FMC Corporation (FMC) Earnings Call Transcript & Summary

Well, listen, thanks, everybody, for coming back from lunch. Good to see everybody again. Very happy to bring FMC up on stage company. It's a company i've known for a long time, a lot of different iterations. I think I probably first started to look at them 25 years ago or so in '99 back before they kind of did anything, R&D-wise and Ag and basically just sourced a lot of stuff on Sumitomo, I think, is kind of what the business model was back then. But they've certainly come a long way and very happy to have Pierre and Andrew and Ronaldo here with us. So the whole breadth of the company here as far as brain power goes and understanding of the business.

Maybe, Pierre, if you could start, I think -- maybe just level set, when you look at where you peaked in EBITDA a couple of years back and then maybe what the LTM was at the low point last year. A lot of volatility in earnings versus what the 10 or 20 or 30-year view has been on Ag-chem. Kind of what went wrong company-wise and what went wrong macro-wise? That kind of put that much volatility into the business. And then using that low watermark as a baseline, what should people expect just from the core business from that going forward?

Well, maybe talk about the cycle and why is that cycle a bit more. I think the industry was due to a cycle, 8 years. That's really what you have. What happened is we had the COVID situation and most importantly, the post-COVID situation where China pretty much shutdown and supply was difficult. And I think company customers, distributors, retailers, growers started to order because they were worried of not being able to be supplied. And they were ordering single, double, triple orders to make sure to get one, because of fear of not adding product, then that supply chain issues got resolved. Nevertheless, the market did not realize for about 6 months, kept on doing it. So you were at the end of a period where a cycle was due, it was amplified by the fact that you had almost 1 year or 1.5 years of overpurchase. And I think for the first time, we saw usually, most of the inventory is based with distributors, some retailers building inventory happen all the way to the growers, which usually never happen -- growers do not hold inventory. So we got to a situation where when the downturn hit, it was magnified versus 3 years downturn. Now you're correct, FMC got penalized maybe more than others. And I think the reason is that -- we have been over the last 10 years a manufacturing structure, which is maybe a bit more flexible than most. We got very independent from China, less than 3% of China dependency. So even was this was when China was not supplying, we were capable of supplying from the rest of the world. What happened is when people were placing single, double, triple order, we're capable of supplying our own orders. And if a customer will be concerned and place an order for somebody else, which could not supply, they would place it to us. And we would be able to supply. Consequently, if you look at our growth rate in 2001 and -- 2021 and 2022, they are much higher than the industry. I think we grew 9% in '21, 15% in '22. And I think it's just because we were doing our own supply and potentially covering for other suppliers who could not. When the downturn hit, having more inventory than most, we could hit more than others. So everybody got hit, we got hit a bit more. That's what happened.

Okay. Okay. And -- then when you look at kind of the high watermark for that inventory and where you think you're at today with your products to the chain, how would you categorize the delta? Are you where you want to be all the way through the chain? Or do you think there's still some more inventory come out?

I think it's very regional dependent. We are pretty comfortable with North America and Europe. Things are happening well in Latin America and Brazil, Argentina, where we see products going through the channel with the seasons, which is turning out despite the delay in rain, pretty good. So we believe Latin America will get by a normalized channel towards the second quarter. Asia is more difficult, especially driven by India, which have the same cycle issue as everybody else, plus 3 seasons of bad weather. So India will drive Asia to be in a high channel inventory for I think most of '25.

Okay. Okay. And I want to come back to some of that stuff, but I first want to kind of pull back. One of the questions getting across almost every company we follow is just obviously new administration they have a view that they want to change some of the global trade patterns and a number of different products. So whether you're looking back out of it Trump 1.0 or kind of what some of the people around the administration have said so far, where do you see, I guess, both the opportunities around things like tariffs and maybe counter tariffs? And where do you see most risk for your business?

I think we see ourselves in a pretty stable situation. No major risk, no major opportunities at this stage. First, lots of questions on the [ RFP ]. It takes some position around some products. A couple of them is really against are not product served by FMC. We don't sell them. Now it's important to know that we depend as an industry. We depend upon the EPA and the USDA. None of those are under the control of health services, which are held by RFP. So from a legal standpoint, there isn't much we're going to do. From a tariff standpoint, I think numbers which have been mentioned for FMC are significantly higher than the real impact. First of all, when you -- first of all, we went from 60% China exposure to 30% China exposure. So one of all, there is multiple exemptions you get. I'll give you example, if you import products, which are used in the plant in the U.S. to then being exported as a final product. You don't pay tariffs. If there is a product you bring from China, which -- if the rules are the same as you bring from China, and you have no other place in the world. You can procure the product. For example, one of our plants where we are making one of the specific intermediate manufacturing, we bring it into our plant there is no tariffs on that. So there is exemptions which are -- so you combine exemptions plus our low exposure to China. To give you the number in 2018, the first administration when we had 60% exposure to China, the tariffs impact on the company was $20 million to $22 million a year. So which we passed on to customers. So it's not -- not a significant number.

Okay. And when people talk to you in they're worried, what kind of numbers are -- do people have in their minds as far as like what's the delta what you think it will be and kind of how worried people are?

The numbers I've read from some calculation, which were demonstrated by looking at how much we sell in the U.S. and potentially we are in the $60 million, $70 million, $80 million. But those tariffs those calculations are straight calculation, not taking into account the exemptions you get and not taking account, the fact that we're only well down to 30% exposure, not the 60% we had in 2016, '17, '18.

Okay. Let me jump to R&D because, again, when I think about the DuPont deal that you did, I mean, obviously, you got Rynaxypyr, Cyazypyr, but to me, maybe the biggest delta for FMC over a long period of time, you've got a big R&D unit with it. And that's not something that you guys have done historically. So maybe a couple of parts on this question. So one, when you look back in the time you've had it, has that R&D unit run like you would have hoped it would have? And then two, from here forward, what does that R&D unit do you think bring to FMC?

So yes, when I came back, that's the first thing i looked into to because we know Rynaxypyr is getting off patent. And I wanted to know whether we have the growth platform for the company. And R&D came through. I mean I think I've never seen in the history of FMC bringing 4 new active ingredients to the market. Two actually came from the old FMC, but the development is enhanced by belonging to the DuPont organization and 2 are coming from DuPont. 4 very performing products. 2 are being introduced now. One will be introduced at the end of '26 and one in '28. We expect those products very quickly to get into the multimillion -- multi-hundred million level. So at the earnings call, we're going to try to give more of a feel for the growth platform for the company, but those 4 molecules. We'll talk about 3-year plan impact because they have a short-term impact. Plus, in some cases, they are allowing us to penetrate markets -- which are markets we don't participate in to. Maybe Ronaldo, you were talking about fluindapyr and soybean in Brazil.

Sure. Sure. Fluindapyr is a product that we launched here in the U.S. under the name brand Adastrio. And we tested the market in Brazil 2 years ago on soybean rust. And this year is the first season, full season that we are commercializing the product. It's given us access to -- we never had a fungicide for soybean before. And that market alone in Brazil is probably worth something along the lines of $3 billion. And so it's $3 billion of new market for us to participate and explore. We've always been present in the soybean market in Brazil, but primarily selling herbicides and insecticides. And now we have the newest fungicide offer to that market. So it's pretty exciting in terms of the opportunities, the new opportunities that it opens up for us.

And remind me, the Asian rust market in Brazil, how that $3 billion, how volatile is that from year-to-year? Is that fairly constant? Or is it -- it's $1 billion, one year. It's $4 billion the next?

As everything in agriculture is weather dependent. But I would call it pretty stable. It is a very dynamic market. But it's pretty stable. It doesn't disappear from one year to another. If anything, I think it has grown because as growers started to treat their crops, everybody talks about agents, soybean rust, but the piece that excites us with fluindapyr is actually there are other diseases to be controlled besides Asian soybean rust. And what sets fluindapyr apart, is not its performance on Asian soybean rust. It is the duration of control, so residual control as well as the other diseases that this product controls beyond or beside Asian soybean rust. That is really what sets it apart and that's why we are we're excited about getting into that market as a newcomer, not as a company that is a newcomer, but into that segment. And so the efficacy on soybean rust, you would argue is roughly equal with what exists in the market today, but the benefit from yours is you would have more residual value than the other fungicides would and you actually fight some other diseases that they don't. So that would be your -- the performance on Asian soybean rust is equivalent to the best options out there.

Okay. And then when you -- so when you think about that market, launching a high-end product, market share-wise, I mean, do you figure like 1/3 after 6 years, is that like a decent guess to think where the market share could go for this product? Or how would you handicap your ability to take market share from others?

We'll share more details on during our earnings call in February. But once again, we're talking about soybean rust. It's been commercialized in corn here in U.S. where launching the product in Argentina as well on soybean. So when we talk about market share, we go crop by crop, segment by segment, country by country. But we'll be more detailed in terms of our expectations on how that will become -- that product will become the growth part of our growth engine in the next 3 years. So not out there, not maturity, what do we expect out of the new molecules in '25, '26 and '27.

Okay. And again, just because it's so large, if you would, I'm not really familiar with how fungicide for rust in Brazil is sold. Is it sold just independently and then farmers would spray it themselves? Or is it part of a package that you would buy with a certain seed company because sometimes you're quirky the way different things happen in Brazil from a marketing standpoint. Do you need to package it with something else or somebody else? Or can you just sell it straight and the farmers would buy it as kind of an a la carte option for what they do?

We already serve those customers. We talked about Rynaxypyr. We sell today Rynaxypyr on those markets. We just don't have or didn't have a tool to go into the fungicide market. So it doesn't necessarily require a different route to market. Customers -- they don't buy from just one company. They tend to rely on either retailers and co-ops in Brazil, or the very large farmers they buy directly from the company. So we plan to serve the same segments that we have serve the same segments that we have served before. But now playing into product segment that we didn't have an offer for. So that's the first of the new molecules.

I don't know if you want to through the -- each of the molecule, but there is 4 of them. The other one is Isoflex, which is we said, which is also being launched now. I think what message I want to give is that you take those 4 molecules, you take Cyazypyr, which is the data protected part of the diamides, and you take the biological. And very, very quickly, you have a growth platform which is very large and is a large component of the corporation. And what -- what I will say about the 4 molecules is that we'll talk on the earnings call, but we said it could be $2 billion by the early 30s. That's what was said at the last Investor Day. I think it's going to -- it could be more because we are finding more application. There is one product, Dodhylex [indiscernible] herbicide, we call it and want to launch it as a [ rice ] herbicide. So just finding out it is on herbicide, full stop. We've seen some tests. We were in Brazil 2 weeks ago. We saw some tests on sugarcane, it's a fantastic product. So we are seeing more and more application. So what we want to -- rather than talking about 10 years down the road, we want to show that in the next 2 or 3 years, it's going to have a major impact on the corporation, multi-hundred million dollars in the 3-year plan with high growth potential.

Okay. And historically, when you've look at molecules coming to market, I mean, obviously, like Rynaxypyr was a big home run as we've probably -- outside of maybe glyphosate, right, as far as just scale and efficacy and uptake. When molecules don't work historically, when you go back and you kind of look at it, what's generally caused that? In the end -- if you look at these 4 and let's say 1 of them doesn't work, at least to the scale you want, what is likely the cause of that?

It could be anything and test, which were -- sometimes you run some tests, and we were also looking at the platforms of some of the tests. We are doing with herbicide in Brazil. Some are very clear. When we look at Dodhylex and sugarcane, it's very clear herbicide. Sometimes it acts on the herbicide, but you can see there is residual there is so -- but you see it. The good thing about product is using very quickly. When it works really well, you also see very quickly. We just launched those 2 products in the first year, there are over $100 million in sales. It's very rare. So you know they are for real. So the level of certainty around those 4 molecules with where we are in the test in the market introduction, at least for 3 of them is very high and the fourth one most likely. And you're talking about blockbuster molecule like Rynaxypyr. Those 4 Cyazypyr, which is to be a $500 million molecule. Those 4 could get there. I mean they could each of them, could be $500-plus million molecule. But the thing which is more important than what the molecule could be for us is -- there is a concern in the investment community is what is FMC without diamides. And what we are seeing is we should not talk about diamides. We should say Rynaxypyr is one product in diamides which for us is becoming a core product. It's going to grow. We know how to shift the market towards technical formulation. When it's a product very soon within the next 12 months, which will be like [indiscernible] and clomazone, carfentrazone, it's going to be a molecule, which is in the public market. And we know the recipe. We have the strategy we're putting in place to grow this at 4%, 5%, 6%. That is part of the core. And then you have Cyazypyr, which is a very high-growth molecule, better product which is data protected. There is no generic activity, much more difficult to make, much more expensive to make. We don't have competition and will not for [indiscernible]. And we are developing advanced molecule. This is going to grow double digit. And then we have the 4 molecules we talked about. And then we have biologicals. So losing as a protected molecule, $1 billion Rynaxypyr, we're going to grow at 5% instead of 8%, 9%. But having below that, a series of growth platform, which are growing even faster, it's a normal cycle. There is no worries about moving Rynaxypyr into a core molecule to growth.

And again, we usually don't get molecules as big as Rynaxypyr. Again, we've had glyphosate a few, but I mean not many. On the smaller ones, a lot of the work I've done over the last 20 or 30 years, you would basically say you kind of go from the mid-30s in margins to like the mid-20s over like a 5- or 6-year period after it comes off patent. It's something like that is what the normal glide path would be. And again, depending on which molecule it's been, you might lose 10% of your sales or 15% of your sales or the growth rate made like you were talking about kind of get cut in half? Is that a decent framework to think about what Rynaxypyr would do as it comes off patent over like a 5-year period?

I think the margin gets protected by moving your portfolio. So Rynaxypyr -- let's take the example of Rynaxypyr. Today, there is a single molecule. That's what we have sold when it was a patented product. Still pattended [ for a year ], okay? We see that some time. It's not yet off patent. But close -- what is happening is you move this product toward new formulations, which have -- because Rynaxypyr is a good product. It's not a perfect product. It's been on the market for a long time. We -- us, because we are selling it, we see resistance starting to develop. It's a narrow spectrum. We can increase the spectrum in terms of the pest control. There is ease of use problem, you can develop tablets, you can develop high concentration. So what you can do is move your portfolio when people are coming with single molecule which has limitation -- which have limitation in terms of application performance toward advanced formulation. We are developing a road map right now. You sell these products. These products provide a benefit, economical and technical to the growers. You sell those at a premium on margin because of the technology. So yes, if you stay with a single molecule and try to keep on selling it against generic on the market. You're going to lose margin. But the idea is to shift your portfolio to the next couple of years, 60%, 70% of our portfolio will have shifted from a single molecule into advance. So the idea is not to lose our margin nor to see a decrease of molecule. Now there is another aspect, but it's a decision we are working on to be made. We'll talk about that also Investor Day is we are decreasing our manufacturing cost for an Rynaxypyr and Cyazypyr significantly -- not talking a couple of percent I'm talking about -- we found methodology, and we exited some. We announced that some manufacturing sites. We're going to get to a place where we're going to be competitive with generic price. The question is when you get to those markets, it would not be a big surprise to one day. Rynaxypyr going from $1 billion to $4 billion, like glyphosate. And the question for us is to expand our pie by using a lower cost to go into other insecticide market. We are not going into today because that cost is too high. And what kind of margin do we want? So we have the strategy of our current market and current applications and protect margin and grew 5%. And then the question is, how do we want to put a pie and which part do we take depending upon what margin we want...

Okay. Yes. Because I mean, Monsanto dropped glyphosate prices tremendously like the year before they came off patent, and I think grew volume 40% or something the year after. So you're saying that may be available to you, where you'd be willing to take a lower margin if you could significantly increase the size of the pie that's something you'd look at. Okay. Fair enough, you brought up manufacturing, which I want to touch on quickly. When you look at what you manufacture in your own plants versus what you have third parties manufacture. Is that the footprint you want going forward? Do you think you have the right footprint? Or do you need to make some meaningful changes there?

No meaningful changes. We are pretty with a good balance. We use contract manufacturing to make intermediates -- with their often finish the product at our own plant. So we have a pretty decent -- it will be an evolving balance. Like right now, we're increasing the footprint in India. It's also part of a cost reduction plus derisking China. So we make this in as we go, but there is no fundamental change, which is required.

Okay. And then when obviously, you stepped away from the CEO role was Chairman came back. I always like to ask when you -- what is it you were hoping, what change did you want to affect? Was it just to kind of settle investors nerves and say, listen, I'm still here my hands till. This is still a good idea. Or were there structural things, culture or whatever within the company that you want to kind of meaningfully change?

So there is a couple of aspect. The first one is what I just talked about before. I wanted to change when I looked at the company, and that's something I've been thinking about also before being CEO as a board member. And I think maybe one thing we have not done as well as we should have in the past, is describing our portfolio. We kept on saying, don't worry investors, diamides are still patent protected and data protected. So it's still a growth platform. It is not the way we should talk about our company. Our company has a series of core products where the base molecule from which you create the formulations are in the public domain. This is where Rynaxypyr belongs, and you have to devote the resources, which are solely formulation resources. And that is your core product and don't try to sell Rynaxypyr as a patent-protected molecule, it's over. And this is a 5%, but you have to be highly focused on developing a growth, a road map to move this portfolio from the single -- with a single to the formulation. And I think that's one thing we are not doing enough, because we are treating that thing as a patent single molecule would sell. I think it's the wrong strategy. Strategies is to move it up with a core and move the portfolio. It's going to take us 1 year 2 year. We'll be there by '26, '27. The road map is in place, and there is some interesting products that's Ronaldo to give you one description of one product we can make. And then the rest is structured from an investment spend, the company is around the 3 growth platforms because losing patents on Rynaxypyr is -- I don't want to skip over that, not a all because we have what we need, as long as we put the right focus, the right resource to get those platforms to grow. Cyazypyr because it was smaller than Rynaxypyr was not getting enough attention. That's a fantastic molecule for which we have no completion. So that's part of the strategic approach to the company I wanted to come to a change was the first thing. The other thing is maybe go back to maybe doing some of the fundamental rights, I think we have to be very careful on how we forecast. Making sure it's a bottom-up process to understand exactly the potential of the company. The third piece, I would say, was marketing. One of the reasons for which we overgrew in 2001, 2002 because maybe we didn't understand enough. Where we are selling, where product were going, where the market was going. And maybe we paid a little bit more price than others when things went down. Ronaldo is leading also the marketing organization and revamping that. And the last one, I think is R&D. We spent $300 million in R&D, half in the regions, half central. And the reporting was such that we could duplicate work and money could be wasted or was wasted. I think we changed the governance of R&D, which changed the organization. Everything is coming under Ronaldo. He is changing the governance. And I can tell you we can do much more with the same amount of money, when you have the coordination more [indiscernible].

Okay. I do want to get your view on biologics, so kind of size and how you think about -- I've generally been skeptical of biologics for long. You [indiscernible] bioscience and [indiscernible]. There's been a lot of hope and hype around biologics for a long time. I always tell people the experience unlike my farm. It's like -- we've got acres north of I-80 that are clays soil. We got Sandy Soil South and sometimes biologics work much differently on each side of the interstate. And so it's hard to get a consistent efficacy from what my experience has been. But when you look at biologics as a part of your portfolio outside of mandates where maybe you're being forced to use it, how you see the efficacy of biologics developing? And how big can that portfolio get for you guys?

I want to tell you a little bit what I think about biologicals as a business. And I'm not sceptical but on the more prudent of the group. And I let Ronaldo be less prudent than me, talk about biological. So my view is when I talk about the 3 growth platforms. Cyazypyr. The 4 new AIs and what we call the plant health, which include biological, today it's a $200 million business. Today, it's growing at 20%. It's good. But $200 million at 20%, it's not going to be a $2 billion we talked about in the early 30s. Why is that? It's because there is an inflection point in terms of the number of the biological product while developing as well as pheromones. Well, I need to see the inflection point in one of the new products and pheromones, we're going to start the first real test at the end of '25. So the potential is here. But I think we still have a lot to prove before we can say it's a multibillion-dollar platform. The way I think about biological is I don't think it's not developed and made to be stand-alone best controlled product. We see that as part of the portfolio with chemicals used together not as stand-alone. So I think it will be something which will be part of the portfolio. I don't think it will replace. I don't think it will cannibalize. I think they're going to be more complementarity. And it's going to be part of product which are used to together because of efficacy problem. Ronaldo do you want to add ?

Just we see that as a fast-growing segment, but the value proposition is not to replace chemicals. It's really to fit into a best management bringing more resilience against resistant development, being an alternative for growers need to spray their crops 3 days before they harvest. There are limitations to do that with chemicals. They can do that with biologicals. Being products that will help growers business more on the biostimulant side of the industry. but help growers develop more resilience in their fields because of the extreme weather event that we have seen. So we see that as a fast-growing platform, but not by replacing traditional chemicals. And it's much more being additional tools for growers to combine with the tools that they have today. So their crops become more resilient.

And then just the last one here on our way out. Farmer economics have been pretty damn good the last 5 years, if you look. There's some angling that they're going to be worse next year if you just look at today's numbers. And again, all these things are cyclical. So if farmer economics move to a meaningfully lower point over the next couple of years, that would seem to kind of conflict your business is coming out of the cycle trough and starting to improve. Their business is coming from kind of peak-ish or at least high levels may be down. How do those things converge, do you think? How much of a headwind might that be for your business?

We've never been able to do a very strong correlation between farmers economy, it can impact on our business. Because whether farmer economics are good or bad. They need to protect what they have. They need to protect their crops. So I think could they at time, go more towards generic in very difficult situation, yes. But don't forget there is risk. I mean how many times we've seen people taking some cases they go, in some cases, [indiscernible] generic Rynaxypyr and instead of spraying once having to go 2 or 3x because of the efficacy and quality. So they are very careful, especially the one generic growers, they tend to -- what changes when farmers economics is difficult is that they are more careful in the speed at which they buy. And we'll be buying. But when things are good, when economics are good, when demand supply is good, they're all very large a percentage of what they will need very early in the season. Today, what they would do in the case you talked about, they will buy 60%. And they will still buy 100% for the remaining will be closer and closer to time of use to avoid to build inventory. So it's going to play on the timing, not on the amount so it brings a bit more uncertainty and a bit more stress on the organization, because the lots of the sales are delayed.

Sure. Listen, Pierre, Andrew, Ronaldo, thank you guys so much for coming to spend some time with us. Thank you.

Thank you.

Thank you.