Q2 2021 FMC Corp Earnings Call
Good morning, and welcome to the second quarter, 2020, 1 earnings call for FMC Corp.
And it's being recorded and all participants are in listen only mode.
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I would now like to turn the conference over to Mr. Michael Bradley.
Director of Investor Relations FMC Corp.
Please go ahead.
Thank you and good morning, everyone welcome to FMC Corporation's second quarter earnings call Joy.
Joining me today are Mark Douglas, President and Chief Executive Officer, Andrew Sandifer, Executive Vice President and Chief Financial Officer, and Jack Zackie, Fmc's, New director of Investor Relations.
Mark will review, our second quarter results provide our outlook for the remainder of 2021 and discuss our di and lights business.
Andrew will provide an overview of select financial items.
Following the prepared remarks, we will take questions.
Our earnings release, and today's slide presentation are available on our website and the prepared remarks from today's discussion will be made available after the call.
Let me remind you that today's presentation and discussion will include forward looking statements that are subject to various risks and uncertainties concerning specific factors, including but not limited to those factors identified in our earnings release and in our filings with the SEC.
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 and organic revenue growth.
All of which are non-GAAP financial measures.
Please note that as used in today's discussion and earnings adjusted earnings and EBITDA means adjusted EBITDA.
A reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today's conference call are provided on our website with that I will now turn the call over to Mark.
Thank you Michael and good morning, everyone.
Our second quarter results revenue up 8%, EBITDAR up 2% and EPS up 5% year over year was slightly ahead of our guidance.
These results were fundamentally driven by volume, reflecting robust demand for FMC products around the world.
Innovation continues to be a catalyst for growth.
New products introduced in the last 12 months contributed $30 million and sales growth in the quarter and.
And our plant health products, including Biologicals posted Q2 sales growth and the high teens.
We continue to expect a very strong second half of 2021, driven by robust volume growth.
We have lowered our full year earnings guidance due to the continued acceleration of raw material packaging and logistics costs. We will go into this and more details later.
I'd like to take a moment to provide a COVID-19 updates on our business.
All of our manufacturing facilities and distribution warehouses remain operational and properly staffed.
Our research laboratory and greenhouses also have continued to operate throughout the pandemic.
We are resuming and office operations, where permitted by local authorities.
And in June we introduced flexible work arrangements to facilitate the return of all our staff to our headquarters and Philadelphia as well as some other locations and the difference with local guidelines.
We continue to have zero transmission of the virus and all facilities, but I want to acknowledge that we have lost employees to the pandemic and our employees are also lost family members. Thanks.
Thankfully that number of affected and players has been small.
And so with employees that have been impacted directly by COVID-19, and we are thankful for everyone, who continues to work safely and FMC.
Turning to our Q2 results on slide 3 we reported $1.2 billion and second quarter revenue, which reflects an 8% increase on a reported basis and a 4% increase organically.
Asia, and Latin America posted the largest growth at 20% and 15% respectively.
All of a sudden besides grew over 50% and the quarter driven by design, we're launching and the U S and fungicides represented 8% of total sales in Q2, especially is 5% above sales and the prior year period.
Adjusted EBITDA was $347 million and increase of 2% compared to the prior year period and $2 million above the midpoint of our guidance range EBIT.
EBITDA margins were 28% a decrease of 150 basis points compared to the prior year, reflecting the impact of continued and accelerating cost headwinds.
Adjusted earnings of $1.81 per diluted share in the quarter and increase of 5% versus Q2, 2020, and also <unk> <unk> above the midpoint of our guidance range.
The year over year increase was primarily driven by the increases in EBITDA and lower interest expense.
Moving now to slide for this.
And favorable weather conditions in several regions Q2 revenue increased by 8% versus the prior year, driven by a 4% volume increase and a 4% tailwind from foreign currencies pricing was essentially flat year over year.
Sales and Asia increased 20% year over year, and 13% organically driven by double digit growth and India, Australia, Indonesia and Pakistan.
Insecticides contributed the greatest growth, including ultra cold for cotton and herbicide sales were also very strong driven by share gains and India for soybean and sugarcane applications as well as robust sales and Australia.
And Latin America sales increased 15% year over year and 12% organically.
And Mexico, and Colombia, each posted double digit growth driven by strength of our products and specialty crops.
We also had a shift of Diamide partner sales to Latin America from North America, similar to what occurred in Q1, which boosted the year over year growth rate.
EMEA sales increased 3% year over year, but declined 3% organically as FX was a significant tailwind in the period.
<unk> grew well and we saw strong sales and herbicides for cereals and sugar beets.
This wasn't enough to offset the late start of the spring, which resulted in lost applications for the FMC portfolio that will not be regained during the season.
And North America sales decreased 7% year over year, and 8% organically similar to Q1 the year over year sales decline in Q2 was due to the shift of Diamide partner sales from North America to other regions.
Excluding revenue from our global Diamide partnerships, our U S and Canada crop business grew greater than 20% driven by an approximate $25 million contribution from 2 new products and <unk> fungicide and vantage car insects control for specialty crops.
Turning now to the second quarter EBITDA bridge on slide 5.
EBITDA in the quarter was up 2% year over year due to the volume contribution of $42 million, largely offset by a $35 million cost headwind.
The cost headwind continues to be driven by increases in raw materials packaging and logistic costs and.
And the very modest with US look some of the temporary cost savings from 2020 pricing was essentially flat versus prior year.
Turning to our view of the overall market conditions for 2021.
We now expect the global crop protection market will be up mid single digits on a U S dollar basis, which is slightly higher than our prior forecast and the most bullish we've been on the overall market for the past few years.
The reason for the change is our view that the Latin American market will now grow in the high single digits versus low single digits before.
Basically crop fundamentals remained strong, especially in that region.
We continue to anticipate mid single digit growth and the EMEA market low to mid single digit growth and the Asian market and low single digit growth and the North American market.
Turning to slide 6 and a review of Fmc's full year, 2021, and Q3 Q4 earnings outlook.
FMC full year 2021 earnings and I would expect it to be and the range of $6.54 to $6.94 per diluted share a year over year increase of 9% at the midpoint.
This is down for it to 1 cents at the midpoint versus our prior forecast.
Consistent with past practice, we do not factor in any benefit from future potential share repurchases and our EPS guidance.
Our 2021 revenue forecast remains and the range of $4.9 to $5.1 billion and increase of 8% at the midpoint versus 2020.
EBITDA is now expected to be and the range of $1.$2.9 billion to $135 billion, representing a 6% year over year growth at the midpoint.
This is a $50 million reduction at the midpoint compared to a profit forecast due to continued acceleration cost for raw materials packaging and logistics and this includes spending more to procure certain raw materials and intermediates from alternate sources, where there is limited availability at our preferred suppliers.
Despite dry and cold conditions and certain parts of Brazil. During Q2, we all bullish for the second half and Latin America, especially for soybeans and cotton.
And Brazil, our channel inventories are at more normal levels for this point and the season. Following the actions we took in Q1 this year.
And we already have received nearly 70% of the oldest needed to deliver our full year forecast and Brazil.
Guidance for Q3 implies year over year sales growth of 8% at the midpoint on a reported basis and 7% organically. We are forecasting EBITDA growth of 5% at the midpoint versus Q3, 2020 and EPS is forecasted to be up 7% year over year.
Guidance for Q4 implies year over year sales growth of 20% at the midpoint on a reported basis with no FX impact anticipated.
We are forecasting EBITDA growth of 35% at the midpoint and thus as Q4.2020, and EPS is forecasted to be up 46% year over year.
It is worth noting that about half of this growth is going to be driven by the return of business. We missed in Q4 of 2020 due to supply chain issues in North America, and weather impact and Latin America.
Turning to slide 7 and full year EBITDA and revenue drivers.
Revenue is expected to benefit from 6% volume growth of 1% contribution from higher prices and a 1% benefit from FX.
We continue to expect broad growth across all regions, except for EMEA and a very strong second half of 2021.
We have raised and our focus for 2021 revenue contribution from products launched and the last 12 months to $130 million from a $100 million before this.
And this includes launches of Overwatch herbicide, Sideway fungicide as well as optical and L. A that students that controls.
Our EBITDA bridge shows an increase of about $50 million and the expected impact from costs versus our May forecast, we continue our cost control actions to limit the net cost headwind.
As we stated throughout the year. The R&D spending forecast is what is needed to keep old projects on a critical path to commercialization for this year over year increase will be closer to $20 million rather than the $30 million to $40 million. We had previously indicated as we limit overall cost increases.
Relative to our prior guidance for Jamaica, we raised the anticipated volume contribution and lowered all benefit from pricing to reflect our decision to take volume with all our high margin portfolio.
Moving to slide 8 where you see the Q3 and Q4 drivers.
On the revenue line for the third quarter, we are expecting a 6% contribution from volume, 1% contribution from price and 1 per cent benefit from FX.
We had a very strong revenue outlook for Q4, driven by 5 main elements first we forecast a strong recovery for our U S and Brazil businesses. Following the weak Q for 2020 and those countries. This contributes about half of the total growth and the quarter.
Second new products will be a major factor XI way fungicide, you Diamide formulations, and all of us and van to call for.
Flow into pay a fungicide for non crop applications and the U S Overwatch herbicide and Australia and.
Alrighty, NXT herbicide and India.
For a strong crop fundamentals, we expect a strong Q4, and North America, and Latin America, driven by good fundamentals for a variety of crops.
And Brazil. This includes cotton growers have indicated a 15% increase and hedges for the upcoming season.
For improved market access and expansion into new geographies and crops. This is having a significant impact and India, Indonesia, Philippines, Vietnam, Eastern Europe and Russia.
And finally fifth price increases will help offset the FX headwind from last year and the higher costs from raw materials. This year.
We are already holding orders for Brazil, and U S debt or at a higher year over year prices.
Much of our forecasted Q4, EBITDA growth will come directly from the volume and pricing growth I just described.
Although we are seeing a large increase in costs in Q4, and a year over year basis, we are taking actions to reduce SG&A and R&D to offset a portion of the raw material and supply chain cost headwinds we are facing.
I will now turn the call over to Andrew.
Thanks Mark.
Let me start this morning with a few highlights from the income statement.
FX was a stronger than expected tailwind to revenue growth and the quarter at 4% versus our expectations of a 1% tailwind as the U S dollar weakened against all major currencies relevant to FMC.
Interest expense for the quarter was $32.6 million down $8.1 million from the prior year period, driven by the benefit of lower LIBOR rates and lower foreign debt balances.
With continued low interest rates, we now expect interest expense to be between 130 and $135 million for the full year.
Our effective tax rate on adjusted earnings for the second quarter was 13, 5% as anticipated and in line with our continued expectation for the full year tax rate.
Moving next to the balance sheet and liquidity.
Gross debt at quarter end was $3.8 billion up roughly $200 million from the prior quarter.
<unk> debt to trailing 12 month EBITDA was 3.2 times at the end of the second quarter, while net debt to EBITDA was 2.6 times.
The difference between gross debt and net debt metrics is much larger than usual this quarter as we had significant cash that we were not able to return to United States prior to quarter and.
We are exploring repatriation alternatives for this cash and the third quarter.
Both leverage metrics for above our targeted full year average leverage levels due to seasonality and working capital and will improve through the remainder of the year.
Moving on to slide 9 and cash flow and cash deployment.
Free cash flow for the second quarter was $204 million essentially flat to the prior year period.
Adjusted cash from operations was lower than the prior year period, and large part due to timing changes of certain tax payments.
Inventory was higher reflecting the accelerating cost of raw material as well as increased inventory levels, particularly in <unk> as we prepare for a very strong second half.
However, the growth and inventory was offset by increased payables.
Capital additions were somewhat higher as we continue to ramp up spending following deferral of projects last year due to COVID-19.
And legacy and transformation spending was down substantially but the benefit of the completion of our SAP program.
With the reduction and our outlook for full year, EBITDA, where assembly of several early adjusting downward our expectations for free cash flow to a range of $480 million to $570 million with the vast majority of this cash flow coming in the fourth quarter.
Our outlook for adjusted cash from operations as we can further and EBITDA driven by somewhat higher than expected working capital due to shifts and timing of sales to the latter part of the second half of the year.
Which will share some collections into the following year.
As well as higher inventory driven partially by elevated raw material costs.
Our outlook for capital additions as well as for legacy and transformation have improved slightly.
We returned to $87 million to shareholders and the quarter, the $62 million and dividends and $25 million of share repurchases buying back 212000 shares and the quarter at an average price of $100.118.10 per share.
Year to date, we've returned $224 million to shareholders through dividends and repurchases.
For the full year, we continue to anticipate paying dividends of roughly $250 million and now expect a rig for repurchase a total of $350 million to $450 million of FMC share for this year with the outlook for repurchases down slightly reflecting the lower lowered EBITDA guidance.
And with that I'll hand, the call back to Mark.
Thank you Andrew.
Today, we will provide an update on the progress of our Diamide growth strategy.
Since we launched FMC as a pure play agricultural science companies and <unk>.
And so being a core part of our business.
For <unk> have grown to be almost 40% of FMC sales today.
Turning to slide 11, and some basic data on the insecticides market, which has grown by 83% from 2007 to 2019 and has approximately $17 billion and value today.
Following the broad crop protection market drop in 2015 insecticides have grown 2% per year.
We expect this to accelerate and the next decade to about 3.3% compound annual growth rate.
As high value technologies take more share from older insecticides that are being phased out by regulators.
We believe by 2030 day insecticide market will expand by about $7 billion versus $2000.19 billion to $24 billion and total.
Moving to slide 12, we show the year by year revenue of the major insecticide active ingredient classes from 2014 through 2019 as reported by AG bio investor and their respective share gains and losses over the period.
FMC Diamide for next superior and say is it the makeup well over 80% of the entire Diamide clause, which includes a few of those smaller active ingredients.
<unk> have grown to be about 10% to 11% of the total insecticide market.
And the total Diamide clause is getting 2% share from 2017 to 2019 to reach 13% of the total insecticide market.
Conversely, ill kind of phosphates and Neonicontinoids of lost overall share.
Yeah.
Turning to slide 13, we show the geographic break down about $1.8 billion and Diamide sales in 2020.
This is old Remax Super and XI as opposed sales and includes FMC sales of branded products and sales to our partners.
Asia makes up nearly 40% of our <unk> business today with North America, a little over a quarter of the sales and EMEA and Latin America between 15 and 20% each.
FMC diamide have grown well above the market and all regions since we acquired them in 2017.
On the right is the breakdown for our diamonds and should be no surprise that fruit and vegetables, and rice make up about 50% of our current revenues. This is why the dialogues are so strong and Asia since that market is about 30% rice and 30% fruit and vegetables.
Turning to slide 14, and our dialogues commercial strategy, which we've discussed many times over the past 2 years.
We have long term supply agreements with 5 key multinational companies, including the U P. L deal, we announced in March of this year.
We also have 50 local agreements in various countries and we have another 15 potential agreements currently under discussion.
These agreements and helping significantly expand the market for <unk>.
And those give us access to customers. We do not currently said they also have access to certain active ingredients that can be formulated with our <unk> to expand the market beyond what our FMC has access to.
The $1.8 billion Diamide revenue and 2020 was roughly 60% through our own commercial activities, which we label as FMC branded on these charts and 40% through all our global and local partners.
Since we acquired these products, our diamide growth as being evenly split between FMC branded business and sales to our partners, which demonstrates how complementary these 2 routes to market.
We've been very deliberate and driving our growth through our partnership model the.
The success of this model is shown by the fact that the company EBITDA margins expanded 100 basis points from 2018 to 2020, even as these partners we're growing significantly.
Confirming the strategy is not margin dilutive.
The other aspects of having sales to partners represent $700 million of our annual revenue cannot and more volatility and timing of demand.
Such revenues can be impacted by shifts and partner demand across the geographies and in time periods.
We have structured the contracts with partners to have extended duration and many of the agreements go through the end of this decade and some go beyond that timeframe.
Moving to slide 15, there are several highlights of how we have grown our FMC branded portion of our Diamide sales, new formulations, new registrations and label extensions and improved market access we will drive growth not only for the <unk>, but for all FMC active ingredients.
Earlier this year, we launched and novel patent pending vantage <unk> formulation and the U S, which has already exceeded our original forecasts atlantica.
<unk> provides a much higher concentration and prior and execute our formulations offering improved mixing less packaging and and improve sustainability profile.
We see compelling opportunities and several crops and plan to launch them to call it around the world, including Australia, where we've just received regulatory approval.
We will continue to introduce other new mixtures and innovative formulations in all regions with 11 more launches expected by 2026.
We are also developing new product offerings for our patented precision Pac and thrive 3 D systems, which are expected to launch during the next 5 years.
Furthermore, we continue to expand our precision agricultural platform with additional services provided to growers and dealers through <unk> from intelligence.
Moving to slide 16, we provide and update on our registrations and label extension strategy for our FMC branded dialogues.
Our product registration from regulators is required in every country, where we wish to sell and each specific crop to be treated must be further approved by the regulators and that country.
Every product use approved by regulators equals and new slice of addressable market.
Today, we have approximately 2007 hundred approved uses across all products based on our <unk> and <unk>.
1100 across all products based on <unk>.
We currently have 600 regulatory submissions under review and another 200, and Betsy that we plan to submit to regulators from 2021 to 2025.
We anticipate nearly 600 of these will achieve regulatory approval and the next 5 years.
Moving to slide 17, and the Diamide patent estate.
For <unk> covered by 21 patent families with a total of 639 granted and pending patents.
The other with sciatica Pierre active related patents, we have over 30 patent families and close to 1000 granted and pending patents filed and 76 countries worldwide.
For an extra parents I is it for a complex molecules to produce we have patents and many of these steps and several of these intermediate process. These patents run well past the expiration of the active ingredient composition of matter patents.
The fastest route to market for a competitor to do and to the market for generic <unk> is to register that credit by relying on Fmc's product data to.
To do so they will also be required to demonstrate that that product has the same profile is that for.
<unk> for an exit for their OCI as of yet.
To meet these stringent regulatory requirements for such a difficult to manufacture molecules D. A.
And I will have to be made the same when we are making it which is protected by our FMC process patents.
And our patent portfolio includes extensive coverage of key intermediate chemicals commercial and alternative manufacturing processes mixed use and formulations.
Slides 18, and 19 show the patent and timelines for the top 5 markets.
Taking into account our patents and regulatory requirements, we do not expect to see sales by a legitimate and generic competitor that uses the approved manufacturing process, which would rely on our and Mexico product data before 2026, and Europe, Brazil, India, and China and 2027 for the U S.
Using that same approach for say as it appear on slide 19, we do not expect to see sales by legitimate generic competitors until 2026 for Brazil, China, and India 2027 for Europe, and 2028 for the U S.
It is important to note the process and it means immediate patents are critical as it is extremely difficult to produce these compounds without these intermediates.
Moving to slide 20, we are confident that our patent portfolio is enforceable.
This is evident and our recent favorable injunction restraining net co and India from making a sudden and any product containing <unk>.
Notably the cult also ordered mapco not to use our patented processes to make for an exit for us.
We anticipate that this is the first of many successful enforcements about diamide process patents.
To date, we have enforced our patents and obtain preliminary injunctions all settlements against 6 infringes and India and we have commenced litigation against for Infringes and China.
Beyond patent enforcement. We've also had a variety of other successful court decisions that support our strategy.
For example, we have obtained an injunction against the Brazilian regulators to respect her and except for a data exclusivity, which will postpone action on all generic for <unk> applications filed while our data exclusivity was still enforce this.
As effectively delays that registration approval by years.
In addition to our legal strategy. We've also adopted a comprehensive regulatory advocacy strategy that includes notifying regulators about companies that do not have permission to produce.
As a result of these efforts multiple countries have decided not to accept applications for registration of <unk> products. Prior to the active ingredients patent exploration and others have decided to require additional data and proof of legitimate and manufacturing rights and the source country. That's part of the application process.
So to recap on the day much trust the insecticide market continues to grow and our dialogue and we'll continue to take share.
And our partner strategy is accelerating the growth of <unk> and <unk>.
Moving the transition to a post patent business later this decade.
But all part and the state a strong and will remain in place for a long time.
Fourth we are successfully defending our patents and will continue to enforce our IP.
And fifth Diamonds will continue to be a meaningful contributor to fmc's growth throughout this decade and beyond.
To conclude our prepared remarks, despite the continued headwinds from costs, we continued to deliver excellent volume growth around the world.
Driven by the significant success of new product introductions.
Well as and increasingly robust market.
Our mid to long term growth story is firmly rooted and the strength of our current portfolio. The diamide expansion, we just outlined and the significant growth we anticipate from our new product pipeline over the next decade.
As you've seen in the press release early this morning, we announced now and target to achieve net zero greenhouse gas emissions by 2035. This is a bold step for our company and reflects our deep commitment to sustainability.
And finally I'd like to take this opportunity to thank Michael Wherley for his commitment to FMC over the last 8 years and.
And wish him great success, and his next career and move on.
I'll now turn the call back for the operator for questions.
We will now begin the question and answer session can be placed and queue. Please press the star key and 1 on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the queue. Please limit yourself for 1 question only if you have additional questions you can jump back in the queue to withdraw from the queue.
And please press Star then 2 at this time, we will pause momentarily to assemble our roster.
Our first question will come from Steve Byrne with BMO. Please go ahead.
Yes, Thank you and just a shout out to Mark sure appreciate all the help over the years.
Mark wanted to drill and a little more on the on the Daimler and the outlook I. Appreciate the detailed update on the on the IP strategy and and partnership and so forth.
But we'd like to hear your views about.
The competitive landscape.
What are the primary products.
By region, our crop that you can comment on debt.
I am I really going and the trends competing well and the reason I ask is.
The biggest bucket is the new Unix and can talk to in that category or are being banned by Europe and I don't know, whether you think that could spread to other regions and then and that next big bucket is northern and our phosphates and the number 1 and there is for pure fast and we think the EPA could Dan.
And the next 2 weeks and so whether that could expand as well we'd like to hear your view on debt but.
But more importantly, what are the most those actions means for the competitive landscape for.
For your diary markets.
Yes, Steve. Thanks for the question I think I think you're hitting on something that I sort of touched on and the scripts, what I said that part of the growth of the future of the Diamide range going to be how that insecticide landscape changes and youre right.
They are under pressure organophosphate some of them are certainly under pressure and and you know some of the pyrethroid as well. So when you look at those major classes of chemistry, we do believe that either the diamide as they all built today and formulate to today will take will take share and certain parts of the world from all of those 3 classes for more.
Ultimately I think the way and we're going to formulate and our partners are formulating. These products I think you'll also see that accelerated market share gains against those 3 classes of chemistry and by the way there are other chemistries out there as well that are that are old and those are just happens to be the big ones. So part of the growth is going to be that share gain and we've already seen that.
You can see that the diamide and the growing strongly and some of the other technologies are declining.
I don't see that slowing down in fact for everybody that watches the space you can see the regulatory environment is getting tougher and tougher.
That bodes well for the Diamide and frankly for the next set of insecticides that we will launch over the decade out of our new pipeline.
And very strong growth expected and yes, some of it will be against those different types of classes and products.
Thank you.
Our next question will come from Adam Samuelson with Goldman Sachs. Please go ahead.
Hi, Thanks, good morning, everyone.
Good morning.
So I was hoping that maybe digging a little bit on the revised outlook and maybe.
From a provider and you're right it looks a little more color on some of the sources of incremental cost headwind.
And that you're seeing and kind of the risks or likelihood that that actually will leak further into 'twenty 'twenty 2 and then.
Corollary to that is the pricing actions that you're taking which on a net basis. It came a little bit more modest than you might have thought.
A few months ago.
And and really looking back over the last couple of years, when I look at price FX and cost kind of all 3 FMC.
FMC that that's still on a multiyear basis still a full.
Negative numbers and just help us think about how you would.
Wood frame that on a go forward basis and how.
And how maybe the approach to pricing for cost and FX, maybe he needs to evolve if at all.
Beyond 2021.
Yeah. Thanks, Adam there's a lot wrapped up and that question.
I'm going to try and tackle it with a few different angles, because theres a few things that are connected here.
Plus when you look at what we've said on the cost side.
And now a February guide, we had about $90 million of negative cost and we're now up.
And another 150 plus million dollar range as we've gone through the first half of the year. We've continued to see that many of our raw materials from not only a cost standpoint, but from an availability standpoint, which ultimately does drive the costs have started to increase and.
Not slow down this started with the wave of the commodity changes that we saw due to various.
Issues around the world, whether it was the Texas freeze or other things in China and that has now spread into the intermediates and the fine chemicals. So we're seeing this wave continued through the business and we took the decision.
With our procurement groups and the commercial groups with what we saw coming we felt it was the most prudent way to forecast the rest of the year from our higher cost perspective, So we see the second half of the cost is.
Significantly higher than the first half we had about a $55 million cost headwind and the first half of the year, we've got approximately a 96% to $100 million headwind and the second half.
Now you have to put that in the context of what is happening and the overall marketplace in terms of volume.
If you look at all and volume growth.
We have increased our volume expectations for the year on the back of very good demand for our portfolio and we're seeing that pretty much across the world I would say the only exception is Europe from what we saw in Q2.
But certainly Latin America, and North America.
We're seeing that volume demand and the way our portfolio is built because of the the high EBITDA margins as a drop through.
Now and taken the decision that it is actually better for us to take advantage of that robust market.
Bill and get volume rather than get price now, it's not to say prices not moving it is we have roughly a 37% and $40 million.
And price advantage and the second half of the year most of that comes in the fourth quarter as we roll into the North American and Brazilian seasons, Thats, why youre going to see the most price. So you put all that together you can see we're making some strategic decisions. We know we can take volume at high margin. So we're going to do that rather than go for the price.
Although we all going for price in 2 parts of the world.
The other part of your question was what does that mean for 2022, well, it's very early right now but think of it in this context.
And the way FMC manages its inventory and the cost flow through is we have essentially a 6 month delay and the costs hitting the P&L. So the cost that we are carrying the fast half impact the second half of the year the costs that will incur and the second half will impact from the first half of 2022, I don't see costs going down and the second.
Half of this year that means we are likely to have similar cost structure and the first half of next year. However.
If we look at the way this curve is shaping out it may well be that the first half of next year the cost start to come down and we would see the benefit in the second half of next year. So it is going to be a very much a year of 2 halves to what degree we don't know yet we are right at the very beginning of our budget process.
So we will have more clarity as we get into the fourth quarter on that but that's kind of how we're thinking about this from a just a high level flow of costs into 2022.
Okay, Alright, Thank you I'll pass it on.
Okay.
Okay.
Our next question will come from more and partner with Exane BNP. Please go ahead.
Thank you and good morning, all knowledge and I've got a question and I can't win 10 questions on debt.
Just for 1.
Well, besides patchy and in 14 and I was.
Wondering if you could close and bounce how are you guys seeing confounding focus Henry asphalt FMC, Brian and timelines and the pump and <unk>.
And with those areas of incremental growth and so therefore.
For all geographies all crops, Okay Andrew.
And that's why you think you can drive the growth that said and done and vendor partners and banks debt can you elaborate on that please.
Yes sure.
So if you think about if you think about <unk>.
You look at the chart.
The Donut chart on slide 13 on the far right hand side, we've given a breakdown of our diamide sales by crop.
It's very different.
Different from <unk> <unk> per is almost 100% fruit and vegetables at this point in time.
So for <unk>, which is growing very quickly. It's now just north of $300 million.
And in 2020, it's growing well this year I think the fruit and vegetable market for <unk> has a long way to go when you think of the size of that business not only in Asia, but in places like Mexico, where we're growing strongly and we're seeing <unk> take share.
<unk>.
I think the other aspect that I would highlight is that a lot of our business today is not in brand new formulated products. It is and the active ingredients that's formulated to the use our partners and does now branching out with pretty sophisticated formulations that take us into new spaces. So it is not.
Just a crop perspective, it's a pest spectrum.
For instance.
Our ela vest formulation and the U S. It is the <unk> plus by center, and which is a pyrethroid. The pyrethroid gives you very fast and knockdown of insects. So you'll have a different mode of action, which enhances the use of their and exited and it's those types of activities that not only FMC.
He is doing but many of our partners and now formulating and getting registrations for formulations that we don't have so think of it as the fruit and vegetable market.
I would say expansion and Asia parts of Latin America, and then I would also say eastern Europe mid East Africa for <unk> as well. So you can tell by the way. We think about this there is an awful lot of growth left and not only how we formulate the products, but the geography and the crop and the.
Pest aspect I hope that helps a little bit Laura.
Thanks, Mark and and as it flow to Steves question and you should think about the the long range forecast.
New and <unk> and all kind of phosphates market share losses, I mean would you assume thats on that range and at 1% share gains for <unk>.
And is Directionally correct on average for the next day.
And of these decades.
And I appreciate it's not a linear progression.
Yeah, you're right, it's not going to be linear on and you have products that lose a registration. So in any 1 year, you could have and acceleration of the products replace them.
Suddenly you know when I think about where we are today and that 12% to 13% range.
For the next decade, we should be adding.
And another 3 to 400 basis points of market share as the market growth. So you don't only taking the current market, you're taking growth and the and the extended market and that's 1 of the reasons why we see this this robust growth and it's not just FMC that sees that Russ.
Robust growth our partners see it too that's why they're investing early to get into this molecule ahead.
Ahead of patent expiration as we go through the decades. So they can build their positions and take share and these are the these other chemistries as well.
Thank you.
Okay.
Our next question will come from Mark Connelly with Stephens. Please go ahead.
Thank you Mark.
So I'm very bullish on Latam, despite the disappointments, we've had and the last year and whether that doesn't look all that great.
And I know Latin America is more than Brazil, corn, and soy, but can you help us understand how the pieces down there are fitting together this year and where the risks are.
Other stage disappointing.
I'm thinking from a free and FMC portfolio perspective, how different is this year actually shaping up and last year, when when Brazil did disappoint.
Yeah. Thanks Mark.
So you're right.
We tend to focus on Brazil, but let's be clear we have some other large pieces of business that are growing very rapidly and.
And Latin America, and I would single out Mexico, where we're seeing extremely strong growth on all the fruit and vegetable complex as well as on corn.
And I'm, not just with <unk>, but with our other herbicide products as well and you know as we grow out start to grow our fungicide portfolio, Argentina is becoming a very important country for FMC, we're well north of $200 million and revenue our portfolio fits very well there from a insecticide and herbicide for the.
Soy complex, so we see Argentina growing very well and then you know I singled out a couple of the Andean countries as well, they're small, but they're growing very well for us and they're high value because it's again, a fruit and vegetable market.
For Brazil itself I made the comment in the script that we have.
We have over 70% of the orders in hand for the <unk> to deliver our full year expectations and Brazil, that's probably I would guess about 15% mold and we had at this time last year. So already we can see that you know that the growers themselves are much more bullish on expectations.
And think about the comment that I made about the cotton growers already telling us that we're going to see a reversal and cotton acres, we're going to see approximately 15% more than we saw last year.
And you know you look at the latest forecast its forecasted that for the first time, Brazil will more than 40 million hectares of soy that's up 3% to 4% on the prior year weren't growing our applications on site, especially with insecticides and strangely enough and not the diamide and our other insecticides that are very good on an <unk>.
Such as stink bugs, so you put all that together.
We are very bullish on Latin America, the situation feels very different for last year now if there is a weather issue you know what that's going to impact everybody. It will impact us at some point, we'll deal with that as we go through the year, but the indications right now that the weather and Brazil, and Argentina should be more normal.
And then it was last year.
Helpful. Thank you.
Okay.
Our next question will come from Vincent Andrews with Morgan Stanley. Please go ahead.
Hi, Thank you I'm, just trying to tie together.
The volume versus price discussion as well as the increase.
And the sales from the new products too and maybe they don't have anything to do with each other but.
Where is the incremental $30 million of new product sales are there particular geographies that that's coming from or is it or is it widespread and is it those sales that were we're determining the decision to be more focused on volume rather rather than price and if.
That's the case.
Why did that impact the price decisions on sort of the heritage portfolio.
Yeah, there's a couple of things that Vincent that are they're not necessarily obviously joined together for instance, the.
And the new product sales that you see we register that and volume where you look at our full year chart. So it's mixed in with all the regions, it's not separated out.
Those new products essentially North America, very very strong growth in North America. We're.
We're also seeing growth in Asia, and a little bit in Europe, but I would say this season with the types of products North America U S and particular and Australia with the herbicide launch of Overwatch.
And those new products did not influence our decision to go and get volume on other parts of the portfolio that is a carrying naturally in terms of the new product introductions and <unk>.
Remember some of those markets and in fact, most of them are markets, where we're not cannibalizing ourselves Overwatch herbicide is a brand new market for us. It is a serial herbicide and the first 1 we have so it's brand new market space for us. So we're not cannibalizing and it's not it's not really impacting the rest of the portfolio in terms of how we think about volume demand we.
And have requests for volume.
Cross our portfolio, whether it is pre emergent herbicides and the U S. Whether it is getting ready for the fungicide launches in the U S. So it's more broad based than the new products I wouldnt mix them up.
I wouldn't mix them up like that and then what we have extremely high incremental value. When you look at the dropdown from a volume perspective. It is very high for US right. Now so that also helps us make that decision.
Get the volume.
Our next question will come from Mike Sison with Wells Fargo. Please go ahead.
Yes.
Hey, good morning, guys and good luck to you and Mike.
And Mark just wanted to revisit 'twenty 2 I know, it's way early to give specific guidance, but.
You reduced.
The outlook for this year by 30 cents or so.
And price cost and and it doesn't seem likely share just add that back as we head into 'twenty 2 so.
So what's the best way for us to think about the growth algorithm into 'twenty 2 assuming we don't just add back for 31 cents and try to get to.
Realistic number for next year.
Yes, I'm glad I'm glad you said it that way Mike.
Thank lifts and importantly for US we are we are right on track for our 5 year plan and we've had significant headwinds during the during.
During the period from 2018 to today, yet, we're still growing and that 5% to 7% top line range I would model on a 5% to 7% top line next year.
Yes costs will will.
Essentially look different pricing may look different depending on how much price we get versus our plan. This year and also into the first quarter of next year, where we will be raising prices again.
I would I would simply model on that 5% to 7% range and then we will give more guidance as we walk through the end of this year probably in the November call. We'll start to give you a little more clarity and then and the February call. We'll give you the actual numbers.
But I would stick with that 5% to 7% there are so many moving pieces I mean think about it at the EBITDA line.
We've had $600 million of FX and raw material costs since 2018.
Yet we're right in the range of our 5 year plan. So it just shows the resilience of the portfolio, our crop and geographic mix and our ability to offset what are enormous costs that are flow through the organization.
Got it thank you.
Okay.
Our next question will come from Frank Mitsch Fermium Research. Please go ahead.
Hey, Mr Olympia and great working with you all the best for you Mike.
I was just curious Andrew if you wanted to talk about the buyback program. It looked a little light and <unk>, what what should investors be expecting there.
Yes. Thanks, Frank look if you look at our balance sheet, we ended the quarter with a high level of cash and I just mentioned as it might be for our prepared comments, we have some cash and from overseas subsidiaries and we werent able to get back to the U S. This quarter, which is sort of limited our ability to buy back at the pace, we might've and anticipated.
When you look at the timing of that movement as well as just the timing of the generation of cash.
Thank you should expect that our the pace and sequence of our buybacks this year and much more heavily weighted to the fourth quarter.
And we will be and we're looking at alternatives to bring that cash back for the U S. Here this quarter, but not clear the exact timing, but that $350 million to $450 million buyback range for the full year very much and reach and just will be a bit more backend loaded in Q4 than what we had initially anticipated.
Alright, Thank you very helpful.
Our next question will come from Joel Jackson with BMO capital markets. Please go ahead.
Hi, good morning.
Just to go back to the kind of 7% to 9% growth algorithm and 5 year plan.
Mark and I appreciate all the color, you've given already and the call, but I mean.
And later comments do you have a lot less confidence and the EBITDA growth algorithm targets versus it seems like you've got strong confidence and topline and.
And what prices are you going internally now and just sort of reassess.
And the mid and long term EBITDA growth targets.
Yeah listen I have absolutely no wavering on our targets, whether it's the topline our EBITDA I mean thinking.
And thinking about our latest guidance for this year, we're growing EBITDA at 6% this year.
And that's that's pretty close to our 7% to 9% despite $150 million of headwinds that we were not expecting when we started the budget process last year, so non Joel I think.
When I look at the portfolio of the company and the growth opportunities and I'm very encouraged by the $130 million of of.
Revenue from products, putting the marketplace. This year alone we have about $400 million of sales. This year that have come from products that we've launched over the last 3 years. So that growth algorithm is is very much in place plus the fact that those products have higher margin than our general portfolio.
So and the products that are dropping off the other and are at a much lower margin. So I have no reason to believe that the.
The EBITDA projections of a 7 to 9 are not unrealistic at all and we are certainly as confident as we well when we put the plan together so yeah very much in that range.
Yeah.
Okay.
Our next question will come from Alexia <unk> with Keybanc. Please go ahead.
Thank you good morning, everyone Mark.
Chart, you showed that Fmc's diamide products represent about 80% of the class how do your products compared to the 20% that are sold by your competitors and how do you think competition between those 80% and 20% and buckets will evolve and the overall class growth.
Yeah, well listen I think the fact that we're over 80% of that class and those products have been around for a while tells you that the growth algorithm for what we have the products are different I mean, when you look at our next Super. It has just done unbelievable residual activity versus the other dialogues that are out there they may be and the same class of chemistry.
But they're not the same chemistry and that's important when you look at things like residual.
Pest spectrum et cetera, So we do see our products continue to outpace the rest of the diamide that are and that and let's be honest, there's only 3 or 4 of them from different companies.
I expect our growth rates will continue and that 80% number will go up over time.
Thanks Mark.
Our next question will come from John Roberts with UBS. Please go ahead.
Thank you during the quarter the Diamide partners geographic shift reduced the U S sales did it benefit ex U S by and offsetting amount and if so could you give us the X U S numbers, excluding the partners.
Yes, it did John.
I think the amount is roughly about $50 million to $60 million and it's not it wasn't like Q1, exactly where it all went to 1 region. It did go to a couple of regions, but certainly the growth rate and in Latin America without that would have been very high single digits versus the 15%.
Sent that we showed on the chart. So there is an offset and Latin America, a little bit in and a couple of the other regions, but I think that's how you should think of that $50 million to $60 million.
Most of it and Latin America, a little bit and the others.
Thank you.
Our next question will come from Mike Harrison with Seaport Research partners. Please go ahead.
Hi, good morning I.
Wanted to ask a couple questions on Europe first of all you noted the weather issues and kind of a slower start to the year.
And we've seen a lot of pictures out of Europe. So do you think.
And the weather situation could worsen.
As the year progresses, and then the day registration impacts this year is that a fairly normal pace.
Volume headwind or is it worse this year.
And you would normally normally see in Europe.
No its about I will take the second part for US like it's about the same its about 150 basis points of of revenue. Most of it is in Europe, a little bit and Latin America as well.
And that's kind of normal we kind of model about 1.
1.5 per cent drag on revenue through the registration.
Elements that flow every year. It can go as high as 3% we've had 1 year, where it was 3%, but that was a deliberate action by us.
I would expect it to be in that 1.5% range as we go forward from a weather perspective, yeah. The spring was suddenly late and cold, which impacted us we.
I'll see and increased pest pressure and now with the weather as it is which is good from an insecticide perspective.
The fall is very important for ultimate applied herbicides for for cereals, we'll see if the weather is good there.
That certainly helped Q4.
But.
Talks about this this year and how we're not expecting a lot of growth out of Europe, and I think that's a fair way to look at Europe. This year, given the weather issues.
I don't think I don't think for being too bullish on Europe now next year, if weather improves and we have a more normal season, we should see a good uptick and Europe next year.
Okay.
Our next for our last question will come from Michael <unk> with Cleveland Research. Please go ahead.
Yes.
Just a question on the Diamide business and thanks for the color with respect to the sales that you make to your partners is it fair to assume that it's at a competitive margin I know you guys showed the chart, saying your margins have gone up as the sales through the partners have gone up but are the margins generally pretty competitive and if so you know I mean.
What's the.
Net benefit of selling it yourself versus just for lying on the partners and to some of the product.
Yeah, Mike.
So from our perspective the way the contracts are written.
They have to be advantageous for the partner, who has to make money and the markets, they're in and it cant be dilutive to us and that's how we view it so from an EBITDA margin perspective. These products are equally as important as the branded products that we sell they gain access and.
And what they are financially extremely attracted to us and financially attractive to our partners. So we have that we have that win win but we obviously don't disclose the margins of these products are out with our partners ourselves suffice to say that we're very happy with the financial performance of our part and the growth and obviously our partners keep growing so there also.
Very happy with the financial performance as well.
Yes.
And it is all the time that we have for the call today. Thank you and have a good day.
The conference has now concluded the full conclude the FCS Corp Conference call. Thank you for attending you may now disconnect.
Yeah.