FMC Corporation (FMC) Earnings Call Transcript & Summary

We've the Jefferies Industrial Conference. It's Laurence Alexander with the Jefferies Chemicals team. To start off today, I'd like to introduce the team from FMC. Today, we have Pierre Brondeau, who's the CEO; Andrew Sandifer, the CFO; and Ronaldo Pereira, who's the President. Thank you very much for joining us today. And I think just to get started, Pierre, would you mind just laying out kind of your current views on demand trends around the world, how -- what that might mean for how you're thinking about Q3 and the setup for Q4?

Sure. Thanks, Laurence. I would characterize the market as I would say, normalized in a sense that it's a very different feeling from where we were a year ago, which means there is more controlled level of inventory in the channel. So we are not in a place where predictability is harder. Now that being said, I would not consider us in a high demand period, it's -- we are in a period with firm income, geopolitical situation where the demand is more on the software side, but much more predictable and much more normal like what we've done before. What does it mean for our third quarter looking into the fourth quarter? Maybe the simplest way for me to answer the question is that, if I would have to do a guidance right now as we did at the earnings call, I would do the exact same guidance I did at the earnings call. So the first couple of months of the quarter were exactly as we were expecting. The fourth quarter is still looking as we are expecting. And we understand those are 2 very big quarters for FMC compared to the first 2 quarters and they are critical to make the year. But at this stage, the quarter is unfolding as we're expecting now always difficult to make a statement like that for Q3, knowing that September is always the biggest month of the quarter. That's the beginning of the Latin America season. That's when things start to really take off and to some extent, also preparing for the season in North America. Europe, that's the back end of their season. Q2 is the big quarter. But all in all, I would say, much more predictable and much more in line on a monthly basis to what we're expecting to see.

And so let's carry that forward into 2026 because when we get to the earnings call, I'm willing to bet that half of us are going to ask you about next year anyway. How much visibility will you have on 2026 in November?

I think in November -- right now, it's a bit early. Before you talk about 2026, you always need to see how the North American season and the Latin America seasons are going to go. But by the time we get to earnings call, end of October -- 30th of October, we'll be 1 month into the fourth quarter. We'll have the third quarter behind us. So yes, we should have a pretty good visibility on 2026. The key thing being that what we sense today, as I said before, is more predictability. So short of an event, weather or things of that kind in the big regions like North America or Latin America, the visibility of the market is better than it's been for the last couple of years.

And then when you think about the 2027 framework, the components that you expect to have from the new actives, biologicals as if your Rynaxypyr, which pieces you have confidence in and which pieces you either need to still make a decision or you need to see how the market responds before you know that, that piece is locked in?

I think we developed a portfolio in what we call core which is all of the products which are made from molecules which are in the public domain, and we have growth, which is all of the formulations which are made from products which are new active ingredients, which are under patents or under data protection. So first, if I talk about the growth part of our portfolio, the highest confidence in the '26, '27 numbers are with the new active ingredients. I think fluindapyr and Isoflex are in very, very strong demand to a point where customers are themselves intervening with the registration authorities to move faster the registration of some of our products. We're seeing that in Europe right now. We just got it in U.K. for Isoflex. The same is taking place for fluindapyr. We just launched Dodhylex in some countries, but there is absolutely no doubt that the growth of those product is solely limited by the speed at which we are getting the registration, not by the technical performance of the product. So should we get the registration faster, we'll get the numbers even bigger than what we have, a very high level of confidence. The next one is Cyazypyr because it's a large molecule. It's [indiscernible]. We know it very well. It's data protected. It's a very, very good insecticide. And it's a very good partner for formulation with a very broad spectrum. We know the molecule, our sales relation of the molecule would be -- it's #2 in terms of level of confidence. And then we go to #3 biological. We're increasing the number of products. We're not planning at this stage, we are doing a full-scale commercial scale with pheromones, but we're not including any of that in '26, '27 until we see how it works, so biological with pheromone. If I talk about the core product, our core business, we know how to make new with old. We know how to make formulation. We know how to grow this business at the speed of the market. The most challenging, of course, but we feel we are well ready for it is Rynaxypyr because we're entering a new period where generics are going to be allowed to sell starting the 1st of January 2026 everywhere in the world. We believe we are well prepared for that. The manufacturing cost is well aligned with what we need, and we have local strategy in place. Right now, everything looks like we were expecting, but I would say that's the newest part of the core portfolio.

And because the question keeps coming up, can you just touch directly on why what happened in India with Rynaxypyr is not the template for the rest of the world? Or what do you need to see from the competitors? Is it a matter of competitor behavior? Is there regulatory dynamics or market structure? Can you give a sense for what's different or what the risks are?

Yes. Thanks for asking that because it's an important question. India is not a template for what is going to happen in other countries. It is not a Rynaxypyr issue in India. It's a decision we have made to play in the Indian market a different way. I know very few of our colleagues, large international company who love how we have to operate in India. It's a very, very complex market with a very large number of layers in the distribution channel, 5, 6, 7 to reach stores and then reach tens of millions of farmers. Packaging size maybe even bigger than that. That's not the kind of way we operate. That's what you sell to people who have half an acre farms. It's a market for which you need to be structured, and we were not. It's also a market which is -- we are betting the farm and FMC today on new technologies. We believe, and we've been told even by competitors, if I look at the next 5 years, we have the best portfolio of new products to be introduced in the market. Nobody else has a number of new active, patented, data protected, new mode of actions. So the next 5 years for us, we're building the farm on growth through new technology. India is late in new technology adoption because the number of layers you have to convince to get to the farmer, that those are the new products you need to substitute is very complex. And then you get to the end to very small farmers, and they are not very often inclined to take those products. So it's expensive, it's complicated, it's a very large organization. For the size of this business, we have thousands of salespeople. We made the decision to try to operate in this market more in a B2B way than in B2C. So our intent is to stay part of this market to sell the business to, most likely somebody local. We have a lot of inquiries today, a lot of interest and then use this product to commercialize on the specific agreement on new technologies.

And when you say betting the farm on the new product pipeline, that can be taken a few different ways. So can you unpack that? And specifically, do you have the right operating culture metrics, rhythm, structure to place that bet?

So when I say betting the farm on new technology, it is because today, we do have a solid core portfolio. But with Rynaxypyr getting out of patents, it is not a clear advantage over competition. We are competitive. We have the right product. We know how to make formulations. So we can compete in this market, but I think we'll grow at market speed. Where we will be highly differentiated from our competitors is our new technology. I have never seen FMC, including all of my first 11 years as CEO, with so many products to be launched and products which are under very high demand by customers because they saw the differentiation. Think about the fact we have 2 new herbicides with new mode of action. No herbicide has been introduced in this market for 30 years. So think about the resistance on herbicide. Our customers can't wait to have access to those products, 4 new active ingredients, a rich biological portfolio and Cyazypyr. So that's the reach. On the positive, we've reorganized the region. We've reorganized the leadership of the region. We believe we have the strongest leadership organization we ever had. Now what is not the downside, but the challenge, when you are in a situation like that is selling new technologies to growers is not easy, especially when you're selling new product in a space where no new product has been introduced for decades, herbicide. Growers are always challenging to convince. You need to have hundreds and hundreds of sales organization, trained and ready to promote those products. If there is a place where we still have a little bit of a way to go, that's where it is. It is not -- I always say, I like the portfolio today better than post acquisition of DuPont business. Because DuPont business, we had Cyazypyr, Rynaxypyr full stop. If those run out of patents, there is nothing behind. Today, the number of products we have, which are growing and for which we are getting registration is very high. Now training a sales force on 2 insecticides, especially Rynaxypyr, which has a very narrow mode of action, it's not that hard. Today, we have 4 new active ingredients, and I don't know how many new biologicals were on the market, but a significant number of...

Five, five big ones.

Five big biologicals. So think about that, that's 9 new products. And we are attempting to introduce pheromones where -- now it's very different. You are not killing, but you are preventing the event to happen. So I would say it requires marketing investments where we have to focus right now. So are we really not 100%. We're a bit limited in the speed by the time of -- we need to get the registration, which will allow us to do it, but that's the remaining challenge for us.

And so a few different regulatory cross currents. I think the first is so in the EU, there's been this long project to get rid of the older chemistries. Is there anything kind of in the crosshairs for the next 4, 5 years that would make a structural change for FMC?

Not that we know on the regulatory side. What happens in EU is more and more growers are going back to the government and the regulators and saying we are running out of tools. So that creates an environment for the regulators to give what they call derogations or emergency use or either existing AIs or new AIs. They are more likely to take a look at new AIs because it's just a matter of speeding up something. They don't want to go back to something that they phased out, they banned and say, "Well, there's one last time you're allowed to use this." So we see that. We see EU discussing a new regulation for biologicals. They're still treating biologicals the same way they treat synthetic chemicals, and they are not offering growers the tools they need to change, to migrate and continue to grow their crops. Those are the 2 key areas that we see happening in EU. I'm not aware of any specific regulation that's going to change the trend that we are seeing today.

One other thing which is interesting in Europe, and I was there not long ago, some of the countries had to back away from decision they made to ban some of the product because there was no replacement solutions. And that's the kind of situation that we don't want to be in. I went to Europe and met with about 50 or 60 farmers -- big growers and distributors. And we took them to an experimental farm where we have been testing Isoflex, the new herbicide for cereals. I can tell you, anybody in this room would look at those fields and will tell you Isoflex, no Isoflex -- Isoflex. There has been so very few products which have been introduced in this market that you look at the field of cereals, there is as much weed in the field that there is cereals. So you see a situation, as Ronaldo was talking about, where our customers right now, in the case of Isoflex, we should get a regulatory approval early 2027?

'27.