FMC Corporation (FMC) Earnings Call Transcript & Summary

All right. We'll go ahead and get started. Again, very thankful to welcome the FMC team. Pierre Brondeau, the CEO; and Andrew Sandifer, the CFO. I've known these guys going back years, been kind of a quiet last year, I guess, jokingly for you guys.

I mean it's been a tough last year. So Pierre, maybe just take a minute and kind of a little after action review, if you were sitting here a year ago, what you would have expected to happen, versus what has happened over the last year, just to kind of level set the changes going on at FMC?

You start with a tough question because if I look back -- if I look back when I came back over a year ago, I looked at where the company was and I looked at what needed to take place? And we really, with the team, we listed all of the things. And I made a decision which may be looking now might not have been the best decision. I approached the company by thinking more of a soft landing, balancing, protecting EBITDA, and at the same time paying debt slowly, retaining dividend and focusing on some of the very critical things I felt were impacting the performance of the company short term, which was the level of inventory we had in the channel. The Rynaxypyr strategy, the situation in India and the leadership, which had to be reshaped. And I felt there is other things, but those 4 should allow us to keep our head above the water and carry on and go. Where I am today? And a year ago, I thought that, that would do it. When I'm back now, I'm thinking, the company needs much more of a rethinking. We need to recreate the foundation of this company. I think what we did have to be done, but we have to go one step further. I think we need to be more aggressive on the balance sheet side. And there is multiple ways to do it, not to solely rely on free cash flow, but put everything on the table. From portfolio to working capital, and we think about what are all of the things we can do for 2026 to be a year where we will change significantly our balance sheet. I also think that -- if you think about our portfolio today, we have what we call the growth portfolio, and that piece is going well. And then we have the core portfolio where there is Rynaxypyr and there was a very big focus I had on with the strategy and the cost. But there is still $2.5 million of what we call the core product, which are molecules which compete with generics and we use to make formulations. This should have deserved more attention. I think we lost share. It's a big part of the company. I mean, $2.5 billion, that is we lost share. We had negative growth, and we are price impacted without being cost competitive. And I think we have to look at those products and really look at where we make them, how we make them, look at the supply chain, and completely rethink the supply chain to be capable to compete with more aggressive generation. And I think the more aggressive approach to the balance sheet and a more aggressive approach to overall cost of manufacturing product should have been taken on at an earlier stage. It's going to be a big area of focus in 2026.

Fair. Okay. And then maybe touch on -- when you say be more aggressive on the balance sheet, specifically kind of what are you looking at, or what should investors expect to see happen there?

It's -- it's an early stage for me to talk too much about it, but we do have tools. Let me -- first, Andrew has a top priority to look at working capital. We have $2 billion of working capital. I have to believe there is significant money to be extracted. The decision we've made about India and selling the business. That's multi-hundred million, which could go down to paying debt. We made the decision around dividend. I also think we have to be brave enough to look at the portfolio. I think there is things we can do with the portfolio. It's early to talk about, but I think there is things we can do with the portfolio. And also, we talked about that at the last earnings call. We have 5 active ingredients, which are very good new molecules. Most of the technology companies have contacted us with some level of interest around licensing. I think there is places for strategic licensing with companies which have, maybe, a different crop profile than us, more in row crops. We are more in specialty. Maybe molecules which are not used straight, but which are used as partners for mixtures. And maybe there is some smart ways to do licensing, which could also help with the debt payment. So there is a series of things we have to look at. But what I'm saying is this year, we're going to put everything on the table.

Okay. And just because you went there because it's always interesting to me, you look at where the market cap of the company is, the enterprise value, you're like, okay, either have been doing this wrong for 25 years or there's value there. What if you sold one of the molecules. I mean, you know, fluindapyr and just said, okay, again, not generating a ton of EBITDA today, so that would be very deleveraging. Is something like that on the table, or that's a step too far?

Today, it's a step too far. I believe with the plan and thinking we could put in place, we don't need to go that far. I think there is in between steps to be taken between the portfolio and strategic licensing, which would not require us to move away from one of those 4 molecules, because those 4 molecules do have a multibillion-dollar potential. And I don't think -- we are still highly profitable. We are still north of 20% EBITDA margin. So we're still a good company. We have access to fund. We have a good revolver. I don't think that we are in a -- the stock is more -- what happens in the stock is more dramatic than the real shape of the company. So I don't think we have to go that far.

Okay. And so let's just put some numbers around kind of a bit. So on the Rynaxypyr, I think the numbers I've been working with, and tell me if they're different, roughly $800 million in revenue as we head into next year. $200 million that you're selling to partners, basically other large ag chem. $200 million that are kind of in cocktails, different types of mixtures. And then $400 million that's kind of sold as just a Rynaxypyr molecule. That's the part that's most at risk next year. And as I understood the strategy, the price of that probably comes down 15%, 20%. But then hopefully, that leads to volume gains because you would move into like, let's say, territory that neonicotinoids or something are doing today, so you could actually grow maybe 20% kind of offset that. So the top line on that $400 million stays roughly flat. Is that still with what we're seeing kind of with generic ag in general, the right way to think about what happens with Rynaxypyr into next year?

That's it. Your math is correct. I would maybe -- the only thing I would correct a little bit is the 10% to 15% pricing could sometimes go all the way to 30%. So there could be price decrease for the straight molecule to go into some market, which could be a stronger price decrease. And there is also maybe more of a formulation work where we have more of a premium. We know there is resistance, for example, which is taking place almost everywhere on Rynaxypyr. We do have formulations which will be registered and patented, which allow to address resistance. We do have high concentration product. We have multiple mixtures like the one with fluindapyr, which extends the spectrum. So what you said is completely correct. Maybe some pricing a bit more drastic than what you say and a bit more work towards still technology-based formulation.

Interesting. Okay. And then that's just round numbers, 30%. If price does come down 30%, obviously, you've known it was going to come down. There's work you can do on the cost side, and I always think about it, again, I own a couple of farms is like, they take you to play golf. Maybe you go see a baseball game. All that stuff comes out if I want to buy at a generic price. I don't get tech support. So how much cost can you take out of that Rynaxypyr COGS to offset, again, maybe $100 million in price decline?

I think you talk about everything comes with the sale of the product. And I would talk a lot about growth in this organization, which are helping the farmers. I believe we can sell at a premium somewhere between 10% and 20%. We don't have to go down to generic pricing. Between the quality, the brand and the tech service, we can sell at a premium. Some cases, we've been selling up to 20% of premium. So it depends, but we don't have to go to the historic pricing.

Okay. Fair enough. But then is there a meaningful margin hit to that or the volume plus the cost takeout can roughly mean that the margin stays the same? Or should we think about, again, for every 10 points in price, margin comes down half that? How to think about roughly the margin hit on it?

So the cost has been going down significantly. I mean, on the order of magnitude. The volume will have to be significant. We have a simple objective, which is keep the dollar earnings of the business flat, '25, '26, '27 and '28. So it's -- we don't expect any growth in earnings. We're going to look more at the dollar at the bottom. And pricing and cost is not everything because remember, we're going to still have most likely multi-hundred million dollars of molecules where we have $200 million, which are sold at a premium. Because they avoid multiple spray, because they address the resistance issue and more efficacy. So it's not only a single equation of price, cost and volume. There is also all of the premium markets we're adding.

And then the sister product, Cyazypyr, I think in my model, I've got it roughly $0.5 billion in revenue, like $475 million or something. As Rynaxypyr comes down, does that do anything to Cyazypyr because the gap between the two in price would increase? Do you even lose volume from Cyazypyr to Rynaxypyr? Or do you have to make any price adjustments on Cyazypyr?

No, they are different products. Rynaxypyr is a very narrow spectrum with a very high efficacy. Cyazypyr is not used for the same application. It's a product which has a very, very broad spectrum. So they are not -- growers never have to make a decision between I buy Cyazypyr or I buy Rynaxypyr, depending upon the type of pest, and would buy one product or the other. Cyazypyr is under data protection in some places until '29, so which is equivalent to IP protection. So there is no impact of what's happening on Rynaxypyr on to Cyazypyr. That being said, '27 is tomorrow. We don't want to get surprised with Cyazypyr the way we did it with Rynaxypyr. So we are starting the process of working on the manufacturing cost, bring it down to the same level of cost we have for Rynaxypyr, preparing the formulation. So all of this work is taking place to be ready when the market -- when the molecule is in the public domain.

Okay. And then if we jump on the next bucket kind of the core products, at least on my numbers, if you back out Rynaxypyr, Cyazypyr, you're kind of at $2 billion to $2.2 billion on the core pesticide, something like that. So that's it?

Not pesticide. Crop products.

Crop products, yes, yes. Okay. Fair. So that seems to be where the latest trouble has kind of popped up is in that group of, let's just call it, $2 billion because I like round numbers. So what's changed there relative to what you thought before? What's the solution that needs to happen? And kind of what's the financial impact on that $2 billion as we go through the process?

I think multiple things have changed. We could have anticipated. First of all, if I think about '18, '19, '20, customers needed Rynaxypyr, Cyazypyr. There was no generic to be seen for another 5 years. And growers usually, when they buy a couple of molecules need to buy a broad range of molecule because there is the rebate system and there is a limited number of suppliers. So there was a natural sale of a lot of products coming with Rynaxypyr and Cyazypyr. That is going away because Rynaxypyr is not going to be. It's going to be in the public domain. So we'll have less of a leverage for that. I also think that we had a strange period of '21, '22, '23, where there was a lack of supply because China shut down post COVID. There was this big inflation period where pretty much people were so worried about supply that you could sell at whatever price. That doesn't exist anymore. Pricing is going down. We are in deflation period. So pricing is more important. Number three, we are in a period where farm economics is not as good and people buy more on price than they did before. So you put all of those things together, I think it would have been wise in '20, '21, '22 to have rethought our manufacturing cost for those molecules because there would be one day where you would be facing competition against generics maybe with less levers to sell those products at a premium.

And so as you're making the changes now to that $2 billion, how should investors think about the impact as they're trying to model that? What changes happen there as we get into '26, '27, '28? Is it a dip and then a bounce back? Or is it kind of a steady glide down? Or how to think about either margins or just contribution?

If I think about '26, we're in the process of doing the budget. I don't have much information. But if I think about '26, the probability for '26 to be better than '25 is very, very small. There is more headwind than there is tailwind. Pricing is not doing better. Pricing is stabilizing, okay? It's stabilizing, but it's been going down so fast in '25 that the average pricing in '25 versus '26, '26 is going to be lower. So we're going to have a lower pricing overall, even if there is more stabilization of pricing right now. Tariffs. We still don't know about India. We don't have the rules, but tariffs are going to be a headwind in '26. We are not expecting much of a change in the market and the demand. So we don't expect there going to be a step change in the market. And then last, it's going to take a year for us to fix our manufacturing footprint to be competitive on our market. So '26 is the year where we're going to be recreating the foundation of the company. '27 -- here is the objective. If things go our way, we do what we expect to do on the balance sheet with all of the options we have today, and we finish '26 or end -- or start '27 with a balance sheet in a much better shape. We do all of the changes we want to make, especially around the cost in '26, and there is an EBITDA jump in '27. And now we start '27 with a much smaller balance sheet and a higher EBITDA and a debt-to-EBITDA ratio, which makes much more sense. So the way I see it is a '26, which will be a year of very deep transformation. It's going to be heavy lift. Benefit seen right away in '27. And I think we'll talk about '28 target where in addition to everything I say, by the time you get to '28, your 4 new molecules are going to be starting to get closer to $1 billion. That's meaningful. That's the number. This year, it's $250 million. Most likely, we're going to be expecting a number like $400 million for next year. But then by the time you get to '28, we will have 3 of the 4 which will be commercial, and we'll be launching the fourth one, Rimisoxafen. That's when you start to get to $1 billion with molecules which are growing 20%, 30%, 40% a year. So then it's a very different profile. You get much more to the type of company we were in '17, '18, '19 with a large part of your portfolio growing fast at a premium and being IP protected.

Fair. And if you had to rank those 4 molecules for 7 years out, again, when they're at maturity, how would you rank which ones have the shot at being the biggest or the best for the portfolio?

Funny enough, they are in the same range. They are all a $400 million to $700 million molecule. So together, they are $2 billion to $2.5 billion. They're about the same range. They could be bigger if we find the right licensing partners, which have access to markets where we have less of an access. So -- and we like -- we like part of the sales under licensing because you sell them at a cost plus. It's quick cash. Those are paid in 45 days. So to have a part of that portfolio in a cost-plus supply from a cash standpoint is beneficial, and you increase your market reach because some companies have access to crop we don't.

Okay. And when you just do the work board exercise, either by crop or by geography, where is it that you are weaker that you would look for a partner? Is it Africa? Is it [indiscernible] trees? Kind of like where is it that you would need the most help or could get the most help selling product?

I think I'm going to ask help for my CFO next to me, but to give you a percentage. But generally speaking, as a company, we are much, much stronger in what is called specialty crops than row crops. We make most of our business, sugarcane, cotton, fruit, vegetable, peanuts. And the percentage of all of those together, but...

Yes, corn and soybean is about 30% of the product mix. Fruit and vegetables and other specialty crops are significantly larger collectively. It is more fragmented by individual crop. But when you think about those categories. So I think certainly, compared to some of the other major players out there, we are less levered to particularly Americas corn and soybean.

I would bet you that -- and I don't know their numbers, but I would bet you that a company like Corteva is almost the reverse because being also a seed company. It's normal that most of their crop chemical work is dedicated toward row crops.

Right. Right. Okay. And so just the idea would be if you could do -- the perfect deal would be to do a deal with another large -- Syngenta, Bayer, BASF, Corteva, you would get some money upfront, and you would get a partner that could help basically accelerate the sales of that -- one of the 4 products, or maybe all 4 products. And that is a big driver in kind of bringing down the leverage on the balance sheet. That's...

That's one of the options we have.

And besides using like licensing deals for the molecules, kind of I guess, what are the other more aggressive ways that you can attack the balance sheet? Again, working capital, I think you called out. Is there stuff within the core business within that $2 billion? Or again, that doesn't make sense to try to monetize?

I'm going to have to be super vague, but yes, there is India. Yes, there is licensing. Yes, there is working capital. And yes, there is portfolio options. But at this stage, I cannot talk more about it. But there is portfolio options.

Okay. And if you look at the market to sell or to license into today, you can go back, obviously, there was a period that everybody want to acquire. The 2000, early 2000s, people were rolling up the industry. We haven't seen a lot of acquisition done lately. Is there still appetite there? Do you think for people to want to get bigger in ag chem? Or is this a tougher time to do deals?

I think if you talk -- when I talk to all of my colleagues who run technology-based crop company, we realize that it's getting more and more difficult because of regulatory, and more and more expensive to develop new molecules. We also know that you need new molecules because with the amount of generic resistance increases very fast. So you need new mode of actions. So today, lots of people say if we could join force on the technology front, which would imply consolidation. Frankly, I do not know if consolidation will be possible. 6, 7 years ago, we know we acquired the DuPont business because Europe wanted 5 technology companies. Has that changed? I don't know. But if that has not changed, consolidation will be prevented by antitrust. On the other hand, authorities could very well be realizing that developing new molecules is going to require bigger and more powerful companies. So that could be a driver to bring new molecules to the market. So I don't think there is less appetite. But for all of us, there is still uncertainty around the antitrust rules.

Okay. Fair. And then just because we get asked it a lot, I think people would be interested in your view. The announcement that Corteva was going to separate itself, which is kind of 180 degrees versus, again, what everybody always want to do, which is kind of roll things together and glam them together. What's your take on that? What that means for the industry? Just kind of how you see that impacting FMC and the industry going forward?

I cannot comment on the decision Chuck made. I'm sure he has reasons to believe that those two companies will be operating better independently than each of those businesses. And to some extent, -- to some extent, I understand that the model might be different. As I discussed, the crop chemical business is going to require a blend of innovation and high focus on cost, which you might not have on the seed side. So there are going to be different drivers in those business. And that could be one of the reasons for which he believes the focus and the top management has to be different. For FMC, an independent crop chemical company creates an additional partner. And if I dare saying, I hope my friend Chuck is not going to be mad at me, but today, the crop chemical side of Corteva serve the Pioneer seed side. So it's almost a captive. Now Corteva is a very smart company. And when a competitor has a better product, they don't hesitate to bring this product into the package. But the separation for us should open up a bit more, I would say, the Pioneer hectares than what it is today. So I don't see a negative for us. We have a potential additional partner, and we have more acres open to us. So I don't dislike the move at all.

Okay. Okay. I guess, obviously, you've talked to a lot of investors in the last several months. The stock has done poorly. Where do you think when you talk to them, your view of kind of where we're going over the next several years and the value there versus what they push back on, where do you see the biggest disconnects between your view of FMC and investors?

I think '26 is a turn. There has been, what I still believe, an exaggerated reaction from a stock standpoint. The company has a capability which is much beyond the market cap today. So I would say that we are paying the price, and our shareholders are paying a price, maybe not enough of an aggressive change of the company. We are soft landing, I thought it would work, would not work. This company has a tremendous portfolio. We have 4 new molecules and nobody else is putting 4 new molecules on the market. And we have Cyazypyr, which is a fantastic molecule. I think we underestimated two things. And we're paying the price for that, but they are not easy, but they are correctable. One is the balance sheet and the speed at which we needed to correct that. I missed that, and that's going to be an area of focus. The other one is with all of the challenge around the growth molecules, Cyazypyr, the loss of patent on Rynaxypyr, we maybe forgot a bit that we had $2 billion, $2.5 billion of business to protect. So all of those are highly correctable in a short period of time. I think in 12 months, we're going to make a big, big change. And I think the potential of the company is intact. And the reaction was exaggerated. You know what, I would have acted that, faster, have a more drastic change, maybe we would not be where we are.

Okay. And then maybe two more for me, about out of time here. But when you think about the price and the volume numbers that you guys will print, let's say, back half of this year through next year, we do have some comps. Obviously, Corteva has ag chem, Bayer, BASF. How do you think you'll look relative to peers over that period? Because it does feel like your numbers have looked a little bit lower in the back half. And originally, we kind of thought, well, okay, this is just Chinese generics kind of hitting Latin America, you know, writ large. But do you think your portfolio, in particular, will do less good versus peers on price and volume next year?

Next year, I don't know. I think if I look at the second half we are not dramatically underperforming the industry. If you look at the numbers from our peer company, we're not underperforming them. We are underperforming versus what we thought we could do. Looking at where we came from, looking at how much we were prevented to grow because of what we had in the channel, we had super aggressive targets, especially in Latin America and especially with the building of a new sales organization. This process is working very well, but it's working slower than what we're expecting. So I think the disappointment is not as much versus our performance against peer company but versus our own targets, which we missed.

Okay. And then maybe the last one for me. You'd obviously stepped back from the active CEO role once before. You just lost your President. I mean this is going to be a heavy grind. Is it -- I mean, like the next 3 years, should investors expect you to be here leading the charge? Or do you want to bring in somebody who is kind of more of a CEO? Or kind of, what's your thought process around just kind of how to manage the leadership through this change?

Yes. At this stage, I don't have a timing. I'm committed to the Board to only leave when I have a replacement and when the company is on track. And we are not recruiting a replacement right now, and we are not recruiting a CEO. The position which was held by Ronaldo was a bit artificial in the sense that it was creating a layer between me and the region, which is not a normal situation. The region need to report to the CEO because that's where the action is taking place. I need to see customers, I need to see, I need to travel. So at that point, the way we decided with the Board is the best structure was delayer, have the regions reporting straight on to me, and do what I have to do in 2026 and beyond, and leave when the company is in place. There is no active search for -- we are, of course, our Board has a search committee, which is always watching what is outside. So we have a current list we're updating. And we are looking at talent inside and doing talent reviews. But right now there is nobody pushing me out.

I think -- the fact, yes, you're committing to it, I think...

And I don't intend to run away.

Okay. Terrific.

Unfortunately, I'm here, Andrew.

Awesome. Listen, we run ourselves out of time. Thank you so much, team FMC for coming and spending some time with us, and we'll catch up with you a little bit later. Thank you.

Thank you so much.