FMC Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2025

There are 11 speakers on the call.

Operator

Ladies and gentlemen, this is the operator. Today's FMC Corporation conference call is scheduled to begin momentarily. If you should experience difficulties during today's call, please signal a conference specialist by pressing the star key followed by zero. Your lines will be placed Good morning, and welcome to the First Quarter twenty twenty five Earnings Call for the FMC Corporation. This event is being recorded.

Operator

All participants are in a listen only mode. After today's prepared remarks, there will be an opportunity to ask questions. I would now like to turn the conference over to Mr. Kirk Brooks, Director of Investor Relations for FMC Corporation. Please go ahead.

Speaker 1

Thank you. Good morning, everyone, and welcome to FMC Corporation's first quarter earnings call. Joining me are Pierre Brondeau, Chairman and Chief Executive Officer Andrew Sandifer, Executive Vice President and Chief Financial Officer and Reynaldo Pereira, President. Today, Pierre will review our first quarter performance and provide an outlook for the second quarter. He will also comment on our full year outlook for 2025.

Speaker 1

Andrew will provide an overview of select financial results. After our prepared remarks, we will take questions. Our earnings release and today's slide presentation are available on our website, and the prepared remarks from today's discussion will be made available after the call. Let me remind you that today's presentation and discussion will include forward looking statements that are subject to various risks and uncertainties concerning specific factors, including, but not limited to, those factors identified in our earnings release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's understanding.

Speaker 1

Actual results may vary based on these risks and uncertainties. Today's discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, free cash flow and organic revenue growth, all of which are non GAAP financial measures. Please note that as used in today's discussion, CTPR means chlorantraniliprole, 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. With that, I will now turn the call over to Pierre.

Speaker 2

Thank you, Kurt, and good morning, everyone. I have stressed that 2025 will be a pivotal year for the company, highlighting four critical focus areas, including decreasing the amount of FMC product in the channel to align with customer target inventory levels, implementing a post patent strategy for Renexapia, establishing an additional route to market in Brazil by selling directly to large corn and soybean growers and ensuring that our growth portfolio consisting of sales appear before new active ingredients and plant health has appropriate resources in place to meet our targets. I would like to start by providing a brief update on the strong progress we made in these four areas during our first quarter. Prudent selling in Q1 supported the high focus on moving a product from the channel to the ground has allowed the company to approach appropriate levels of channel inventory in all regions, excluding Asia. While destocking is nearly complete in most countries, we will maintain the same deliberate sales strategy that we had in Q1 during Q2 for countries where we have not yet reached targeted level.

Speaker 2

This will put us in a strong position for the second half of the year. Our Renexapir strategy has been implemented and is gaining momentum. Simply put, our strategy is to offer basic solo formulations of Renexa Pier under trusted FMC brand names at lower prices to compete with generic, while also providing higher value versions of the molecule through new often patented formulations and mixtures. Regarding a new product, we have already commercialized a new mixture for onaxapyr and bifenthrin for best spectrum enhancement as well as a high load product for ease of use and lower cost for the grower. During the second half of this year, we will launch the large Effervescent Granule, a tablet for rice application.

Speaker 2

This patented and innovative technology offers a concentrated Effervescent formulation that disperses upon contact with water, is lightweight and can be applied through handheld dispensers. Sales of these new generation products are expected to reach $200,000,000 to $250,000,000 in 2025. In addition, we're expecting three new mixtures in 2026 that will address resistance issues and broaden the spectrum of control. It is also worth noting that a large part of FMC sales have a strong level of protection against generic products as these sales are tied to high value crops where substitution is more difficult and riskier for growers. These include tree nuts, fruits and vegetables, which represent about 35 of FMC's total brand.

Speaker 2

BranaxaPier sales and as much as 60% of branded Renekceptir sales in North America. Our low cost diamide manufacturing is now fully in place. This will allow us to protect existing applications, expand a solar formulation to new market and become competitive for all application in a global CTPL market that we expect will grow exponentially. The end results of our strategy is that we expect sales over an excellent year to grow from 2025 to 2027 as volume increases more than offset price erosion with resulting gross profit dollars remaining flat in 2025 level at 2025 levels. Our company three year plan is not reliant on bottom line growth of Renekton PR.

Speaker 2

Moving on, let me address our progress on establishing a new route to market to Brazil. We are capitalizing on our expanded product portfolio, including recently launched active ingredients to sell directly to large corn and soybean growers that we could not supply in the past. Our new sales and tech service organization is in place and will be fully operational in Q2 in time for Brazil's next growing season in September. Access to this new market is expected to provide a multi hundred million dollars growth opportunity over time. To be very clear, nothing else will change in our business model for FMC Brazil.

Speaker 2

We will maintain our other current routes to market, including selling to cooks and retailers as well as selling directly to large sugarcane and carton farms as we have done in the past. Finally, regarding our growth portfolio. The three growth platforms are well positioned to deliver their full potential. Our new active ingredients are well on track. We expect strong growth of Fluentapir and Isoflex in 2025 and have recently received registration for Fluentapir in Argentina.

Speaker 2

In addition, we were recently granted a first registration globally for Dodilex active under the brand name, KENALI in Peru. In the case of Cyozapir, while we expect data protection and registration processes to create barriers for generic to enter some markets until 2028 or 2029, we are already implementing a strategy for these products well in advance of potential generic entry. As it relates to plant health, with a recent registration of Sofero for pheromone in Brazil, we have received our first orders and anticipate initial sales of this product in Q3. While our three year target financial target do not include any meaningful contribution from pheromones, these products could provide substantial sales and earnings in the future. The progress we made in these four area will put us in a much stronger position to deliver growth in the second half of twenty twenty five and into 2026 and 2027.

Speaker 2

Before we turn to our guidance, I'll make a few more detailed comments on our first quarter results. Our Q1 results are detailed on Slide three, four and five. The first quarter unfolded mostly as we expected. Overall weather conditions were favorable and application rates were strong for FMC products, which advanced our channel destocking in most countries. Consistent with our Q1 gains, retailers and growers in The U.

Speaker 2

S. Were slower to place orders in response to lower commodity price, the perception of impulse supply and uncertainty as a result of recent trade dynamics.

Speaker 3

Company sales declined 14% versus the prior year. Pricing was down 9% with over half of the decline due to adjustments in certain cost plus contracts for significant diamide partners to account for lower manufacturing costs.

Speaker 2

A strong U. S. Dollar led to an FX headwind of 4%. Volume was down 1% versus a week prior year comparison as prudent selling into the channel in many countries was mostly offset by volume growth in Latin America. Our Plant Health business outperformed the portfolio with sales up 1% versus prior year, driven by biologicals.

Speaker 2

Looking at regional results on Slide five. North America performed as expected with sales decline of 28%, mainly from lower volume as cautious purchases from retailers and growers delayed restocking orders from our distributor customers. Latin America grew 17%, excluding FX headwinds. On the surface, it appears counterintuitive that we grew volume in the regions where we were actively seeking to lower channel inventory. Higher volume mostly came from increased direct sales to cotton growers in Brazil, which do not impact the channel inventory.

Speaker 2

It's also important to note that with a strong focus on grower consumption, products on the ground or POG, as we refer to it, far outpaced our sales into the channel. Shifting to Asia. The region performed as expected with a sales decline of 21%, excluding currency impacts, driven by intentional prudent selling and lower price. Finally, in E and E, we reported 7% lower sales, excluding currency impact due to lower volumes, largely from the expected loss of registration from TrifluSoforon herbicide. Turning to Slide six.

Speaker 2

Our first quarter EBITDA declined 25% due to lower price and FX headwinds and reduced volume. Costs were a tailwind as favorably in COGS more than offset increased investment in SG and A and R and D. The increased spending in those areas helped establish the additional sales force in Brazil and further support for our own new product. Turning now to Slide seven. We provide our expectations for the second quarter.

Speaker 2

We are guiding a revenue decline of 2% at the midpoint.

Speaker 4

Lower sales low

Speaker 2

single digit effect, but only the input we make

Speaker 4

increase as we carry over

Speaker 2

a strategy from the first quarter of carefully managing sales into the channel in many countries,

Speaker 4

year. EBITDA is lower by 6% at the midpoint,

Speaker 2

with lower price and an FX headwind partially offset by favorable cost and higher volume. Adjusted earnings per share is expected to be lower by 5% at the midpoint. On Slide eight, we provide our updated full year guidance, which comes from

Speaker 4

sales expected to be to prior year as higher

Speaker 2

volume, mostly in the second half, offsets unfavorable price and Adjusted EBITDA is expected to grow 1% at the midpoint as favorable costs and higher volume are mostly offset by lower price and an FX headwind. Adjusted earnings per share is expected to be flat to prior year at the midpoint. Over the last few weeks, there has been a lot of focus on recently announced tariffs and the potential impact to our business. Slide nine gives a brief overview of the tariffs in place or announced as of yesterday. These include the Section three zero one tariffs implemented during the first Trump administration and the new tariffs announced under the International Emergency Economic Powers Act.

Speaker 2

Key to determining the magnitude of the impact of the recently announced tariffs is whether the product we import into The U. S. Are eligible for exemption or duty drawback under the specific tariff in question. Exemptions allow companies like FMC to import without paying tariffs, specified material that are not readily available from alternate sources. Duty drawback is a refund of import duties that were paid on materials that are later exported from The U.

Speaker 2

S. Either in the same form or as part of a finished product. Exemptions and duty drawbacks are product specific and not company specific. Slide 10 lists the tariffs that are currently in place for FMC materials and whether there are opportunities for exemptions or duty drawbacks. It is important to avoid applying a blanket percentage to a total imported volume as the real impact is much lower.

Speaker 2

For example, most materials fall under reciprocal tariffs are either exempt or eligible for the IGROBA. After a detailed review of the materials we import into The U. S. And applying the rules currently proposed or in place, we estimate an incremental cost headwind of $15,000,000 to $20,000,000 This was a rigorous bottoms up analysis, so we are confident in the estimated impact. As we did these calculations, applying the rules as we understand them today and which may evolve as trade negotiation between The United States and other countries progress.

Speaker 2

We will continue to monitor new development and reevaluate the potential impact on our business. As we understand them today, we do not expect tariffs to be a significant obstacle to reaching a full twenty twenty five goals. We have flexibility in sourcing depending on how the situation continues to unfold. Further,

Speaker 3

we

Speaker 2

have improved cost severability and additional volume opportunities that will offset the impact we currently anticipate for 2025. Nevertheless, as we become more certain on the longer term tariff impact, we will adjust our pricing to cover those costs. Our guidance implied solid growth in the second half of

Speaker 4

the year. We

Speaker 2

expect revenue growth of 7%, driven by higher volume from Flunapir, ISOFLEX and Biological as well as by the newly established additional route to market in Brazil. With these actions we have taken in the first half of the year, we expect to enter the next growing season in Latin America without the destocking headwinds we faced over the last two seasons. However, we do expect headwinds from price and FX. As you can see in Slide 11, we expect second half EBITDA growth of 11% as lower cost and higher volume, primarily from new products and the new route to market in Brazil are partially offset by lower price and FX headwinds. Lower costs are expected to be driven by COGS favorability, including lower raw materials and improved fixed cost absorption.

Speaker 2

We are highly confident in our path to second half growth as it is driven by cost favorability, a large portion of which is already locked in as well as sales of new products and the additional route to market, neither of which have channel inventory concern. Additionally, we will benefit from a prudent selling strategy and our focus on POG in the first half. I will now turn it to over to Andrew to cover details on cash flow and other items.

Speaker 5

Thanks, Pierre. I'll start this morning with a review of some key income statement items. FX was a 4% headwind to revenue growth in the first quarter, largely driven by the Brazilian real and various European currencies, most significantly the euro. For full year 2025, we continue to expect a low to mid single digit FX headwind to revenue, again driven primarily by the Brazilian real and various European currencies. Interest expense for the first quarter was $50,100,000 down over $11,000,000 compared to the prior year period, driven by lower debt balances.

Speaker 5

For full year 2025, we continue to expect interest expense to be in the range of $210,000,000 to $230,000,000 down roughly $15,000,000 year on year at the midpoint, reflecting the benefit of debt reduction in 2024 and modestly lower interest rates in 2025. The effective tax rate on adjusted earnings was 14% in the first quarter, in line with our continued expectation of a full year effective tax rate of 13% to 15%. Moving next to the balance sheet and leverage. Gross debt at March 31 was approximately $4,000,000,000 up roughly $640,000,000 from the prior quarter due to a normal seasonal working capital build. Cash on hand decreased $42,000,000 to $315,000,000 resulting in net debt of approximately $3,700,000,000 Gross debt to trailing twelve month EBITDA was 4.6 times at quarter end, while net debt to EBITDA was 4.3 times.

Speaker 5

Relative to our leverage covenant, which includes adjustments to both the numerator and denominator, leverage was 4.77 times as compared to a covenant limit of 5.25 times. As a reminder, our covenant leverage limit will remain at 5.25 times through September 30, then step down to five point zero times at year end. We expect covenant leverage to return to approximately 3.7 times by year end, essentially flat to the prior year. Moving on to free cash flow on Slide 11. Free cash flow in the first quarter was negative $596,000,000 4 0 8 million dollars lower than the prior year period.

Speaker 5

Cash from operations was down significantly, primarily due to lower inventory reduction as compared to the prior year, while capital additions were somewhat higher as anticipated. The negative cash from operations in the first quarter reflects a return to a more normal cadence of working capital with a large build in the first part of the year followed by a release in the second half. We continue to expect free cash flow of $200,000,000 to $400,000,000 for 2025, a decrease of $313,000,000 at the midpoint. Cash from operations is the key driver of the decrease with normalization of working capital after the pronounced correction in 2024. Capital additions are also expected to be up somewhat with a continued focus on only the most essential projects and capacity expansion for new products.

Speaker 5

Cash used by discontinued operations is also up slightly, but in line with our multiyear average. And with that, I'll hand the call back to Pierre.

Speaker 2

Thank you, Andrew. The first quarter unfolded as expected with all objectives reached. The first step of our company reset went as well as possible. We will need to do the same now in Q2. While the midpoint of our Q2 guidance doesn't not show overall growth, the financial targets are stronger than the first quarter, and we expect to see some volume improvement in quarter.

Speaker 2

However, during the second quarter, we will continue to carefully manage sales into the channel, particularly in countries where FMC channel inventory remains elevated. By the end of the first half, we will have completed the most critical step of a reset, which will allow us to enter the second half of the year in a strong position. We expect to see significant momentum building during Q3 at the financial, operational and strategic level with the new FMC organization fully up and running. We expect to reach our financial objective this year with growth in the second half built on a strong foundation. We plan to be in a position at the Q3 earnings call to give an outlook for 2026 as the strategic and operational reset should be well advanced and provide us with greater clarity on next year's potential.

Speaker 2

With that, we're now ready to take your questions.

Operator

The first question comes from Alexey Uefremov with the company KeyCorp. Alexey, your line is now open.

Speaker 5

Morning. Thank you. Pierre, could you describe the price trends in the crop protection market outside of diamides? Has the pricing bottomed? What would you expect from price going forward this year?

Speaker 2

Yes. Thanks, Alexey. In terms of pricing, let me make two comments. One, specific to FMC pricing in Q1 and the way we see pricing going through the year. When we made our forecast pricing, we were forecasting a mid to high single digit.

Speaker 2

We ended up in the high single digit. What we had in the forecast was the pricing to the MI partners, we knew would be lower. And we also knew there would be a tough comparison to Q1 twenty twenty four, where price were still very high. What was not in the forecast for us was stronger sales in Brazil, which we know is always a more competitive market. If I think about pricing for the year, pricing comparison are going to ease as the year ago and especially in the second half.

Speaker 2

For a very simple reason, if you remember, and especially true for FMC, we did the vast majority of price correction in the second half of Q2 and through Q3 and Q4. So if you think about Q1 this year, beside the country mix, it is not that we took very specific pricing actions sequentially. It is just a year on year comparison, which is unfavorable, where we see more stability going into the rest of the year, especially in H2 with much better or much easier comp versus 2024.

Operator

The next question comes from Joel Jackson with the company BMO Capital. Joel, your line is now open.

Speaker 6

Hi. Good morning. Can you give a bit of guidance about, you know, why you expect to have really strong growth in the second half of the year to meet your numbers this year? It is, you know, historically an extremely back end loaded second half. Can you maybe break down a bit more about why you have the confidence in your costs in the second half of the year?

Speaker 6

I know you have lags and you see things coming and and your new go to route your new strategy in Brazil and and other other niche you have. Just maybe give some more confidence to the street why you can get this second half done.

Speaker 2

Certainly. I think I would qualify the level of confidence in h two as very high. Let me talk first about what you just say revenues. Revenues, the growth is mostly coming from new products and new products demand we already know is very high. If anything, if we don't get to the number we're forecasting, it's because we're going to be higher.

Speaker 2

There is a bias toward a higher end than what we have very, very solid demand already for Q2 for a new technology for Indapir and ISOFlex. Second of all, we do have a new route to market, which did not exist before. It's a brand new market for us. The sales organization is in place. The contacts are being taken, everything all lights are green.

Speaker 2

So this new opportunity seems to be highly, highly feasible. So on the revenue front, because we are not forecasting growth due to market growth, but more to specific FMC actions, we have quite quite a high level of confidence. On the on the price slide side, why why do we believe we will be in a less challenging situation? Two critical reason. One is we will be operating following the actions we have taken in q one, which were very, very strong around around channel inventory and the one we're gonna keep on doing in q two.

Speaker 2

We will be in a very, very healthy channel situation starting in Q3, which is positive for pricing. Second of all, we will be in a very low comp versus 2024 as by H2, we had a lot of the price correction done. And on the cost front, we've talked about we've talked about our cost restructuring we have put in place. But let me remind you of something, which is already booked. It's already it's mathematical.

Speaker 2

We have $50,000,000 of absence of negative impact we had in 2024 coming from 2023 volume variance. This is an automatic $50,000,000 five-zero growth for at EBITDA level in H2 twenty twenty five. So you bring all of these together and the probability of of missing in my mind is is quite low because most of those are in in our hands. Actually, I wanna give you an example of why we feel so confident about our position in the channel getting into Brazil season in the second half. In Brazil, it is counterintuitive, as I said, how fast we grew in Q1.

Speaker 2

But let me explain to you a bit how that growth took place. We sold about $110,000,000 of product. Part of those sales went directly to growers, so didn't go into the channel. So we had less than $100,000,000 of product sold into the channel. We removed from the channel into the ground about $350,000,000 of product, which mean we removed from the channel of FMC product in Q1 over $250,000,000 of products.

Speaker 2

I mean, that's the kind of actions we have been taken in Q1 and still are taking in Q2, which are going to get put us in a very, very clean position when we start H2.

Operator

Next question comes from Edelin Rodriguez with the company Mizuho. Edelin, your line is now open.

Speaker 7

Okay. Thank you and good morning everyone. Pierre, you've talked about the tariff impact of 15,000,000 to $20,000,000 headwind. So what exactly are you doing to offset that headwind? Because you said you will be able to do that.

Speaker 7

And the cost savings actions you've taken to do to offset some of that, would you have taken them regardless of the tariff impact you will see this year?

Speaker 2

So it is not actions we are taking because of tariffs. You know, we always give a range in term of how our cost saving plans are going to be unfolding. And we're going to end up on the higher end of the cost savings. So those cost savings are coming at the top end of what we're expecting. They are not anything special or additional we are doing to offset the current tariffs, but we were on the favorable side.

Speaker 2

Volume, same thing. We believe that we've shifted a bit from previous year in the way we look at the market. I think in previous years, there was a very, very high focus of the organization to to selling into the the channel and to retailer. We have moved a lot of our energy to get a pool from the growers from the channel. So by creating that pool and promoting a product to the growers then buy into the from the retailers, we are creating more and more space into the channel for a product.

Speaker 2

That strategy might not be as strong in the in the quarters to come when most of the destocking is done. But it's still something we're gonna keep on doing the way we're gonna organize our sales organization. And this is giving space for new products. So that's why there is a some positive on the growth side on the second half, including new technologies for which we have more and more demand. So nothing specific we are doing to address tariff.

Speaker 2

They would have been there even without the even without the tariffs, but it will be offsetting the tariffs.

Operator

The next question comes from Laurence Alexander with the company Jefferies. Laurence, your line is now open.

Speaker 8

Hi, this is Dan Rizwan for Laurence. Thanks for taking my question. I was just wondering, mentioned reducing channel inventories. Does that involve don't giving significant rebates or discounting to customers? And do you have to kind of write off any of your own inventory?

Speaker 5

Reducing channel inventory.

Speaker 2

Sorry. Could you repeat the question, please? You broke a little bit.

Speaker 8

Sure. Yes, that's okay. You talked about reducing channel inventories. I was wondering if that includes having to give significant rebates or discounts to customers or for future orders or kind of how it how you kind of really what what steps you take to reduce the inventories in the channel?

Speaker 2

Yes. So that that's that's good you're asking me to to repeat that because it's it's very, very important. What what we did is we shift almost entirely the activity of our sales organization, agronomist, tech service organization to work with the end users of a product, the growers. By doing this, you promote your product, explain your product, demonstrate the capability of your of your portfolio, and then create a pool from a pool from the the growers from the retailers. So it's growers who are asking for a product from the retailers.

Speaker 2

We do not have to act on price or give rebate because we are not intervening in this process. All we create is the growers to to pull the product from retailers, but the sale the the financial transaction is between the grower and the retailer. So it's promotion of a product at the at the level of the end user, which create more product on the ground. And then what we did is we replenish those product extremely carefully to avoid to rebuild inventory.

Operator

This question comes from Chris Parkinson with the company Wolfe Research. Chris, your line is now open.

Speaker 5

Great. Thank you so much for the question. Can you talk a little bit more about the DaiMod strategy and any updates you may have there? And I'd specifically like to focus on your confidence on the growth run rates you know, coming off patent, you know, especially some of the charts that you shared with us, last quarter, as well as your ability to further reduce your cost structure, and your openness to, you know, manufacturing with any other partners? Thank you so much.

Speaker 2

All right. Let me start with the back end of your question in terms of pricing. Our pricing right now, lower pricing, significantly lower pricing versus last year is fully in place, and we are continuing to lower our cost. I do believe that by the end of this year, if not before, we will be on par with the high end generic manufacturers. At this point, it allows us to develop a strategy to protect and grow our solar molecule because this market is going to be growing exponentially with ronexapir taking over other insecticide.

Speaker 2

So that piece to take the price manufacturing cost down is in place and improving and is going to put us at parity with generic manufacturers. The solo strategy in terms of growth will benefit from this cost, and we will lower our price and compensate that by much higher volume. At the same time, the new product we are putting in place, other for ease of use or a broader spectrum or resistance, which is becoming a bigger and bigger issue, are being developed and some are already on the market. To give you a sense for how fast our high end growers are willing to switch the the three product I talked to you about, out of the $600,000,000 of branded ronoxapir, We we have this year we are selling this year. We expect 200 to $250,000,000 be the new RenexaPier mixture, the high load, and and the tablets.

Speaker 2

But the tablets will be a very small number because of the introduced towards the end of the year. So that's the speed at which at which you can replace your older technology by your new technology. At this stage, there is nothing in front of us which is telling me that the Roanexa PR strategy, as we explained it, to grow volume, to compensate for lower price with a lower manufacturing cost and introduction of new product. Forgot to say three new products that will be registered next year will not be working. Important points, I

Speaker 1

want to

Speaker 2

remind everybody the three year plans does not expect growth of earnings coming from an ex Appia. We're just protecting the current bottom line from Rynaxypyr in the next three years by the strategy I just described. Ronaldo, anything you want to add on the Rynaxypyr strategy itself?

Speaker 9

Only the philosophy of adoption of Rynaxypyr that we're seeing the new formulations as you highlighted and increase in some markets the as we evolve on our strategy, it becomes very clear that there is a lot of elasticity there. As we move prices, we're seeing that volume adoption especially by customers that did not use chlorantraniliprole before.

Operator

The next question comes from Benjamin Amsoor with the Company Barclays. Benjamin, your line is now open.

Speaker 10

Yes. Good morning and thank you very much for taking my question. Just wanted to follow-up a little bit on some of the outlook pieces in terms of your strategy as it relates to the tariffs. And by the way, thank you very much for all the clarification you've already given and some of the estimates here. Can you help us understand a little bit more as to the alternatives, like just thinking of this as being to be a longer lasting issue, headwind, however you want to call it, how could we think about alternative sourcing for some of the raw materials that are significantly impacted and you quantified it already, it's close to $20,000,000 for this year.

Speaker 10

But if we were to move into 2026, is there any opportunity to find alternative sources for some of these raw materials and what would the cost of that be?

Speaker 5

Hey, Benjamin. It's Andrew. I'll take this one. Great question. I think, certainly, part of the way we're limiting the impact in '25, and we'll continue to limit the impact '26, is we have built a great deal of flexibility in our supply chain with multiple sources for all of our critical raw materials.

Speaker 5

This is something that we learned before COVID and perfected during COVID, including to doing a lot of heavy lifting to include those sources in our registrations in all our key markets to allow us to be able to switch sources of production. So certainly, when we think and you look back at that tariff page, while we focus a lot on China, you know, tariffs impact sourcing that we do from The United Kingdom, from Mexico, from India, as well as from China. But we have the ability to to move some production around, to help limit some of the impacts of tariffs as they become more certain. I think we have high confidence in the outlook for '25 in part because sitting here on May 1, we turn inventory about twice a year. So we purchased the material that will cover us largely through most of the well into the fourth quarter.

Speaker 5

So we have a pretty high visibility into the cost base that we have and the tariff impacts that we have that are sitting in inventory or will sit in inventory during that time period. As we look to '26, certainly, we are going to continue to look at the balance of different sources that we have, and we're gonna look to see how the tariffs themselves evolve. I mean, certainly, the the government has stated that they intend to negotiate, trade deals with various countries. Our hope is that will result in both more clarity, but also lower than currently published tariff rates for many of those countries that would help reduce those tariff headwinds. And I would just finish off with this, you know, beyond beyond sources, beyond, you know, working and and following closely how these tariffs develop.

Speaker 5

Over a period of time, as the tariffs become more certain, we will have to move prices to offset tariffs. We did that with the the the first Trump administration tariffs. They're part of our ongoing cost structure. They were absorbed through pricing over time. We need more certainty and, you know, some trade deals in place to really be able to do that at this point and then relative to the timing of the seasons when it's a more natural point to make some price changes.

Speaker 5

But while we have the, you know, the the additional cost savings and a little extra volume that Pierre within the ranges we'd initially guided, as Pierre mentioned earlier in the call, that will help us absorb the tariff headwinds in 2025. And 2026 should significant tariff headwinds persist, we will have to move pricing to help offset those costs. So it'll be a combination of all those factors, managing across the sources, working through carefully how the tariffs are fully implemented, including the use of exemptions and duty of drawback, and then with the residual tariff cost inflation passing that on to customers.

Operator

The next question comes from Patrick Cunningham with the company Citigroup. Patrick, your line is now open. Hey, good morning. This is Rachel Li on for Patrick. Can you share more about what you're hearing from customers in terms of order patterns?

Operator

Seems like North American volumes were impacted pretty heavily by the cautious customer behavior, so curious to see what you're seeing for the full year. Thank you.

Speaker 2

You you you broke a little bit. I think you asked could you could you repeat your question? Because you you broke up during the question, so I'm not sure what was the we couldn't hear you.

Operator

Can you share more about the customer order patterns? Once your North American volumes were impacted pretty heavily by the cautious customer behavior, you called out. So curious to see for full year.

Speaker 2

Yeah. I think customer so it it it it depends on the on the regions. Generally speaking, customers today tend to in the first quarter, we're buying a bit closer to planting time. So the movement from, for example, in The US from wholesalers to retailers to growers, It doesn't mean that the total number by the end of the season will not be the same, but the speed at which is happening is has been slower in been slower in Q1. In Q2, things seems to be picking up.

Speaker 2

I think there is demand. As I said, our Q2 number is prudent. We are still highly focused on our inventory, but there is a dynamic which is much more positive. I'll give you an example. In Europe, today, one month into the quarter, we do have already 51% of the orders we need for the quarter.

Speaker 2

So that's a much faster speed of purchase that we've seen in a long time and we've seen in the first quarter. So the order pattern is prudent, but let's not forget that we committed for two quarters to get back to a normal inventory situation in the middle of the year, which is very specific to FMC. But yes, things were slow from a speed, not a quantity. And I would say picking up speed into Q2 as we are clearly seeing happening us in Europe right now.

Operator

The next question comes from Vincent Andrews with the company Morgan Stanley. Vincent, your line is now open.

Speaker 1

Thank you and good morning everyone. Wondering if you can just help us sort of understand or maybe compare and contrast the difference between selling directly to the farmer and selling through the channel. And I guess I'm just kind of trying to think through the line items. The ASP is different. Obviously, the COGS are the same, but maybe SG and A is higher or lower.

Speaker 1

I don't know if you don't have pay the channel. And does it do the terms in terms of cash conversion, are they are they better? Are they worse? Are they about the same? Just just maybe help us understand how that's gonna play out.

Speaker 2

Alright. I'll let Andrew make more or or Ronaldo make more comments. I mean, first first, the the cash conversion is much more linked to the regions of the world where you operate rather than the people, the the customer to to to reach you you are you you are selling. From a from a fundamental EBIT margin on the product, it's about the same if you sell direct or if you sell into the into the retail system. There is not a a meaningful difference in term of the profit you will you you will get those apparel channels, but the economics are about about the same.

Speaker 2

Don't know. Andrew or Ronald, do you want to add to that?

Speaker 9

No. The net the net contribution is is very, very similar. Those growers are larger than average growers and they tend to buy at a discounted rate or a discounted price in comparison to the average of the market. If you take that into consideration, our net price to them is very similar to the net price that we already put in place on average in those countries. So it's not a meaningful difference.

Speaker 9

It does require and we said that in prior quarters, it does require dedicated people. So there is an SG and A component there. But it's dissimilar to the SG and A we would have to serve additional customers in the traditional model. As of terms, terms are similar. They are mostly crop terms.

Speaker 9

So there's no disconnection. There's no real difference there between selling to retail or selling to growers.

Operator

The next question comes from Josh Spector with the company UBS. Josh, your line is now open.

Speaker 3

Good morning. This is Lucas Spielman on for Josh. I just wanted to ask about the second half EBITDA bridge on Slide 11. So there's a hundred million headwind on there from price and FX. Price looks like it's likely to be down kind of 40 to 50,000,000 on sales in the second half with a similar impact to EBITDA.

Speaker 3

FX looks like it's probably going to be flat now on sales with 3Q down and 4Q potentially positive where the current rates are. But could you please just help us understand where that other $50,000,000 from the headwind is coming from in the second half? Does that imply that your price assumption is more like down $100,000,000 Or is there hedging in place on the FX side that's sort of offsetting that? Just like to understand your assumptions there, please.

Speaker 5

Hey, Lucas. This is Andrew. I'll try to help you here. You know, we're we're intentionally not guiding quarters for the second half. It's too early for that.

Speaker 5

I think what we're and the reason we showed the price and FX together is because in many markets, there's an interconnection between FX movements and local price. We see that a lot, particularly in European markets. Certainly, we've guided for the full year that we expect a low to mid single digit headwind in revenue from price, Similar kind of headwind in Q2. We had a higher headwind in the first quarter. So just basic math, it'd be a little less headwind in the second half than that low mid single digit for pricing.

Speaker 5

And then to the second part of your question with FX, yeah, historically, FX drops to EBITDA from revenue headwind at about 50% for us. With the way currencies are currently moving and what forward rates look like and where we're hedged, that drop through is gonna be a bit heavier this year. So it's going be more than 50%. So I think you need to think about the drop through on FX being a bit higher. Not going to be perfectly precise here, but I think, again, if you think about that pricing in the second half being a little less than low mid single digit kind of headwind, would be appropriate.

Speaker 5

And then FX, the FX headwind dropping through a bit more than our historical 50%, that'll balance out how we get to that 95 to $1.00 5 range.

Operator

Final question comes from Frank Mitsch with the company from Miele Research. Frank, your line is now open.

Speaker 1

Thank you for saving the best for last. I really appreciate the confidence on the second half EBITDA uplift. The conversation about the new products seems relatively straightforward and seems like you have really good line of sight there. I wanted to focus in on the route to market, the new route to market in Brazil. A couple of things.

Speaker 1

One is, how much did that negatively impact the first quarter results? And what's your expectations in terms of that being a drain? When do you think that that flips to being a positive? And frankly, Pierre, you sounded pretty upbeat about the ability this year, so second half of twenty twenty five, to really penetrate the large corn and soybean farmers. If you could give any more color there, that would be that would be very helpful since this is a, as you indicated, a new route to market.

Speaker 1

Thank you.

Speaker 2

Sure. I'm I'm gonna I'm gonna let Ronald do answer more precisely than I do. The the negative impact in q one this year of this was mostly the s a and r cost, the the selling because we've been hiring a significant number of people to do two things in Brazil. First, to accelerate sales into coop by doing what I explained before, more activity to increase product on the ground with our final growers. And then we created a sales force for these new markets we are finally able to penetrate after decades of not being able or entitled to to penetrate.

Speaker 2

The organization is really the people have been hired, the people have been trained, the contacts are being taken. I'm going to let Ronaldo talk about the confidence of realizing those new sales when the season starts in Brazil.

Speaker 9

Very high, Frank. As Pierre just pointed out, the organization is already in place. They've been trained and they have already been assigned territories and specific customers to cover. As you may remember this, we said in the earnings call that what enabled us to do this now is the new technologies we're bringing to the market. And that combination of more people, more presence and the new technologies for which we have very high confidence, that's what brings us confidence.

Speaker 9

You asked about when it turns positive. We start to invoice for soybean and corn and the latter part of Q2 and into Q3, primarily in Q3. So that is when we expect this to become positive. And honestly, have no doubt that it's going to be positive in 2025.

Speaker 2

Yes. And I want to reiterate with your comments, Frank, my very, very high confidence in H2. I know the numbers look big compared q one, q '2, but it's a deliberate strategy. I am as happy as I could be from the way q one happened. We met all of our objectives.

Speaker 2

We're going to carry on that to maybe a smaller extent in Q2 because we've done the vast majority of the work in Q1. We're going to start Q3 with a very, very clean channel. We have two source of revenue growth, which are very well identified with not a lot of expectation from the from the market moving, but us moving. The price, we're gonna be comparing to a to a very low very low pricing situation in the back end of of last year. And the EBITDA, as I said before, a big part of it is already in the book.

Speaker 2

So I know the number looks good looks big, but but it's not as big of a stretch as as the numbers seem to seem to show.

Operator

This concludes the FMC Corporation conference call. Thank you for attending. You may now disconnect.

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Earnings Conference Call
FMC Q1 2025
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