position on.
Emergent herbicides for soil insecticides with the diamonds.
In the rest of of Latin America, Mexico is benefiting a lot from our portfolio in terms of fruit and vegetables and specialty crops and then we're returning to growth in many of the Andean countries Colombia.
Ecuador, Peru, and Chile, so not only are we seeing geographic growth.
From our portfolio, but then you look at Brazil.
We have being very careful in Brazil of how we've grown over the last few years, we talked about being careful on our balance sheet, but we've really focused on in the south the major co ops expanding a position that we really never had until the last couple of years since the acquisition of the new portfolio. We're also now turning our attention.
And where we have major presence in market shares in cotton in coffee in sugarcane. We're also turning the portfolio to market access in the north further soy corn.
Business that suits us very well, we're gaining market access there. So we expect to continue to see growth on the row crops in Brazil, which have never really never been a big market for us and we have a very small low single digit market share.
One of the things on the show became the second part of your question is you're right.
Okay and is a multi year crop and replenishment tends to occur at the 15% to 20% range.
Some years hire some years lower we are a little higher than normal, but what is happening is the growers are looking for as high yield as they can possibly get and therefore, the using the highest quality products, which will allow that yield to come forward. We have some very good herbicides and market leading position. So we take mistake.
More of a share when the growers are looking for higher show the yields than they would normally do in the past.
Thank you.
And our next question comes from the line of Mark Connelly with Stephen Please.
Please go ahead.
Thank you.
Sure Mark.
It really doesnt seem to be any end in sight to trade or was China now with Covidien has your view of China's position in your supply chain evolve further.
Curious how far along you are in your diversification of sourcing, but also whether you're thinking about diversifying further.
Yes.
I think it is it is something we we've been looking at consistently with the currency tuition something we want to slowdown doing we are of course, China is critical to us and we'll operating loss of parents with with partners.
China used to be 95% of our raw material and.
And active ingredients obtained to date down to less than 60%.
And we are increasing in.
Investment in places like like India like Europe, So North America. So yes. We are we are thinking issue thinking over the next five years, you will see us.
We continue to rebalance.
Our supply between China, and the rest of the world.
Couple of capital.
Causing little Marsh said one of these targets you know to these confusion between the 30% to 40% coatings from China the rates from the rest of world.
Next time.
Registrations are very important but certainly for anything we achieved new product.
We are going to the market. We are looking at manufacturing sites, which are very often non China based.
What did talk the Mercosur.
Yes.
Markets.
We talk about it a lot why don't we put active ingredient manufacturing down into Latin America, especially in the south between Argentina, and Brazil. It will be an obvious place to go for us from a demand perspective. The only problem is with a lot of specialty and fine chemicals, you need infrastructure around you need close supply of many intermediates.
But are sometimes not difficult not easy to make unfortunately, there is not that chemical infrastructure in America. So region and therefore, we tend to we intend to import active ingredients and then formulates and package in Brazil in Argentina.
Okay. Thank you.
Thank you. Thank you.
Your next question comes from the line of.
I see your mom with Keybanc. Please go ahead.
Hi, good morning.
Our draw and everyone.
Congratulating Pierre.
Here in a recent newspaper interview you were asked about what mark might be doing different when he succeeds you and you noted that mark has been investing in precision AG.
Could you or mark elaborate on this.
Yes.
Absolutely.
He said.
We we went through a transformation and and I would say mark and I will begin working very very closely with each other for the last five years. So I don't think you should you should expect.
For them into will change of the direction of the company, but but if you look back over the last couple of years Mark has been and his role within the various this year leadership team here at FMC has the to push.
Technology, among other things and he's been the change in for sustainability and proceed on actually as you think above the three urea among others wary places, where it's going to take the company I believe.
To the next level also precision AG being one we're making progress maybe mark you want to say couple of words on where we are in progress were making sure we.
We talked about it and a roundabout way over the last year in terms of what we've been doing behind the scenes im not going to spoil the teams than that because we have something coming up in the in the next couple of weeks that will be very public.
But we do believe like many in our industry that from a sustainable Act perspective, the use of data the use of forward looking.
Applications mechanization has to healthy industry, and we want to be part of that we've invested in that so far we continue to invest and you will be seen something in the next few weeks from us that shows that we're not thinking in the same way as many of our competitors, but we are going to do some very different things with products.
And applications that will allow growers to.
Utilize our products.
Right points in time for their applications, therefore would be much more sustainable in terms of amount of product used and under where it is used so stay tuned.
This will be the first move we're making but we will be making more moves we have some very very novel and interesting ideas, but where we can take technology that is not core to our base, but we'll be enabled by the growers in distribution.
Your last question comes from the line of Joel Jackson with BMO. Please go ahead.
Hi, Optimists task SIOP here quick question.
When would you feel comfortable or what conditions would you need to see two reinstitute the buyback program. Thanks.
And then in May.
My good friend Andrew.
Complement may question, but.
You know we earned.
Evan proved to date, because we want to see how have things are evolving.
We were cautious in new forecasts.
The company's doing well today.
We believe we had no reason to change the forecast from the cash flow standpoint, we've been going over eight.
D. after the studying we're watching that very carefully and we today feel very confident center on the ability to generate cash flow.
Balance sheet is in good shape soon.
We do not believe it will be prudent to stay with the buyback program, but I would not be surprise.
From us as soon as we have more clarity into how the situation is evolving to get back into the payback.
And who said in his prepared comment.
We are committed to returning the cash for the five year plan. We gave in December 28 is that has not changed.
There is no reason to have a prolonged suspension of the of this stock buyback program. So I would I would expect us coming in as soon as possible and as soon as we get more clarity around this.
And unique situation is going.
Andrew you want to petrochemical work back sharp here I think certainly I don't think that bright lines agile in terms of trigger trigger points I would say leverages as in tech ticker too high of where it should be for us to be buying back stock at the moment, but I think the biggest thing is really this uncertain environment appear discussed.
We're feeling pretty confident about the cash flow, but our cash flow mix. During the year is very strongly positive free cash flow into second half.
First half as a build of working capital.
And just given that uncertainty I'd like to see more cash in the had before we get comfortable that with the full year cash flow being there to support buybacks. So.
I think we're well on our way there we're seeing very good progress at collections in the first quarter, particularly in Europe and Latin America.
We continue to put tremendous focus on driving improved collection and for forecasting and collections.
I think we just want to get path of all this uncertainty seen lever to get down back more into the target range and then recognize embedded the seasonal pattern of our cash flow where that really strong cash generation in the second half.
Much better base to drive sort of a restart of have shown purchase so more to calm as we get more view of the global situation.
Thank you that at all times, we have further call today, thanks and have a good day.
This concludes the FMC Corporation conference call. Thank you.
We're sorry your conference is ending now please hang up.