FMC Corporation (FMC) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Solid Q2 Performance: FMC Corporation reported a solid second quarter, driven by successful execution of a restructuring program and a 14% volume growth, despite a modest 2% revenue increase.
• Demand Recovery: The company expects continued growth in Q3 and Q4, particularly in the Americas, with channel inventory expected to normalize by year-end.
• Strength of Diamides Portfolio: Confidence in the Diamides portfolio and new product introductions positions FMC to take full advantage of demand recovery.
• Restructuring Progress: FMC is making excellent progress on its restructuring actions, expecting $75 million to $100 million of cost benefits in 2024, aiming for over $150 million of gross run rate savings by 2025.
• New Product Launches: The introduction of new products, including Onsuva fungicide and Coragen eVo insecticide, is driving sales growth, particularly in Latin America and North America.

Pessimistic Highlights

• Reduced Full-Year Guidance: Due to a slower demand recovery than anticipated, full-year revenue and EBITDA guidance have been reduced.
• Price Decline: A 10% price decline in Q2 was mainly driven by competitive pressure, strategic pricing on less differentiated products, and one-time incentives to address high-cost inventory in the channel.
• Asia Sales Down: Asia sales decreased by 28%, largely due to volume in India, where channel inventory remains high, especially in insecticides.
• COGS Headwind in Q3: An expected COGS headwind of about $40 million in Q3, mainly due to unabsorbed fixed costs from reduced manufacturing activity in the second half of 2023.

Company Outlook

• Accelerated Growth Expected: FMC anticipates the pace of revenue and earnings growth to accelerate through the rest of 2024 and throughout 2025, with a strong fourth quarter forecasted due to improving demand and new product sales.
• 2025 Revenue Growth: For 2025, revenue growth is expected at around 6%, excluding the GSS business, with cost favorability partially offset by the sale of the GSS business.

Q & A Highlights

• Q: Can you provide more color on the second half and the cadence between the third and fourth quarter? (Christopher Parkinson, Wolfe Research Partners)

  A: Q4 is an important quarter with improved visibility in Latin America, North America, and EMEA. About 60% of the growth in the second half is coming from products launched in the last five years. The company is confident in the Q4 forecast. (Pierre Brondeau)

• Q: On the cost side, when do you roll through the higher product costs due to downtime taken last year? (Josh Spector, UBS)

  A: Q3 has a big slug of unobserved fixed costs flowing through from downtime taken in manufacturing facilities last year. Q4 will see a modest tailwind on overall costs with restructuring benefits. (Andrew Sandifer)

• Q: Can you update us on the foreign exchange impact on the back half of the year? (Vincent Andrews, Morgan Stanley)

  A: FX is a minor headwind to revenue in Q3 and Q4, with a minor tailwind to EBITDA in Q4 due to benefits in SG&A from currency changes. (Andrew Sandifer)

• Q: What are some of the learnings and potential personnel changes? How is the go-to-market strategy in areas like South America being adjusted? (Arun Viswanathan, RBC Capital)

  A: The team is focusing on forecasting, selling processes, and execution. No major personnel changes are planned, but there is a focus on a more aggressive Diamides marketing strategy and lowering the cost structure through strategic use of attrition. (Pierre Brondeau)

• Q: Can you provide expectations on the SG&A side as we progress through the year and into 2025? (Frank Mitsch, Fermium Research)

  A: The company is increasing its cost-saving target, with a significant part coming from SG&A, aiming for $150 million in run rate savings by 2025, with further cost reductions expected through strategic attrition. (Pierre Brondeau)

• Q: What are your thoughts on the current cycle in the industry and expectations for pricing and market recovery? (Richard Garchitorena, Wells Fargo)

  A: The company believes it reached the bottom in Q2 2024, with a more normal business activity expected by the first quarter of 2025 for LATAM, Europe, and North America, and a full recovery by the end of 2025. (Pierre Brondeau)

• Q: Can you address the strategic intent behind lowering prices to regain less differentiated products and its impact on margins? (Edlain Rodriguez, Mizuho)

  A: The price reduction in Q2 was a strategic repositioning after aggressive price increases in previous quarters. It is not a change in strategy, and the company does not plan to chase volume at the expense of profitability. (Pierre Brondeau)

• Q: How are consumers or farmers reacting to promotional activity in India, and is there any risk of overstock in the future? (Benjamin Theurer, Barclays)

  A: The one-time incentive was clear to the market and helped clean up the channel. There is no risk of channel stocking as prices are now positioned where they should be. (Pierre Brondeau)