Mark Douglas
President & Chief Executive Officer at FMC
Thank you Zack and good morning everyone.
Before I move into details on our results, I'd like to take a moment to provide an update on FMC's position related to the war in Ukraine. In mid-April, we announced the decision to discontinue our operations in Russia and exit the country completely, making FMC the first crop input provider to exit Russia. We could not ignore increasing reports of potential war crimes, human rights abuses and other atrocities committed in Ukraine. Our values as a company do not allow FMC to operate and grow our business in Russia. Furthermore, as the war continued and new sanctions and counter-sanctions were levied, FMC's ability to conduct business in Russia had become unsustainable.
Our cross-functional team continues to navigate the extraordinary logistics and supply chain challenges in Ukraine and other parts of Eastern Europe. FMC and our employees raised nearly $300,000 for charities supporting the Ukrainian people and families in need. Our hearts and thoughts remain will all Ukrainians and especially our FMC colleagues and their families.
Turning to FMC's performance in Q1, we delivered strong results driven by robust volumes and solid pricing actions across all regions. We grew our revenue by 16% organically, EBITDA by 16%, EPS by 23% and importantly expanded our EBITDA margins by approximately 60 basis points while confronting a variety of supply and cost challenges as well as increasing currency headwinds. With disruptions impacting several agricultural inputs, we believe some of our Q1 sales were accelerated from Q2 as customers looked to secure supply in advance. Given this context, our guidance for Q2 combined with Q1 actuals implies 11% revenue growth and 8% EBITDA growth for the first half of the year compared to the first half of 2021 which is much more front-loaded than prior years.
Latin America and North America contributed greatly to our success in the quarter, supported by elevated commodity prices, acreage increases and historically low stock-to-use ratios for several crops. Sales from products launched in the past five years increased by more than 50% in the quarter compared to the same period last year, demonstrating the strength of our technology pipeline and product portfolio. The global plant health business also continued it's growth trajectory with biologicals growing 15% year-over-year.
Last year, we announced our goal to achieve net zero greenhouse gas emissions by 2035. We recently achieved the first milestone towards that goal by submitting 2030 emissions reductions targets to the Science Based Targets Initiative. These targets include 42% absolute reduction in direct emission from FMC's own sources and indirect emissions from purchased electricity, steam, heating and cooling, also known as Scopes 1 and 2, as well as a 25% absolute reduction in all indirect emissions that occur in the value chain, otherwise known as Scope 3 emissions.
An incredible amount of rigor went into developing these targets with our sustainability team conducting an exhaustive review of all factors contributing to FMC's greenhouse gas emissions and quantifying those emissions across the entire value chain. We will publish our 11th annual sustainability report in the coming weeks and we look forward to speaking more on this topic in upcoming calls.
Turning to Slide 3 for our Q1 results and keeping in mind my earlier comment about shifts within in the first half, we reported $1.35 billion in first quarter revenue which reflects a 13% increase on a reported basis and 16% organic growth. We had double-digit growth in all product categories with fungicide showing the greatest growth year-over-year at 20%. Biologicals grew 15%, continuing the momentum of our plant health business. Regional growth was driven by strong volume gains in North America and Latin America as well as high single digit price increases in all four regions. FX was a headwind to top line growth in EMEA.
Adjusted EBITDA was $355 million, an increase of 16% compared to the prior year period and $30 million above the midpoint of our guidance range. EBITDA margins were 26.3%, an increase of 60 basis points compared to the prior year period.
Cost inflation continued to be a challenge and at a higher rate than anticipated, so we moved price more aggressively in all regions to offset these increasing headwinds. We have also been active in managing our SG&A costs, some of which shifted from Q1 into Q2. FX was a headwind to EBITDA.
Adjusted earnings were $1.88 per diluted share, an increase of 23% versus Q1 2021 and $0.18 above the midpoint of our guidance range. The year-over-year increase was primarily driven by an increase in EBITDA with the benefit from lower share counts and lower interest expenses largely offset by higher minority interest and taxes.
Moving now to Slide 4, Q1 revenue increased by 13% versus prior year, driven by an 8% volume increase and an 8% pricing gain. Foreign currencies were a headwind of 3% in the quarter on the top line. In North America, strong commodity prices supported robust demand for inputs. Sales increased 30% year-over-year with broad-based growth across all indications and for a variety of crops, such as tree fruits, nuts, vines, corn and soy. In the U.S., we grew with Rynaxypyr brands such as Vantacor and Altacor in fruits and vegetables. Xyway, our unique in-furrow fungicide continues to gain significant momentum while providing season-long protection for corn from foliar diseases. Sales of biologicals almost doubled in the U.S. led by Ethos XB for corn and soybeans. Ethos XB is a unique combination of a synthetic insecticide for seedling insect protection with biological microorganisms that have fungicidal properties.
Our Canadian business had a record quarter driven by lower channel inventory of insecticides and strength in cereal herbicides. We also successfully launched Coragen MaX which is the new higher concentration formulation of Rynaxypyr active, targeting pests on corn, dry beans and several other crops. Other 30% of FMC's branded sales in North America this quarter came from products which were launched in the last five years.
Moving now to Latin America, sales increased 31% year-over-year led by Brazil and Argentina, driven by volume and price increases as well as a 6% FX tailwind driven by the Brazilian real. Colombia, Peru and Ecuador also grew double digits in the quarter. In Brazil, we grew our herbicide brands, Aurora and Gamit on soy, corn, sugarcane and coffee. We also grew our insecticide brands, Talisman, Hero and Coragen on soy, corn and cotton. FMC continues to reap the benefits of a strategy to improve market access and increase penetration of our technologies in the Brazilian soybean market.
Sales in EMEA grew 11% versus prior year, excluding currency headwinds. Results were driven by strong price increases across the region as well as demand for Rynaxypyr-based brands, Coragen and Altacor for corn and herbicide brands, Express and Pointer for sunflowers. Registration losses and product rationalizations were largely offset by new product launches in the quarter. Over 10% of branded sales in the quarter came from products launched in the last five years. FX was a significant headwind in the quarter, resulting in flat year-over-year revenue growth.
Sales in Asia were up 2% versus first quarter last year and up 5% organically. The increase was driven by pricing actions and strong performance in Australia and ASEAN countries, offset mainly by a reduction in Indian rice acres. Approximately 15% of branded sales in the quarter came from products launched in the last five years.
Turning now to first quarter EBITDA on Slide 5, EBITDA was up 16% year-over-year driven by pricing and volume gains which were partially offset by cost and FX headwinds. Price was up $94 million in the quarter with high single digit increases implemented in all four regions. It is important to note that our pricing actions were taken to offset the sustained cost inflation we're experiencing across our supply chain. Raw material, energy, logistics, packaging and labor costs remained elevated and contributed to the $62 million cost headwind in the quarter. FX was a $16 million headwind in the quarter with weakening European currencies. Overall, EBITDA margins expanded 60 basis points in the quarter.
Before I review FMC's full year 2022 and Q2 earnings outlook, let me share our view of the overall market conditions.
We continue to expect the global crop protection market will be up low to mid-single digit percent on a U.S. dollar basis. Breaking this down by region, we expect Latin America, North America and Asia to be up mid-single digits while EMEA is now expected to be down low single digits. The war in Ukraine may further reduce market growth in the EMEA region. Commodity prices for many of the major crops remain elevated and stock-to-use ratios are near historic lows, creating a favorable backdrop for crop protection products. FX is projected to be a headwind for EMEA and Asia markets on a U.S. dollar basis.
Turning to Slide 6 and the review of FMC's full year 2022 and Q2 earnings outlook, despite the volatile supply and geopolitical environment, we remain confident in our ability to deliver solid growth in 2022. FMC's full year revenue is forecasted to be in the range of $5.25 billion to $5.55 billion, representing an increase of 7% at the midpoint versus 2021 driven by volume and price growth in all regions, partially offset by currency headwinds. Full year adjusted EBITDA is expected to be in the range of $1.32 billion to $1.48 billion, representing 6% year-over-year growth at the midpoint. This will be achieved through pricing actions and strong volumes; however, rising costs and supply disruptions will continue to be significant headwinds to EBITDA.
2022 adjusted earnings per share are expected to be in the range of $6.70 to $8 per diluted share, representing an increase of 6% year-over-year at the midpoint. Consistent with past practice, we do not factor in any benefit from future share repurchases in our EPS guidance.
Discontinuing our Russia business does not change our full year earnings expectation at this time and it will take some time for us to assess the full financial implications for our exit. For reference, however, our Russian operations made up approximately 1.5% of global sales in 2021.
Guidance for Q2 takes into account the shift of some sales from Q2 into Q1 as customers across many countries placed orders in advance to secure supplies during these uncertain times. Given the current industry dynamics, it is possible we will see the same phenomena occur with future orders moving into Q2. Q2 guidance implies sales growth of 9% at the midpoint, EBITDA growth of 1% at the midpoint and EPS growth of 2% at the midpoint year-over-year.
Turning to Slide 7 and the updated range of 2022 EBITDA outcomes, the market backdrop is supportive with FX limiting crop protection growth to low to mid-single digits. Pricing actions and strong market demand have offset quickly rising costs so far; however, volatility persists due to renewed COVID related shutdowns in China, energy cost inflation in Europe and ongoing disruption of global supply chains and logistics. FMC continues to deliver products to our customers in a timely manner despite these disruptions but reliable supply is coming at an increased cost. We do not expect to see any cost relief through the remainder of 2022.
EMEA and Asia have experienced FX headwinds only partially offset by the positive currency impact in Brazil. In addition, our decision to exit the Russian market and the impact of the war in Ukraine are new considerations.
Turning to Slide 8 and full year revenue and EBITDA drivers, strong volume expansion and price increases across all regions will drive revenue growth. FX volatility is expected to be a negative factor on our full year revenue outlook. In terms of crop mix, we expect roughly half our sales to come from specialty crops such as fruits and vegetables, sugar, rice and cotton. Almost 40% of our sales are expected to come from corn, soy and cereals such as wheat. FMC's crop diversity is a long term competitive advantage since we're not over-indexed to any single commodity.
Our EBITDA guidance reflects strong demand for our existing portfolio and new products as well as mid-single digit price increases. These benefits to EBITDA are partially offset by substantial cost headwinds as well as investments in SG&A and R&D.
Moving to Slide 9 and Q2 drivers, on the revenue line volume growth is expected to continue along with price increases in all regions that will start to lap some of the increases taken last year. We are anticipating FX headwinds to continue principally from European and Asian currencies. We also expect to see impacts from our decision to exit Russia beginning in the second quarter.
For EBITDA, positive drivers include volume, especially for new products and pricing actions. The benefit from these drivers will be largely offset by elevated raw material, packaging and logistics costs, as well as some SG&A costs that shifted from Q1 into Q2. FX-related headwinds are also expected to persist, especially in EMEA.
Turning to Slide 10, with the guidance for Q2 and the full year on record, we would like to also show the implied forecast for the two halves. Revenue forecast for the first half of 2022 indicates 11% growth over the first half of '21. Implied revenue forecast for the second half of 2022 indicates 4% growth over the prior year period. This is consistent with the stronger pricing actions and significant volume gains achieved in the second half of last year, especially in the fourth quarter of 2021.
EBITDA forecast for the first half of 2022 indicates 8% growth over prior year period, driven by strong demand and pricing actions, offset by cost and FX headwinds. Our guidance also implies 4% year-over-year EBITDA growth in the second half of the year. This results in a more front-weighted outlook for EBITDA growth compared to last year.
I'll now turn the call over to Andrew.
