Q4 2022 FMC Corp Earnings Call
Good morning, and welcome to the fourth quarter of 2022 earnings call for FMC Corporation.
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I'd now like to turn the conference over to Mr. Zach Becky director of Investor Relations for FMC Corporation. Please go ahead.
Thank you Emily and good morning, everyone welcome to FMC Corporation's fourth quarter earnings call. Joining me today are Mark Douglas President and Chief Executive Officer, and Andrew Sandifer, Executive Vice President and Chief Financial Officer.
Mark will review, our fourth quarter and full year performance as well as provide an outlook for full year 2023, and the first quarter.
Andrew will provide an overview of select financial results.
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 Securities and Exchange Commission.
Formation 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 net debt and organic revenue growth all of which are non-GAAP financial measures.
Please note that as used in today's discussion earnings means adjusted earnings and EBITDA means adjusted EBITDA, a reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today's conference call are provided on our website with that I will now turn the call over to Mark.
Thank you Zach and good morning, everyone.
FMC delivered record performance in the quarter, driven by a combination of robust volume growth and strong pricing actions.
Sales of new products continued to accelerate nearly doubling year over year and representing 11% of the total sales in the quarter.
We continue to make investments in expanding our market access in key geographies, including the U S and Brazil.
Pricing actions in the quarter more than offset headwinds from both cost and ethics, resulting in EBITDA margin expansion in excess of 40 basis points.
There is a positive gap between price gains and headwinds from cost and FX is expected to continue as we move forward through 2023.
Agricultural markets remain robust with high commodity prices, increasing acreage for crops and positive grower sentiment.
Riding a solid backdrop for FMC.
Our Q4 results are detailed on slides three four and five.
Revenue was up 17% organically EBITDAR up 17% and EPS up 12%.
The U S and Brazil were major contributors to the quarter's results with volume and price driving the U S business, well priced and ethics drove Brazil's results.
Adjusted earnings were $2.37 per diluted share in the quarter seven cents above the midpoint of our guidance range.
With this outperformance driven by higher EBITDA and lower than anticipated taxes.
North America sales increased 35% year over year.
Driven by strong sentiment among growers and our distribution partners in the U S for the upcoming season.
Selective herbicides for soybeans and other crops as well as from besides for corn grew rapidly in the quarter.
We have made great progress in revitalizing our north American product portfolio.
With almost 20% of the quarters branded sales coming from products launched in the last five years.
We've also invested in more sales and tech service resources, enabling us to reach more retailers to promote our newest technologies and expand our market access.
In Latin America sales increased 13% year over year, and 9% organically led by Brazil.
Pricing actions demand for fungicides in selective herbicides as well as our investments in market access drove results for the region.
Our market access investments contributed to about 50% of the regions growth in the quarter.
FX was also a benefit in the quarter driven by the strong BRL.
However, dry weather negatively impacted corn and soy in southern Brazil and Argentina.
Asia was flat versus the fourth quarter last year and up 12% organically.
Insecticides in selective herbicides led the growth in the region.
Overwatch herbicide, which is based on <unk>. The first active from a pipeline continues to gain share on cereals in Australia.
Almost 20% of branded sales in Asia came from products launched in the last five years.
The FX was a significant headwind in the quarter offsetting the double digit organic growth.
EMEA was up 7% versus prior year and up 20% organically in.
In addition to strong pricing results were driven by broad based demand, especially for cereal herbicides.
13% of branded sales in the quarter came from products launched in the last five years and.
And sales of size a bit base formulations almost doubled in the quarter.
In our plant health business Biologicals grew double digits in the quarter, reflecting the strength of our portfolio.
Overall adjusted EBITDA for the fourth quarter was $432 million, an increase of 17% compared to the prior year period.
Resulting in EBITDA margin expansion in excess of 40 basis points.
Average price increases of 8% contributed $109 million in the quarter and more than offset the cost and FX headwinds.
Moving to slide six in Fmc's full year 2022 results.
We reported record $5 $8 billion in revenue, which reflects a 15% increase on a reported basis and 18% organic growth.
This is despite exiting our Russian business earlier in the year.
More than $600 million in sales came from products launched in the last five years.
Growth of 50% over the previous year.
And about $100 million came from products launched in 2022.
Continuing the multiyear trend of strong growth from new technologies Diane.
<unk> grew in the mid to high single digit range for the year.
Adjusted EBITDA was 1.4 dollars 7 billion, an increase of 7% compared to 2021, despite $463 million in cost headwinds and $74 million in FX headwinds.
Exited Russia negatively impacted our EBITDA by approximately $25 million.
The benefit from pricing actions in the year was $372 million. This was necessary to overcome the most significant input cost headwinds we have ever experienced.
We believe input cost headwinds peaked in the third quarter and expect them to ease going forward.
2022, adjusted earnings was $7.41 per diluted share an increase of 8% versus 2021.
This increase was driven primarily by the EBITDA increase and lower share count offset partially by higher interest expenses and taxes.
In addition to these financial results. We also had other significant achievements in the year as detailed on slide seven and eight.
FMC continues to make substantial progress on our sustainability and net zero goals for.
For example, we reduced scope, one and two greenhouse gas emissions at our operating sites by at least 2% in the last year, while at the same time delivering record growth.
The consistent progress we have made on various ESG metrics was recognized by several rages that moved us up on their rankings in 2022.
<unk> now stands at or above industry average across these races.
In our plant health business, we launched 17, new biological products spread across all four regions as well as two new micronutrient products.
We also acquired by a thorough in 2022.
As we've said before by a thorough as a pioneer in biologically produced pheromone technology.
With a patented fermentation platform that enables a significantly lower cost production compared to current standards.
In precision AG, we continue to advance our Assam intelligence platform FMC.
Fmc's proprietary mobile solution that helps farmers manage pest pressure through predictive modeling.
He is now deployed across 20 million acres spanning over 20 countries and we.
We have found that grows who use our attended to by a broader range of products from FMC.
Finally, all venture capital arm FMC ventures continued to build its portfolio in 2022 with new collaborations and strategic investments in startups and early stage companies working on new or disruptive technologies.
These engagements, which support or augment our internal capabilities span several technology segments, including robotics drone technology.
Fintech.
Pathology detection soil health.
And pheromones.
As an example in 2022 FMC ventures increased its investment in micro pet startup developing short natural peptide molecules.
<unk> unregulated plant genes and proteins.
In addition to our equity investment we entered into a strategic collaboration with micro pet late last year to develop solutions to control herbicide resistant weeds.
FMC ventures also invested in trade and AG fintech startup addressing working capital needs of growers in Brazil.
Turning to slide nine which provides the key market and cost dynamics underpinning our 2023 outlook.
We expect crop commodity prices to remain robust.
Growers around the World will continue to rely on our advanced technologies to deliver high yields while they comeback erratic weather patterns.
We expect the north American market to grow in the low single digit range with an assumption of normal weather conditions.
The Latin American market is believed to have grown significantly in 2022, primarily due to rapidly price increases in non selective herbicides product segment in which FMC does not participate.
In 2023, we expect the Latin American market to contract by mid single digits. Some of those gains in nonselective herbicides with us.
Asian markets are expected to be flat to last year.
EMEA is expected to be up high single digits with improvements driven by increasing acres for cereals.
Taking into account these regional market projections and in light of the very strong market growth in 2022, we expect the overall crop protection market will grow this year in the low single digit range on a us dollar basis.
Fmc's continued pricing actions strong demand for our product portfolio, particularly our newest technologies as well as for the market access gains are expected to provide solid support for Fmc's top line to grow above the market rates.
Costs are anticipated to remain a year over year headwind throughout the year. However, we are seeing deceleration of input cost inflation and these costs are expected to become a year over year tailwind in the second half.
We will continue to invest in R&D and SG&A to expand market access grow our plant health business deploying new technologies through precision AG I hadn't developed new synthetic in biological products.
Overall, we expect price increases to more than offset cost in FX headwinds resulted in margin expansion in the second half of the year.
Turning to slide 10 for our full year 2023 outlook.
We expect the full year revenue in the range of $6.08 billion to $6 two $2 billion.
Presenting a 6% growth at the midpoint compared to 2022.
New launches and market access initiatives will drive volume growth with mid single digit pricing expected for the full year.
FX is expected to be a moderate headwind to top line results.
Adjusted EBITDA is forecasted to be in the range of $1.48 billion to $1 $5 $6 billion, reflecting 8% year over year growth at the midpoint.
Prices are anticipated to be the primary driver of EBITDA growth in the year with cost headwinds expected to be significantly lower than those experienced last year.
Increases in the input cost portion of cost headwinds are anticipated to decelerate as the year progresses and become a year over year tailwind in the second half.
We expect adjusted earnings of $7 20 to $8 per diluted share representing a 3% increase at the midpoint with EPS growth limited by higher interest and tax rates.
This assumes a share counts of approximately $126 $5 million and does not factor in the benefit of any potential share repurchases in the year.
Yeah.
Looking at the first quarter outlook on slide 10, we forecast revenue to be in the range of one point for $1 billion to $1 $45 billion.
Representing 6% growth at the midpoint compared to the first quarter 'twenty to 'twenty two.
All targeting mid to high single digit price increases.
Which much has already been implemented.
Prices are expected to be the primary driver of revenue growth in the quarter.
<unk> is anticipated to be a headwind in the quarter.
Adjusted EBITDA is forecasted to be in the range of $345 million to $365 million.
Versus the prior year period at the midpoint, mainly due to pricing gains being offset by expected cost headwinds.
Gains are expected to be offset by FX related headwinds.
We expect adjusted earnings per diluted share to be in the range of $1 63.
Two $1 83.
Representing a decrease of 8% at the midpoint.
Due to higher interest rates and taxes.
This assumes a share count of approximately $126 5 million.
Moving now to slide 12, I want to highlight some of the potential factors that could drive our results to either end of the guidance range.
For the midpoint of our adjusted EBITDA guidance, we are assuming market growth in the low single digit range and FMC, achieving mid single digit price increases.
Cost headwinds are expected to continue decelerating and become a tailwind as the year progresses.
FX is expected to be a headwind throughout the year.
With the resilience, we've built into our supply chain our base case assumes any minor disruptions that mitigated.
Alternatives as Lee if cost headwinds ease more rapidly if the market grows at a higher rate than forecasted and if we are able to realize high single digit prices or FX has a lower impact we could deliver results at the high end of our guidance range.
Major supply disruptions of critical inputs. All services are examples of factors that would drive results below the midpoint of guidance range.
With that I'll now turn the call over to Andrew.
Thanks Mark.
I'll start this morning with a review of some key income statement items.
FX was a 2% headwind to revenue in the fourth quarter with weakness in Asian, and European currencies, partially offset by strength of the Brazilian reais.
For full year 2022, FX was a 3% headwind overall.
But the most significant headwinds coming from the Euro Turkish lira, and Indian rupee offset in part by strong Brazilian Reais.
Looking ahead to 2023, and we see continued modest FX headwinds on the horizon consistent with the initial outlook for 2023, we provided on the November call.
For the first quarter of 2023, these headwinds are across a range of Asian and European currencies.
Interest expense for the fourth quarter was $44 $8 million up $11 $8 million versus the prior year period.
Interest expense for full year, 2022 was $151 8 million up $27 million versus the prior year.
Rising U S interest rates were the primary driver of higher interest expense for both the quarter and the full year.
Looking ahead to 2023, we expect full year interest expense to be in the range of $200 million to $210 million, an increase of more than $50 million at the midpoint versus 2022, driven primarily by higher U S interest rates.
Our effective tax rate on adjusted earnings for full year 2022 came in slightly better than anticipated at 13, 7% driven by a modest shift in mix of earnings across principle operating company.
The fourth quarter effective tax rate of 13, 1% reflects the true up to the full year rate relative to the 14% rate accrued through the third quarter.
For 2023, we estimate that our tax rate should be in the range of 14% to 16% with the increase driven by anticipated higher foreign earnings subject to U S guilty tax versus 2022.
Moving next to the balance sheet and liquidity.
Gross debt at yearend was slightly below $3 3 billion down $285 million from the prior quarter.
Gross debt to trailing 12 month EBITDA was two three times at year end, while net debt to EBITDA was two point out times.
On a full year average basis gross debt to EBITDA was two six times, while net debt to EBITDA was two three times.
Moving on to cash flow generation and deployment on slide 13.
FMC generated free cash flow of $514 million in 2022 down 28% versus the prior year.
Adjusted cash from operations was down nearly $250 million compared to the prior year.
Growth in EBITDA and cash provided by non working capital items were more than offset by cash used by working capital.
Receivables net of rebates vendor financing and advanced payments or a major use of cash driven by the inflationary impact on receivables or price increases to offset cost headwinds.
Advanced payments from customers in North America were up somewhat our grid right much slower than revenue growth.
Inventory was a use of cash with yearend inventory levels higher as expected given our anticipation of a strong northern hemisphere season, and the first half of 2023 and the impact of inflation on inventory values.
Accounts payable was a source of cash driven by cost inflation.
Capital additions in other investing activities of $119 million were up $5 million compared with the prior year with nearly half of the spending directed towards capacity expansion.
Legacy and transformation was down substantially with the decrease due entirely to proceeds from the disposition of an inactive site.
Legacy and transformation would've been essentially flat year on year in the absence of these proceeds.
Overall free cash flow conversion from adjusted earnings for 2022 was 55%.
With rolling three year average free cash flow conversion at 67% slightly below our long term goal for three year average cash conversion of 70% or more due to the inflationary impacts on working capital.
With this free cash flow and a modest increase in net debt year on year, we deployed $566 million in 2022 with nearly $370 million returned to shareholders through $267 million in dividends and $100 million of share repurchases.
The remainder of cash deployed in 2022 was used to acquire a bioterror and to make equity investments through FMC ventures.
With leverage levels through the year slightly above our targeted ranges, we chose not to repurchase additional shares following our third quarter earnings call.
Looking ahead now to free cash flow generation and deployment for 2023 on slide 14.
We are forecasting free cash flow of $530 to $720 million in 2023 up more than 20% year on year at the midpoint.
Underlying this forecast is our expectation of adjusted cash from operations of $800 million to $920 million up $200 million at the midpoint with the increase driven by growth in EBITDA and slower growth in working capital, resulting from lower sales growth and easing input cost inflation.
This was partially offset by higher cash interest and taxes.
We further expect to continue to modestly ramp up capital additions as we expand capacity to meet growing demand and to support new product introductions.
Legacy and transformation cash burn is expected to be essentially flat at the midpoint after adjusting for the benefit from the disposal of the inactive side in 2022.
With this guidance, we anticipate free cash flow conversion of 65% at the midpoint for 2023.
Significant improvement from the 55% conversion last year.
The rolling three year average free cash flow conversion expect is expected to be 67% just under our targeted conversion range of 70% or more.
With interest rates substantially higher we do not intend to utilize incremental borrowing capacity for cash deployment. This year, so as to mitigate the impact of higher interest expense on earnings and cash flow.
Free cash flow will be used first to fund the dividend and approximately $290 million use of cash at the newly raised dividend per share authorized by our board of directors in December .
Free cash flow will then be used to fund inorganic growth if attractive opportunities become available.
Free cash flow remaining after any such investments will then be directed to share repurchases.
Given the season seasonal nature of our cash flow any share repurchases will be weighted more heavily to the latter part of the year.
That said, we do intend to repurchase in the first quarter at a minimum enough FMC shares to offset any dilution from share based compensation.
I must emphasize this is not a permanent change in capital policy for FMC. Rather this is temporary as we adjust to structurally high higher interest rates in the United States.
Our intent here is to actively manage the impact of higher rates in 2023.
Should interest rates ease, we would consider using incremental debt capacity to expand our pool of deployable cash.
Finally, moving on to Slide 15, let me put our free cash flow generation and deployment into perspective.
Since launching FMC as a focused agricultural Sciences company in 2018, we've made substantial improvements in free cash flow generation and free cash flow conversion from earnings.
As you can see on the left hand side of this page we've improved three year Rolling average free cash flow conversion from adjusted earnings from 42% in 2020% to 67% at the midpoint of 2023 guidance.
We've shown we can convert more than 70% of earnings to cash in a single year as we did in 2021, and we are well on our way to our targeted 70% or more of a rolling three year average cash conversion.
Equally as important we've been very balanced in how we've utilized this improved cash flow generation.
Strongly rewarding shareholders with nearly $2 billion in cash returned over 2019 to 2022 split equally between share repurchases and dividends.
While fully funding our organic growth as well as directing $268 million to an aggregate inorganic growth investments like our recent acquisition of biotech.
Overall, we feel this approach to cash deployment balances shareholder rewards over both the near and long term horizon.
And with that I'll hand, the call back to Mark.
Thank you Andrew.
FMC delivered a record performance in 2022, despite facing the largest input cost inflation headwinds in the company's history.
Robust volumes driven by our market access initiatives and the continued accelerated growth of new products as well as strong pricing gains helped to overcome significant cost supply and FX challenges in the year.
We expect the broader economy to be volatile in 2023, however, agricultural market fundamentals are expected to remain solid.
Fmc's pricing momentum continues and we should benefit from the potential deflation in the broader industrial supply chains.
We continue to invest in our technology portfolio of synthetics, Biologicals precision AG and FMC ventures.
Our expanding market access initiatives are resulting in increased profitable growth and we intend to continue the pace of these investments across more countries.
Overall, there are fewer disruptive factors that we see today compared to the same time period last year and this strengthens our confidence in the narrowed guidance range we've provided.
We expect to deliver another year of strong profitable growth in 2023.
Finally, as we are now in the final year of our current strategic plan. We are planning to host an investor day at our global headquarters in Philadelphia. This November at that time, we will share details of our new strategic plan and.
And we look forward to see you here in person we will of course announce the date for this investor day event soon.
Thank you Emily will now take questions.
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Yeah.
Our first question comes from Christopher Parkinson with Mizuho. Please go ahead Christopher.
Great. Thank you so much.
It does look like you have some cost benefit built into your just at the midpoint of your EBITDA growth versus your projected revenues.
I know you've been taken a prudent approach on the price cost in terms of the cost side and forecasting but can you just talk a little bit more on how you see that progressing throughout the year, specifically in the second half and even potentially how you think the progression throughout the year, which would even have implications on the first half of 'twenty four thank you so much.
Yeah. Thanks, Chris.
So let me let me take a step back on that one and just talk a little bit about.
I mentioned in the script, where we were last year versus where we are this year.
Last year at this time, we had a wave coming out of inflationary costs.
And truly we did not understand the order of magnitude we ended up with what $463 million of costs.
At the beginning of the year, our forecast had nothing like that number I would say this year, we're in exactly the reverse position.
We see cost receding, we just don't know exactly how much that will be we know it'll impact us in the second half of the year and we have built what I would call a modest amount of cost reduction into the midpoint of our guidance, but what I really see us.
A timeline here that gets us through the end of this year and into early 2020 full what costs do become a meaningful tailwind for us we do expect to see margin expansion as we go through the second half of the year.
We did talk about the fact that we will continue to invest in SG&A and R&D and I'll I'll have Andrew I had a couple of comments here at the end on some details here.
We are investing in those areas because frankly, we all seeing profitable growth from those investments whether I think about the growth in Brazil, or I think about the growth in the U S or other parts of Asia. Those investments are paying off very quickly in terms of how we gather new sales from new customers and new parts of the value chain.
<unk> is growing very simply because we're investing not only in our synthetic pipeline and this year. We moved another molecule from discovery into development, we'll talk more about that in Investor day, but we're also got a full year run rate of all bio thorough investment in R&D and we continue to invest in plant health and precision AG. So if you think about.
At a growth rate of roughly 6% for the top line you should expect SG&A to be growing pretty close to the 6% and then R&D a little bit above that that's how it will flow through the year. The input costs are higher in the first half and you can see what we said about Q1, we still have high input costs. They were the legacy of what we.
Bought in the.
The second half of last year, those will abate as we go through the through the half and then in the second half, we'll get that margin expansion.
So you.
You know I've seen some of the Flash reports last night of the Oh are we being conservative I think it would be imprudent.
The World is still somewhat volatile we all know that but we are confident enough to say that we're already seeing the trend lines.
As we saw last year the trend lines are there, we just don't quite know where we'll be so when I talked about on the script could we could we see areas, where we will have improvement yes, absolutely. So we'll see as we go forward. The may call, we will be an important call for us because we'll have a much better view on where we are with raw materials, our pricing actions.
We probably have about 50% of our price target for this year is simply a rollover from last year, just pure timing of when pricing was implemented.
So we feel good about the pricing side with less sure about the cost side, but the trend line is that for it to get better as we go through the year, Andrew do you want to add anything that yeah. Let me just reiterate and expand on a couple of your thoughts there Mark I think certainly input costs constant here. Our Cogs line. They are a significantly smaller headwind in 2023 than they were in 2020.
Two as Mark described they remain a headwind in the first half, but we anticipate them, becoming a tailwind in the second half.
We will have growth in SG&A and R&D spending on a dollar basis.
The SG&A should grow as Mark described generally in line with sales.
I grew up a bit faster all of us to support growth. The addition of bio Farah.
In our plant health platform, we have moved another active ingredient from discovery into development and are in active ingredient pipeline, so that SG&A and R&D dollar spending will continue to be a cost headwind as we go through the year that sat on a percentage of sales basis, SG&A will stay relatively flat R&D expand slightly.
But this is against the contracts over the past four years, we've taken 300 basis points out of SG&A as a percentage of sales and over 100 basis points out of R&D as a percentage of sale.
While we might not get the same kind of leverage this year more flat on SG&A and R&D as a percentage of sale still a very very competitive cost structure.
The SG&A more than 500 basis points lower than our nearest competitor.
So I think what youll see through the year is that on a dollar EBITDA basis, SG&A and R&D continue to be a cost headwind, we will manage that carefully as we always have and we will adjust as we need to as we progress through the year.
Very good thanks, Andrew.
That's.
Our next question comes from Vincent Andrews with Morgan Stanley . Please go ahead Vincent.
Thank you and good morning, everyone. Just wanted to touch on the pricing environment, a little bit I think I heard you say mark that you've already got 50% in place just sort of from a rollover of last year of the other 50%.
How much have you already gone out with.
For the first half versus I assume there's a fair amount.
Need to go out with for the back half of the year and just want to understand sort of what youre hearing from your channel partners in terms of continued receptivity for pricing at this point.
Just thinking atmosphere Oakley.
A lot of headlines about where all entering into a deflationary environment, we're seeing fertilizer prices come down in glyphosate prices come down I know those are very different products versus what you sell but just we are sort of pivoting out of the inflationary price increase environment. So what if any change in feedback that you're getting from your channel partners.
Yeah. Thanks Vincent.
Well listen for pricing in the first half of the year I mean pretty much most of it as I said is already underway.
U S and Canada markets are active now Europe is getting active right now so those price increases.
Through I think what you're referring to is probably in the fourth quarter as we roll into the Latin American market, a well would be it's a valid question to ask we don't know we are planning price increases at the end of the day.
Drew just alluded to input costs are still higher than they were last year. They are still increasing their just increasing at a much lower amount plus the fact that we're seeing significant labor cost inflation around the world not only for SG&A, but within our manufacturing plants et cetera. So for me. There is there is a cost environment.
That is that he is still conducive to price increases in Europe , you have high energy costs, yes, they've come down off their peaks, but theres still meaningfully different so the average over the last few years. So we will continue to move price, where we see fit and of course, it's not a standard number around the world. We've talked about this before it's different in different market.
With different products, we continue to use that differentiation to move price I think most of the most of the value chain that we operate in really do see that inflationary environment is like any negotiations are always difficult they are never easy.
But overall, we are getting the price that we need to get to move us back to the EBITDA margins we want.
Youre right on the non selective herbicides you know you can look at all the metrics you see them coming down they went up very quickly they come down very quickly. They truly are commoditized, we're not seeing that sort of come full the most specialty products, where you're really selling value not just on a cost basis through a contract and that's a key differentiator.
French yet so for US we don't have those non selective herbicides, we don't operate in that type of environment.
Okay, and just as a follow up Mark did I hear you say.
I believe last quarter, you thought the market overall will grow low to mid single digits I believe now you're thinking.
Low single digits for this year is that just a function of last year for the market coming in better than you thought so just a harder compare or is there anything at all different about sort of what you expect for this year globally.
Yeah, I think overall when I look at the market. We are we do have a lower view of the overall market, but frankly, it's driven by Latin America. I mean, we still expect North America to have reasonable growth. Despite how strong it was in the past year. There was very good sentiment in the North American market right now.
For the coming year.
Europe , we expect to be up we do see increase in cereal acres, which will be positive.
So we see Europe up Asia will be slightly flat there has been some weather issues in India, Indonesia, and other parts of southeast Asia offset by good market in Australia.
I would say the the reason we're going lower in the in the World today is because of Latin America.
They are independent numbers that suggest the Latin American market may have grown $6 billion in 2022 now the vast majority of that is with nonselective herbicides.
Mainly price and then pricing for other active ingredients. So I do think that people need to watch that nonselective herbicide market in Brazil in Argentina that's.
That's the reason, we're calling through a lower overall market, but it really is focused in that particular segment, which is so large it does impact the rest the rest of it is probably close to where we said it would be in November .
Okay. It makes a lot of sense. Thanks, so much.
Thank you.
The next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.
Yeah.
Your line is open. Please proceed with your question.
Okay.
Adam Samuelson with Goldman Sachs. Your line is open if you'd like to please proceed with your question.
Unfortunately, we are not receiving any audio from Athens lines have we will move on to our next question, which comes from Aleksey <unk> with Keybanc capital markets Alexey. Please go ahead.
Yeah.
Thank you and good morning, everyone just wanted to get back to your first quarter guidance.
You had margin expansion in just reported fourth quarter 'twenty two.
And youre guiding to.
Some have lower margins.
Flat EBITDA in the first quarter.
In what way are these quarters difference.
Just maybe provide some some of the bridge items for Q1.
Yeah, Alexia I'll, just give you a quick high level view and then Andrew Please Gibson.
Hello commentary here very different markets in the sense of of where youre selling into Latin America, Brazil, Argentina huge markets in Q4 still important in Q1, but to a lesser degree and then obviously in Q1 the European business is starting to kick in which is very different. So you have a very.
Geographic mix across the world for how we see and that's why we never ever talk about sequential quarters, it's almost impossible to look at the business on that light, but Andrew if you want to make some comments on the revenue side and the cost side, certainly I think just to echo Mark's comments very very challenging to look our business on a sequential basis given the.
Different regional country mix for each quarter I think what we're looking at a solid revenue growth and flat EBITDA entirely due to cost headwinds in the first quarter were off will be close to offsetting offsetting them with with price increases in the first quarter, but we don't really get to that positive price cost comparison.
Any strong way until we get into the following quarter.
So we do see some EBITDA margin dilution.
From Q1, 'twenty two to <unk> 23, which I would suggest is a better comparison periods to be looking at and trying to understand the key one performance again, it's really driven by getting past that last part of the wave of cost inflation now as we move into the second half of the year input cost recede.
Anticipating that's when you start to really see margin improvement.
Thank you just as a follow up you mentioned the Diamide.
Mid single digit to high single digit growth.
Dynamize dipped to mid single digit territory going forward over the next two three years and just the level of growth that you see as fairly normal or could it be a little higher or lower.
I think we've said in the past sort of that mid to high single digits is where we think it will it will pan out over time.
I wouldn't change that view right now we do continue to launch new Diamide formulations around the world and <unk> is growing very nicely as we get the new registration. So I think the the mid <unk> mid to high single digit is a perfectly good range of legacy.
Thanks, a lot.
The next question comes from Josh Spector with UBS. Please go ahead Josh.
Yeah. Thanks for taking my question I guess, just a follow up on some of the raws questions earlier, I mean, you've been pretty clear in the past you have about six months of visibility to what you are buying so I mean is this something where next quarter, you'll have a stronger view on second half I would adjust your view kind of align with what youre seeing there and just curious on some.
The near term dynamics as well as China disruption impacting your view of what pricing can be does that have an impact there and if you look at your by now is there any way to frame what your raws would be doing year over year in the second half today.
Okay.
Yeah listen it's exactly what I talked about I think as we go through the second quarter, we're going to have a much better view of a what have we bought and what are we buying in the second quarter, which will inform our raw material view in the second half. So I think at the May call, we'll be giving a lot more detail in that area.
China has not impacted us at all through this latest round of Covid.
We did have closures of some supply, but you know over the last three to four years, we've built up a really robust process of network of how to manage disruptions.
No we didn't see any significant disruptions through the Chinese new year and through the Covid wave that they had to deal with China.
China opening up is it's positive for us in the sense that obviously, we get raw materials from China, it's not a huge market for us from a sales perspective, its a nice market, but it's not a one of our leading growth markets. So for us it is.
A bit of a neutral event, China opening up we've managed raw material as well out of China, we've been distributing our manufacturing network over the last five years to other countries that continues at a pace. So overall I think we feel pretty good from a supply position standpoint right now.
Okay, Thanks, and if I could just poke on your guide range on the high end, specifically I guess, if I just take one of those variables and look at price and say you do high single digit versus mid single digit that's a $150 million plus EBITDA upside.
Your scenarios $40 million higher.
I guess you list a whole bunch of positive that could play out. So what are the negatives that we should be thinking about or is that higher upside potentially possible. If you get more visibility there.
Well I think I think on the negative side, you know I highlighted supply disruptions, which is the obvious one.
Weather disruptions would be the next one I would say outside of that it would be a lack of pricing or something in the world that creates an inflationary environment for raw materials, we don't see that today as I said you know you look at the script, we mentioned three or four items that could move us from the midpoint to the upper end of the range we.
And basically one that would come the other way. So you can read into that what you will.
Got it thank you.
Okay.
The next question comes from Stephen Byrne with Bank of America Merrill Lynch. Please go ahead Steven.
Yes. Thank you.
The EPA recently came out with a draft risk assessment on a peer.
They continue to use the terminology.
Likely to adversely affect.
Okay.
This meaningful in your view.
Could there be impacts from the Sun.
<unk> is a pure as you.
How would you compare this to other insecticides.
This is a fairly.
Fairly normal or is this a concern.
Yeah. Thanks, Steve.
Top line no it's not a concern and we've been following this for some time as you can imagine, we're well well clued into where the EPA is going up.
<unk> is one of the what we call the softer chemistries much more targeted we don't see the EPA guidance as any impacts on our business. We continue to see <unk> grow at quite a fast rate around the world. It has numerous attributes that are very targeted there are lots of older.
Decides and insecticides that are more broad in nature that.
<unk> would take share from and is taking share from so we don't see any impact to our business from this ruling.
Okay. Thank you and I wanted to just drill into your outlook on the biologicals, It's clearly an area that you're devoting a lot of focus on do you find that it has the potential to be okay.
Synergistic with your synthetics.
Used in combination I think that was.
Our view that Kathy Sheldon had in <unk>.
Prior years is that still the view that.
There is a synergy between the biologicals and.
Synthetic chemistries.
Yes, very much. So you know when you look at the growth rate of our Biologicals, we talk about our plant health business. This year will be pretty close to $300 million in size Biologicals is now roughly half of that.
He is getting close to 150 million dollar business, it's growing.
Excess of 20% top line for the year and that growth is coming from not only the new products, but the synergistic effect that you talk about which is two fold first of all we are developing products with biologicals and synthetics are in the same formulation, so you're getting different modes of action and different attributes from a biological and lowering the.
Mount of synthetic material in the formulation.
The second one is in spray programs, where you will replace a synthetic spray with a biological spray. So you are using appeal biological but using it in a way that augments what the synthetics are doing once again reduces the amount of synthetic material. So we see that growth coming from both aspects will launching as I said we.
17, new products last year, and the whole biological space.
I continue to see that space growing rapidly we are investing more in R&D we.
We are investing through ventures as well. So you know I think it's one of the bright spots in the portfolio in terms of overall growth and investment for the company.
Thank you.
Thank you.
The next question comes from Kevin Mccarthy with vertical Research partners. Kevin Your line is open.
Yes, good morning, Mark how would you characterize channel inventory levels in the U S, Brazil, and Argentina exclusive of the non selective herbicides were you don't compete.
Yes, I think so from a north American perspective U S. In particular, I think channel inventories are a little bit elevated right now, but that's normal I would say as you entered the season most of retail and distribution is stocked up for a very good year, when I think of inventory levels.
<unk> compared to our sales on a percent basis were about the same place we were the year before so I think it's pretty normal, Brazil, and Argentina different story forget the non selective that we just talked about I think because of the conditions that we saw it in the south of Brazil and in Argentina. It was very dry and the fault.
Quarter I have no doubt that there is elevated channel inventories in that area.
Would not be surprised at all if I run around the rest of the world.
Europe .
South of Europe is high again because of hangover from the last season, Northern Europe pretty much Okay I think.
In Asia, we've talked about India in the past the weather didn't help again in 2022, so we see high channel inventories in India, which will be working through.
Parts of Indonesia are similar somewhat high rest of rest of Asia is good. So overall, it's pretty much what you would expect.
And don't forget you know people are focused on what happened in Brazil in terms of growth.
Vast majority of the growth in Brazil was price it wasn't volume and that's important to recognize so I think out of the weather patterns that we saw in the south and in Argentina, I think the other parts of the country are fine.
That's helpful.
Second question, if I may you've owned <unk> for roughly six months now and so I was wondering if you could provide an update on what you've seen so far I think when you bought it you talked about potentially launching five new firm owns over the next three to five years with an eye toward $1 billion of sales by 2030, maybe.
You could just provide an update as to how that aspect of the biologicals pipeline is going here.
Alright, Thank you great question.
We're very happy with the acquisition, we made in fact, I would say when I think of the key metrics that we're looking at when we.
Why is the product we had five.
New pheromones in the R&D pipeline today that number is nine so the accelerated rate of discovery and application of new pheromones. These growing we have made our first batches of products and move them into the marketplace. So that was a major milestone the company that we acquired Biopharma had not.
Or was it just at the very beginning of making.
Commercial scale quantities, we've now got past that we are looking to invest in our own manufacturing we.
We do use some toll manufacturers today, but we're looking at balancing that out across the world.
And I would say the trial work, we have substantial trial work around the world on the pheromones that we already have in place on those trial, what so going are going very well so from my perspective.
<unk> has done very well, but more importantly, I see an accelerated rate of discovery and development coming out of that pipeline, which is very encouraging.
Thanks Mark.
Thank you.
The next question comes from Richard <unk> with Wells Fargo. Please go ahead Richard.
Thanks, Good morning, everybody.
First question on Capex, it looks like for 'twenty three.
Up $140 million to $180 million versus 2022 can you talk about where you are going to be adding capacity, what new products planned to increase and where your operating rates are.
Currently.
Under what are you talking about the overall capex, yes tell us.
So we spent about just under 120 million in Capex in 2022, we're stepping up at the midpoint about $160.
A good sized incremental capex.
A lot of that additional capex is to support manufacturing capacity for our new active ingredients that we're expanding production of Isa flex.
As our cereal herbicide, we introduced in Australia, a couple of years ago and are rolling out now more broadly around the world, we're expanding capacity for flu and appear the fungicide that we've introduced in a couple of key countries and starts becoming a much more material as we get into the next several years.
That Capex I think building building our comments earlier that Capex is largely directed in places outside of China.
We're expanding capacity in Europe , we're expanding capacity in other parts of Asia to complement the sourcing that we have today and the strong sourcing position that we have in China, helping just sort of balance that mix of sources that we have and mark if you want to add anything to that yeah, I would say a couple of things on top of what Andrew just added formulation could.
<unk> is also important having the active ingredient is one thing, but expanding youll formulation capacity is also a key attribute of where we spend capital. It's nowhere near the same scale of capital, but it is important we have.
Over the last year expanded capacity here in the U S in Europe and.
And as we go into 'twenty, three we're expanding al formulating capacity in Brazil as well so.
You won't see it doesn't become so apparent in terms of overall dollars of capacity expansion, but that is an important attribute that we're focused on as well.
Okay, great and as a follow up in the slides you provided some details on your precision AG business.
<unk>.
Mobile solution.
Maybe can you talk about how.
How are you going to plan on monetizing this.
Potentially in the future.
What your expectations.
Expectations are for growth of that platform and also what.
What would you say to folks who.
There's a thought out there that precision AG could be a negative to volumes longer term given it.
It could make farmers more efficient and they may be applying less volume.
Maybe if you could touch on those thanks.
Yeah sure so I'll take the last one first.
Listen I think once you apply something from a precision methodology you are going to decide until use less volume I think what gets mixed and we will get missed in this area is the discussion around volume of value where are you, bringing value and how do you capture that value.
Obviously, there were some very large products used around the world, especially don't selective herbicides to go back to that topic.
C and spray technology, which is being developed as an area that is obviously of interest in that space for us when I look at how do we capture value from <unk>. What are we doing we're allowing the grow up to very precisely time, when they need to put the best products in the field to remove insects, that's great from a sustainable.
<unk> perspective. It is also something where you capture value from not only the products you're selling today, but the broader portfolio that you sell to those growers I don't see anywhere in the world, where we charge for arc, we provided free of charge. It is in SG&A expense, but it does have tremendous uplift in terms of the <unk>.
Portfolio mix that you sell and also don't forget it has another attribute it defends business floors.
We're defending on 20 million acres quite a few hundred million dollars of high profit products that is very difficult to remove when somebody is using a process like that that's a differentiator that we believe adds more value to the company than anything else. So we don't necessarily see it as a separate profit center, but we do see it as an important element.
Of how we continue to grow the portfolio and defend the business we have today.
Great. Thank you.
Okay.
Thank you.
Our final question comes from Arun Viswanathan with RBC. Please go ahead Irene.
Thanks for taking my question.
When you think about maybe 'twenty four and 'twenty five.
'twenty three and 'twenty two.
Impacted by FX as well as cost inflation.
But when you look at 24 and 25 do you expect to get back onto a 7% to 9% EBITDA growth rate.
And maybe maybe if you could give us a little bit what youre thinking strategy wise longer term are you planning to have an investor day, and maybe unveil. The next three to five years of strategy and biologicals.
A bigger part of that or maybe you can just explain maybe some of the longer term strategy. Thanks.
Yeah. Thanks for the question.
Just said in the script, we all going to have an investor day at the at the end of this year, we will give the dates coming.
I don't want to preempt that because theres a lot of work to do between now and then.
But we will be giving a view of the future. Both I would say within the near term few years, and then a longer term aspirational goal for the company.
It is important that we feel that we have that longer term view as we drive the company forward. We've been very good in managing the company through the last five years cycle as Andrew has talked about before we are pretty much right.
Right now above our metric for revenue, but right on the right on the bottom line of EBITDA, despite well in excess of $1 billion. So far of costs. So I would say you just have to hold that question until we get to the end of the year.
Okay.
Thanks.
Alright. Thank you Emily that's all the time that we have for questions. Thank you very much have a good day.
This concludes the FMC Corporation conference call. Thank you for attending you may now disconnect.
Yeah.
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