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Text: Mark will review our second quarter results, provide our outlook for the remainder of 2021 and discuss our diamides business.
Andrew will provide an overview of select financial items.
Information presented represents our best judgment based on today's understanding.
Actual results may vary based upon these risks and uncertainties.
Today's discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, free cash flow and organic revenue growth, all of which are non-GAAP financial measures.
Please note that as used in today's discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA.
A reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today's conference call are provided on our website.
Our second quarter results, revenue up 8%, EBITDA up 2% and earnings per share up 5% year-over-year were slightly ahead of our guidance.
These results were fundamentally driven by volume, reflecting robust demand for FMC products around the world.
Innovation continues to be a catalyst for growth.
New products introduced in the last 12 months contributed $30 million in sales growth in the quarter and our plant health products, including biologicals, posted Q2 sales growth in the high teens.
We continue to expect a very strong second half of 2021, driven by robust volume growth.
We have lowered our full year earnings guidance due to the continued acceleration of raw material, packaging and logistics costs.
We will go into this in more details later.
I'd like to take a moment to provide a COVID-19 update on our business.
All our manufacturing facilities and distribution warehouses remain operational and properly staffed.
Our research laboratories and greenhouses also have continued to operate throughout the pandemic.
We are resuming in-office operations work permitted by local authorities.
And in June, we introduced flexible work arrangements to facilitate the return of all our staff to our headquarters in Philadelphia as well as some other locations in adherence with local guidelines.
Turning to our Q2 results on slide three.
We reported $1.2 billion in second quarter revenue, which reflects an 8% increase on a reported basis and a 4% increase organically.
Asia and Latin America posted the largest growth of 20% and 15%, respectively.
Our fungicides grew over 50% in the quarter, driven by the Xyway launch in the U.S., and fungicides represented 8% of total sales in Q2 versus 5% of our sales in the prior year period.
Adjusted EBITDA was $347 million, an increase of 2% compared to the prior year period and $2 million above the midpoint of our guidance range.
EBITDA margins were 28%, a decrease of 150 basis points compared to the prior year, reflecting the impact of continued and accelerating cost headwinds.
Adjusted earnings were $1.81 per diluted share in the quarter, an increase of 5% versus Q2 2020 and also $0.03 above the midpoint of our guidance range.
The year-over-year increase was primarily driven by the increases in EBITDA and lower interest expense.
Moving now to slide four.
Despite the unfavorable weather conditions in several regions, Q2 revenue increased by 8% versus the prior year, driven by a 4% volume increase and a 4% tailwind from foreign currencies.
Pricing was essentially flat year-over-year.
Sales in Asia increased 20% year-over-year and 13% organically, driven by double-digit growth in India, Australia, Indonesia and Pakistan.
Insecticides contributed the greatest growth, including Altacor for cotton, and herbicide sales were also very strong, driven by share gains in India for soybean and sugarcane applications as well as robust sales in Australia.
In Latin America, sales increased 15% year-over-year and 12% organically.
Mexico and Colombia each posted double-digit growth, driven by strength of our products on specialty crops.
We also had a shift of diamide partner sales to Latin America from North America, similar to what occurred in Q1, which boosted the year-over-year growth rate.
EMEA sales increased 3% year-over-year, but declined 3% organically as FX was a significant tailwind in the period.
Diamides grew well, and we saw strong sales of herbicides for cereals and sugar beets.
However, this wasn't enough to offset the late start of the spring, which resulted in lost applications for the FMC portfolio that will not be regained during the season.
In North America, sales decreased 7% year-over-year and 8% organically.
Similar to Q1, the year-over-year sales decline in Q2 was due to the shift of diamide partner sales from North America to other regions.
Excluding revenue from our global diamide partnerships, our U.S. and Canada crop business grew greater than 20%, driven by an approximate $25 million contribution from two new products, Xyway fungicide and Vantacor insect control for specialty crops.
Turning now to the second quarter EBITDA bridge on slide five.
EBITDA in the quarter was up 2% year-over-year due to the volume contribution of $42 million, largely offset by a $35 million cost headwind.
The cost headwind continues to be driven by increases in raw material, packaging and logistic costs and the very modest reversal of some of the temporary cost savings from 2020.
Pricing was essentially flat versus prior year.
Turning to our view of the overall market conditions for 2021.
We now expect the global crop protection market will be up mid-single digits on a U.S. dollar basis, which is slightly higher than our prior forecast and the most bullish we've been on the overall market for the past few years.
The reason for the change is our view that the Latin American market will now grow in the high single digits versus low single digits before.
Basic crop fundamentals remain strong, especially in that region.
We continue to anticipate mid-single-digit growth in the EMEA market, low to mid-single-digit growth in the Asian market and low single-digit growth in the North American market.
Turning to slide six and the review of FMC's full year 2021 and Q3, Q4 earnings outlook.
FMC full year 2021 earnings are now expected to be in the range of $6.54 to $6.94 per diluted share, a year-over-year increase of 9% at the midpoint.
This is down $0.31 at the midpoint versus our prior forecast.
Consistent with past practice, we do not factor in any benefit from future potential share repurchases in our earnings per share guidance.
Our 2021 revenue forecast remains in the range of $4.9 billion to $5.1 billion, an increase of 8% at the midpoint versus 2020.
EBITDA is now expected to be in the range of $1.29 billion to $1.35 billion, representing a 6% year-over-year growth at the midpoint.
This is a $50 million reduction at the midpoint compared to our prior forecast due to continued acceleration costs for raw materials, packaging and logistics.
This includes spending more to procure certain raw materials and intermediates from alternate sources where there is limited availability at our preferred suppliers.
Despite dry and cold conditions in certain parts of Brazil during Q2, we are bullish for the second half in Latin America, especially for soybeans and cotton.
In Brazil, our channel inventories are at more normal levels for this point in the season following the actions we took in Q1 this year.
And we already have received nearly 70% of the orders needed to deliver our full year forecast in Brazil.
Guidance for Q3 implies year-over-year sales growth of 8% at the midpoint on a reported basis and 7% organically.
We are forecasting EBITDA growth of 5% at the midpoint versus Q3 2020, and earnings per share is forecasted to be up 7% year-over-year.
Guidance for Q4 implies year-over-year sales growth of 20% at the midpoint on a reported basis with no FX impact anticipated.
We are forecasting EBITDA growth of 35% at the midpoint versus Q4 2020, and earnings per share is forecasted to be up 46% year-over-year.
It is worth noting that about half of this growth is going to be driven by the return of business we missed in Q4 2020 due to supply chain issues in North America and weather impact in Latin America.
Turning to slide seven and full year EBITDA and revenue drivers.
Revenue is expected to benefit from 6% volume growth, a 1% contribution from higher prices and a 1% benefit from FX.
We continue to expect broad growth across all regions except EMEA and a very strong second half of 2021.
We have raised our forecast for 2021 revenue contribution from products launched in the last 12 months to $130 million from $100 million before.
This includes launches of Overwatch herbicide, Xyway fungicide as well as Vantacor and Elevest insect controls.
Our EBITDA bridge shows an increase of about $50 million in the expected impact from costs versus our May forecast.
We continue our cost control actions to limit the net cost headwind.
As we stated throughout the year, the R&D spending in our forecast is what is needed to keep our projects on a critical path to commercialization.
But this year-over-year increase will be closer to $20 million rather than the $30 million to $40 million we had previously indicated as we limit overall cost increases.
Relative to our prior guidance bridge in May, we raised the anticipated volume contribution and lowered our benefit from pricing to reflect our decision to take volume with our high-margin portfolio.
Moving to slide eight, where you see the Q3 and Q4 drivers.
On the revenue line for the third quarter, we are expecting a 6% contribution from volume, 1% contribution from price and 1% benefit from FX.
We had a very strong revenue outlook for Q4, driven by five main elements.
First, we forecast a strong recovery for our U.S. and Brazil businesses following the weak Q4 2020 in those countries.
This contributes about half of the total growth in the quarter.
Second, new products will be a major factor.
Xyway fungicide, new diamide formulations Elevest and Vantacor, Fluindapyr fungicide for noncrop applications in the U.S., Overwatch herbicide in Australia and Authority NXT herbicide in India.
Third, strong crop fundamentals.
We expect a strong Q4 in North America and Latin America, driven by good fundamentals for a variety of crops.
In Brazil, this includes cotton, as growers have indicated a 15% increase in hectares for the upcoming season.
Fourth, improved market access and expansion into new geographies and crops.
This is having a significant impact in India, Indonesia, the Philippines, Vietnam, Eastern Europe and Russia.
And finally, fifth, price increases will help offset the FX headwind from last year and the higher costs from raw materials this year.
We are already holding orders for Brazil and U.S. that are at higher year-over-year prices.
Much of our forecasted Q4 EBITDA growth will come directly from the volume and pricing growth I just described.
Although we are seeing a large increase in cost in Q4 on a year-over-year basis, we are taking actions to reduce SG&A and R&D to offset a portion of the raw material and supply chain cost headwinds we are facing.
FX was a stronger-than-expected tailwind to revenue growth in the quarter at 4% versus our expectations of a 1% tailwind as the U.S. dollar weakened against all major currencies relevant to FMC.
Interest expense for the quarter was $32.6 million, down $8.1 million from the prior year period driven by the benefit of lower LIBOR rates and lower foreign debt balances.
With continued low interest rates, we now expect interest expense to be between $130 million and $135 million for the full year.
Our effective tax rate on adjusted earnings for the second quarter was 13.5% as anticipated and in line with our continued expectation for the full year tax rate.
Moving next to the balance sheet and liquidity.
Gross debt at quarter end was $3.8 billion, up roughly $200 million from the prior quarter.
Gross debt to trailing 12-month EBITDA was 3.2 times at the end of the second quarter, while net debt to EBITDA was 2.6 times.
The difference between gross debt and net debt metric is much larger than usual this quarter as we had significant cash that we were not able to return to the United States prior to quarter end.
We are exploring repatriation alternatives for this cash in the third quarter.
Both levered metrics were above our targeted full year average leverage levels due to seasonality of working capital and will improve through the remainder of the year.
Moving on to slide nine and cash flow and cash deployment.
Free cash flow for the second quarter was $204 million, essentially flat to the prior year period.
Adjusted cash from operations was lower than the prior year period, in large part due to timing changes of certain tax payments.
Inventory was higher, reflecting the accelerating cost of raw materials as well as increased inventory levels, particularly of diamide, as we prepare for a very strong second half.
However, the growth in inventory was offset by increased payables.
Capital additions were somewhat higher as we continue to ramp up spending following deferral of projects last year due to COVID.
Legacy and transformation spending was down substantially with the benefit of the completion of our SAP program.
With the reduction in our outlook for full year EBITDA, we are similarly adjusting downward our expectations for free cash flow to a range of $480 million to $570 million, with the vast majority of this cash flow coming in the fourth quarter.
Our outlook for adjusted cash from operations has weakened further the EBITDA, driven by somewhat higher-than-expected working capital due to shifts in timing of sales to the latter part of the second half of the year, which will shift some collections into the following year, as well as higher inventory driven partially by elevated raw material costs.
Our outlook for capital additions as well as for legacy and transformation have improved slightly.
We returned $87 million to shareholders in the quarter via $62 million in dividends and $25 million of share repurchases, buying back 212,000 shares in the quarter at an average price of $118.10 per share.
Year-to-date, we've returned $224 million to shareholders through dividends and repurchases.
For the full year, we continue to anticipate paying dividends of roughly $250 million, and now expect to repurchase a total of $350 million to $450 million of FMC shares this year, with the outlook for repurchases down slightly, reflecting the lower EBITDA guidance.
And with that, I'll hand the call back to Mark.
Today, we'll provide an update on the progress of our diamide growth strategy.
Since we launched FMC as a pure-play agricultural science company, diamides have been a core part of our business.
Rynaxypyr and Cyazypyr have grown to be almost 40% of FMC sales today.
Turning to slide 11 and some basic data on the insecticides market, which has grown by 83% from 2007 to 2019 and is approximately $17 billion in value today.
Following the broad crop protection market drop in 2015, insecticides have grown 2% per year.
We expect this to accelerate in the next decade to about 3.3% compound annual growth rate, as higher-value technologies take more share from older insecticides that are being phased out by regulators.
We believe by 2030, the insecticide market will expand by about $7 billion versus 2019 to $24 billion in total.
Moving to slide 12.
We show the year-by-year revenue of the major insecticide active ingredient classes from 2014 through 2019, as reported by AgbioInvestor, and the respective share gains and losses over the period.
FMC diamides Rynaxypyr and Cyazypyr make up well over 80% of the entire diamides class, which includes a few other smaller active ingredients.
Our diamides have grown to be about 10% to 11% of the total insecticide market, and the total diamides class has gained 2% share from 2017 to 2019 to reach 13% of the total insecticide market.
Conversely, organophosphates and neonicotinoids have lost overall share.
Turning to slide 13.
We show the geographic breakdown of our $1.8 billion in diamide sales in 2020.
This is all Rynaxypyr and Cyazypyr sales and includes FMC sales of branded products and sales to our partners.
Asia makes up nearly 40% of our diamides business today with North America a little over 1/4 of the sales and EMEA and Latin America between 15% and 20% each.
FMC diamides have grown well above the market in all regions since we acquired them in 2017.
On the right is the crop breakdown for our diamides.
It should be no surprise that fruit and vegetables and rice make up about 50% of our current revenues.
This is why the diamides are so strong in Asia, since that market is about 30% rice and 30% fruit and vegetables.
Turning to slide 14 and our diamides commercial strategy, which we've discussed many times over the past two years.
We have long-term supply agreements with five key multinational companies, including the UPL deal we announced in March of this year.
We also have 50 local agreements in various countries, and we have another 15 potential agreements currently under discussion.
These agreements are helping significantly expand the market for our diamides.
Our partners give us access to customers we do not currently serve.
They also have access to certain active ingredients that can be formulated with our diamide to expand the market beyond what FMC has access to.
The $1.8 billion diamide revenue in 2020 was roughly 60% through our own commercial activities, which we label as FMC branded on these charts and 40% through our global and local partners.
Since we acquired these products, our diamide growth has been evenly split between FMC-branded business and sales to our partners, which demonstrates how complementary these two routes to market are.
We've been very deliberate in driving our growth through our partnership model.
The success of this model is shown by the fact that the company EBITDA margins expanded 100 basis points from 2018 to 2020, even as these partners were growing significantly, confirming this strategy is not margin dilutive.
The other aspect to having sales to partners represent $700 million of our annual revenue can add more volatility in timing of demand.
As such, revenues can be impacted by shifts in partner demand across the geographies and in time periods.
We have structured the contracts with partners to have extended duration.
Many of the agreements go through the end of this decade and some go beyond that time frame.
Moving to slide 15.
There are several highlights of how we have grown our FMC-branded portion of our diamide sales.
New formulations, new registrations, label extensions and improved market access will drive growth not only for the diamides but for all FMC active ingredients.
Earlier this year, we launched the novel patent-pending Vantacor formulation in the U.S., which has already exceeded our original forecast.
Vantacor provides a much higher concentration than prior Rynaxypyr formulation, offering improved mixing, less packaging and an improved sustainability profile.
We see compelling opportunities in several crops and plan to launch Vantacor around the world, including Australia, where we have just received regulatory approval.
We will continue to introduce other new mixtures and innovative formulations in all regions with 11 more launches expected by 2026.
We are also developing new products' offerings for our patented PrecisionPac and 3RIVE 3D systems, which are expected to launch during the next five years.
Furthermore, we continue to expand our precision agricultural platform with additional services provided to growers and dealers through Arc Farm Intelligence.
Moving to slide 16, where we provide an update on our registrations and label extension strategy for our FMC-branded diamides.
A product registration from regulators is required in every country where we wish to sell, and each specific crop to be treated must be further approved by the regulators in that country.
Every product use approved by regulators equals a new slice of addressable market.
Today, we have approximately 2,700 approved uses across all products based on Rynaxypyr, and 1,100 across all products based on Cyazypyr.
We currently have 600 regulatory submissions under review and another 230 that we plan to submit to regulators from 2021 to 2025.
We anticipate nearly 600 of these will achieve regulatory approval in the next five years.
Moving to slide 17 and the diamide patent state.
Rynaxypyr is covered by 21 patent families with a total of 639 granted and pending patents.
Together with Cyazypyr active related patents, we have over 30 patent families and close to 1,000 granted and pending patents filed in 76 countries worldwide.
Rynaxypyr and Cyazypyr are complex molecules to produce.
We have patented many of these steps and several of these intermediate processes patents run well past the expiration of the active ingredient composition of matter patents.
The fastest route to market for a competitor to enter the market for generic Rynaxypyr or Cyazypyr is to register their product by relying on FMC's product data.
To do so, they will also be required to demonstrate that their product has the same profile as FMC's Rynaxypyr or Cyazypyr.
To meet these stringent regulatory requirements for such difficult-to-manufacture molecules, the AIs will have to be made the same way we are making it, which is protected by our FMC process patents.
Our patent portfolio includes extensive coverage of key intermediate chemicals, commercial and alternative manufacturing processes, mixtures and formulations.
slides 18 and 19 show the patent time lines for the top five markets.
Taking into account our patents and regulatory requirements, we do not expect to see sales by a legitimate generic competitor that uses the approved manufacturing process, which would rely on our Rynaxypyr product data before 2026 in Europe, Brazil, India or in China, and 2027 for the U.S. Using that same approach for Cyazypyr on slide 19, we do not expect to see sales by legitimate generic competitors until 2026 for Brazil, China and India, 2027 for Europe, and 2028 for the U.S.
It is important to note that process and intermediate patents are critical as it is extremely difficult to produce these compounds without these intermediates.
Moving to slide 20.
We are confident that our patent portfolio is impossible.
This is evident in a recent favorable injunction, restraining NATCO in India from making or selling any product containing Rynaxypyr.
Notably, the court also ordered NATCO not to use our patented processes to make Rynaxypyr.
We anticipate that this is the first of many successful enforcements of our diamide process patents.
To date, we have enforced our patents and obtained preliminary injunctions or settlements against six infringers in India, and we have commenced litigation against four infringers in China.
Beyond patent enforcement, we've also had a variety of other successful court decisions that support our strategy.
For example, we have obtained an injunction against the Brazilian regulators to respect our Rynaxypyr data exclusivity, which will postpone action on all generic Rynaxypyr applications filed while our data exclusivity was still in force.
This effectively delays their registration approval by years.
In addition to our legal strategy, we have also adopted a comprehensive regulatory advocacy strategy that includes notifying regulators about companies that do not have permission to produce.
As a result of these efforts, multiple countries have decided not to accept applications for registration of Rynaxypyr products prior to the active ingredients' patent expiration and others have decided to require additional data and proof of legitimate manufacturing rights in the source country as part of the application process.
So to recap on the diamides.
First, the insecticide market continues to grow, and our diamides will continue to take share.
Second, our partner strategy is accelerating the growth of diamides and smoothing the transition to a post-patent business later this decade.
Third, our patent state is strong and will remain in place for a long time.
Fourth, we are successfully defending our patents and we'll continue to enforce our IP.
And fifth, diamides will continue to be a meaningful contributor to FMC's growth throughout this decade and beyond.
Our mid- to long-term growth story is firmly rooted in the strength of our current portfolio, the diamide expansion we just outlined and the significant growth we anticipate from our new product pipeline over the next decade.
This is a bold step for our company and reflects our deep commitment to sustainability.

user
fmc corp sees q3 revenue up 8%.
sees fy adjusted earnings per share $6.54 to $6.94.
sees q3 revenue up 8 percent.
sees q4 revenue up 20 percent.
sees fy revenue $4.9 billion to $5.1 billion.
qtrly revenue of $1.2 billion, an increase of 8 percent versus q2 2020.
qtrly consolidated adjusted earnings per diluted share of $1.81.

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