Q3 2021 FMC Corp Earnings Call

Good morning, and welcome to the third quarter 2021 earnings call for FMC Corporation. This event is being recorded and all participants are in listen only mode should you need assistance. Please signal our conference specialist by pressing the star key followed by zero.

After today's prepared remarks, there will be an opportunity to ask questions to be placed in the Q&A queue. Please press the star key than one at any time, if youre using a speakerphone. Please pick up your handset before pressing the keys.

I would now like to turn the conference over to Mr. Zach Zackie director of Investor Relations for FMC Corporation. Please go ahead.

Thank you Chad and good morning, everyone welcome to FMC Corporation's third quarter earnings call.

Joining me today are Mark Douglas, President and Chief Executive Officer, and understand if our executive Vice President and Chief Financial Officer.

Definition of these terms as well as other non-GAAP financial terms to which we May report during today's conference call. All provided on our website with that I will now turn the call over to Mark.

Thank you Zac and good morning, everyone.

SMC delivered record third quarter results.

We grew our revenue by 10% EBITDA by 12% EPS by 17% and importantly expanded our EBITDA margins, despite continuing cost pressures.

Performance in the quarter was driven by broad based volume growth and price increases.

New products introduced in the last 12 months continue to gain momentum.

And we are now forecasting sales from these products to account for more than one third of our revenue growth this year.

In addition, Fmc's plan health business had an excellent quarter with 40% year over year growth led by biologicals.

Looking ahead, we continue to expect a strong finish to the year driven by high margin volume gains and accelerates a pricing actions as well as a robust global market backdrop.

I would like to take a moment to acknowledge our operations and procurement teams for that contribution to our third quarter performance.

The supply chain and logistics challenges highlighted in our last earnings call continue to disrupt outcome and other industries around the world.

FMC was able to meet the strong growing demand for our products in a timely manner. Thanks to the work of these teams.

Let me also briefly comment on COVID-19 impact on FMC.

All our manufacturing facilities and distribution warehouses remain operational and properly stuffed.

Our research laboratory as in greenhouses continued to be fully active and we have resumed in office operations in many parts of the world.

<unk> continues to follow all guidance given by local authorities.

Turn into a queue three results on slide three we reported $1.2 billion and third quarter revenue, which reflects a 10% increase on a reported basis and a 9% increase organically.

Growth was bored based with 11 of our top 20 countries posting double digit growth in the quarter.

We had strong growth an old product categories.

Led by greater than 20% growth and herbicides.

This was partially offset by registration losses, and EMEA in Latin America.

Adjusted EBITDA was $293 million, an increase of 12% compared to the prior year period and $18 million above the midpoint of our guidance range.

EBITDA margins for $24, 6%, an increase of 40 basis points compared to the prior year.

Driven by mix improvement as well as operational discipline them price increases in all regions.

Adjusted earnings were $1.43 per diluted share in the quarter, an increase of 17% versus Q3 2020.

The year over year increase was primarily driven by an increase in EBITDA.

With the benefit of share repurchases and lower interest expenses largely offset by other factors.

Relative to a Q3 guidance the 12 feet was driven almost entirely by EBITDA.

Moving now to slide for.

Sales in Asia increased 20% year over year, 19% organically driven by strong diamide sales across the region as well as pricing actions.

In Australia, we had a successful launch of Vansickel inside control, which is the new higher concentration formulation of redneck Super active.

<unk> applied to specialty crops, such as chickpeas.

The Australia market also benefited from positive growth sentiment favorable weather conditions and strong intersect pressure.

India had another growth quarter, despite an erratic monsoon, which resulted in dry spells in parts of the country.

India's growth was driven by Diamide sales and rice as well as continued expansion of the rest of our portfolio leveraging a strong market presence.

In Latin America sales increased 11% year over year at 9% organically driven by double digit growth of insecticides, and Brazil, and Argentina, as well as pricing actions across the region.

Corn, soy and cotton with a key crops driving growth in the quarter.

This is a direct result of our strategy to improve market access and increased penetration of our technologies, particularly in the Brazilian soybean market.

Chile is another good example of this Ah sales nearly doubled compared to this time last year as we leveraged our enhanced market presence.

On health products grew approximately 50% in the region led by Biologicals and seek treatment.

Latin America was impacted partially by registration cancellations and rationalizations of products in the quarter.

EMEA grew revenue, 12% and 10% organically driven by strong demand for our herbicides and diamide across the whole region.

Despite headwinds from registration cancellations.

Others, Russia, France, Germany, and the UK grew double digits in the quarter.

Demand was especially strong for herbicide applications and cereals and oilseed rape.

South Africa doubled its sales in the period compared to the previous year driven by the continued penetration of Diamide, mainly on citrus on top fruits.

This is a great demonstration of the untapped potential in new markets for our <unk>.

R U S and Canada branded business grew greater than 20% driven by strong demand for our <unk> and full herbicide applications as well as pricing actions.

<unk> had a successful introduction in the U S where it is used to target one person a range of crops, including soybean corn and cotton.

The bun to call launch was timely and welcome by growers, who are battling extended fall army wind pressure from the southern markets up through the middle of the country.

Overall, North America sales decreased 6% year over year, and 6% organically due to the continued shift of dynamite Global partners sales in the quarter from North America to other regions as we have described in previous calls.

Moving to slide five despite continuing supply issues across the industry Fmc's third quarter revenue increased by 10% versus prior year, driven by a 9% contribution from volume.

Gross prices increased 1% in the quarter is our most recent pricing actions went into effect.

EBITDA in the third quarter was up 12% year over year, primarily due to broad base volume gains.

We also had a 12 million dollar contribution in the quarter from price increases as invoice to customers.

The benefit of our pricing action was must in the quarter by some favorable rebate another adjustments in the prior year period that did not repeat this quarter.

Costs continue to be a headwind however, the total amount incurred in the third quarter was less pronounced than previously projected mainly due to timing.

We still expect second half costs to be consistent with previous guidance.

And FX was a 10 million dollar tailwind in the quarter.

Starting to slide six before I review Fmc's full year 2021 in queue for earnings outlook, Let me share our view of the overall market conditions.

We continue to expect the global crop protection market will be up mid single digits. This year on a U S dollar basis.

Breaking this down by region, we continue to anticipate high single digit growth in Latin American market mid single digit growth in the EMEA market.

Low to mid single digit growth in the Asian market and low single digit growth in the North American market.

We are raising Fmc's full year 2021 earnings guidance to the range of $6.59 to $6.99 per diluted share a year over year increase of 10% at the midpoint, reflecting the impact of share repurchases completed year to date.

Our 2021 revenue forecast remains in the range of 4.9 billion to $5.1 billion, an increase of 8% at the midpoint versus 2020.

EBITDA remains in the range of 1.29 billion to 1.35 billion, representing 6% year over year growth of the midpoint.

Guidance for Q4 implies year over year revenue growth of 19% of the midpoint on a reported basis with no effects impact anticipated.

We forecast EBITDA growth of 29% of the midpoint versus Q4, 2020, and eps's forecasted to be up 41% year over year.

Approximately three quarters of the EBITDA growth is driven by the return of business missed in Q4 2020 due to supply chain disruptions in North America, and whether impact in Latin America.

Turning to slide seven and full year EBITDAR in revenue drivers.

Revenue is expected to benefit from 6% volume growth, a 1% pace can picture.

Contribution from higher prices and a 1% benefit from FX. We anticipate continued strong volume growth led by lots of in America, North America and Asia.

We have increased our forecast again for revenue from products launched in 2021.

These sales are now expected to contribute $140 million in year over year growth.

Up from our last focused of $130 million in our initial view of $100 million.

Pricing actions in Q3 will continue to accelerate in queue for we will continue to raise prices across all regions going into next year.

Despite the shift of costs from Q3 to queue for estimates for full year cost headwinds have not changed in south detailed comments and the last call. This is why our full year outlook remains unchanged.

Moving to slide eight and a full quarter drivers.

Revenues expected to benefit from strong volume games in Brazil, the strength of soft commodity prices.

Checked it increases implanted areas as well as good weather conditions are all leading to a good cadence of incoming orders and give us confidence in our expectations for a strong fall quarter.

And the U S channel inventories of normal for this time of year, our new product launches again insignificant traction and market sentiment supports our expectations for robust fourth quarter.

As I noted earlier, we've also moved on price increases with higher prices already in effect in the Brazilian in U S markets.

Similar actions are underway in other countries across the globe, such as Australia, Russia, France, Mexico, and Argentina, and you should expect us to continue raising prices through the year and and well into next year.

Cost increases are consistent with our guidance for the second half we continue to pursue cost improvement opportunities and remain vigilant without cost controls all without impacting R&D pipeline all growth trajectory.

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 modest tailwind of revenue growth in the quarter as expected with the U S dollar weaker against many key currencies.

Significantly in Latin America, with the strengthening of the <unk> and the Mexican peso.

Interest expense for the quarter was $33 $1 million down $2.4 million from the prior year period driven.

Driven by the benefit of lowered that balances and lower LIBOR rates.

We continue to expect interest expense to be between 130 and $135 million for the full year.

Are effective tax rate on adjusted earnings for the third quarter was 13.5% as anticipated and in line with our expectations for a full year tax rate between 13 and 14%.

Moving next to the balance sheet and liquidity.

Gross debt a quarter and was $3 $4 billion down roughly $400 million in the prior quarter.

Gross debt to trailing 12 month EBITDA was 2.7 times at the end of the third quarter, while net debt to EBITDA was 2.5 times.

Both matrix improved sequentially.

So it's still slightly above are targeted full year average leveraged levels, we expect to be a target leverage levels at year end.

Moving on to slide nine and cash flow and cash deployment.

Free cash flow for the third quarter was $300 million adjusted cash from operations was lower than the prior year period, largely due to our decision to build inventory to help manage continued supply chain volatility and to be prepared to fulfill strong demand in the fourth quarter and in early 2022.

Capital additions were somewhat higher as we continue to ramp up spending following the deferral projects last year due to coed near.

Nearly 50% of this year's capital edition support capacity expansion.

Legacy and transformation spending with down substantially with the benefit of the completion of our program and lower legacy spending.

We are maintaining our expectation for free cash flow and a range of $480 million to $570 million with continued expectations for seasonally strong cash flow in the fourth quarter.

We returned $262 million to shareholders in the quarter fee at $62 million in dividends and $200 million a share repurchases buying back to 1 million shares in the quarter at an average price of $95.26 per share.

We have now repurchased just over 3 million shares this year, reducing our share count by nearly 2.5% since the beginning of the year.

Year to date, we've returned $486 million to shareholders through dividends and repurchases.

For the full year, we continued to anticipate paying dividends of roughly $250 million and a repurchased $350 million to $450 million of FMC shares.

And with that I'll turn the call back over to Mark's.

Turning to slide 10, I want to provide an early look at the key dynamics underpinning al planning process for next year.

We view 2022 was another year with a good macro environment.

Notwithstanding the impact whether can have on any single quarter.

We expect the soft commodity pricing momentum will carry ins and next year with global demand for crops remaining healthy.

As a result, we're assuming the overall crop protection market will grow in the low to make single digit range next year on a U S dollar basis.

Fmc's growth will be driven by broad based volume gains across our portfolio.

Missing actions reflective of cost increases continued expansion of diamide volumes, an existing and new markets and further penetration of new products and expansion of our market access in underserved geographies.

We expect cost pressures this year will persist well into 2022 is the industry grapples with global supply demand imbalances structural changes in China's industrial policy and energy supply tight ocean freight capacity and labor cost inflation.

Taking all this into consideration current early thinking would suggest year over year revenue growth of 5% to 7% EBITDA growth of 7% to 9% and EMEA EPS growth at over 10% in line with our long range plan.

We will share more detailed guidance for 2022 and Ah February call.

To conclude our prepared remarks, the second half of the year is playing out as we forecasted we executed very well in the quarter not only from an external perspective, and driving demand and pricing across all regions, but also importantly internally by fulfilling that demand with product in a timely manner under challenging supply chain conditions.

The only change in the second half is a timing shipped with costs and hence we're not changing a full year guidance.

The overall crop protection market fundamentals of positive and we remain confident in our ability to deliver a full quarter forecast.

I will now turn the call back to the operator for questions.

Thank you.

Will now begin the question and answer session to be placed in the queue. Please press. The star Key then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys.

Please limit yourself to one question only if you have additional questions you can jump back in the queue to.

To withdraw from the queue. Please press the Star then too.

At this time, we will pause momentarily to assemble our roster.

And the first question will be from Christopher Parkinson from Mizuho. Please go ahead.

Thank you so given all the challenges FMC and everybody else in the industry is facing on both raw material supply chains and transportation logistics here today, where we stand can you just give us an update on the market and the market ads in the 2022.

Regional price initiatives and how you are but ultimately poised to combat these challenges. Thank you.

Yes, Thanks, Chris.

To unpack the sorry.

Sorry.

Okay when.

When we when we look at the market today and some of the dynamics that we've outlined in certain as we look forward to 2022, why don't I take a look at the cost elements fast and just what are we seeing I think on a raw material perspective.

Raw materials are still staying high but more importantly, it's not just the cost here, it's the supply side that is causing.

I would say the most sleepless nights as we go through the end of the year.

I think we're starting to see some of the very large commodities come back a little bit such as propylene on ethylene, which we believe will help the pricing and packaging because we've seen tremendous acceleration and packaging costs I don't think that's necessarily going to help with the supply side in terms of how long it takes to.

Get packaging that as being a big problem for us and many other people this year.

I think the specialty chemicals continue to be disrupted we are obviously seen much higher prices in that area, but we're also seeing continued disruptions out of China I mean, a lot of people here the latest news around the energy controls that we're seeing in many of the major producing provinces, we don't see that going away, particularly quickly.

There are now diesel constraints in China related to the amount of fuel. They have so that's that's potentially going to constrict movement of goods within China that can that could causes problems as we go into next year.

And then I think the last one really is right.

We continue to see tightness in ocean freight.

Noticed a couple of the big Ocean freight companies have released earnings and said don't expect that to change as we go through mid year next year into the second half of next.

Next year, we would agree with that we think ocean freight is going to remain tight and availability will be somewhat somewhat spotty. So I think the environment is pretty much what we expected with the with the exception of the potential for further disruption in China in Q1, as we as we go through Chinese new year.

Year as we go through the Winter Olympics shutdowns, we are planning for all of that obviously, we've known about that for some time, but that doesn't mean to say that won't be that won't be disruptions. I think my view has changed from our August call, where we talked about the potential softening of raw material prices and availability.

<unk> ability in the second half of the year I am somewhat less confident of that now given how was seeing things develop so I'm, taking a little more of a conservative view on raw materials and cost and availability as we go through our planning process, what does that mean for us from a from a demand perspective, well as I said.

In the in the script.

Demand is good.

No mistake Aggies pretty robust around the world our growth was very consistent across all regions.

I think we will see that continue next year soft commodity prices a robust we see good demand for fruit and vegetables and specialty crops around the world, which frankly is the vast majority of our portfolio.

On the pricing front, we have been much more aggressive and moving prices in the second half of the year, that's starting to bear fruit now I think you've got to remember that the agricultural industry is a specialty chemical industry in general and we certainly we sell on value. This is not selling propylene or ethylene web prices move quickly now there are parts of the <unk>.

History like the nonselective. Besides the do move quickly they are tend to be more formulary more generic we don't participate in those markets. However, having said that we have put.

Mid single digit price increases into many countries in the world. They have been accepted in the old as a flowing at the new levels. We will take a look in Q1 of pricing again see.

Raw materials are and we will continue to move price in tandem to regain the cost impacts that we've seen over the last 12 months.

That's a rather a long answer to what was a long question, but hopefully hopefully you get the flavor of how we think I apologize, but I appreciate the caller. Thank you very much.

And the next question comes from Joel Jackson from BMO Capital markets. Please go ahead.

Hi, Good morning, I'm, just gonna sneak into one first clarification Mark when you I think I heard you say you expect 10% EPS growth in 2022 right now.

You guys, usually doesn't include share buybacks and with that using $6.79 midpoint, but this year, excluding buybacks you get in the second half of this year and buybacks next year to get the 10% and the other question I wanted to ask was following up on Christmas question.

If you look into that first half of the year or even Q1.

So you had where you had a bit of margin expansion.

In the third quarter and your guidance a little bit of margin expansion in the fourth quarter. So we expect you expect a margin expansion also in Q1 of the first half of the year.

Yeah, Joe Let me take the first one the second piece first and then Andrew could answer the share count question.

Yeah listen when you look at our margins you right in the second half of the year. We have started to improve the margins again, we've been on that track for the last three years.

We do we do know that we're going to see higher raw material costs in the first half of next year. However, pricing is kicking in and then don't forget you've got the impact of the new products that were bringing to market. We are on a track to sell about $140 million of new product launches. This year from products launched this year they tend to be at.

Hi margins, so that takes too.

To improve your margin.

Q1, less this year was a low quarter for us. So yes, I would expect Q1 margins to look a little better than they did in Q1 2020, and then continue that that normal trajectory that we have of improving margins as we go through the rest of the year, obviously, all caveat that would say.

Whatever happens to raw materials and the pricing balances. We go through the year and did you want to comment on the share count in the G. R.

I think there was absolutely right when we give indications of of EPS growth that does not include any benefit from share repurchases, we haven't yet haven't completed.

So we're assuming.

And that look forward for next year at 10% EPS growth that that's just reflecting the aggressive EBITDA.

Change in items between EBITDA and net income and the benefit of the share repurchases that we are doing in 2021.

You've done 300 men to date, not all of which do you get that benefit and share counting of the year that you would do it as of feathers and over time and the weighted average share count.

Calculations.

Again that 10% EPS outlet for next year and like we're still work in the budget is not firm, but certainly no nothing is built into that assuming benefit of any additional share repurchases. In 22 is consistent with the way we have provided guidance in the past.

Thank you.

The next question will be from Steve Byrne with Bank of America Securities. Please go ahead.

Thank you Mark can you talk through how you distribute your products and distribution channels in Brazil.

I ask pickles.

We understand there have been some changes in their channel we have the formation some big farmer buying groups.

Syngenta fulfilling through during stores and some consolidation at the independent so.

Is any of that.

Making it more challenging to to get price.

Or is that Palmer you have me the quarter ago about going after a volume over price has that changed now.

Yeah, Let me, let me talk about Brazil, and maybe I can tackle the very last comment that what I actually said and I think there was some confusion here I said there were opportunities for us to take volume around the world with our high profitability products, which we were doing we were increasing prices then and we're not.

Going price full volume so I just wanted to be perfectly clear you can see that in Q3, you can certainly see in queue for and you'll see it next year prices are very important mechanism of how we move against cost and FX. We continue to utilize that blood volume is also very important to us.

In Brazil, taking the second piece on Brazil.

There are three main channels to market in Brazil.

First of all they're all the co ops, which are very dominant in the south very large.

Farmer owned co ops that service the marketplace in the north in the mid you do have some co ops, but you also have distribution and retail. So you have large distribution and some locally owned retail and then sighed is direct to growers.

Cause really way you have very large mega growers, mainly in the matter Grosso area and by year, especially formulated around soy corn and cotton. So those three those are three pretty big defined channels I think you're right in your assumption in your statement that there are changes occurring in the Brazilian.

Market.

Nothing that we would say would change the way we view the market, we actually sell through all three different routes direct to grow up distribution slash retail and through the co ops, we don't see that changing and certainly in the in the midterm given that the market is so large and there is so much fragmentation, especially.

<unk> through the distribution and retail channels that we.

We don't see some of the changes out there impacting our ability either a to grow the portfolio with the new products, we are introducing albee to get price in Brazil.

Thank you.

The next question will come from John Roberts from UBS. Please go ahead.

Thanks, and nice quarter.

It looks like you are expecting 4% price in the fourth quarter and prices accelerating upward I think so how do I square that with a 5% to 7% 2022 revenue growth.

Revenue growth be primarily price in 2022.

No it'll be it'll be a mixture John obviously, you see where we are in terms of the mid sort of the mid single digits. We do continue to see volume expansion as we go through next year.

I think the five to seven is a is a rough number today as we said once we get through all our analysis of where the volume flows out, we'll see where that where that sits and then we'll we'll see what price ended up at the end of the fourth quarter and how that plays out for either a future price increases in Q1 and Q2 as we go through the year, but.

Too early to make that delineation between what's exactly price once exactly volume.

Exactly how much of the top line is going to grow a five to seven.

Thank you.

The next question comes from Adam Samuelson from Goldman Sachs. Please go ahead.

Ah yes, thanks, good morning, everyone.

Mark I was hoping to come back to you think he came up and Steve's question.

From the comments on the second quarter call about me.

Maybe leaning into the volume growth in on your higher margin products I think the comments are directed more around some emerging markets in Asia.

In India, specifically and I guess just can.

Can you give any thoughts are updated and how you think you're doing or at the success of that in terms of gaining.

Or trying to get some new market share for some of those active ingredients in I guess in that context, you listed a whole bunch of countries, where you're putting in price actions.

And the and the fourth quarter or that are already in place and.

Maybe it was purposeful maybe it wasn't that I didn't hear India on that less and so just any kind of clarification or comments there.

No I think listen I mean, when you have when you have a 9% to 10% is top line growth, you're obviously doing something right in the marketplace, whether it's moving your price.

And all gaining market share in certain parts of the world I think both of those pieces play out.

India has had a good quarter for as we grew in India. Despite the fact and I think I put this in the script. The monsoon was very spotty in India. There was some markets, particularly the soy market was impacted by very dry weather, we are moving prices all across Asia, including India.

The specialty markets and in Europe, very good for us the Diamide portfolio continues to grow well taking shed from some of the older Chemistry's outlet that we talked about on the last call and I would say southeast Asia is also very strong in terms of how we are growing and then last but not least in Asia is Australia, Australia.

As being a very good market for us with the launch of our new Isa Flex herbicide, but also the Vandecar insecticides. The first launch was there in Australia as well so price price is pretty much across I only give a couple of examples of countries, but we've moved price and all moving price pretty much in every country in the world.

As we move through the end of the third quarter into the fourth quarter. So you should certainly see that benefits starting to play out as we move into early next year.

I appreciate the caller. Thank you.

And the next question will be from Kevin Mccarthy from vertical Research partners. Please go ahead.

Good morning, Mark I was wondering if you could speak to the cost shift from the third quarter to the fourth quarter. If I look at slide five it appears as though costs came in $23 million lower than you had previously anticipated and you'll have to back half an unchanged. So 80.

$1 million is the expectation apparently for <unk>, maybe you just kind of help us understand what is going on there and.

The 81 million, perhaps a conservative given the experienced in the third quarter.

Yeah. Thanks, Kevin it's a pretty simple move actually in terms of what we saw in cost is two main elements and I'll I'll talk about them, both high level and Andrew If you want to talk about one of the pieces.

You can split it 50 50, essentially we had some SG&A and RMB expense that we thought would fall in Q3, when we originally forecast in the second half of the year and it didn't it's going to fall in queue fall. So we'll see in about half that change really due to some R&D project work as well as some.

G&A expense that we thought would.

Q3, and then the second half is really just have some costs have flown through our our income statement and Andrew would you want to talk about that from a just a pure procurement perspective chair like I think is marks at it.

An equal driver between SG&A R&D spending timing.

As well as Cogs increases and it really is essentially a cost mix issue in terms of what's all than what came out of inventory this quarter versus what what we had initially model then we gave guidance.

That costs, we are seeing in our inventory and certainly in the step up an inventory easy year on year and sequentially on our balance sheet. You can see evidence of that higher cost it's sitting in our inventory. It just flowed through the P&L a little more slowly than we anticipated and we gave guidance.

That 80 million dollar headwind $81 million headwind for the second half still feels like the right number for us.

The things that are being spent R&D her around.

And then a lot of field trial investments other things that are part of supporting our long term development pipeline SG&A spending will be a part of supporting the sales growth and then the cogged again, it sitting in inventory I just hadn't flowed through yet through the P&L, so with a strong volume growth in queue for you'll see that.

Perfect. Thanks very much.

And the next question will be from Vincent Andrews from Morgan Stanley. Please go ahead.

Thank you good morning, everyone, maybe mark you could discuss or compare and contrast, the south American operating environment looks a lot healthier this year versus last year just given much.

A much better start to the planting season, which generally pretends to.

Good news for the second crop and so forth so.

We also have higher coffee and and sugar prices. So.

Are you seeing better demand and maybe you anticipated a few months ago. When we didn't know how that was going to play out and are you more optimistic about <unk>.

<unk> sort of <unk> as a result.

Yeah. Thanks, Vincent listened Latin America, you're right I mean, the planting season is underway, it's much better than it was last year.

<unk> came at the right time last year, we had very dry dry weather, which impacted the industry. This year, we're not seeing any of that I think on the back of as you just said very good commodity prices and a lot of people concentrate on soy and corn, but you highlighted sugar is very high and 19 cents is a good number for sugar cause.

He is high.

More importantly for us cotton as high as well and if you remember earlier in the year, we talked about how we were thinking about the cotton business.

Acreage declined in the.

21 to 20 season by about 15% were expecting and that we're seeing that coming back as we said earlier in the year. So the 22 21 season will be very robust prices high demand coming back after COVID-19. So all of that is very positive.

I would say don't focus just on Brazil, Argentina is also a very important market for US now it is well in excess of $200 million I think it's our fault largest country now in the world.

We have a good portfolio on soy and cereals in Argentina than market is also moving in the right direction better than it did last year and then the rest of the region not to be missed for US is Mexico, Mexico is a very important country for our specialty products on specialty crops, we do a lot of business on.

On corn on fruit and vegetables, there is tremendous business for us on.

On avocados those types of high value.

Commodities, Mexico's growing well seasons going well that the weather conditions of being good. So yeah, I would say overall Latin America feels much more robust than it did this time last year and that's how we felt it would play out and so far so good.

And the next question will come from Mike Susan from Wells Fargo. Please go ahead.

Hey, good morning, guys.

Could you maybe talk about the dynamize heading into 22 any.

What type of growth.

See you got some new products, there and then maybe how much of that growth come from the new license. The licensing agreement that you had set up over the last couple of years.

Yes, Thanks, Mike Yes.

Yeah Diamide so.

We've talked in the past about.

Or a growth algorithm and Ah how we're in the nine.

Out of high single digits, low double digits range a year in year out.

I would expect that type of number next year as well, we all see interaction with all the agreements that we put in place we're not going to split out on a regular basis. The what we sell into the partners US is what we sell ourselves, but periodically we will give an update on how that's playing out but the growth is good I think you highlighted one area, which is the new.

Formulations, the vertical launch that we put in place. This is a very very novel.

Formulation. It is much higher concentration therefore, it's easier to use it's very easy to disperse they know that mixes as you grow as use it.

We've already seen tremendous traction in the two countries. We've launched there'll be more countries launch next year on Vansickel, we expect that new formulation to cannibalize.

And grow the market for us so some of the older <unk> formulations will disappear Vansickel will continue to take that business, but also grow the overall market share and then there were some other things we have planned next year for product launches. So <unk> continue to be successful I think a lot of people who would think about the dynamite is focused on <unk>.

We're also seeing a lot of growth on size. It was launched slightly behind <unk>. It has a slightly different motive action it it.

It covers a different crop spectrum and we're now starting to see that product really move on the specialty crops. We're seeing a growth seen significant growth in Europe parts of Asia really the two markets were focused on so we liked the prospects for <unk> not to say that through Mexico doesn't.

Continue to grow it doesn't it will do but I think <unk> appear over the next couple of years will come into its own.

Got it thank you.

And the next question will come from Mike Harrison from Seaport Global Securities. Please go ahead.

Hi, good morning.

You noted that the north American business would've been up around 20% or more if we adjusted for the diet. My partner sales can you talk about some of the underlying drivers and that North American business for the second half, but there are some inventory restocking going on can share gains are are we really just.

Lapping some of the disruption that we saw in the prior year. It seems like there are a lot of moving pieces and I was hoping you could help us parse those out thank you.

Suddenly Mike.

You won't really lap.

Until we get through queue for we did not have a good cue for in North America last year, So really you'll see that lapping carrying in queue for no I think that listen the real the real energy an hour North American businesses, how we're changing the portfolio.

You've heard us talk in the past a lot about our premium urgent besides the authority brands, which really wear a bedrock of how we grow in north American business overall, I would pre emergent business, while still growing is shrinking in terms of parts of the portfolio. Our business is actually accelerating the cost of the new products were introducing.

We introduced Blue Central last year, which is a more specialty fungicide, we launched zywiec another fungicide for us a new area, it's a in ground.

Fungicide for corn applications, while we've never participated before so that's a market that is a very large market. We have some very unique technology with zywiec and in its first year it far exceeded our expectations and we have big growth plans for 2022 season.

And then you have the insecticide launches LLS advantage of color in the U S, which are targeted more towards the specialty crops. So the growth you'll seeing in North America is nothing to do with restocking et cetera. It is all to do with how the portfolio is shifting a new products are accelerating our growth. So we do feel very good.

About what we expect next year in North America. The market itself is robust. So as you are launching products into a robust market you should get that good growth and we're seeing that now.

Thank you and the next question will be from Chris cash from loop capital markets. Please go ahead.

Good morning. Thank you just peeling back the onion, a bit more here and no pun intended but on the challenges in and around the raw material and packaging sourcing. Despite all the focus on these challenges across the broader industrial sector.

And while you are certainly incurring higher cost you guys are able to deliver pretty good.

Organic growth and three Q and the pied implied organic growth <unk> remains intact. So in other words, you're you're volumes don't seem to be have been to screen all that much. Despite the disruptions. So just wondering is that a fair characterization and also just looking for more color here do you think you know you're simply doing better.

Then the rest of the industry, where does this reflect maybe a more you're more balanced geographic footprint, whereas the challenges may have been more acute in North America, just some more color on that and then I had a follow up.

Yeah, let's not I don't want to make it sound like it's easy because it is not and Vienna. Every every company in this space is going through the same things we face similar disruptions. It may be in different parts of the portfolio for different people, but I think we all have inherently the same fundamental issues that we're dealing with now we do have.

A a pretty good network around the world.

Our reliance on China has dropped dramatically over the last five to seven years I think today, we are at about 45% rely on on all intermediate fine chemicals and active ingredients, that's way way lower than it used to be for the traditional FMC AG business when I joined way back in and.

In 2012, so I think that's one aspect we have we have lost sales over the last six months in terms of looking at the portfolio and where we couldn't deliver but I think with a with a strong portfolio. We did correct. Our inventories as we went through this year, we have built inventories and Andrew can talk about the impact.

On working capital.

But I think we've tended to whether it rather well, but make no mistake I think we've left revenue out there that somebody else's probably picked up it's not significantly is in the tens of millions of dollars, but it's still business that we could have had that we've missed so we're not immune to this by any means and I.

I expect that to continue as we go into next year.

You don't assortment industry. Thanks.

So right now.

No the follow up and you touched upon this a little bit and mentioning your dependence on China being down to 45% seems like you've maybe gotten a head start on on this may be relative to the broader industry.

Based on some rolling blackouts years ago, and then an active ingredient and active ingredient plant in China being adjacent to that explosion, maybe a couple a few years ago now so just wondering on.

You're thinking on strategy for supply chain going forward would should we expect you'll continue to diversify further just what are you what is the thinking in that regard with respect to juxtaposed against your strategic road comparative thanks.

Yeah listen we've been on Ah, we've been on a strategy for the last at least five years almost six years since we bought the coming over assets back in 2015 of really diversifying our supply chain and manufacturing footprint that continues for the new molecules that we are adding capacity right now.

We're adding capacity in Denmark.

And in India, and we will continue to expand that active ingredient footwork through our own footprint through our own.

Our own.

Operations, we have active ingredient manufacturing in the us in Puerto Rico, and Denmark, and India six years ago, we never had pretty much any of that so we really have changed our strategy to be more diverse to have more points of manufacture we make sure that from a registration basis, which Frank.

Really is it is the long the long haul in the tent here is getting your registrations, we do when we registered when we manufacture new products. We make sure we have two or sometimes three different sources of manufacturing point. So that we have that ability to move our manufacturing around the world based upon our registration's.

I'm not so sure we're any different to some of the other people out. There are there are some people who are more dependent on China. Some people who are less I feel good about where we are today I don't think you're ever going to get out of China, it's impossible.

Just the size of the Chinese chemical industry in the specialty chemicals that come out of the you will always be dependent on an intermediate or a fine chemical the real issue for you strategically and especially for US is how do you do the risk that to a point, where you are more comfortable with it but we're getting close to that we're not quite there yet. The next couple of years will move it even further but I think we're.

On the right track and certainly has been paying dividends for us.

Thanks for the color.

The next question will come from a rune Viswanathan from RBC capital markets. Please go ahead.

Great. Thanks for taking my question congrats on a nice corner there.

I guess the first question is just on Covid Uhm last year, you had some impact North American logistics in queue for I would imagine that potentially there had been some impact as well in Asia more recently could you verify if that's the case and then also maybe in Latin America, what you're experiencing as it relates.

The covered down there thanks.

Yeah. Thanks, I mean listen there are two real impacts one is your ability to supply and then two is what's happening on the demand side.

On the supply side.

I think we've got used to working in an emergency mode over the last three or four years, we have.

Somebody just said earlier, we had explosions in China that we've had to deal with environmental policy changes in China.

Then we've got Covid and all the freight issues in manufacturing issues related to that.

I don't think there's been anything in the last six months since we had our last call where anything's fundamentally changed from a supply perspective, it's not that there are not issues out there there are.

The energy.

Power issue in China, recently, causing disruption and we'll see how that plays out once we get into the wintertime from a demand perspective, we don't often talk about this but I would say.

Certainly in the third quarter, maybe in late in the second quarter I would say the only part of the world, where we saw demand issues with southeast Asia.

More lockdowns in Vietnam.

Parts of Indonesia, the Philippines, Malaysia, Thailand than any other part of the world. So we did see.

We did struggle getting into the market places than we saw some demand destruction not significant.

Brazil, not an issue many of the grow as a well prepared for.

This growing season, they have a lot of personnel on site.

Vaccination rates are actually.

Pretty high in Brazil, and growing constantly so we feel better about Brazil from a COVID-19 perspective going into the 22 season than we did bring into the 21 season. So yes disruptions that it's not significant at this point I would say, it's at the level, where we've been dealing with it and we will continue to deal with it.

Okay. Thanks for that and as a follow up maybe I can just ask our cash flow. So as you as you move into twenty-two what are some of the buckets that you you would envision you know that that could push that that 525, or so mid point for free cash flow, but higher is working capital.

A potential leverage is given the cost inflation that you've experienced this here. Thanks.

Thanks here and it's Andrew look I think you are hitting on some of the conversations we're having right now is we're going through the budgeting process that some big stripes for Ya.

Certainly for free cash flow growth 22 versus 21, and first and foremost is driven by Brian the profitability of the business. So EBITDA growth will be a big contributor.

Working capital, Yes, our long term vision is to drive better working capital efficiency.

For 2022, we're going to have to balance that a bit with having a bit more safety stock in the system because of that level of volatility that we have in the in the supply chain right now and you certainly see that on our balance sheet at where we ended up at September 30th this quarter with a big increase year on year on inventory, which is both as you noted cost inflation.

But also some conscious choices to hold a little lecture inventory and certain product lines, where we had some volatility in the supply chain. So I would say at this point, we haven't worked through all the implications for 2022 of working capital yet, but I think our long term trajectory is yes to continue driving improvements in working capital that contributed to free cash flow.

And if you look at the other two lines the attitude big buckets below that on capital additions.

Think we continue to have an expectation that somewhere that 150 to 200 million a year being the right kind of pace, particularly with a significant portion of that going to capacity expansion to support new products as Mark described with our strategy to to disperse our production base in half.

Active ingredient manufacturer in particular of the new girl ingredients outside of China, and then finally on the legacy and transformation and the transformation piece. We're basically done we finished our SAP implementation to beginning at the end of last year final cleanup. The beginning of this year, there's no big transformation spending on the horizon and there is no fundamental driver.

Growth and legacy spending.

Certainly a year to year volatility and just timing and lumpiness about some of that stand, but not fundamental growth. So those are the key elements I think it's premature to give him any more extensive caller on on that.

Free cash flow could be either then absolutely looking to continue to push growth of free cash flow and free cash conversion.

Move forward with the business.

Thanks.

And the final question today will come from Michael Pickin from Cleveland Research. Please go ahead.

Yeah. Good morning, just a question in terms of the behaviour of your customers are you seeing a change in their attitudes towards wanting to procure more inventory and being a little bit less pie sensitive in this type of environment and then secondarily. If you do have customers that are looking to make purchases are you willing to extend more.

Credit for them to get inventory and place or how are you sort of handling.

Or any sort of timing chefs. Thanks.

Yeah listen I don't think we'll see in a fundamental shift of how <unk>.

Distribution retailer direct grow is by I think there is a there is an acknowledgement out there in the market place that in some cases for products that are absolutely needed. It's not just the price. It's availability. So there's certainly a desire for people to make sure that as they entered that season that they have material available.

<unk>.

Doesn't mean to say that we FMC, we're not seeing a tremendous amount of what I would say it forward buying.

In Q3, all the growth was related to products that weren't on the ground in that quarter. So think about full herbicide applications in Europe on cereals same thing in North America insight pressure in North America early in the quarter was strong. So those types of things are a lot of driving the growth.

It'll be interesting to see how the market evolves for the U S. As we go into the buying season, which is effectively now getting ready for the season.

Do think that recognition as strong that.

Some materials and not going to be available in the courses that are needed and some people are going to miss out on that so price in certain areas as always is always important but in others, where it's high value. When you absolutely need to protect those crops. Then yes, I do see people buying to make sure that they've got products in the channel in that way I House.

When they needed.

See how that develops through the fourth quarter into the first quarter. We may see similar behavior as we go into the European season, which really kicks off in Q1.

Alright. Thank you. Thank you for that Mark that has all the time that we have for the call today. Thank you and have a good day.

And thank you. This concludes the FMC Corporation conference call. Thank you for attending you may now disconnect your lines.

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