FMC Q2 2021 Earnings Call Transcript

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Provided by AlphaStreet
August 4, 2021
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Operator

Good morning, and welcome to the Second Quarter 2021 Earnings Call for FMC Corporation. This event is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Michael Wherley, Director of Investor Relations for FMC Corporation. Please go ahead.

Michael J. Wherley
Director of Investor Relations at FMC

Thank you and good morning, everyone. Welcome to FMC Corporation's Second Quarter Earnings Call. Joining me today are Mark Douglas, President and Chief Executive Officer; Andrew Sandifer, Executive Vice President and Chief Financial Officer; and Zack Zaki, FMC's new Director of Investor Relations. 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. Following the 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 SEC.

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. With that, I will now turn the call over to Mark.

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Thank you, Michael, and good morning, everyone. Our second quarter results, revenue up 8%, EBITDA up 2% and EPS 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. We continue to have 0 transmission of the virus in our facilities, but I want to acknowledge that we have lost employees to the pandemic, and our employees have also lost family members. Thankfully, that number of affected employees has been small. Our thoughts are with employees that have been impacted directly by COVID-19, and we are thankful for everyone who continues to work safely at FMC.

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 EPS 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 EPS 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 EPS 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. I will now turn the call over to Andrew.

Andrew Sandifer
Executive Vice President, and Chief Financial Officer at FMC

Thanks, Mark. Let me start this morning with a few highlights from the income statement. 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.

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Thank you, Andrew. 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.

To conclude our prepared remarks, despite the continued headwinds from costs, we continue to deliver excellent volume growth around the world, driven by the significant success of new product introductions as well as an increasingly robust market. 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. As you've seen in the press release earlier this morning, we announced our target to achieve net 0 greenhouse gas emissions by 2035. This is a bold step for our company and reflects our deep commitment to sustainability. And finally, I'd like to take this opportunity to thank Michael Wherley for his commitment to FMC over the last eight years and wish him great success in his next career move. I'll now turn the call back to the operator for questions.

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Operator

[Operator Instructions] Our first question will come from Steve Byrne with BofA.

Steve Byrne
Analyst at BofA Securities

Yes. Thank you. And just a shout out to Mike, sure appreciate all the help over the years. Mark, I wanted to drill in a little more on the diamide outlook. I appreciate the detailed update on the IT strategy and partnership and so forth, but would like to hear your views about the competitive landscape. What are the primary products by region or crop that you can comment on that the diamides are really down in the trends competing with? And the reason I ask is the biggest bucket is the neonics and the top two in that category are being banned by Europe. And I don't know whether you think that could spread to other regions. And then in that next big bucket is the organophosphate and the number one in there is for pyrethroids. I mean the EPA could ban that in the next two weeks. And so whether that could expand as well, I would like to hear your view on that. But more importantly, what are those actions mean for the competitive landscape for your diamides?

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Yes, Steve, thanks for the question. I think you're hitting on something that I sort of touched on in the script when I said that part of the growth of the future of the diamide is going to be how that insecticide landscape changes. And you're right, neonics are under pressure, organophosphates, some of them are certainly under pressure and some of the pyrethroids as well. So when you look at those major classes of chemistry, we do believe that either the diamides as they are built today and formulated today will take share in certain parts of the world from all of those three classes. But more importantly, I think the way we're going to formulate and our partners are formulating these products, I think you'll also see that accelerated market share gain against those three classes of chemistries.

And by the way, there are other chemistries out there as well that are old. Those just happened to be the big ones. So part of the growth is going to be that share gain and we've already seen that. You can see that the diamides are growing strongly as some of the other technologies are declining. I don't see that slowing down. In fact, for everybody that watches this space, you can see the regulatory environment is getting tougher and tougher. That bodes well for the diamides and frankly for the next set of insecticides that we will launch over the decade out of our new pipeline. So very strong growth expected. And yes, some of it will be against those different types of classes of products.

Steve Byrne
Analyst at BofA Securities

Thank you.

Operator

Our next question will come from Adam Samuelson with Goldman Sachs.

Adam L. Samuelson
Analyst at The Goldman Sachs Group

Yes. Thanks. Good morning everyone. Great. So I was hoping to maybe dig in a little bit on the revised outlook and maybe from, a, provide maybe a little bit more color on some of the sources of incremental cost headwind that you're seeing and kind of the risk or likelihood that, that actually will leak further into 2022. And then corollary to that is the pricing actions that you're taking, which, on a net basis, seemed a little bit more modest than you might have thought a few months ago. And really, looking back over the last couple of years, when I look at price, FX and cost, kind of all three, FMC, that, that's still on a multiyear basis still a full negative number. So just help us think about how you would frame that on a go-forward basis and how maybe the approach to pricing for cost and FX maybe needs to evolve, if at all, beyond 2021.

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Yes. Thanks, Adam. There's a lot wrapped up in that question. I'm going to try and tackle it with a few different angles because there's a few things that are connected here. First, when you look at what we've said on the cost side, in our February guide, we had about $90 million of negative cost, and we're now up in the $150-plus million range. As we've gone through the first half of the year, we've continued to see that many of our raw materials from not only a cost standpoint, but from an availability standpoint, which ultimately does drive the cost, have started to increase and not slow down. This started with the wave of the commodity changes that we saw due to various issues around the world, whether it's the Texas freeze or other things in China, and that has now spread into the intermediates and the fine chemicals.

So we're seeing this wave continue through the business. And we took the decision with our procurement groups and the commercial groups, with what we saw coming, we felt it was the most prudent way to forecast the rest of the year from a higher-cost perspective. So we see the second half of the year cost is significantly higher than the first half. We had about a $55 million cost headwind in the first half of the year. We've got approximately a $96 million to $100 million headwind in the second half. Now you have to put that in the context of what is happening in the overall marketplace in terms of volume. If you look at our volume growth, we have increased our volume expectations for the year on the back of very good demand for our portfolio, and we're seeing that pretty much across the world.

I would say the only exception is Europe from what we saw in Q2. But certainly, in Latin America and North America, we're seeing that volume demand. And the way our portfolio is built, because of the high EBITDA margins as a drop-through, we have now taken the decision that it is actually better for us to take advantage of that robust market, go and get volume rather than get price. Now it's not to say price is not moving, it is. We have roughly a $37 million to $40 million price advantage in the second half of the year. Most of that comes in the fourth quarter as we roll into the North American and Brazilian seasons. That's where you're going to see the most price. So when you put all that together, you can see we're making some strategic decisions. We know we can take volume at high margin.

So we're going to do that rather than go for the price, although we are going for price in two parts of the world. The other part of your question was what does that mean for 2022? Well, it's very early right now. But think of it in this context. The way FMC manages its inventory and the cost flow-through is we have essentially a six-month delay in the costs hitting the P&L. So the cost that we occur in the first half impact the second half of the year, the cost that we'll incur in the second half will impact the first half of 2022. I don't see costs going down in the second half of this year. That means we are likely to have similar cost structure in the first half of next year. However, if we look at the way this curve is shaping out, it may well be that the first half of next year, the costs start to come down and we would see the benefit in the second half of next year.

So it is going to be very much a year of two halves. To what degree? We don't know yet. We are right at the very beginning of our budget process. So we'll have more clarity as we get into the fourth quarter on that. But that's kind of how we're thinking about this from a just a high-level flow of cost into 2022.

Adam L. Samuelson
Analyst at The Goldman Sachs Group

Okay, Mark. Thank you.

Operator

Our next question will come from Laurent Favre with Exane BNP.

Laurent Guy Favre
Analyst at Exane BNP Paribas

Thank you and good morning, all. Mark, I've got 10 questions on diamides just for one. On slides 13 and 14, I was wondering if you could talk about how you guys think about the focus areas for the FMC-branded diamides and the partners in terms of areas of incremental growth. So either for geographies or crops, are there areas where you think you can drive the growth better than partners and vice versa? Can you elaborate a little bit on that, please?

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Yes, sure. So if you think about Rynaxypyr and Cyazypyr, you look at the chart, the doughnut chart on slide 13 on the far right-hand side, we've given a breakdown of our diamide sales by crop. It's very different for Cyazypyr. Cyazypyr is almost 100% fruit and vegetables at this point in time. So for Cyazypyr, which is growing very quickly, it's now just north of $300 million in 2020, it's growing well this year. I think the fruit and vegetable market for Cyazypyr has a long way to go. When you think of the size of that business not only in Asia but in places like Mexico, where we're growing strongly, we're seeing Cyazypyr take share.

I think the other aspect that I would highlight is that a lot of our business today is not in brand-new formulated products, it is in the active ingredients that's formulated to be used. Our partners and us now are branching out with pretty sophisticated formulations that take us into new spaces. So it's not just a crop perspective, it's a pest spectrum. For instance, our Elevest formulation in the U.S., it is Rynaxypyr plus bifenthrin, which is a pyrethroid. The pyrethroid gives you a very fast knockdown of insects. So you have a different mode of action, which enhances the use of Rynaxypyr.

It's those types of activities that not only FMC is doing, but many of our partners are now formulating and getting registrations for formulations that we don't have. So think of it as the fruit and vegetable market, I would say, expansion in Asia, parts of Latin America, and then I would also say, Eastern Europe, Mid East, Africa for Rynaxypyr as well. So you can tell by the way we think about this. There is an awful lot of growth left in not only how we formulate the products but the geography and the crop and the pest aspect. I hope that helps a little bit, Laurent.

Laurent Guy Favre
Analyst at Exane BNP Paribas

Thanks, Mark. And as a follow-up to Steve's question. If you think about the long-range forecast on neonics and organophosphates market share losses, I mean, would you assume that on average, that 1% share gain for diamides is directionally correct on average through the end of this decade? And I appreciate it's not a linear progression but whatever it is.

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Yes. You're right. It's not going to be linear. I mean you have products that lose a registration. So in any one year, you could have an acceleration as the products replaced them. Certainly, when I think about where we are today in that 12% to 13% range, over the next decade, we should be adding another 300 to 400 basis points of market share as the market grows. So you're not only taking the current market, you're taking growth in the extended market. And that's one of the reasons why we see this robust growth, and it's not just FMC that sees that robust growth, our partners see it, too. That's why they're investing early to get into this molecule ahead of patent expiration as we go through the decade so they can build their positions and take share in these other chemistries as well.

Laurent Guy Favre
Analyst at Exane BNP Paribas

Thank you.

Operator

Our next question will come from Mark Connelly with Stephens.

Mark William Connelly
Analyst at Stephens

Thank you. Mark, you sound very bullish on Lat Am despite the disappointments you've had in the last year and whether that doesn't look all that great. And I know Latin America is more than Brazil corn, soy, but can you help us understand how the pieces down there are fitting together this year? And where the risks are if Brazil weather stays disappointing? I'm thinking from an FMC portfolio perspective, how different is this year actually shaping up than last year when Brazil did disappoint?

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Yes, Mark. So you're right. We tend to focus on Brazil, but let's be clear, we have some other large pieces of business that are growing very rapidly in Latin America, and I would single out Mexico, where we're seeing extremely strong growth on all the fruit and vegetable complex as well as on corn, not just with the diamides but with our herbicide products as well and as we start to grow our fungicide portfolio. Argentina is becoming a very important country for FMC. We're well north of $200 million in revenue. Our portfolio fits very well there from an insecticide and herbicide for the soy complex. So we see Argentina growing very well. And then I singled out a couple of the Andean countries as well. They're small, but they're growing very well for us, and they're high value because it's, again, a fruit and vegetable market.

For Brazil itself, I made the comment in the script that we have over 70% of the orders in hand to deliver our full year expectations in Brazil. That's probably I would guess about 15% more than we had at this time last year. So already, we can see that the growers themselves are much more bullish on expectations. Think about the comment that I made about the cotton growers already telling us that we're going to see a reversal in cotton makers. We're going to see approximately 15% more than we saw last year. And you look at the latest forecast, it's forecasted that for the first time, Brazil will plant more than 14 million hectares of soy. That's up 3% to 4% on the prior year. We're growing our applications on soy, especially with insecticides and strangely enough, not the diamides, our other insecticides that are very good on piercing pests such as stinkbugs.

So you put all that together, we are very bullish on Latin America. The situation feels very different to last year. Now if there is a weather issue, you know what, that's going to impact everybody. It will impact us at some point. We'll deal with that as we go through the year. But the indications are right now that the weather in Brazil and Argentina should be more normal than it was last year.

Mark William Connelly
Analyst at Stephens

Helpful. Thank you.

Operator

Our next question will come from Vincent Andrews with Morgan Stanley.

Vincent Stephen Andrews
Analyst at Morgan Stanley

Hi. Thank you. I'm just trying to tie together the volume versus price discussion as well as the increase in the sales from the new products and maybe they don't have anything to do with each other. But where is the incremental $30 million of new product sales? Are there particular geographies that, that's coming from? Or is it widespread? And is it those sales that were determining the decision to be more focused on volume rather than price? And if that's the case, why did that impact the price decisions on sort of the Heritage portfolio?

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Yes. There's a couple of things there, Vincent, that are not necessarily obviously joined together. For instance, the new product sales that you see, we registered that in volume where you look at our full year chart. So it's mixed in with all the regions. It's not separated out. Those new products, essentially North America, very, very strong growth in North America. We're also seeing growth in Asia and a little bit in Europe. But I would say this season, with the types of products, north America, U.S. in particular, and Australia with the herbicide launch of Overwatch. Those new products did not influence our decision to go and get volume on other parts of the portfolio.

That is occurring naturally in terms of the new product introductions. And let's remember, some of those markets, in fact, most of them are markets where we're not cannibalizing ourselves. Overwatch herbicide is a brand-new market for us. It is a serial herbicide. The first one we have. So it's a brand-new market space for us. So we're not cannibalizing. And it's not really impacting the rest of the portfolio in terms of how we think about volume demand. We have requests for volume across our portfolio, whether it is pre-emergent herbicides in the U.S., whether it is getting ready for the fungicide launches in the U.S. So it's more broad-based than the new products. I wouldn't mix them up like that. And then we have extremely high incremental value. When you look at the drop-down from a volume perspective, it's very high for us right now. So that also helps us make that decision to go get the volume.

Operator

Our next question will come from Mike Sison with Wells Fargo.

Michael Joseph Sison
Analyst at Wells Fargo Securities

Hi. Good morning guys. And good luck to you, Mike. Mark, I just wanted to revisit 2022. I know it's way early to give specific guidance, but I guess you reduced the outlook for this year by $0.30 or so price/cost, and it doesn't seem like we should just add that back as we head into 2022. So what's the best way for us to think about the growth algorithm into 2022, assuming we don't just add back the $0.31 and try to get to a realistic number for next year?

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Yes. I'm glad you said it that way, Mike. I think, listen, importantly for us, we are right on track for our five-year plan. And we've had significant headwinds during the period from 2018 to today, yet we're still growing in that 5% to 7% top line range. I would model on a 5% to 7% top line next year. Yes, costs will potentially look different. Pricing may look different depending on how much price we get versus our plan this year and also into the first quarter of next year, where we'll be raising prices again. I would simply model on that 5% to 7% range. And then we will give more guidance as we walk through the end of this year, probably in the November call, we'll start to give you a little more clarity, and then in the February call, we'll give you the actual numbers. But I would stick with that 5% to 7%. There are so many moving pieces. I mean think about it, at the EBITDA line, we've had $600 million of FX and raw material costs since 2018. Yet we're right on in the range of our five-year plan. So it just shows the resilience of the portfolio, our crop and geographic mix and our ability to offset what are enormous costs that have flown through the organization.

Michael Joseph Sison
Analyst at Wells Fargo Securities

Got it. Thank you.

Operator

Our next question will come from Frank Mitsch with Fermium Research.

Frank Joseph Mitsch
Analyst at Fermium Research

Hi, Mr. Olympian, great working with you. All the best to you, Mike. I was just curious, Andrew, if you wanted to talk about the buyback program, it looked a little light in 2Q. What should investors be expecting there?

Andrew Sandifer
Executive Vice President, and Chief Financial Officer at FMC

Yes, thanks, Frank. Look, if you look at our balance sheet, we ended the quarter with a high level of cash. And as I mentioned this in my prepared comments, we had some cash and some overseas subsidiaries we weren't able to get back to the U.S. this quarter, which has sort of limited our ability to buy back at the pace we might have anticipated. When you look at the timing of that movement as well as just the timing of the generation of cash, I think you should expect the pace of sequence of our buybacks this year are much more heavily weighted to the fourth quarter. We're looking at alternatives to bring that cash back to the U.S. here this quarter, but not clear as to the exact timing. But that $350 million to $450 million buyback range for the full year, very much in reach. It just will be a bit more back-end loaded in Q4 than what we'd initially anticipated.

Frank Joseph Mitsch
Analyst at Fermium Research

Okay. Thank you. Very helpful.

Operator

Our next question will come from Joel Jackson with BMO Capital Markets.

Joel Jackson
Analyst at BMO Capital Markets

Hi, good morning. Just to go back to the the 7% to 9% growth algorithm five-year plan. Mark -- and I appreciate all the color you've given already on the call, but I mean in light of your comments, do you have a lot less confidence in the EBITDA growth algorithm target versus -- it seems like you've got strong confidence in top line. And what process are you going internally now to sort of reassess the mid- and long-term EBITDA growth targets?

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Yes. Listen, I have absolutely no wavering on our targets, whether it's the top line or EBITDA. I mean think about our latest guidance for this year, we're growing EBITDA at 6% this year. And that's pretty close to our 7% to 9% despite $150 million of headwinds that we were not expecting when we started the budget process last year. So no, Joel, I think when I look at the portfolio of the company and the growth opportunities. And I'm very encouraged by the $130 million of revenue from products put in the marketplace this year alone. We have about $400 million of sales this year that have come from products that we've launched over the last three years. So that growth algorithm is very much in place, plus the fact that those products have higher margin than our general portfolio and the products that are dropping off the other end are at a much lower margin. So I have no reason to believe that the EBITDA projections of 7% to 9% are not unrealistic at all, and we are certainly as confident as we were when we put the plan together. So yes, very much in that range.

Operator

Our next question will come from Aleksey Yefremov with KeyBanc.

Aleksey V. Yefremov
Analyst at KeyBanc Capital Markets

Thank you. Good morning, everyone. Mark, in your chart, you showed that FMC's diamides products represent about 80% of the class. How do your products compare to the 20% that are sold by your competitors? And how do you think competition between those 80% and 20% buckets will evolve as the overall class grows?

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Yes. Well, listen, I think the fact that we're over 80% of that class, and those products have been around for a while, tells you that the growth algorithm for what we have. The products are different. I mean when you look at Rynaxypyr, it has just unbelievable residual activity versus the other diamides that are out there. They may be in the same class of chemistry, but they're not the same chemistry. And that's important when you look at things like residual spectrum, etc. So we do see our products continue to outpace the rest of the diamides that are in there. And let's be honest, there's only three or four of them from different companies. I expect our growth rates will continue and that 80% number will go up over time.

Aleksey V. Yefremov
Analyst at KeyBanc Capital Markets

Thanks, Mark.

Operator

Our next question will come from John Roberts with UBS.

John Ezekiel E. Roberts
Analyst at UBS Investment Bank

Thank you. During the quarter, the diamide partners' geographic shift reduced the U.S. sales. Did it benefit ex U.S. by an offsetting amount? And if so, could you give us the ex U.S. numbers, excluding the partners?

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Yes. John, I think the amount is roughly about $50 million to $60 million, and it wasn't like Q1 exactly where it all went to one region. It did go to a couple of regions. But certainly, the growth rate in Latin America without that would have been very high single digits versus the 15% that we showed on the chart. So there is an offset in Latin America, a little bit in a couple of the other regions. But I think that's how you should think of it, $50 million to $60 million, most of it in Latin America, a little bit in the others.

John Ezekiel E. Roberts
Analyst at UBS Investment Bank

Thank you.

Operator

Our next question will come from Mike Harrison with Seaport Research Partners.

Michael Joseph Harrison
Analyst at Seaport Research Partners

Wanted to ask you a couple of questions on Europe. First of all, you noted the weather issues and kind of the slower start to the year. Obviously, we've seen a lot of pictures out of Europe. So do you think the weather situation could worsen as the year progresses? And then the deregistration impacts this year, is that fairly normal pace of volume headwind? Or is it worse this year than you would normally see in Europe?

Mark Douglas
President, Chief Executive Officer, and Director at FMC

No, I'll take the second part first, Mike. It's about the same. It's about 150 basis points of revenue. Most of it is in Europe, a little bit in Latin America as well. That's kind of normal. We kind of modeled about a 1.5% drag on revenue through the registration elements that flow every year. It can go as high as 3%. We've had one year where it was 3%, but that was a deliberate action by us. I would expect it to be in that 1.5% range as we go forward. From a weather perspective, yes, the spring was certainly late and cold, which impacted us. We are seeing increased pest pressure now with the weather as it is, which is good from an insecticide perspective. The fall is very important for autumn-applied herbicides for cereals. We'll see if the weather is good there, then that certainly helps Q4.

But I've talked about this year and how we're not expecting a lot of growth out of Europe, and I think that's a fair way to look at Europe this year given the weather issues. I don't think we're being too bullish on Europe. Now next year, if the weather improves and we have a more normal season, we should see a good uptick in Europe next year.

Operator

Our last question will come from Michael Piken with Cleveland Research.

Michael Leith Piken
Analyst at Cleveland Research

Yes. Just a question on the diamides business and thanks for the color. With respect to the sales that you make through your partners, is it fair to assume that it's at a competitive margin? I know you guys showed the chart saying your margins have gone up as the sales through the partners have gone up. But are the margins generally pretty competitive? And if so, I mean, what's the net benefit of selling it yourself versus just relying on the partners to sell the product?

Mark Douglas
President, Chief Executive Officer, and Director at FMC

Yes, Mike. So from our perspective, the way the contracts are written, they have to be advantageous for the partner, who has to make money in the markets they're in, and it can't be dilutive to us, and that's how we view it. So from an EBITDA margin perspective, these products are equally as important as the branded products that we sell. They gain access and you know what, they're financially extremely attractive to us and financially attractive to our partners. So we have that win-win. But we obviously don't disclose the margins of these products with our partners ourselves. Suffice to say that we're very happy with the financial performance of our partner growth. And obviously, our partners keep growing. So they're also very happy with the financial performance as well.

Michael J. Wherley
Director of Investor Relations at FMC

That is all the time that we have for the call today. Thank you and have a good day.

Operator

[Operator Closing Remarks]

Corporate Executives
  • Michael J. Wherley
    Director of Investor Relations
  • Mark Douglas
    President, Chief Executive Officer, and Director
  • Andrew Sandifer
    Executive Vice President, and Chief Financial Officer
Analysts

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