FMC Corporation (FMC) Earnings Call Transcript & Summary

All right. I think we'll get started. Next up, I'm very proud to have today, FMC Corporation, ticker FMC based in Philadelphia, Pennsylvania, my hometown, very proud. Today, we have Pierre Brondeau, the CEO; as well as Andrew Sandifer, our CFO. Proud to know these gentlemen for almost 15 years. Been through a lot. So looking forward to the presentation here today.

Pierre and Andrew, perhaps we could just pull a very quick audible and I went out of my way to make sure your partner did not speak about it in the prior presentation, but you did sign a $200 million deal for an exciting AI molecule in the next few years. Perhaps we could just start the presentation by highlighting that agreement, what it means to you, both short-term and long-term balance sheet and commercial optionality.

Yes. Thanks, Chris. Good to be here. As you know, we said we would we would license a molecule to partner who would be the best potential partner for that molecule. And Corteva is the partner with whom we wanted to work, it's a great molecule. It's a dual mode of action, multiple applications in multiple crops, but certainly soybean and corn are the crops, which are the first target. The benefit of this deal is twofold. First of all, for us and the current situation we're in, $200 million is part of the debt reduction process we have in place. As you know, we've said we're going to be attempting to go as high as $1 billion of debt down payments by either licensing or selling assets. So $200 million is part of this process and doing it at this time in '26 was important. Then there is more the strategic and commercial aspect. The problem of the crop chemical industry, it's a highly, highly fragmented industry. I think we are the fifth largest, and we have a 7% market share. When you have a molecule of that quality, we said that capabilities, you need to find partners to reach the broadest possible market. And you need to find partners with ones which have maybe a more complementary portfolio than we do, which is Corteva. So for us, that was our preferred partner. It increased significantly the size of the market potential for us and the ability to sell the molecule. The way the contract is structured, the $200 million is a prepayment for the molecule. We were intending to, believe we'll get the first registration in 2028, so start to sell that period of time. And the way the construct is in the future is we are selling -- we keep the manufacturing of the product. We are selling the product at a cost for us to Corteva. The plus is a blend of margin in the manufacturing plus royalties. And then both companies can sell their own formulations based on an active ingredients. The Corteva licensing of the active ingredients for them to sell their own formulation is for corn, soybean in the Americas. We will also sell in court soybean in the Americas but we retain sole property of the molecule for all other crops and for the rest of the world. So that's a scenario deal.

Just as a quick update in terms of the progress to the $1 billion. So there have been a few moving parts, but just simple calculations, you had sold the Indian business, let's say, a few weeks, but just over a month ago. So that was one part of it. I do not believe the working capital aspect is including in that so you have the India sale plus the $200 million. So we're approaching roughly half of -- roughly half of the target. Is that the way to think about it as we enter in the second half? Is there anything do you have a line of sight on anything else that you could be thinking about?

Yes. So we are half of the target because there is small things we've done, we've announced, but they went under the radar screen because they were small, like, for example, we sold for close to $20 million a rotation chemical business we had in Europe. So you're right, it's $250 million for India, it's $200 million. It's a few other small business, so we are close to $500 million. We do expect -- I've said many times that we have a real estate deal, which we are intending to sign. Hopefully, we're talking about a couple of weeks. And that would take us significantly beyond the $500 million. So about half of the way -- we're at half of the year, be a big deal half of the way to the $1 billion.

Perfect. And just obviously, there have been a lot of moving parts in the global CPC markets over the last several years, several months. One of the things that I've traditionally done with you, as we always discussed about this time of the year about the second half and look at the Brazilian market and just things how are shaping up. But perhaps if we just take a step back and just given your expectations in the framework, which you initially offered at the beginning of the year, and I'll leave it open ended. How do you see the first half evolving? We always think about agriculture and has? How are you thinking about your order book for the second half. So I'll leave that as an open-ended question for what you're comfortable conveying, but anything quick to update us on?

Yes. Actually, I think I can -- what is it? Was 16 of June -- 17. So we are about 13 days from the end of the quarter. I think the quarter is good. I think I can -- right now, I see a one next to me, might jump on me, but I think we can confirm guidance for the second quarter. Things are unfolding as we were expecting so second quarter looks good right now. And I think we're going to deliver the numbers we committed to for Q2. Then Q3, Q4, as you know, Q3, Q4 is the back end of the year loaded year or half year. I mean, listen, it's mid-June. So we have not yet been through the formal process of doing the full year forecast. I would just say, at this stage, I do not have seen anything which would make me reconsider a full year target as we stated it so far. So the number we've announced in terms of guidance for the full year without being through the process, which we need to do. And usually, this process is taking place in during the month of July after the end of the second quarter, when we close the second quarter, then we go to the reforecast, we haven't done that. But what I have what I see at this stage, not formally, but I don't see any reason to change the full year. One of the reasons for which I'm saying that is the second half rely very much on Latin America and mostly Brazil. We are in a very different situation than we were a year ago. I think by the time we get to the earnings call for Q2, we'll have more than half of the orders in hand that we need to deliver on the second half. To give you a sense of comparison, it would be more than double what we had last year at the same period. Significant progress on direct sales. As you know, we are shifting our commercial strategy towards large farm and mega farm and direct sales and crops more than the distribution retailer system, and this is paying off. I think last year, we were a bit behind. We started in April, May to realize that those farms, the large farms start to place their orders in Q1 and beginning of Q2. The sales organization was really at the time. So we have a much healthier situation around Brazil and Latin America this year than we had last year in the same period. So that's why I'm getting a level of confidence, which is much higher than what I had before and which is making me say at this stage, I don't have any information to reconsider our full year targets.

And please correct me if I'm even remotely off on this number. But even in the best time when Brazil was on fire and everything was doing incredibly well, you'd be probably 55%, maybe slightly higher in terms of your order book. So you're at the upper end of the historical range, double of last year. Is that a fair characterization?

Completely.

Awesome. So taking a step back, you outlined with the Board in February, and you've used the term running parallel strategies in terms of a core strategic review. -- as well as continuing independent, obviously, contingent on -- partly contingent on the $1 billion of debt to pay down for which now you seem like you're fairly on track given it's June. Can you just give kind of an update on your thought process, how the word is thinking about it? It seems like you're confident in kind of the numbers are falling in the right places on the independent side of it. But just any update you could offer us would be greatly appreciated.

Yes. The strategic option. This process has been going on. It is still going on. Obviously, as we move forward, the number of parties we are discussing with is getting smaller, obviously. It is a process, which I believe any company which is going through a process like this one should bring to a close not too late it's obviously always very distracting for an organization to know that there is a strategic process which is being run. So I -- my intent of what I would like to be able to do is to certainly by the time we get at the end of July to the earnings call for Q2 to be at a place where we can announce that we've closed this process, and we are what we're going to do. That's where we are, but discussions are still going up. .

So one of the things in terms of -- we've had discussions over this over more than a decade, but one of the things that seems to be misunderstood and perhaps the situation that Diamines is distracting even more so than normal. It's just the value of some of the inherent and some off patent, some on patent, the value of some of which FMC is a leader. And obviously, there have been ebbs and flows, especially over the last few years of competition. I totally get that. But what do you find in terms of the assessment in terms of the valuation of your company from the street, feel free to take a shot at me as well. What do you find is the most misunderstood? Is it something legacy like your dominant position in sulfentrazone, is it the underappreciate for Isoflex or fluindapyr, Rynaxypyr even just you still have a lot of very strong market positions. And once again, I understand the ebb and flow, but what's the 1 or 2 where you'd say, you know what, it's really frustrating that the Street seems to be missing this and the opportunities. And once again, feel free to focus the hit on me. I can take it.

I think frustrating is not the word I would use because I would be in your job, I might be thinking the same way. When you look at a company like FMC, which has been highly successful with a molecule like Rynaxypyr. And with a lot of growth, a lot of earnings. You get to a place where that pattern goes away. It is clearly having an impact. Thus, there is a fact that some of the actions you could take on that molecule to be able to develop a post-patent strategy, which is fundamentally lowering the cost of that molecule has a very big impact on your pricing to your partners to whom you're selling the active on the cost-plus. Those 2 together are creating certainly a concern for investors on the short term. There is also, if I would be in your shoes, I will look at you're using protection that big molecule, you've got to set up a new strategy, which is a post-patent strategy, how successful will you be against a very aggressive generics. So all of those questions are valid. Okay. And all those questions lead to the kind of numbers we are showing in '26, '27. So not from a point of frustration, but from a point of looking at what FMC will be. That's where I'd like to talk about. And obviously, the discussion on Rynaxypyr takes away the positive discussion of things are going to be happening over the next 3, 4 years. I think what we have to realize is that we have 4 molecules which are being launched between '26 and '25 and in '28, including -- we talked about licensing with Corteva, which represents over $2 billion in sales. There is a fifth molecule, the fungicide is going to come to market in 2030. It's going to have the same potential. All of those molecules are $500 million to $700 million. I think also something which is very, very critical for the future. If you ask -- if you tell me the question, Pierre, which company will you run better. We would prefer to run FMC 2018 or FMC 2030. And I would say, by a long shot, FMC 2030. And here is the reason FMC 2018 was a very, very good company, but we were an insecticide company -- and Rynaxypyr more than 50% of our portfolio. Insecticide is the least predictable of the crop protection products, not the one which are matching the concerns of the growers. It's always herbicide, fungicide, insecticides because insecticide, you never know what's going to come and when it's going to come. With the new molecules we are putting on the market. If I think about the 5, 2 fungicide, 3 herbicide. And you think about FMC in the 30-plus period, half of our portfolio will be our beside. 1/4 of our portfolio will be from this side, a core of our portfolio will be insecticide, much, much more aligned with what the market needs, much more predictable with a very high percentage of IP-protected molecule and the growth portfolio being more than 50% of the portfolio. So that's what we are heading towards. Obviously, the concern for the very short term, linked to Rynaxypyr kind of hide all of this positive, which is a number of new highly protected molecule -- with very high efficacy, new mode of action. And most importantly, what I think has not been emphasizing enough a complete reshaping of the portfolio to something which is much more in line with what the market needs.

Got it. Just circling back to Rynaxypyr, and I think everybody is aware of, we don't need to rehatch, obviously, the last few years. But when you take a step back and you look at the growth in the new market rents, I think the kind of the benchmark thought here. But when you take a step back and look at the market growth and the potential for that molecule to actually steal significant market share from other insecticide classifications, it still seems as though, I mean, others have been successful, it still seems that the volumes are growing. Pricing, cost plus has been a significant portion of obviously, the risk over the next few years. How do you feel about the growth of that holistically of that molecule, '26, '27, '28? Is there -- are there still the opportunities to seal further market share? And you can be -- the doors closed buyers down the hall. But how do you feel about that now? Because at some point, once everybody enters the market, things presumably could stabilize and then you'll have the broader market share opportunity as an insecticide classification. Any quick thoughts?

Yes. First of all, you should not care about sales. The price pressure will be there. I mean there is no doubt the generics are going to be very aggressive for Rynaxypyr. Everybody wanted piece of this market. There is indication right now when you look at the export stats from China and some from India that the price is increasing -- in some cases, the numbers are showing that the price is doubling for generics. We are not yet seeing it on the market. So we still feel the price pressure from generics. The way I look at it, to answer your question, is the cost plus supply to Rynaxypyr Partners is going to become anecdotal. It's getting smaller and smaller. This year, it's going to be less than $100 million, it's disappearing. So that piece is not going to have a big impact in the years to come. For the rest, yes, we are seeing it the much lower cost we have, allowing us to have much lower pricing are allowing us, and we're seeing it right now, we've done it in North America, for example to gain market share over a lower end insecticide. So we see a growth of the volume. But as important for us as that is shifting the mix of a relaxed per portfolio more toward the high-end molecule. It's also happening. We have today growth in our portfolio of the too high concentration, the mixture -- first mixture we've introduced with Bifenthrin, which extend the spectrum. We are awaiting and is very important Q2 early Q3 for registration for a new mixture within Indoxacarb, which would be very important for Brazil. So to shift toward high-end mixture formulation, high concentration, we have the tablet, if service entered for rice is going to be part of the success. So we need to make both happening. One is gaining market share over the low end, we see some of that, and we need to shift the portfolio towards the high end where we commend the premium. Now I'm only commenting about indications we have right now, it's working. In Q1, Q2, we see it. But frankly, the big test, it's North America, Latin America, including Brazil, in Q3, Q4. That's where really we're going to see how well our strategy is working.

So there are 2 things I want to unpack there. The first is -- when you look at the data, and forgive me because I don't want to get out myself, but it sounds like you may not either. But when you look at the data out of Asia for base molecules that have been offend for decades, for the first time in years, it does appear as if pricing is beginning to stabilize. I've account at a couple of the distributors and the wholesalers, and I get these blasts occasionally and saying everything per liter is -- and you see these things go up 1% $0.10 here, $0.20 here, $0.30 there. And you kind of start getting the indication that pricing for the first time in a while is stabilizing. At the same time, you look at the aging exports and a bit of a lag but the Asian exports to Latin America in particular appear to be, I wouldn't say going down but plateauing for the first time in a few years. You mentioned a comment about -- you're not seeing it yet. Am I looking at the wrong data as far as the preliminary indicator for the second half? Or is it -- we just don't want to get out ahead of ourselves? Or how are you thinking about that? And are you seeing -- beginning to see some of the similar things?

I'm more -- I don't want to get ahead of myself. We have placed and holding on to price increase in Europe, for example. It's holding. There is indications that there is stabilization of pricing in Latin America at this stage coming from -- like 240 -- more than you see it on the selective herbicide or other products. So there is some signal of stabilization of pricing, but I want to be prudent because we don't see it yet in a product line, which were maybe a bit more technical than the nonselective products. And we are still seeing pressure. So when I talk to my leadership team in Latin America and Brazil, they believe H2 could see price increase. But until I've seen it, I'm going to stay very prudent because we -- there is price pressure. There is price pressure right now. So hopefully, those indications you've talked about, I want to verify. But right now, I just need more proof that this will be happening. We've been too surprised over the last 3 years. Always expecting things are going to turn and they did in turn. So I have to prepare myself to compete into a tough pricing situation and be pleasantly surprised than starting to act like this is going to happen and then it doesn't happen.

One of the things that I find -- you hit on this a little bit, let's dig in a little bit deeper, but I find there's not enough focus on Isoflex, it seems as though everything that you've been discussing in terms of approvals and the commercialization pathway and the kind of the breadth of the market size, quite frankly, seems to be overlooked because of the noise in the other areas. There have been a few approvals over the last, what, 6, maybe 9 months. One big one a couple of months ago. Could you hit on that product in particular? I assume you agree with me that it's underappreciated, but I would love to talk about the potential market size and how you're thinking about that relative to other NPIs, which you've launched over the last few years.

I'm glad you're asking the question because you're right, Isoflex has been a bit overlooked. And timing is perfect. It was in Europe. We had a -- last week, we were at a major customer event in England, where we had all of the big European customers for the official launch of Isoflex. I have rarely seen an enthusiasm from customers, growers, distributors, retailers for that molecule. For cereals right now, it is a major, major problem. I mean you look at a field for cereals, you just don't see the cereals. The yield is terrible. Isoflex has a very, very high efficacy. We got the registration for these products in England. And customers were waiting for the last minute because the cereals time is September, October to buy for that registration to come, which came in July or June?

Late June.

And we still sold quite a lot of it. This year, we're going to have a full year in U.K. We got the registration of the active itself about a month ago for the EU. So now we're doing all of the formulation registration and we do have multiple requests from the retailers and the growers to local registration authorities in Spain, France, Italy and Germany to get right to sell Isoflex under preregistration status. Those guys are prepared to that early. That's how important. To give you a sense, our team in Europe would tell you that Isoflex in the next 3 to 4 years in terms of volume will be bigger than fluindapyr and Rynaxypyr together. And you talk about the numbers that are floating around for Europe are north of $300 million in a very short period of time. So a very good molecule. Of course, there is more application than cereals in Europe. We do have applications in Latin America. Sugarcane application showing some very, very strong results. We've applied for registration. So there is much more application but you are correct because of our discussion around rimisoxafen dual mode of action, the Rynaxypyr situations as it's been overlooked. It's a very important molecule. And the one with fluindapyr is going to grow the fastest.

And Chris, I would just add. In our guidance for this year, we've talked about the 2 ingredients that are currently commercializing, Fluindapyr and Isoflex, contributing about $300 million to $400 million in revenue for the year. That doesn't have anything in it for potential emergency use exemptions in Europe. And what Pierre was describing, where growers in a number of countries are really lobbying to be able to use that technology before it's formally fully registered by country. So that would be upside. And I think that's just a further endorsement on the quality of that technology and how valuable it will be in the field, much like I think the Corteva agreement speaks very loudly about the strength of rimisoxafen as a technology. I think that strong pull from growers for Isoflex is a good testament to the technology and the strength of that product for Europe and for cereals in particular? .

It does appear European farmers continuously are stepping up. So I wish them the best in cereals. Two last questions. Just very quickly, could you just give before we wrap up an update on free cash flow. It seems like it's basically neutral. What are the puts into -- obviously, the things that is going to be contingent on the second half. And Andrew, perhaps if you could just hit on kind of the puts and takes you're monitoring? And as of today, if this was the starting point, do you feel better than you did on January 1?

Look, we've gone to a midpoint of 0 essentially for free cash flow. And there's 2 big swings in that. One is we have substantial cash restructuring cost this year. We're taking a lot of actions to get the cost business in the right place for our core portfolio. Following some big steps we took for the next year last year. We're doing this for the rest of our off-patent active ingredient portfolio, so some big cash spending there. That's a headwind that dampens our ability to deliver positive free cash flow this year. On the plus side, we are monetizing the working capital from the India business. We're operating the India business on a cash basis, selling cash only and collecting older receivables, and that helps offset some of that headwind from cash restructuring. . As always, a big dynamic in our working capital is just -- our working capital is a big dynamic in our free cash flow. It's a competitive environment. Many of the parts of the world we're in Brazil, particularly the strong growth that's longer term. So we're doing a lot of things to try to manage that working capital, both from receivables and an inventory perspective. So we'll have more to say in July, but I think certainly, that band around breakeven free cash flow this year is the right place.

Now for my hardest question here to wrap up, U.S. or France.

France. And you really want to ask that question.

That would be easy.

You know what France is going to have a third star. I'm certain of it. And I was hesitating, but I thought it would not be appropriate out of respect for this group here, but I was about to wear French Jersey today, but I decided not to do it. But it was worrying one yesterday.

We won the rooster. We understand. Gentlemen, thank you very, very much. I always enjoy these firesides, if there's anything we can do, let us know.

Thank you.

Thanks, Chris.