FMC Corporation (FMC) Earnings Call Transcript & Summary

We will do our next session here. It's with FMC, of course, pure-play crop protection chemicals producer. Happy to have with us today the CFO, Andrew Sandifer, and Pierre Brondeau, CEO. We had a nice dinner last time with a lot of investors. So I'm going to pick up the conversation today. [Operator Instructions]

Maybe Pierre, Andrew, we could start off by you've labeled this year as kind of a reset year or the first half year being a reset. Talk about how the reset is going almost 5, 6 months into the year?

Yes. Thanks, Joel. We're on track. We're exactly, if not slightly ahead of where we wanted to be. We are really on plan for Q1 and for Q2. I think the reset, one part of the reset was putting the inventory of FMC products below where it has been in the past. And I would like to say, except India, which is a prime for most companies, we are exactly where we want to be. So I believe we will be, as we said in February, at the start of Q3 in a position to deploy a growth strategy for the second half of the year, which is critical to deliver the year, we'll be in a very good position.

Okay. Now let's talk about what you did to get to the reset. So you have done some tougher choice around Rynaxypyr to get ready for some moves in that molecule. You're getting ready for a new sales team to -- we've launched a sales team, but to really start hitting product sales into Q3. Maybe talk about some of those moves?

Yes. I think at this stage, -- if I would define what we have to do for the company to be fully back on track. There is delivering the growth in Q2, Q3 -- in Q3, Q4, which is driven entirely. We have not in the plan forecasted any natural growth of the market or change in demand. So it is driving growth through new technology, mostly the 2 new products we have introduced in the market last year, which are fluindapyr which is a fungicide and Isoflex, which is a herbicide, both of those products are impacting Q2 because, they are mostly impacting part of Europe for sales, which is a Q3 event. And then most of the registration we have for Fluindapyr are in North America and in Brazil, which is in H2. So that's number one, growth of new technology completely on par right now with what we are expecting to do. I said it, if we miss a number for new technology, it will be on the high side. Right now, a lot of the time we are spending is more making sure we're accelerating capacity because the demand is stronger than what we're expecting. So that piece is working well. Piece number 2 is, as we've said, Brazil is basically 4 large market, the crops, the retailing -- the retailers, the sugarcane and cotton farms and the row crops large farm. The last one, we've never been able to penetrate because we needed to have a full product line to participate in this market. We had multiple discussions with them. We have a full product line with a new product, we have a new fungicide, which will be 1 of the best on the market, if not the best. We'll have 3 new herbicide including 2 with new mode of action and a regular insecticide. We have, at this stage, structure the sales organization. We have hired the people. All the people we hired are coming from the regions and have worked with the customers we are targeting. They have all been trained and the contact are being established with the farmers in that segment. So we are ready for action in Q3 for that. So that's the second part of the growth to deliver Q3, Q4. If we deliver, and I believe we're in a very strong place to deliver, we will deliver the H2 numbers. We understand there is a -- it's a big number compared to the first half of the year, but the first half was focusing on resetting the company. So for H2, those are the 2 main factors. You talk about Rynaxypyr. Rynaxypyr is mostly the strategy we are putting in place right now is mostly a '26 impact. Three aspects to the strategy: number one, reducing dramatically the manufacturing cost. We are there. Right now, we are within shooting distance of the quality generics. We will be at the beginning of '26 on par with the high-quality generics for manufacturing costs. What does it do? It allows us to defend our position on what we call a simple solo Rynaxypyr molecule and to expand the solo molecules into other markets, other insecticide market, so to grow the volume at a lower price, but much larger volume. And at the same time, develop new technology, we have 3 products today. we're putting on the market. And we have 3 more registrations. That would be a total of 6 products by next year. So the Rynaxypyr strategy is really we are gearing up to be ready at very early 2026.

Okay, let's dive into all those throughout the next half hour or so. Let's talk about Brazil. So you put together our sales team pretty quickly. Talk about why you could do that so quickly.

I think we are benefiting from -- that's the only good side about the situation we are facing today in the agriculture world is that there is not a lot of companies which are doing very well. Most of the companies have been going through restructuring. A number of people are available on the market. Many companies have been downsizing in multiple big markets. Plus, there is a fact that we are doing something new. There is very companies today, which are building a new part of the organization targeting growth from scratch. And that's what we're doing. And that's a challenge which is attracting a lot of sales agronomists. So we were able in about 3 months to 4 months to build that organization. Now I also want to -- it was not as quick as it might seem because we talked about it at the February earnings call but we started that process in November, December 2024. So it is not like we started when we announced it, we're already in the process, when we announced it. So we started in November and now by the end of -- by now, the team is trained, it's already in contact with the farmers.

What is like a selling pitch? Your new salesperson, he knows his customer. Now he's got a new jersey on, what is the sales -- what is his or her sales [indiscernible] .

The first selling pitch is new technology. We -- the opening statement and what made those farmers contact us as much as we are contacting them was the launch of fluindapyr. We believe it is a product right now it's going to be 1 of the fungicide on the market, which has the widest spectrum, which is very important for row crops because, the problem with fungus and controlling fungus and fungus keeps on coming back in a different form. This 1 has a very broad spectrum. That's the opening pitch. The second one is once we have that, we have 3 new herbicide we're putting on the market, and then we have the rest of the portfolio. So we are pretty much qualifying as a full product line supplier with a star product, which is a fungicide, which is very critical to those farmers.

Okay. And you are targeting, like you said, the large farms, not the mega farms, Talk a bit about why mega farms are sort of off the table?

Well, they're not off the table. I should have said that. If you think about the market, as I said, the big segments, there is what we call the mega farms, which are very often 100,000 hectares and more. Those are doing usually sugarcane. They are doing cotton. And as a rotation, they also do corn and soybean. We are selling and we've sold for decades to these farms. It's 1 of the big market today. If you exclude the new market we are going after the row crops, the large farm, we are selling 40% of our sales are direct to farmers, and those are the mega farms. So we're going to carry on selling to the bigger farm and the crops and the retailers. That is not changing. The new market is now because of the new technology we have been invited by the large farm. And what we call large farm is 10,000 hectares to 100,000 hectares, you can only go into those farms. They can't afford to have 8 suppliers. They need a limited number of suppliers which have a full product line. We did not qualify until this year. We do now, and that's the new segment. We know how to sell to corn producers and soybean producers. We are doing it with mega farm but we are going to apply this model now to the large farm. That's why it is not a big stretch, we've sold direct. We've sold into corn, we sold into soybean. It is just a new segment.

Just sticking in Brazil now, generally, I want the level of generic pressure you're seeing in Brazil? Is it the same as always, is it different. I'm not talking about Rynaxypyr which -- more generally.

Yes, it's there. It's always difficult to qualify if it's if it's more or less, there is price pressure. It's not lower than it's been in the past, but it's not dramatically different than what it was in the past. I think the numbers will prove at the end of the year. We very often talk about price pressure. But if you look over the last 5, 6 years, the percentage of sales, whether it's in Brazil or worldwide, which belongs to generic versus tech companies is about balanced. Let's not forget also that tech companies like us, we sell generic products. We manufacture them at a generic price. We are selling sulfentrazone, clomazone, bifenthrin. Those are the product generics we are selling. So there is price pressure. We can't deny it. I think we are forecasting in the second half, low single digit...

Low single digit.

That's the kind of numbers for next year, which is not that different from the past in a low-demand market. So Rynaxypyr is a different story. That's why we need a brand-new strategy going into '26. We don't need it now because we are protected by patent in all of the large markets except China and India, but that's going to be a different story.

If we talk about Rynaxypyr a bit more, just sticking to Brazil. There was a question we had a dinner last night and my question was talking about how receivables have been higher than normal. Andrew, could you talk to how long it may take for receivables to come down to normal levels?

Sure. I think -- look, we do have elevated receivables versus our own history. I think it's a difficult thing to compare across companies because the country and crop mix are so different among the different players. But I think when we look at what's going on in our receivables, one, it's the hangover from the deceleration in sales from the peak in '22. It takes a couple of seasons for that to really resettle. And then second, I think most importantly, it's a country mix thing. When we think about, particularly in a year like this year, where in the first half, we're taking very strong action to reset channel inventory by not selling into the channel. That's in a lot of countries where we have structurally shorter terms. In the second half of the year, we're going to have pretty significant growth, both top line and bottom line. A lot of that growth is tilted towards countries like Brazil, which have structurally longer terms. So there's a big country mix element that's keeping it elevated right now. I think as we get back into a more normal rhythm in '26 and '27, after when you don't have this first half significant correction that we're going through right now in 2025, you'll see some normalization there. I'd just add 1 last comment just on working capital in general. I think working capital is an important part of the asset base for a crop chemical company. Now crop chemistry is not big, heavy chemical production, we're very asset light. The CapEx load is very, very low in our business but we do consume cash for working capital when we grow. So as we renew to grow, there will be some use of cash for working capital, but we get it back into a more normal balance than what you've seen in the last 2 years over the '26 and '27 horizon.

Just on the second half, some of your competitors are talking about, "I think is great", but the 1 risk they see our crop protection, chemical pricing pressures, potentially in the second half of the year. I know tariffs are up or down every hour. I don't know where they are now but -- they change. But when you think about making that big second half number comps you have, where do you weigh in the risk on more pricing pressure in general, tariffs as you play around with thoughts, the numbers?

Tariffs, we've put that in our forecast. And we've put in a forecast with the three 90-day truth period. So at the 145%. Now tariffs are important, but they are not that significant for a company like ours because a lot of the manufacturing, which takes place in the U.S. is done with products, which have to come from China. It would be detrimental to manufacturing in the U.S. if those products will have full tariffs. So you see many exemptions in the Annex II list for most of our products. So we're expecting a $15 million headwind, which is fully baked in the forecast. And that's on the worst case scenario. So we do not believe it's going to derail what we have in mind right now for H2. Pricing, low single digit, we believe, is in line with pretty much what the industry is seeing, what our customers are expecting. Now the big benefit for us is to give you a sense of the numbers, correct me if I'm wrong. In H2, I think we have about $150 million of growth.

Revenue growth.

About $150 million of sales growth. Out of this $150 million of sales growth $110 million on new technologies. So new products which are put on the market on which you do not have price pressure because there is no competing product. So on the growth side, we're not expecting any price pressure. So the level of confidence is pretty high that what we have baked in our H2 forecast is quite achievable.

Okay. Let's talk about Rynaxypyr. So the game changes on January 1, 2026, right? Tell me how the game changes, January 1, what happens?

January 1, there is no process patent, composition of matter patent on data protection, pretty much in every part of the world any generic company capable of manufacturing Rynaxypyr will be authorized to sell the product. How do we deal with the situation like that? What was absolutely critical for us over the last year was to bring a manufacturing cost completely in line with the people we will be competing with the generic. Now there is 2 categories of generic. There is what we call the high-quality generic manufacturers, who are able to make a product which works and there is the low level of generics, who are going to go after market, we don't even participate in. So our objective is to be from a cost standpoint on par with the high-quality generic to be able to deploy a strategy without being limited by cost. We will be there. The plan is in place almost there by January 1, that will be done. Once you have that, you have to deploy a strategy which is based on -- it's a 2-pronged strategy. One is what we call the single molecule. It's going to be using price to be on par with generic plus premium because we have a brand, a brand has a value. We don't need to be at the exact same price because there is quality. People know our products, plus we provide compared to generic a service to the customers with agronomist and tech service. The target here with a single solo molecule is to protect our position today and expand into other places where people would rather buy Rynaxypyr than other insecticide, but Rynaxypyr was too expensive before, but if you bring it to a price where you can compete, they will switch to Rynaxypyr. So it's increasing the solo molecule market where we will be competing in generic at a lower price, but increase volume significantly. The other part of the strategy is developing new technologies which command a premium. And those technologies have different -- there is a different aspect to it. In some cases, Rynaxypyr is a great product but has a very narrow spectrum, very strong with caterpillar, which is the biggest issue. But what you can do is if you create the right mixture you expand the spectrum, you limit the number of application farmers have. So that's part of the strategy. We have today 1 product like this, which is being sold this year. We are also creating high concentration product, it's less cost for the farmer, easier to use. And finally, rice is a very big market for us. It's 25% of our sales. And we have developed a tablet, effervescent tablet, which is where the efficacy is very good for rice. So those are new products which are commanding premium. And we have developed other mixtures, which are addressing resistance and increasing spectrum, and we're going to get the registration in 2026. Now to tell you the speed at which high-end technology farmers are willing to switch to new technology. Remember the discussion we had last night, we sell $800 million of Rynaxypyr in 2025. $200 million, our contract with our partners, we are supplying the cost plus the tech partners. $600 million on Rynaxypyr, we sell to the market, branded Rynaxypyr. Those 3 new products we've just introduced at the end of '25 will represent $200 million to [ $250 ] million. So of the $600 million. We brought 3 new molecules. Farmers know very well, generics are coming. They know we're going to be lowering our price in the solo molecule. Nevertheless, to go to higher technology product, we have been able to convert already [ $250 ] million of the $600 million sales. which means the shift is taking place. So that's a 2-pronged strategy. We're going to go after.

So in that, so what your forecast has been that Rynaxypyr sales about $1 billion last year, about $800 million this year as you said, and then I think you're talking about a mid- to high single-digit growth CAGR '26, '27 rate, so 8% or so every year after this year.

Correct.

The goal being, you back to about $1 billion of sales in a few years. And I think you said last night, Andrew, I think you said that the goal is to get the same profitability level in Rynaxypyr in dollars as you were in '25.

Yes, let's be precise. We want profit dollars, right? Our 3-year plan and the February call, we laid out our outlook for 2027, where we think we can return sales to $5.2 billion and EBITDA to $1.2 billion for the company. Assumed in that plan are $0 of profit growth for Rynaxypyr. The strategy with Rynaxypyr as Pierre described is to drive higher volume, increased penetration in the parts of the market where we don't play today with Rynaxypyr to capture more value with new technology based on utilizing Rynaxypyr. Doing both of those with a significantly lower cost position than what we've had historically. That will allow us to grow sales with volume going up, price going down. But with cost significantly resetting the balance between those 3 variables is flat profit dollars from Rynaxypyr. So Rynaxypyr is not a drag on the company's performance going forward, but it isn't the driver of where the growth from 2025 to 2027 is. That's really the growth portfolio. Rynaxypyr in the 4 new active ingredients in our plant health business. But that's an essential assumption in our 3-year outlook.

So I may have been wrong with this, we'll find out over the next 5 seconds. But I thought you -- is the goal to be '27 Rynaxypyr sales, same as '24, '27 profit dollars from Rynaxypyr same as '25?

So the math will work out roughly that same kind of place. And we have...

[indiscernible]

Yes. We didn't give a firm...

He always does that.

Yes. We didn't give a firm number for Rynaxypyr in '27, but the math will work -- if you use that kind of high single-digit growth rate, it will get back to around '24 levels.

Because what I was thinking was then -- and it makes sense, on this '27 Rynaxypyr sales being the same as '24, but you're assuming a lower level of profitability on the same level of sales, which makes sense in a more generic world, right? Then I was trying to crack the numbers last night, but I got tired.

But that's an important comment you're making. Think about it, '27 sales around '24 sales, earnings at the same level as '25. '25, '26, '27 earnings of Rynaxypyr. And going forward, the overall strategy is we do not want Rynaxypyr to handicap the earnings growth provided by the growth platform.

What I thought about that was, and I was trying to count the numbers, I was making a joke, but you're not assuming a massive amount of margin reduction in the new FMC Rynaxypyr reality?

No, because our cost will be much lower. Our cost will be much lower. So the -- it will not be a massive margin reduction, but the cost being lower. It will impact the overall dollar at the level of earnings.

So the question I have for you is it's got to be difficult to know what the Chinese production costs are going to be for Rynaxypyr, and then you've got a kind of plan around that or it's going to -- you're going to find out next year and the year after. So how do you think about that?

So you're right. We just don't know exactly how the Chinese generic company calculate their cost? What is in, what is out, how it's done. But we know some companies, we call the high-quality generics. We're a bit more transparent around their costing. And we also know very well the process to manufacture Rynaxypyr and the shortcut you can take. So we have a pretty good idea of the number we should reach to be on par with the high-quality generics. And that's a kind of number we are getting at. It is not a very rigorous comparison because we do not have all the information we need to understand the costing process generics are taking.

And don't you get worried that Chinese producers of anything get smart and smarter and smarter and the game, the bar could go lower.

The molecule Rynaxypyr like it's even worse for Cyazypyr, a complex molecule to make. Nobody knows that process better than us because we've made that for 20 years. To go much lower as smart as the engineers or process engineers might be, you would have to take some short cuts, which will be detrimental to the quality of the product. There is no doubt. So we have a very large organization right now, which is working on process. That's all they have done all year to take us to what we call high-quality generic costing. And to go below that, they are going to be impact on the quality of the products, which might be okay for some market segments, the very low-end insecticide, but we don't play in this market. That's not where we're going to go in the expansion of our Rynaxypyr.

Okay. You've talked about fluindapyr, let's talk about some other opportunities that you're excited about quadrupling sales, some of your new AIs over the next 4 years, few years. So Isoflex, Dodhylex, talk about what are the -- what's the excitement around some of the new AIs.

Yes. First, fluindapyr is, it's been tested by our customers. We doubled sales this year versus last year. Fluindapyr and Isoflex, we're targeting about [ $250 million ] this year, which is twice what it was last year. We will be there. I can say it in a pretty certain. We will be there this year, except that the demand is starting to go beyond what we are expecting. So we are accelerating capacity right now because the demand is strong. Fluindapyr, the product has a quality, it's extra ordinary. It's 1 of the fungicide, you're going to find on the market with the largest spectrum. So there is a lot of excitement around this product. Isoflex, same thing. It's a product mostly it's going to take off faster mostly in Europe, very, very stronger beside for [ pheromones ] application. I can tell you as a side comment, but I was last week with the head of Europe, who told me Isoflex will be bigger for Europe than the diamides were. It's going to be a very big product. The last 2, Dodhylex is coming next year. Initially, it was developed as an herbicide for rice. It's proving to be a very strong herbicide for multiple applications. And what is very important with this product, it's a new mode of action, which in nature has never seen a product. The last herbicide, which was introduced with the new mode of action was 30 years ago. So from an efficacy of the product, it's in -- it's going to be very strong. We are introducing that second half of next year.

Some early-stage introductions in the second half of next year.

Second half of next year.

Or significant commercialization in '27.

So this 1, and then the last one, Rimisoxafen is another herbicide also broad application, and this 1 has a dual new mode of action. So also increasing the spectrum and something for which resistance [ don't ] exists. So those 4 AIs -- listen, I never had a situation with the introduction of 4 new products of that quality in such a short period of time.

Joel, if I could just add just some proportions for everyone's benefit, the diamides at their peak were about $2 billion in sales. Those 4 active ingredients each have a peak sales potential of between $400 million and $600 million. in fact, might be a bit higher for a couple of them on what we're learning now as we're rapidly commercializing them. So the 4 of them combined are significantly larger than the diamides were at their peak.

And you signed recently a new partnership with Bayer for Isoflex?

Sorry.

Didn't you sign a partnership with Bayer for Isoflex?

Yes we did.

Can you talk about that?

Yes, we did. It's something we often do in the industry and I'm certain we're going to sign more. And I'm also certain we're going to sign a series for also fluindapyr. You sign this type of contract for companies, which recognize the value of the product and want to apply it in the foreign market, but very often also, we signed those partnership with seeds company who want to use the product as part of their seed program. So -- and that's where most of our partnerships are. Those are signing with companies, which is the benefit of the product but it's to be applied on hectares where we don't participate. So those are going to be critical. But I would expect looking at the quality of the product that are going to be more than the 1 which Bayer announced in the next few months.

How do you -- like you've got some big growth plans, too, for pheromones and biologicals? Is it just my conjecture. Doesn't -- I just feel like you talk about the other things, more than pheromones and biologicals. How do you feel about it? How do you feel about it versus what you felt about it a year ago?

Two different things. Biologicals, we talk about the growth of biologicals and biological is growing double digit, above 20%, certainty around that growth. We have multiple products, we have multiple technology. They are most of the time used in conjunction with chemicals. It's a -- our plant health business, a couple of hundred million a business. This one, I could talk about it with the same certainty as the way we talked about the 4 AIs. Pheromones, we are a bit more careful because it's a very new way of dealing with the insects, insect control. We're having a first sale of pheromones in the third quarter this year in Brazil with application in the fourth quarter. So we need this full scale application to be confirmed that the technology works. If it does, it could be very big. But we don't want to talk about it because -- we don't know yet.

So its an old long standout term, groundbreakers, like a groundbreakers year for pheromones.

Absolutely. We were forbidden to put a single dollar in the 3-year plan from pheromones until...

by Andrew?

By Andrew, yes. Until that test in Brazil or that sale in Brazil is seen. I would say that by the fourth quarter, certainly by the earnings call, in February for the fourth quarter, we'll have a very good sense of the performance of pheromones and what it could be present for the company.

Was there like something in the lab or some field trials in the last year or 2 that maybe say -- maybe it's pretty crazy like new technology, if people understand the background of it. But like is it something that happened in the last year or 2 in the background that made you a little less excited?

No. We are very, very excited. Every test we've made worked, we are just more concerned about when you do that on experimental farms, which our farms. They are not of the size and the magnitude of the kind of farms we are dealing with in Brazil. So to do it in a very controlled environment, give us -- we know technically it works, that it works on a full-scale field is what we need to verify

Okay, Pierre. So when you retire from FMC, the stock price is a little bit higher. And things have gone so of for the company over the next following few years, you made the decision last year to come back. And that must have been a very interesting decision for you. Maybe talk about that decision and also what has been the most challenging thing that maybe you didn't anticipate a year ago? And what's been maybe the easiest thing you didn't anticipate?

I think I came back because after talking with the Board, talking with members of the management team, I believe we could define a road map to take the company to back where it was. We have the tools to do it. Now I have to say, and I have to be very honest, when I came back July, August, even September, I thought about a soft landing approach was possible. When I got November, and I looked at the issues around new technology and the launch, when I look at Rynaxypyr costing, when I looked at specific inventory issues we had in the channel beyond the industry, I felt like the situation was a bit more complex, and that's where we made a decision to go to a full reset of the company. We knew we are taking 2 quarters, which would be painful for us operationally and for our investors, but we believe we have a road map. I believe that by the time we get to the earnings call for Q2, we're going to demonstrate that we have a plan which is solid for the second half. By the time we get to the November earnings call for Q3, we should be able to focus on 2 of the key element of the strategy. That's a growth platform fluindapyr and Isoflex, and that is the new route to market in Brazil. And that should give us some very strong level of confidence and give a level of confidence to our investors by the time we get to November around the second half of the year. It could -- it should also give us enough confidence knowing that by that time, we'll have full certainty on the Rynaxypyr cost about the 2026 number. So by November, I would love to be able to talk about growth of new products, new route to market and start to give a pretty detailed view of what 2026 EBITDA could look like, which would allow, if we do that well to focus at the February for Q4 to focus on the Rynaxypyr story for '26 and '27 and the 3-year plan. We have the tools. That's why I decided to come back. It was it was a matter of resetting the company and then taking advantage of what we have. I think we have more new technologies than many of our competitors today. So it's a matter of structure in the company and putting it back at a place where we can benefit from all of that.

Thanks, Pierre. Thanks, Andrew.

Thanks, Joel.

Thank you, Joel.

Thank you very much. Thank you.