NYSE:FMC FMC Q2 2022 Earnings Report $41.19 +0.40 (+0.97%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$41.15 -0.04 (-0.10%) As of 04/25/2025 06:30 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast FMC EPS ResultsActual EPS$1.93Consensus EPS $1.90Beat/MissBeat by +$0.03One Year Ago EPS$1.81FMC Revenue ResultsActual Revenue$1.45 billionExpected Revenue$1.35 billionBeat/MissBeat by +$105.52 millionYoY Revenue GrowthN/AFMC Announcement DetailsQuarterQ2 2022Date8/2/2022TimeAfter Market ClosesConference Call DateWednesday, August 3, 2022Conference Call Time7:45AM ETUpcoming EarningsFMC's Q1 2025 earnings is scheduled for Wednesday, April 30, 2025, with a conference call scheduled on Thursday, May 1, 2025 at 9:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by FMC Q2 2022 Earnings Call TranscriptProvided by QuartrAugust 3, 2022 ShareLink copied to clipboard.There are 15 speakers on the call. Operator00:00:00Morning, ladies and gentlemen. This is the operator. Today's FMC Corporation conference call is scheduled to begin momentarily. Your lines will be placed on music hold until the conference begins. Good morning, and welcome to the Q2 2022 Earnings Call for FMC Corporation. Operator00:03:14This event is being recorded and all participants are in a listen only mode. After today's prepared remarks, there will be an opportunity to ask questions. Pick up your handset before pressing the keys. I would now like to turn the conference over to Mr. Zack Zaki, Director of Investor Relations For FMC Corporation, please go ahead. Speaker 100:03:54Thank you, Jaquita, and good morning, everyone. Welcome to FMC Corporation's 2nd quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Mark will review our Q2 and first half performance as well as provide an outlook for the second half of the year. Andrew will provide an overview of select financial results. Speaker 100:04:20Our earnings release and today's slide presentation are available on our website and the prepared remarks 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. 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, net debt and organic revenue growth, all of which are non GAAP financial measures. Speaker 100:05:04Please note that as used in today's discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA. A reconciliation and definition of Speaker 200:05:25Thank you, Zach, and good morning, everyone. Speaker 300:05:25FMC delivered another quarter of strong growth in a dynamic global environment, while offsetting high input costs with our ability to price for the value we offer to growers. Overall, first half performance was primarily driven by significant price increases and volume gains. This growth reflects robust market demand globally despite cost inflation and FX headwinds. We continue to expect a strong second half of the year, driven again by price increases and volume growth in a supportive market environment. Turning to Slide 3. Speaker 300:05:59Before we review details of our quarterly results and full year outlook, I'd like to offer a few comments on our recently completed acquisition of Biofero, a Denmark based insect control company that has pioneered a bioprocessing technology used to manufacture pheromone crop protection products. As you may know, pheromones are naturally produced by insects to trigger a social response in members of the same species. Pheromones are used in a variety of ways to protect crops by disrupting the insect mating process and hence significantly lowering subsequent generations of target insect larvae, which would otherwise damage crops. There are several methods to manufacture pheromones, The BioPharaoh's proprietary fermentation route is a game changer, enabling high volume production of pheromones at significantly lower costs than other production routes. The acquisition, which closed on July 19, significantly expands our rapidly growing biologicals portfolio within FMC's Plant Health business. Speaker 300:07:00It provides a platform for large scale production of pheromones and pheromone based crop protection products, which are expected to generate approximately $1,000,000,000 in revenue at above average EBITDA margins by 2,030. We have been expanding our plant health technology base and this acquisition is another great opportunity to continue bringing biological products to growers around the world. Our Q2 results are detailed on Slides 4, 5 and 6. Revenue was up 21% organically, EBITDA up 3% and EPS up 7%, driven by strong market demand for our innovative portfolio and an average price increase of 7%. Adjusted earnings were $1.93 per diluted share in the quarter, $0.08 above the midpoint of our guidance range. Speaker 300:07:51The year over year EPS increase was primarily driven by an increase in EBITDA and lower share count. GAAP results reflect the impact of our exit from Russia in April this year. We had double digit growth across several product categories With insecticide showing the greatest increase at over 20% year over year. Our herbicide portfolio also had a strong quarter With 15% growth led by North America and EMEA, sales from products launched in the past 5 years grew more than 30 5% compared to the same period last year, and these products made up 10% of our total sales in the quarter. The global plant health business grew 20% year over year, led by a 35% growth in our biologicals portfolio. Speaker 300:08:38The momentum of this business reflects our customers' demand for new sustainable solutions. We reported $1,450,000,000 in 2nd quarter sales, led by price and volume growth in Latin America and North America. In North America, sales increased 26% year over year. Demand for both herbicides and insecticides grew double digits. In Canada, high pest pressure supported the successful launch of CoragenMax, an insecticide powered by rinaxipur targeting a broad spectrum of pests such as grasshoppers in cereals and other crops. Speaker 300:09:15Thiamide sales were impacted in California and Texas due to dry conditions, but this was offset by growth in the Midwest in soy and corn. In Latin America, Sales increased 44% year over year, led by Brazil, Mexico and Argentina. Results were driven by the full range of our insecticide Portfolio for soy, corn and cotton. Sales in EMEA grew 3% versus the prior year and were up 15% organically. Aside from strong pricing, results were driven by increased demand for herbicides. Speaker 300:09:50And finally, Asia was down 1% versus Q2 last year and up 4% organically. Pricing gains were offset by FX headwinds. The demand for cyazipur grew in India for applications on fruits and vegetables. In Australia, Overwatch herbicide continued to outperform Overall, adjusted EBITDA was $360,000,000 an increase of 3% compared to the prior year period and $10,000,000 above the midpoint of our guidance range. Volume gains and price increases more than offset cost inflation and FX headwinds. Speaker 300:10:28Average price increases of 7% contributed $84,000,000 in the quarter. As we expected, Cost headwinds more than doubled from the Q1 as inflation continued to challenge our supply chains. FX was a $23,000,000 headwind in the quarter due to the weakening of European and Asian currencies against the U. S. Dollar. Speaker 300:10:50Before we review FMC's full year 2022 and second half earnings outlook, let me update you on our views regarding the overall market conditions. We now expect the global crop protection market will be up mid to high single digits on a U. S. Dollar basis versus our earlier expectation of lowtomidsingledigitgrowth. Latin America is now expected to be up double digits, primarily driven by pricing of non selective herbicides. Speaker 300:11:18We still expect North America to be up mid single digits, while Asia is now expected to grow low single digits. EMEA is still expected to be down low single digits, including the impact of FX. Excluding currency impact, EMEA is expected to grow low single digits. While commodity prices have come down somewhat from their highs earlier in the year, They remain elevated versus historical averages. This bodes well for the demand of our crop protection products through the end of this year and well into 2023. Speaker 300:11:52Moving to Slide 7. We have seen pronounced shifts in demand and cost between individual quarters this year. Therefore, looking at the business in halves gives a better understanding of the underlying performance. For the first half, performance was very strong as a result of price increases and volume growth, which contributed $178,000,000 $132,000,000 to EBITDA, respectively. These drivers more than offset significant cost and FX headwinds of almost $250,000,000 resulting in 9% EBITDA growth over the prior year period. Speaker 300:12:28In the context of our full year guidance, first half EBITDA growth represents more than 3 quarters of the When we consider the drivers for the second half of the year, Prices again expected to contribute more to EBITDA than volume. Cost increases are expected to have the biggest impact in the 3rd quarter with continued but lower cost inflation forecasted in the 4th quarter. There are two primary reasons for the expected cost increases. The first reason is the cost inflation related to sourcing from secondary and tertiary suppliers due to lack of availability from our preferred suppliers. The second reason is the lag of 6 months between procuring high cost material and its impact on our P and L since FMC typically turns inventory twice a year. Speaker 300:13:16Latin America and North America are our biggest drivers of revenue in the second half, and we have already captured roughly 70% of the orders needed in Brazil to deliver our second half guidance. For reference, this is normally around 50% at this time of the year. The increase in orders is due to the higher than average customer demand driven by favorable commodity prices. In the U. S, Q4 order discussions are taking place as we speak, which is much earlier than in previous years, making us confident in our forecast. Speaker 300:13:49Overall, we expect the second half of the year to contribute 2% in EBITDA growth following a very strong second half of twenty twenty one. Turning to Slide 8 and the review of FMC's full year 2022 earnings outlook. After a strong first half of the year, We are raising full year 2022 revenue to a range of $5,500,000,000 to $5,700,000,000 representing an increase of 11% at the midpoint versus 2021. Sales growth will be driven by volume and price growth in all regions, partially offset by foreign currency impact in EMEA and Asia. We are narrowing the full year adjusted range to $1,360,000,000 to $1,440,000,000 representing a 6% year over year growth at the midpoint. Speaker 300:14:37The range for 2022 adjusted earnings per share is narrowed as well and is now expected to be in the $7 to $7.70 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 potential future share repurchases in our EPS guidance. Q3 and Q4 outlook is provided on Slide 9. Midpoint on our 3rd quarter implies year over year sales growth of 13%. Q3 EBITDA and EPS growth are expected to be limited by the highest cost increases of the year, despite the targeted mid to high single digit price increases. Speaker 300:15:19FX volatility in the absence of sales in Russia Will also be headwinds to earnings in the quarter. Guidance for Q4 implies year over year sales growth of 2% at the midpoint compared to the exceptionally strong growth in the prior year period. Cost increases are forecasted to be lower in Q4 compared to Q3, while price increases are expected to continue. This is anticipated to result in an EBITDA growth of 17% at the midpoint, with EPS up 13% at the midpoint year over year. Moving now to the updated drivers of 2022 EBITDA outcomes on Slide 10. Speaker 300:15:56While the market growth assumptions have improved, costs remain elevated, though we are beginning to see the signs of cost inflation flattening. Price in the mid to high single digit and strong volume growth are expected to offset cost and FX headwinds, keeping the midpoint of our guidance unchanged. While we expect the highest cost increases of the year in Q3, We do not expect material benefits from easing inflation to be realized until 2023. With that, I'll now turn the call over to Andrew. Speaker 400:16:26Thanks, Mark. I'll start this morning with a review of some key income statement items. FX was a headwind to revenue growth in the Q2 as expected, driven by weakness in European and Asian currencies, particularly the euro, Indian rupee and Turkish lira. The Brazilian real was a modest tailwind in the quarter. We continue to anticipate FX headwinds for the remainder of 2022, driven by Asian and European currencies. Speaker 400:16:56Interest expense for the Q2 was $35,300,000 up $2,700,000 versus the prior year period, primarily due to higher short term interest rates and higher debt balances, partially offset by benefits of the refinancing activity completed in Q4 2021. With rapidly rising interest rates, especially in the United States, we now expect interest expense for the full year 2022 to be in the range of $135,000,000 to $155,000,000 an increase of $10,000,000 at the midpoint compared to our prior guidance. Our effective tax rate on adjusted earnings for the Q2 was 14%, in line with our continued expectation for a full year tax rate in the range of 13% to 15%. Moving next to the balance sheet and liquidity. Gross debt at quarter end was $3,900,000,000 up roughly $715,000,000 from year end 2021. Speaker 400:17:54Gross debt to trailing 12 month EBITDA was 2.8 times at the end of the second quarter, while net debt to EBITDA was 2.4 times. Net debt was in line with our targeted leverage levels, while gross debt was slightly above targeted leverage due to the timing of return of cash from foreign subsidiaries. Moving on to cash flow on Slide 11. 2nd quarter year to date free cash flow was negative $498,000,000 Year to date adjusted cash from operations was negative $401,000,000 down substantially as compared to the prior year period, driven by higher working capital. Strong sales growth, including the impact of aggressive price increases on receivables, was the key driver of increased cash consumption for working capital. Speaker 400:18:43Capital additions and other investing activities of $65,000,000 were essentially in line with the prior year period. Legacy and transformation spending was down primarily due to the absence of spending on our SAP program, which was completed in the prior year period. We are narrowing the range of our free cash flow guidance for full year 2022 to $565,000,000 to $685,000,000 unchanged at the midpoint of $625,000,000 and reflecting the more narrow EBITDA guidance range. Adjusted cash from operations is now expected to be in the range of $790,000,000 to $870,000,000 unchanged at the midpoint. Working capital growth is expected to result in a year on year reduction of $80,000,000 and cash from operations at the midpoint. Speaker 400:19:31Our guidance for capital additions and legacy and transformation remain unchanged. With this guidance, we anticipate free cash flow conversion of 67% at the midpoint, with conversion limited this year by inflation's impact on working capital. This guidance also results in rolling 3 year free cash conversion of 71%, in line with our long term targets. Through the first half of twenty twenty two, we have deployed $334,000,000 of cash, dollars 200,000,000 for the BioPharaoh acquisition and $134,000,000 in dividends. Given the BioPharo acquisition and the seasonality of our free cash flow, We did not purchase any FMC shares in the first half. Speaker 400:20:15For the remainder of to return up to $334,000,000 to investors through continued dividends and up to $200,000,000 in share repurchases. The reduced outlook for share repurchases reflects 2 key changes since we last gave guidance. First, as I mentioned just a moment ago, We deployed $200,000,000 of cash to acquire BioPharo. 2nd, we are limiting the amount of incremental debt we had in 2022 to mitigate in part the earnings impact of faster than expected interest rate increases. We continue to expect to utilize more than 100% of our free cash flow to invest in growth and reward shareholders. Speaker 400:20:56And with that, I'll hand the call back to Mark. Speaker 300:21:00Thank you, Andrew. FMC delivered solid financial performance in the 2nd quarter despite a challenging macro environment. Price increases across all regions and Strong volume growth continued to deliver strong EBITDA growth in an inflationary period. At the same time, the broader agricultural market remains positive, which we expect to continue throughout 2023. FMC remains well positioned to outperform the industry in this environment with a focus on crop protection chemicals and biological products working to our advantage. Speaker 300:21:33The year is turning out largely as we expected, With a strong first half followed by a second half that is constrained by costs, especially in Q3, delivering an overall strong 2022. I'll now turn the call back to the operator for questions. Operator00:21:49Absolutely. We will now begin the question and answer session. If you have additional questions, you can jump back in queue. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Christopher Parkinson with Masuho. Operator00:22:30You may proceed. Speaker 500:22:33Great. Good morning. Mark, I want to ask what's on everybody's mind. Can you just give us as much Caller, it's humanly possible on the divergence between the 3rd Q4. Obviously, you hit on this a little. Speaker 500:22:47I imagine there are things in Brazil, North America and India that are considerations. But if you could also hit on the cost aspects on a sequential basis, 3Q versus 4Q and your confidence that 3Q would be peak and anything else that you believe The Street should be paying attention to. Thank you so much. Speaker 300:23:06Yes. Thanks, Chris. Pretty obvious question to start the ball rolling. Look, when you look at Q3 and Q4, I think we've been Pretty clear on the slides and in the script that Q3 is driven really by the cost that we see flowing through the P and L. And Q4 is driven by a lack of that same increase in costs. Speaker 300:23:29You look at the top line, we have Strong growth in Q3, roundabout 13% at the midpoint, yet we have 2% top line growth in Q4. What does that tell you? It tells you that our Q4 is not necessarily driven by the external environment. That EBITDA growth is all controlled from inside the company. And the reason we see this cadence in the second half It's very simply, when we buy raw materials, we have about a 6 month lag before the cost of those raw materials flow through our P and L. Speaker 300:24:02So for instance, the costs that we're seeing in Q3 are costs that we knew were coming back in Q1. So For us, it's not a surprise. It's a large amount, but we've continued to see that increase as we've gone over the last 18 months. Now from a confidence perspective, think of the following. I just said in the script that in Latin America, in particular in Brazil, We have more orders on hand than we would normally have by a considerable degree. Speaker 300:24:33Why is that? Well, at the end of the day, the markets are robust. Commodity prices are still high. Brazil is getting ready for what will be a robust season, and we will continue to see Acreage increase in Brazil and other parts of Latin America. We're seeing the same thing in the U. Speaker 300:24:51S. And Canada markets, Where customers are now talking to us already about Q4 demand. That doesn't normally happen at this stage of The cycle, it's usually a month or so later than this. So we know already that we have a high degree of confidence not only from the top line perspective in Q4, but also from a cost perspective. Why? Speaker 300:25:13Because we've already incurred A lot of those costs in Q2 that will hit in Q4. So we know to the vast majority of what the cost structure will be in Q4. I'd like to the fact that for the first time, I think, in probably about 3 years, I can tell you we're not actually managing any crises out of China. Things are flowing very well for us. Our manufacturing units are operating. Speaker 300:25:38Our suppliers are generally operating well. And we already see that flowing through. So we feel very confident about supply. The other element is price. You can see that we've raised our prices significantly as we move from mid year last year. Speaker 300:25:54A lot of those prices are already embedded into our cost structure and pricing structure for the 3rd 4th quarters. It doesn't mean to say that we're not still moving price. We are, and there'll be more price increases coming. But the fact is we have a very high degree of confidence on Q4. Just a further comment on Q3, You can see the change is predominantly driven by the impact of costs that we've seen flowing through our P and L. Speaker 300:26:21But there is another factor. The biggest impact of our Russian exit is in Q3. And remember, we've kept our midpoint guidance of $1,400,000,000 Despite absorbing $25,000,000 of lack of EBITDA from Russia. So I think that kind of gets lost in the noise here But we are covering Russia and we haven't moved our guidance downwards. So I think that's a very positive aspect of how we're managing So I hope that gives you a little more insight into how we feel about Q4, Q3. Speaker 300:26:52We're very confident of Q4. We're also very confident of our top line in Q3. Speaker 500:26:59That's very helpful color. And just as a secondary note, I mean on Slide 10, which is very helpful, You do have a few more checks in the top end of the box at the 144. Can Can you perhaps dive in a little bit more in terms of what you're purchasing right here, right now, in terms of the cost inflation? Perhaps it doesn't give you Speaker 200:27:21the material benefit that Speaker 500:27:21we all want in benefit that we all want in 2022, but what is your confidence as we head into 2023? And what does that Actual dynamic look like on a sequential basis. And if you just want to stop that as what you're confident in terms of entering the year, that Speaker 400:27:37would still be very helpful. Thank you. Speaker 300:27:41Yes. I mean, we do believe that we're at this, What we call the highest level of inflation, we are starting to see it taper off. Obviously, I've just commented that on Q4. We will expect to see that Continue as we go into 2023. If that continues and our normal cadence of flow through the P and L occurs, It would be in the second half of the year that you would start to see some significant benefit from that. Speaker 300:28:07I doubt whether you would see it in the first half because although I'm talking about A lower inflation, cost is still high, make no mistake. So I think it's the second half of next year that we would start to see that real acceleration of lower costs. Speaker 500:28:23Thank you for the color. Speaker 300:28:25Thanks, Chris. Operator00:28:27Thank you. The next question comes from the line of Joel Jackson with BMO Capital Markets. You may proceed. Speaker 200:28:38Hi. Maybe I'll follow-up on that line of questions since Chris is right. It is the most important topic among investors right now. You said, and it was helpful that you might see the inflation really come off second half of twenty twenty three if things continue. If we so entering 2023, would your margins be kind of where they've been through the first half of the year in the last couple of years, Mid to high 20s, mid-20s, like what is kind of because the 18% in Q3, 30% in Q4 is a really divergent numbers. Speaker 200:29:11What would CAF 1 what would the beginning of 2023 look like? 26%? I don't give guidance, just what does early 2020 look like? Speaker 300:29:21I'm glad you know that's right for guidance, Joel. It is a little early. Speaker 200:29:24I know, but early, this is early, early 'twenty three, right? Speaker 300:29:30Yes, I hear you. Listen, I think from a margin perspective, what you're seeing in Q3 and Q4 are pretty extremes around the midpoint. Obviously, we've got a lot of cost in Q3, and then we have the advantages of a lot of price allied to a good P and L. I do think you'll see more normalized margins for us as we go into the first half of next year. So if you look at our margins over the last, I would say, 12 months In that sort of 25% plus range, I think that's what we would expect. Speaker 300:30:01So I wouldn't go any further than that at this Because frankly, I don't have the numbers going into early next year. We're right in the middle of our budget process now. So kind of expect average margins as we go into first half of next year. Speaker 200:30:18So that's extremely helpful. And then obviously, it's complicated. And then the second question I have is, As you with BioPharaoh, it's going to increase your R and D expense. Do you have some sense now what R and D expense inflation might be in 'twenty two versus 'twenty 2 solely based on BioFair. And if you can't give that yet, can you give maybe some color around, I don't know, a number of positions, number of people, some sort of tidbits to let us figure out what the R and D increase might be run rate might be in 2023? Speaker 300:30:47Yes. I think when you look at BioPharo, we're acquiring about 30 people with The acquisition, all those people are essentially in R and D. There are 1 or 2 that are in Manufacturing and Supply Chain. I do think that the expense for that, if you took a base level, something around $10,000,000 additive to where FMC is today On and R and D expense is not a bad number. It's rough at this point, but that's what I would be thinking, Joel. Speaker 200:31:19That's helpful. So kind of small. Thanks a lot. Speaker 600:31:22Thanks. Operator00:31:24Thank you. The next question comes from the line of Laurence Alexander with Jefferies, you may proceed. Speaker 700:31:33Good morning. I have two questions. Can you give a bit more detail on Inventory levels regionally, that you're seeing heading into the back half of the year. And then as you think about sort of the Latin American growth rate, So what you will be lapping going into next year, given the very strong growth you've seen this year, so how tough will it be to lap that? Speaker 300:31:58Yes. I'll start with the inventories, this is Laurence. We're very okay with inventory levels Pretty much everywhere in the world right now. I would say the only spot and I've commented on this at the last earnings call is There has been a significant reduction in rice acres in India, and we're working through inventory in India. That will be done as we go through the second half of the year. Speaker 300:32:23Everywhere else, frankly speaking, is very good from our perspective On inventory, so we're not worried about that going into the end of the year. With regards to Latin America growth, We are on a growth trajectory because we're building out our market share in pretty much every country from Mexico, Argentina And Brazil, what's little known, we've talked about it a little bit in Brazil is our market access. We're investing In more sales resources to reach further into distribution and retail and especially with the major co ops in the South. So the growth we're seeing is actually market share growth, especially in corn and soy With insecticides and herbicides. So I know the numbers look big in Latin America, but we really are growing Very quickly and it's new growth for us. Speaker 300:33:19It's not necessarily repeat growth in the sense of selling to the same people, which we obviously do. We're expanding that market access. Speaker 700:33:28Can you give a sense for how long you think this period of, sort of reestablishing a new equilibrium Will take or how long you can have this sort of be growing well above trend before you get to sort of more stable market shares? Speaker 300:33:45Yes. I think we've got quite a ways to go. I mean, when you look at the size of our company and you look at the market given where it is today, we have Roughly 9% market share of the crop protection chemical market with the most robust pipeline and new product introductions that are now This year alone, the products that have launched over the last 5 years is $600,000,000 of business that we'll do with those new products. I expect that algorithm to continue for a considerable amount of time. We know our insecticide portfolio is very strong, And we know that we're taking share from all the chemistries that are getting registration losses that we can take advantage of. Speaker 300:34:25So I don't see that algorithm slowing down For quite a long time, Laurence. Speaker 800:34:31Thank you. Operator00:34:35Thank you. The next question comes from the line of Laurent Saab with BNP Parrot. You may proceed. Speaker 900:34:45Hey, good morning. I've got a question, sorry, again on the cost side. And here I want to dig into the comments you made, Mark, around I think to source from secondary or tertiary suppliers, I was wondering if you could give us some kind of idea of how big that was in the first half, for instance? Speaker 300:35:06In the first half, it's very difficult to say as a percentage of the raw materials that we acquire. Only I can give you an anecdote, Laurent, that is basically when I talk to my procurement groups and supply chain groups when it was 2nd half of last year and first half of this year, the conversations were all about where are we getting materials, where we're short, and that was quite a long list. In today's reviews that we have, the list is extremely short, and we very rarely talk about secondary sources at this point. So it has changed in a meaningful way over the last 6 months. That's about as good as I could give you from a perspective. Speaker 900:35:50Thank you. And then, my second one is on herbicide pricing and what you're factoring in, As we started to see glyphosate prices coming down, so it's both, I guess, for your non selective side, but also the Do you think that prices or are you factoring in pricing normalizing through the end of this year and into next year? Speaker 300:36:13No, we're absolutely opposite. I mean, I think a lot of the non selectives are in a world of their own in terms of Pricing is so closely linked to the raw material costs that you do see rapid increases, which we've seen over the last 18 months. You're likely to see some decreases as those pressures alleviate. We're in a very different ballgame. We've been raising prices on the back of the value that we bring. Speaker 300:36:39We're raising prices as we speak in many parts of the world and we'll continue to do so. So we do not see a deceleration of pricing As we go over the next 6 to 9 months to 12 months, we're increasing price right now. Speaker 900:36:55Okay. Thank you. Speaker 300:36:57Thank you. Operator00:37:00Thank you. The next question comes from the line of Adam Samuelson with Goldman Sachs, you may proceed. Speaker 1000:37:10Yes, thank you. Good morning, everyone. Good morning. I guess I was hoping maybe to dig in on the growth side. I'm looking by region, certainly the growth in North and South America were very strong. Speaker 1000:37:27The constant currency growth In Asia, it was a little bit less robust. You alluded to managing inventories and decline in rice acres In India, Mark, I was hoping to get some just broader color on the region. And is it just rice in India? I nearly any mention of China, North Asia and just how you see competitive dynamics in that region and market outlook there. Speaker 300:37:53Yes, sure. India is the main factor for us, as I said, that working through that channel inventory due to rice. I would say the ASEAN countries are continuing to grow for us, especially on rice and fruit and vegetables are 2 big segments for us in those countries. Australia on cereals with the launch of the new herbicide last year is doing very, very well. We don't mention China because it's not one of our biggest countries. Speaker 300:38:21Certainly, it's a sourcing point for us. But from a revenue perspective, it's not of $100,000,000 It's a highly competitive market. It's not a market that we consider one of our top strategic markets. We'll grow there. We'll introduce technologies. Speaker 300:38:37But it's not something that is driving the region. The region is really being driven by ASEAN and all the countries in ASEAN, India, Pakistan and And Australia, those are the key drivers. Now interestingly enough, from a plant health perspective and a biological perspective, South Korea and Japan are very important markets, especially South Korea, as they have quite a flourishing biological industry there And a lot of very high quality fruit and vegetables, which can use the biologicals. So Asia is becoming very interesting from that plant health perspective for us. Speaker 200:39:16Okay, that's helpful. And if Speaker 1000:39:17I could just have a squeeze another one in on costs and really thinking about the movements You're seeing in natural gas and power in Europe and you've got some important operations in Denmark. But broadly is how we think about your comments about inflation evading and what you've assumed on the Energy Power side, especially in Europe and any thoughts and risks around some of the intermediates that you might still have to source that Comments on direction from Europe? Speaker 300:39:50Yes. So from an energy perspective or use of energy in our manufacturing All our manufacturing facilities and especially our major one in Ronland, we can use flex fuel to run the facilities. So in Ronland, We traditionally run on natural gas. Obviously, that's been curtailed given Russian activities. We can also run on diesel fuel in Runeland and have been doing for some time. Speaker 300:40:13There are cost inflation elements there that are built into our overall cost structure. We have a pretty good view on What we think costs will be going forward longer term for those facilities. From a raw material perspective, I think we procure something like $200,000,000 of raw materials out of our $2,700,000,000 purchases Come from Germany, and we have dual sources for all those materials into the parts of the world. So from a supply perspective, We have that one pretty secured. Speaker 1000:40:50Okay, great. I really appreciate that color. I'll pass it on. Thanks. Thank you. Operator00:40:56Thank you. The next question comes from the line of Vincent Andrews with Morgan Stanley. You may proceed. Speaker 1100:41:06Thank you. Good morning. Just Mark, you mentioned in the Q4, you'll have Some new launches, and obviously they'll have a positive impact to revenue. Maybe just want to talk a little bit about those? And then I'm also within that wondering whether 3Q is also incurring some launch costs associated with those new products that you're not going to obviously see the revenue for until 4Q. Speaker 300:41:28Yes. The launches that are coming are mainly herbicides in Europe, which kind of start now, but really pick up steam in Q4. We've got insecticides in Canada that have started now. We're seeing that growth. Obviously, that will continue. Speaker 300:41:43And then we have Quite a number of smaller products in Asia that get launched. I don't think at this point that we're seeing any lumpiness in terms of launch expense. It's pretty much built into our SA and R or SG and A expense as we go through each quarter. We have a very good view of our launch schedule, so we know what's coming. We pretty much spend money on launches About two and a half years before the actual launch itself. Speaker 300:42:11So it's not all of a sudden a step up. It's rather a gradual spend increase as we go over numbers of quarters. So in Q3, it really is not necessarily to do with any launch expense, although there is launch expense Within that SG and A number. Speaker 1100:42:29Okay. Thank you. And Andrew, maybe on the cash flow from operations, I'm sure it will all look a lot clearer once we see the queue. But could you just talk a little bit about sort of how the working capital played out In the first half versus how it's going to trend in the second half to get you to that 67% conversion that you're still targeting? Speaker 400:42:51Yes. Sure, Vincent. I think certainly the big story in the first half is in working in cash flow of working capital. And it's very, very substantial growth in receivables particularly, both from high volume growth, but not the least from the impact of price increases. So those price increases directly inflate our receivables. Speaker 400:43:12So in the first half of 22, the big story and the big difference versus the prior year really is the growth in working capital. Now that said, Given the positive market backdrop, we have good farmer economics around the world pretty uniformly. There are spots here and there as always, but we're in pretty good shape. We've actually seen good collections performance. So the absolute dollars of receivables are going up, but days receivable Improve pretty meaningfully versus the prior year. Speaker 400:43:41As with people having concern about security supply and with very strong and very healthy grower Balance sheets at the moment. We are collecting and collecting aggressively. So we will see the seasonal swing. We have a very pronounced seasonal distribution with working capital, amplified a bit more by the size of prepayments And the North America business, which really is a use of cash in the first half of the year. So in the second half with very high collections I am shift from selling mode to collecting mode in many parts of the world. Speaker 400:44:18That will drive a big reversal and very, very strong Operator00:44:33The next question comes from the line of Steve Brown with Bank of America. You may proceed. Speaker 1200:44:40Mark, you mentioned that 70% of your LatAm orders for the second half are already in place. Do you have visibility on when that revenue will be recognized? You normally have A bigger Q4 in LatAm than you do in the 3rd. Do you have view on how that's going to play out this year? Could there actually be a bit of a shift more into the Q4 that could be an additional contributing factor to The somewhat slow third quarter expectations. Speaker 300:45:22No, not really. When we kind of plan for what we call a normal season, that means in Brazil Planting start sort of mid September to the end of September. That can shift around given weather patterns. So Q4 is obviously a big quarter for us in Latin America, not just Brazil, but Argentina. We've kind of factored that into how we look at Q3, Q4. Speaker 300:45:46I don't think there's anything meaningful there. Obviously, it will depend on how the weather plays out. But I think we have most of that factored into Q4 as we normally do. Speaker 1200:45:58And wanted to drill in a little bit more on the diamide franchise. What fraction of that revenue stream is from direct sales from FMC Versus from your licensees that you have supply agreements with and has that split between those two buckets Changed in the last year as you've been growing the supply agreements. And What does how does that affect price? Is that a mix shift down in price? And more importantly, how does that affect EBITDA? Speaker 300:46:41Yes. So when you look at where we are today, we're in that we're in the range of about It's kind of like sixty-forty, 60 percent FMC branded products into the marketplace, about 40% through our 3rd partner partners. That has obviously been growing as we've added more partners. I think it's fair to say though, we pegged our growth rate for the diamides in sort of the high single digits. In Q2, we grew sort of mid teens, and it's pretty evenly split between both sources of income. Speaker 300:47:16On the price side, we don't talk about the specifics of the individual contracts that we have obviously. But generally speaking, the EBITDA impact for us on a Percent basis is neutral. So we manage it that way. So the growth for us is equally as valuable from an EBITDA perspective From either FMC or from our partners. So I would expect to see that sixty-forty I would expect the forty to continue to grow We've got more partners on board now. Speaker 300:47:46They are obviously now gearing up and selling into the marketplace. I think the most important takeaway that you should Takeaway from this conversation is the 40% as it grows does not detract from the 60% as we grow. It's an expansion of the market pool for the diamides. And as I alluded to earlier on one of the other questions, we see the diamides taking share from A number of older chemistries, whether they be neonicotinoids, some of the pyrethroids and certainly some of the carbonates around the world. Thank you. Speaker 300:48:20Thank you. Operator00:48:23Thank you. The next question comes from the line of Alexey Yefremov with KeyBanc Capital Markets. You may proceed. Speaker 1300:48:34Thanks. Good morning, everyone. Mark, you were talking about costs for Q4 and then your 6 months kind of lag. Do you have any visibility on the Q1? Do you expect costs to decline further from Q4 level in the Q1 of 2023? Speaker 300:48:55Yes. I'll let Andrew pick Speaker 400:48:56that one up, Andrew. Yes. Alexia, I think as Mark described, Since we turn inventory about twice a year, things that we buy today start flowing through our P and L 2 quarters out. So Things that we're starting to buy now, certainly, we're getting a little bit of visibility into Q1 of 2023, but it's not a complete picture yet. We've not gotten through that far of the buying. Speaker 400:49:17Yes. Some of that volume is tilted in different parts of the quarter. I do want to be very careful with the phrasing of the question and that Our expectation is that costs do continue to increase, particularly in the first half of twenty twenty three. They just do so at a much lower level. And what we're seeing from Q4, Q4 is the largest cost actually, Q3 of 2022 this quarter coming quarter, is the largest cost increase we've seen, and the largest cost increases we expect, for the year. Speaker 400:49:48We expect the rate of cost increase to Drop down in Q4, but there still is year on year inflation in Q4. So at this point, what we're seeing is a flattening off in the inflation, But not necessarily yet an absolute drop off in costs. So I think for Q1, we'll continue to see how purchasing goes through the rest of this quarter to see What the outlook for Q1 is, I think at this point, we'd still anticipate some cost headwinds in Q1 and likely into Q2. And then with the opportunity that we start seeing the swing in the second half of twenty twenty three. Speaker 1300:50:26Thanks, Andrew. And as a follow-up, Mark, in the first half, volume gains were roughly the low teens, 11% or so. How are you Optimizing for volume or market share versus profitability and price on the other end and how Frequently do prioritize. If demand is this strong, why is it not worse to raise prices more At a higher profit level and gain less share or less volume or maybe it's not optimal. Speaker 300:51:00Yes. Listen, I think clearly you can look at our price increases and we're targeting that high single digit price increase and we're moving in that direction. For a company like FMC, those are unheard of price increases. I mean, normally, we price kind of in the very low single digits to offset inflation on a general basis. I think when we're looking at the marketplace, we sell products in some of our categories that are extremely high margin You all know the success of the diamides, for instance. Speaker 300:51:32Taking volume from older chemistries with the newer chemistries Adds tremendous value to the bottom line, whether you increase price or not with those products. Sometimes we do, sometimes we don't. It's a mix Of decisions that are made at the local level with the overall mantra that price increases will offset cost. And that's how we've been working this year. So for us, it's somewhat of a complicated discussion inside the company, Except, I would say, over the last year or so, it's changed to be much more aggressive on price. Speaker 300:52:05We have driven price in every region of the world More so than we ever have before. Thanks a lot. Operator00:52:16Thank you. The next question comes from the line of Michael Sison with Wells Fargo. You may proceed. Speaker 600:52:26Hey, good morning. Nice quarter. So just when you think about your volume growth in the second quarter It was pretty impressive, up 14%. EBITDA growth was 3%, and I understand why in terms of the cost that you had on Slide 6. But just Curious, of the $148,000,000 of costs that you occurred in 2Q and maybe in the past, is any of this costs more structural than just Sort of just inflation, you've had to change the way you process some of your materials, logistics are getting more. Speaker 600:53:01So I'm just curious how much of this cost is maybe more structural than just might go away over time. Speaker 300:53:10Yes, Mike. Thanks for the comment on the quarter. Listen, I do think that most of that cost is variable in the sense of its raw materials, Packaging, it's logistics that will obviously ebb and flow, and we expect them to obviously decrease over time. I would say the only structural cost that's been embedded is as we're investing in SG and A Resources And R and D projects that are more longer term. Those are driven around the growth of the company, the market access that I talked about in places like Brazil, Argentina, India, parts of the ASEAN region and in the U. Speaker 300:53:50S. As well. Those are Structural costs because they're headcount, they're investments. The other investments around precision agriculture as we're growing out Our precision ag apps such as Farm Ark Intelligence, those are structural costs. But the vast majority Is what I would call more transient. Speaker 600:54:15Got it. And then when you think about the Q4, it tends to be A quarter which has a wide range for the outcomes for EBITDA and revenue. So just curious, What do you think sort of drives the upper end and lower end of that those ranges? Speaker 300:54:37Well, I think from a revenue perspective, obviously, it would be what does pest pressure look like in some parts of the world. We just talked about the success we had in our North American business. As pressure in Canada was much higher than we normally forecast, That drives demand that gets used immediately. So if you have those series of events around the world, that can drive you to the upper end of the range. Also as we look to expand our market access and the success and the speed of that success that can drive us to the upper end in Operator00:55:21Got it. Thank you. Speaker 400:55:23Thanks, Mike. Speaker 300:55:25Okay. Thank you. Operator00:55:26Thank you. The next question comes from the line of Josh Spector with UBS. You may proceed. Speaker 400:55:35Yes. Hey, guys. Thanks for taking my question. I guess just to follow-up on the Q2 and the volume outperformance. I guess, optically, the volumes did a lot better. Speaker 400:55:44The drop through was essentially pretty minimal given the cost side. I'm not really sure how much of that is higher spend on the incremental volumes or the higher cost for the base. But I'd be curious if you were to have a repeat into 3Q, 4Q volumes a lot better, should we expect a similar result Speaker 300:56:09Thanks, Josh. I'll let Andrew give you the details. But generally speaking, the drop through in Q2 was not far off our average. And we have a wide range of drop through Because it can be affected through different reasons. Andrew, do you want to comment on that? Speaker 400:56:21Yes, Josh. I think, look, there can be a big variation in that the drop through, the Contribution to EBITDA from volume relative to the contribution to revenue growth from volume. On a trailing 4 quarters basis, that was about 58% in Q2. The quarter itself was about 57%. So it's right in line with what we expect. Speaker 400:56:44Our long term average is about 60%, which reflects the high value mix component of our volume growth. A reminder to everyone that in our bridges mix is in volume. You can see significant swings in that because there is lumpiness in cost increase. It's not perfect. It's not a perfect indicator, but I think you should continue to expect that on a rolling basis, That volume drop through to EBITDA should be in that 55% to 60% range for the next several quarters and beyond. Speaker 400:57:18Thanks. I mean, I guess, asked another way, the volume drop through was normal on that bar, but is offset by the cost bar. So if volumes were 5%, 10% greater and you had visibility of what you bought 6 months ago, Would you expect the volume bar to offset the cost bar if you saw volume upside in your forecast? Is there any reason why that wouldn't happen or would be different? Yes. Speaker 400:57:48Josh, I think certainly The stronger volume growth is going to have that pretty healthy drop through, and that will help offset further cost increases. Yes. I think what we've been trying to do is pace the price increases to where price increases cover as much as possible, increasing COGS. And then we make up any investments in SG and A and R and D as well as FX headwinds with volume. But certainly, when you look at The second half together where we're looking at very substantial volume growth, there will be a piece of that, that will help bridge the difference between the cost headwinds and what we're able to cover in price. Speaker 400:58:28Okay. Thank you. Operator00:58:33Thank you. The next question comes from the line of P. J. Juvekar with Citi. You may proceed. Speaker 800:58:44Yes. Hi, good morning. Your top line growth was organic growth was 21% in 2Q, But EBITDA was up only 3%. And you talked about your cost inflation and Raw material cost and all that. I was wondering if you can just break down your raw material cost in sort of 3 buckets. Speaker 800:59:06What's So the inflation from AIs, what are the logistical costs and what maybe other costs like packaging or labor? Can you just kind of break down within those 3 buckets? Thank you. Speaker 300:59:20Yes. P. J, thanks for the question. We don't normally break down those types of costs, But I would tell you that the vast majority is the active ingredients intermediates that we buy, followed by logistics and then packaging. But by far, the biggest chunk is the whole raw material spectrum that we buy. Speaker 300:59:38Do you want to say anything, Andrew? Speaker 400:59:40Yes. Peter, I think, look, As Mark said, that biggest chunk is raw material intermediates and active ingredients we buy. I don't think there's been any There's not a there's an overall category that I'd point to of those 3 big categories, raw materials, packaging and logistics. We've had substantial inflation in all of them. We've had substantial impact from disruption and the need to use secondary and tertiary Fires in all of those. Speaker 401:00:10So I wouldn't point to one of those categories being disproportionately growing versus the other. Speaker 801:00:18Okay. Thank you. And my second question is on your Plant Health and Biologicals. You acquired BioPharo. What are the areas of biologicals that you believe that you have some holes or you would like to make some acquisitions? Speaker 801:00:33And what are the multiples that these biologicals are being bought at these days? Thank you. Speaker 301:00:40Thanks, PJ. Yes, listen, we're building out the technology portfolio. Our biologicals today are really based around microbe technology. Obviously, we've extended into pheromone technology now. We also have through FMC Ventures investments In peptides, which is a whole new area of potential pesticide development, we have a relationship with Novozymes developing enzymes So we feel we have quite a good floor of what we call basic structure around technology. Speaker 301:01:15That will continue. We'll continue to look for M and A opportunities, probably as much on the geographic side of biologicals as on the Technology side because market access here is important. And from a microbe perspective, there's many countries in the world where you can't import microbes, but they're not indigenous to that So therefore, you need R and D and you need development in those countries. One easy way to get that is to acquire it. So it's something we're looking at. Speaker 301:01:42From a multiple perspective, I haven't seen any deals go through in the near term that are indicative. But Andrew, you may have a A better review of that than I do. Speaker 401:01:52Yes. P. J, just a few thoughts on multiples. A lot of the kinds of acquisition targets we are looking at in the biological space Our more early stage. Biofera, for example, where small amounts of commercial revenue, but not large scale sales yet. Speaker 401:02:09So multiple is really not meaningful in considering the value of the acquisition. It really is a case where NPV and IRR really come into play. And certainly as we looked at the acquisition economics for Viafera, the IRR on that transaction was multiples of Cost of capital, so even on a risk adjusted basis very, very attractive. So when we think about the types of targets that are out there, they tend to be smaller companies, More early stage, so traditional EV EBITDA multiples are less relevant in terms of thinking about valuation. Speaker 801:02:46Great. Thank you for the color. Speaker 301:02:48Yes, absolutely. Thank you. Operator01:02:52Thank you. The final question comes from the line of Tony Jones with Redburn. You may proceed. Speaker 1401:03:01Yes, good morning, everybody. Thank you for the chance to ask a question. With all the supply chain dislocation And we've seen this pass shift to local supply or local more local production. From your perspective, have you found over the past year Any sort of regional capacity mismatch? And does that have any implications for CapEx over the medium term? Speaker 1401:03:25Thank you. Speaker 301:03:26Thanks, Tony. No real, what I would call, mismatches, although we are And we have said that we will have a much more balanced supply chain and operation structure as we go forward. When you look at our investments for the molecules that are coming and Putting steel in the ground, we're active in India. We're active in Europe. We're looking at potential toll manufacturers and More tall manufacturers in the Americas. Speaker 301:03:56So overall, I wouldn't say we have a mismatch. But certainly as the industry grows, the need for formulating capacity is something that we're investing in quite heavily, especially in the U. S. To feed our U. S. Speaker 301:04:10Business. So I think that notion of getting your formulating capacity as very local as you can and as close to the customer base as you can It's something that's driving our strategic thinking around manufacturing and operations. Speaker 1401:04:25Thanks. That's really helpful. Speaker 401:04:27Tony, I would just add to that. When you think I think the second part of your question there on the CapEx piece related to this. Yes. Our capital plan had envisioned building out supply chain that was more geographically diverse. Yes. Speaker 401:04:42And that's very much a part of our thinking in terms of having multiple source points and balancing out points of supply. So that has been factored into the way we've been Thinking about the CapEx stepping over the stepping up over the past couple of years, including our CapEx guidance for this year. And I would just also comment when we start talking about formulation plants that those This is not heavy equipment. This is not chemical censuses. It's not trivial, but they're not significant capital investment Compare it to a new AI plan for Speaker 1401:05:14it. That's great. Thanks guys. Speaker 301:05:16Thanks very much. Speaker 101:05:17All right. That is all the time that we have for the call today. Thank you and have a good day. Operator01:05:24This concludes the FMCRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallFMC Q2 202200:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) FMC Earnings HeadlinesFMC Co. 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It develops, markets, and sells crop protection chemicals that includes insecticides, herbicides, and fungicides; and biologicals, crop nutrition, and seed treatment products, which are used in agriculture to enhance crop yield and quality by controlling a range of insects, weeds, and diseases, as well as in non-agricultural markets for pest control. The company markets its products through its own sales organization and through alliance partners, independent distributors, and sales representatives. It operates in North America, Latin America, Europe, the Middle East, Africa, and Asia. 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There are 15 speakers on the call. Operator00:00:00Morning, ladies and gentlemen. This is the operator. Today's FMC Corporation conference call is scheduled to begin momentarily. Your lines will be placed on music hold until the conference begins. Good morning, and welcome to the Q2 2022 Earnings Call for FMC Corporation. Operator00:03:14This event is being recorded and all participants are in a listen only mode. After today's prepared remarks, there will be an opportunity to ask questions. Pick up your handset before pressing the keys. I would now like to turn the conference over to Mr. Zack Zaki, Director of Investor Relations For FMC Corporation, please go ahead. Speaker 100:03:54Thank you, Jaquita, and good morning, everyone. Welcome to FMC Corporation's 2nd quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Mark will review our Q2 and first half performance as well as provide an outlook for the second half of the year. Andrew will provide an overview of select financial results. Speaker 100:04:20Our earnings release and today's slide presentation are available on our website and the prepared remarks 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. 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, net debt and organic revenue growth, all of which are non GAAP financial measures. Speaker 100:05:04Please note that as used in today's discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA. A reconciliation and definition of Speaker 200:05:25Thank you, Zach, and good morning, everyone. Speaker 300:05:25FMC delivered another quarter of strong growth in a dynamic global environment, while offsetting high input costs with our ability to price for the value we offer to growers. Overall, first half performance was primarily driven by significant price increases and volume gains. This growth reflects robust market demand globally despite cost inflation and FX headwinds. We continue to expect a strong second half of the year, driven again by price increases and volume growth in a supportive market environment. Turning to Slide 3. Speaker 300:05:59Before we review details of our quarterly results and full year outlook, I'd like to offer a few comments on our recently completed acquisition of Biofero, a Denmark based insect control company that has pioneered a bioprocessing technology used to manufacture pheromone crop protection products. As you may know, pheromones are naturally produced by insects to trigger a social response in members of the same species. Pheromones are used in a variety of ways to protect crops by disrupting the insect mating process and hence significantly lowering subsequent generations of target insect larvae, which would otherwise damage crops. There are several methods to manufacture pheromones, The BioPharaoh's proprietary fermentation route is a game changer, enabling high volume production of pheromones at significantly lower costs than other production routes. The acquisition, which closed on July 19, significantly expands our rapidly growing biologicals portfolio within FMC's Plant Health business. Speaker 300:07:00It provides a platform for large scale production of pheromones and pheromone based crop protection products, which are expected to generate approximately $1,000,000,000 in revenue at above average EBITDA margins by 2,030. We have been expanding our plant health technology base and this acquisition is another great opportunity to continue bringing biological products to growers around the world. Our Q2 results are detailed on Slides 4, 5 and 6. Revenue was up 21% organically, EBITDA up 3% and EPS up 7%, driven by strong market demand for our innovative portfolio and an average price increase of 7%. Adjusted earnings were $1.93 per diluted share in the quarter, $0.08 above the midpoint of our guidance range. Speaker 300:07:51The year over year EPS increase was primarily driven by an increase in EBITDA and lower share count. GAAP results reflect the impact of our exit from Russia in April this year. We had double digit growth across several product categories With insecticide showing the greatest increase at over 20% year over year. Our herbicide portfolio also had a strong quarter With 15% growth led by North America and EMEA, sales from products launched in the past 5 years grew more than 30 5% compared to the same period last year, and these products made up 10% of our total sales in the quarter. The global plant health business grew 20% year over year, led by a 35% growth in our biologicals portfolio. Speaker 300:08:38The momentum of this business reflects our customers' demand for new sustainable solutions. We reported $1,450,000,000 in 2nd quarter sales, led by price and volume growth in Latin America and North America. In North America, sales increased 26% year over year. Demand for both herbicides and insecticides grew double digits. In Canada, high pest pressure supported the successful launch of CoragenMax, an insecticide powered by rinaxipur targeting a broad spectrum of pests such as grasshoppers in cereals and other crops. Speaker 300:09:15Thiamide sales were impacted in California and Texas due to dry conditions, but this was offset by growth in the Midwest in soy and corn. In Latin America, Sales increased 44% year over year, led by Brazil, Mexico and Argentina. Results were driven by the full range of our insecticide Portfolio for soy, corn and cotton. Sales in EMEA grew 3% versus the prior year and were up 15% organically. Aside from strong pricing, results were driven by increased demand for herbicides. Speaker 300:09:50And finally, Asia was down 1% versus Q2 last year and up 4% organically. Pricing gains were offset by FX headwinds. The demand for cyazipur grew in India for applications on fruits and vegetables. In Australia, Overwatch herbicide continued to outperform Overall, adjusted EBITDA was $360,000,000 an increase of 3% compared to the prior year period and $10,000,000 above the midpoint of our guidance range. Volume gains and price increases more than offset cost inflation and FX headwinds. Speaker 300:10:28Average price increases of 7% contributed $84,000,000 in the quarter. As we expected, Cost headwinds more than doubled from the Q1 as inflation continued to challenge our supply chains. FX was a $23,000,000 headwind in the quarter due to the weakening of European and Asian currencies against the U. S. Dollar. Speaker 300:10:50Before we review FMC's full year 2022 and second half earnings outlook, let me update you on our views regarding the overall market conditions. We now expect the global crop protection market will be up mid to high single digits on a U. S. Dollar basis versus our earlier expectation of lowtomidsingledigitgrowth. Latin America is now expected to be up double digits, primarily driven by pricing of non selective herbicides. Speaker 300:11:18We still expect North America to be up mid single digits, while Asia is now expected to grow low single digits. EMEA is still expected to be down low single digits, including the impact of FX. Excluding currency impact, EMEA is expected to grow low single digits. While commodity prices have come down somewhat from their highs earlier in the year, They remain elevated versus historical averages. This bodes well for the demand of our crop protection products through the end of this year and well into 2023. Speaker 300:11:52Moving to Slide 7. We have seen pronounced shifts in demand and cost between individual quarters this year. Therefore, looking at the business in halves gives a better understanding of the underlying performance. For the first half, performance was very strong as a result of price increases and volume growth, which contributed $178,000,000 $132,000,000 to EBITDA, respectively. These drivers more than offset significant cost and FX headwinds of almost $250,000,000 resulting in 9% EBITDA growth over the prior year period. Speaker 300:12:28In the context of our full year guidance, first half EBITDA growth represents more than 3 quarters of the When we consider the drivers for the second half of the year, Prices again expected to contribute more to EBITDA than volume. Cost increases are expected to have the biggest impact in the 3rd quarter with continued but lower cost inflation forecasted in the 4th quarter. There are two primary reasons for the expected cost increases. The first reason is the cost inflation related to sourcing from secondary and tertiary suppliers due to lack of availability from our preferred suppliers. The second reason is the lag of 6 months between procuring high cost material and its impact on our P and L since FMC typically turns inventory twice a year. Speaker 300:13:16Latin America and North America are our biggest drivers of revenue in the second half, and we have already captured roughly 70% of the orders needed in Brazil to deliver our second half guidance. For reference, this is normally around 50% at this time of the year. The increase in orders is due to the higher than average customer demand driven by favorable commodity prices. In the U. S, Q4 order discussions are taking place as we speak, which is much earlier than in previous years, making us confident in our forecast. Speaker 300:13:49Overall, we expect the second half of the year to contribute 2% in EBITDA growth following a very strong second half of twenty twenty one. Turning to Slide 8 and the review of FMC's full year 2022 earnings outlook. After a strong first half of the year, We are raising full year 2022 revenue to a range of $5,500,000,000 to $5,700,000,000 representing an increase of 11% at the midpoint versus 2021. Sales growth will be driven by volume and price growth in all regions, partially offset by foreign currency impact in EMEA and Asia. We are narrowing the full year adjusted range to $1,360,000,000 to $1,440,000,000 representing a 6% year over year growth at the midpoint. Speaker 300:14:37The range for 2022 adjusted earnings per share is narrowed as well and is now expected to be in the $7 to $7.70 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 potential future share repurchases in our EPS guidance. Q3 and Q4 outlook is provided on Slide 9. Midpoint on our 3rd quarter implies year over year sales growth of 13%. Q3 EBITDA and EPS growth are expected to be limited by the highest cost increases of the year, despite the targeted mid to high single digit price increases. Speaker 300:15:19FX volatility in the absence of sales in Russia Will also be headwinds to earnings in the quarter. Guidance for Q4 implies year over year sales growth of 2% at the midpoint compared to the exceptionally strong growth in the prior year period. Cost increases are forecasted to be lower in Q4 compared to Q3, while price increases are expected to continue. This is anticipated to result in an EBITDA growth of 17% at the midpoint, with EPS up 13% at the midpoint year over year. Moving now to the updated drivers of 2022 EBITDA outcomes on Slide 10. Speaker 300:15:56While the market growth assumptions have improved, costs remain elevated, though we are beginning to see the signs of cost inflation flattening. Price in the mid to high single digit and strong volume growth are expected to offset cost and FX headwinds, keeping the midpoint of our guidance unchanged. While we expect the highest cost increases of the year in Q3, We do not expect material benefits from easing inflation to be realized until 2023. With that, I'll now turn the call over to Andrew. Speaker 400:16:26Thanks, Mark. I'll start this morning with a review of some key income statement items. FX was a headwind to revenue growth in the Q2 as expected, driven by weakness in European and Asian currencies, particularly the euro, Indian rupee and Turkish lira. The Brazilian real was a modest tailwind in the quarter. We continue to anticipate FX headwinds for the remainder of 2022, driven by Asian and European currencies. Speaker 400:16:56Interest expense for the Q2 was $35,300,000 up $2,700,000 versus the prior year period, primarily due to higher short term interest rates and higher debt balances, partially offset by benefits of the refinancing activity completed in Q4 2021. With rapidly rising interest rates, especially in the United States, we now expect interest expense for the full year 2022 to be in the range of $135,000,000 to $155,000,000 an increase of $10,000,000 at the midpoint compared to our prior guidance. Our effective tax rate on adjusted earnings for the Q2 was 14%, in line with our continued expectation for a full year tax rate in the range of 13% to 15%. Moving next to the balance sheet and liquidity. Gross debt at quarter end was $3,900,000,000 up roughly $715,000,000 from year end 2021. Speaker 400:17:54Gross debt to trailing 12 month EBITDA was 2.8 times at the end of the second quarter, while net debt to EBITDA was 2.4 times. Net debt was in line with our targeted leverage levels, while gross debt was slightly above targeted leverage due to the timing of return of cash from foreign subsidiaries. Moving on to cash flow on Slide 11. 2nd quarter year to date free cash flow was negative $498,000,000 Year to date adjusted cash from operations was negative $401,000,000 down substantially as compared to the prior year period, driven by higher working capital. Strong sales growth, including the impact of aggressive price increases on receivables, was the key driver of increased cash consumption for working capital. Speaker 400:18:43Capital additions and other investing activities of $65,000,000 were essentially in line with the prior year period. Legacy and transformation spending was down primarily due to the absence of spending on our SAP program, which was completed in the prior year period. We are narrowing the range of our free cash flow guidance for full year 2022 to $565,000,000 to $685,000,000 unchanged at the midpoint of $625,000,000 and reflecting the more narrow EBITDA guidance range. Adjusted cash from operations is now expected to be in the range of $790,000,000 to $870,000,000 unchanged at the midpoint. Working capital growth is expected to result in a year on year reduction of $80,000,000 and cash from operations at the midpoint. Speaker 400:19:31Our guidance for capital additions and legacy and transformation remain unchanged. With this guidance, we anticipate free cash flow conversion of 67% at the midpoint, with conversion limited this year by inflation's impact on working capital. This guidance also results in rolling 3 year free cash conversion of 71%, in line with our long term targets. Through the first half of twenty twenty two, we have deployed $334,000,000 of cash, dollars 200,000,000 for the BioPharaoh acquisition and $134,000,000 in dividends. Given the BioPharo acquisition and the seasonality of our free cash flow, We did not purchase any FMC shares in the first half. Speaker 400:20:15For the remainder of to return up to $334,000,000 to investors through continued dividends and up to $200,000,000 in share repurchases. The reduced outlook for share repurchases reflects 2 key changes since we last gave guidance. First, as I mentioned just a moment ago, We deployed $200,000,000 of cash to acquire BioPharo. 2nd, we are limiting the amount of incremental debt we had in 2022 to mitigate in part the earnings impact of faster than expected interest rate increases. We continue to expect to utilize more than 100% of our free cash flow to invest in growth and reward shareholders. Speaker 400:20:56And with that, I'll hand the call back to Mark. Speaker 300:21:00Thank you, Andrew. FMC delivered solid financial performance in the 2nd quarter despite a challenging macro environment. Price increases across all regions and Strong volume growth continued to deliver strong EBITDA growth in an inflationary period. At the same time, the broader agricultural market remains positive, which we expect to continue throughout 2023. FMC remains well positioned to outperform the industry in this environment with a focus on crop protection chemicals and biological products working to our advantage. Speaker 300:21:33The year is turning out largely as we expected, With a strong first half followed by a second half that is constrained by costs, especially in Q3, delivering an overall strong 2022. I'll now turn the call back to the operator for questions. Operator00:21:49Absolutely. We will now begin the question and answer session. If you have additional questions, you can jump back in queue. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Christopher Parkinson with Masuho. Operator00:22:30You may proceed. Speaker 500:22:33Great. Good morning. Mark, I want to ask what's on everybody's mind. Can you just give us as much Caller, it's humanly possible on the divergence between the 3rd Q4. Obviously, you hit on this a little. Speaker 500:22:47I imagine there are things in Brazil, North America and India that are considerations. But if you could also hit on the cost aspects on a sequential basis, 3Q versus 4Q and your confidence that 3Q would be peak and anything else that you believe The Street should be paying attention to. Thank you so much. Speaker 300:23:06Yes. Thanks, Chris. Pretty obvious question to start the ball rolling. Look, when you look at Q3 and Q4, I think we've been Pretty clear on the slides and in the script that Q3 is driven really by the cost that we see flowing through the P and L. And Q4 is driven by a lack of that same increase in costs. Speaker 300:23:29You look at the top line, we have Strong growth in Q3, roundabout 13% at the midpoint, yet we have 2% top line growth in Q4. What does that tell you? It tells you that our Q4 is not necessarily driven by the external environment. That EBITDA growth is all controlled from inside the company. And the reason we see this cadence in the second half It's very simply, when we buy raw materials, we have about a 6 month lag before the cost of those raw materials flow through our P and L. Speaker 300:24:02So for instance, the costs that we're seeing in Q3 are costs that we knew were coming back in Q1. So For us, it's not a surprise. It's a large amount, but we've continued to see that increase as we've gone over the last 18 months. Now from a confidence perspective, think of the following. I just said in the script that in Latin America, in particular in Brazil, We have more orders on hand than we would normally have by a considerable degree. Speaker 300:24:33Why is that? Well, at the end of the day, the markets are robust. Commodity prices are still high. Brazil is getting ready for what will be a robust season, and we will continue to see Acreage increase in Brazil and other parts of Latin America. We're seeing the same thing in the U. Speaker 300:24:51S. And Canada markets, Where customers are now talking to us already about Q4 demand. That doesn't normally happen at this stage of The cycle, it's usually a month or so later than this. So we know already that we have a high degree of confidence not only from the top line perspective in Q4, but also from a cost perspective. Why? Speaker 300:25:13Because we've already incurred A lot of those costs in Q2 that will hit in Q4. So we know to the vast majority of what the cost structure will be in Q4. I'd like to the fact that for the first time, I think, in probably about 3 years, I can tell you we're not actually managing any crises out of China. Things are flowing very well for us. Our manufacturing units are operating. Speaker 300:25:38Our suppliers are generally operating well. And we already see that flowing through. So we feel very confident about supply. The other element is price. You can see that we've raised our prices significantly as we move from mid year last year. Speaker 300:25:54A lot of those prices are already embedded into our cost structure and pricing structure for the 3rd 4th quarters. It doesn't mean to say that we're not still moving price. We are, and there'll be more price increases coming. But the fact is we have a very high degree of confidence on Q4. Just a further comment on Q3, You can see the change is predominantly driven by the impact of costs that we've seen flowing through our P and L. Speaker 300:26:21But there is another factor. The biggest impact of our Russian exit is in Q3. And remember, we've kept our midpoint guidance of $1,400,000,000 Despite absorbing $25,000,000 of lack of EBITDA from Russia. So I think that kind of gets lost in the noise here But we are covering Russia and we haven't moved our guidance downwards. So I think that's a very positive aspect of how we're managing So I hope that gives you a little more insight into how we feel about Q4, Q3. Speaker 300:26:52We're very confident of Q4. We're also very confident of our top line in Q3. Speaker 500:26:59That's very helpful color. And just as a secondary note, I mean on Slide 10, which is very helpful, You do have a few more checks in the top end of the box at the 144. Can Can you perhaps dive in a little bit more in terms of what you're purchasing right here, right now, in terms of the cost inflation? Perhaps it doesn't give you Speaker 200:27:21the material benefit that Speaker 500:27:21we all want in benefit that we all want in 2022, but what is your confidence as we head into 2023? And what does that Actual dynamic look like on a sequential basis. And if you just want to stop that as what you're confident in terms of entering the year, that Speaker 400:27:37would still be very helpful. Thank you. Speaker 300:27:41Yes. I mean, we do believe that we're at this, What we call the highest level of inflation, we are starting to see it taper off. Obviously, I've just commented that on Q4. We will expect to see that Continue as we go into 2023. If that continues and our normal cadence of flow through the P and L occurs, It would be in the second half of the year that you would start to see some significant benefit from that. Speaker 300:28:07I doubt whether you would see it in the first half because although I'm talking about A lower inflation, cost is still high, make no mistake. So I think it's the second half of next year that we would start to see that real acceleration of lower costs. Speaker 500:28:23Thank you for the color. Speaker 300:28:25Thanks, Chris. Operator00:28:27Thank you. The next question comes from the line of Joel Jackson with BMO Capital Markets. You may proceed. Speaker 200:28:38Hi. Maybe I'll follow-up on that line of questions since Chris is right. It is the most important topic among investors right now. You said, and it was helpful that you might see the inflation really come off second half of twenty twenty three if things continue. If we so entering 2023, would your margins be kind of where they've been through the first half of the year in the last couple of years, Mid to high 20s, mid-20s, like what is kind of because the 18% in Q3, 30% in Q4 is a really divergent numbers. Speaker 200:29:11What would CAF 1 what would the beginning of 2023 look like? 26%? I don't give guidance, just what does early 2020 look like? Speaker 300:29:21I'm glad you know that's right for guidance, Joel. It is a little early. Speaker 200:29:24I know, but early, this is early, early 'twenty three, right? Speaker 300:29:30Yes, I hear you. Listen, I think from a margin perspective, what you're seeing in Q3 and Q4 are pretty extremes around the midpoint. Obviously, we've got a lot of cost in Q3, and then we have the advantages of a lot of price allied to a good P and L. I do think you'll see more normalized margins for us as we go into the first half of next year. So if you look at our margins over the last, I would say, 12 months In that sort of 25% plus range, I think that's what we would expect. Speaker 300:30:01So I wouldn't go any further than that at this Because frankly, I don't have the numbers going into early next year. We're right in the middle of our budget process now. So kind of expect average margins as we go into first half of next year. Speaker 200:30:18So that's extremely helpful. And then obviously, it's complicated. And then the second question I have is, As you with BioPharaoh, it's going to increase your R and D expense. Do you have some sense now what R and D expense inflation might be in 'twenty two versus 'twenty 2 solely based on BioFair. And if you can't give that yet, can you give maybe some color around, I don't know, a number of positions, number of people, some sort of tidbits to let us figure out what the R and D increase might be run rate might be in 2023? Speaker 300:30:47Yes. I think when you look at BioPharo, we're acquiring about 30 people with The acquisition, all those people are essentially in R and D. There are 1 or 2 that are in Manufacturing and Supply Chain. I do think that the expense for that, if you took a base level, something around $10,000,000 additive to where FMC is today On and R and D expense is not a bad number. It's rough at this point, but that's what I would be thinking, Joel. Speaker 200:31:19That's helpful. So kind of small. Thanks a lot. Speaker 600:31:22Thanks. Operator00:31:24Thank you. The next question comes from the line of Laurence Alexander with Jefferies, you may proceed. Speaker 700:31:33Good morning. I have two questions. Can you give a bit more detail on Inventory levels regionally, that you're seeing heading into the back half of the year. And then as you think about sort of the Latin American growth rate, So what you will be lapping going into next year, given the very strong growth you've seen this year, so how tough will it be to lap that? Speaker 300:31:58Yes. I'll start with the inventories, this is Laurence. We're very okay with inventory levels Pretty much everywhere in the world right now. I would say the only spot and I've commented on this at the last earnings call is There has been a significant reduction in rice acres in India, and we're working through inventory in India. That will be done as we go through the second half of the year. Speaker 300:32:23Everywhere else, frankly speaking, is very good from our perspective On inventory, so we're not worried about that going into the end of the year. With regards to Latin America growth, We are on a growth trajectory because we're building out our market share in pretty much every country from Mexico, Argentina And Brazil, what's little known, we've talked about it a little bit in Brazil is our market access. We're investing In more sales resources to reach further into distribution and retail and especially with the major co ops in the South. So the growth we're seeing is actually market share growth, especially in corn and soy With insecticides and herbicides. So I know the numbers look big in Latin America, but we really are growing Very quickly and it's new growth for us. Speaker 300:33:19It's not necessarily repeat growth in the sense of selling to the same people, which we obviously do. We're expanding that market access. Speaker 700:33:28Can you give a sense for how long you think this period of, sort of reestablishing a new equilibrium Will take or how long you can have this sort of be growing well above trend before you get to sort of more stable market shares? Speaker 300:33:45Yes. I think we've got quite a ways to go. I mean, when you look at the size of our company and you look at the market given where it is today, we have Roughly 9% market share of the crop protection chemical market with the most robust pipeline and new product introductions that are now This year alone, the products that have launched over the last 5 years is $600,000,000 of business that we'll do with those new products. I expect that algorithm to continue for a considerable amount of time. We know our insecticide portfolio is very strong, And we know that we're taking share from all the chemistries that are getting registration losses that we can take advantage of. Speaker 300:34:25So I don't see that algorithm slowing down For quite a long time, Laurence. Speaker 800:34:31Thank you. Operator00:34:35Thank you. The next question comes from the line of Laurent Saab with BNP Parrot. You may proceed. Speaker 900:34:45Hey, good morning. I've got a question, sorry, again on the cost side. And here I want to dig into the comments you made, Mark, around I think to source from secondary or tertiary suppliers, I was wondering if you could give us some kind of idea of how big that was in the first half, for instance? Speaker 300:35:06In the first half, it's very difficult to say as a percentage of the raw materials that we acquire. Only I can give you an anecdote, Laurent, that is basically when I talk to my procurement groups and supply chain groups when it was 2nd half of last year and first half of this year, the conversations were all about where are we getting materials, where we're short, and that was quite a long list. In today's reviews that we have, the list is extremely short, and we very rarely talk about secondary sources at this point. So it has changed in a meaningful way over the last 6 months. That's about as good as I could give you from a perspective. Speaker 900:35:50Thank you. And then, my second one is on herbicide pricing and what you're factoring in, As we started to see glyphosate prices coming down, so it's both, I guess, for your non selective side, but also the Do you think that prices or are you factoring in pricing normalizing through the end of this year and into next year? Speaker 300:36:13No, we're absolutely opposite. I mean, I think a lot of the non selectives are in a world of their own in terms of Pricing is so closely linked to the raw material costs that you do see rapid increases, which we've seen over the last 18 months. You're likely to see some decreases as those pressures alleviate. We're in a very different ballgame. We've been raising prices on the back of the value that we bring. Speaker 300:36:39We're raising prices as we speak in many parts of the world and we'll continue to do so. So we do not see a deceleration of pricing As we go over the next 6 to 9 months to 12 months, we're increasing price right now. Speaker 900:36:55Okay. Thank you. Speaker 300:36:57Thank you. Operator00:37:00Thank you. The next question comes from the line of Adam Samuelson with Goldman Sachs, you may proceed. Speaker 1000:37:10Yes, thank you. Good morning, everyone. Good morning. I guess I was hoping maybe to dig in on the growth side. I'm looking by region, certainly the growth in North and South America were very strong. Speaker 1000:37:27The constant currency growth In Asia, it was a little bit less robust. You alluded to managing inventories and decline in rice acres In India, Mark, I was hoping to get some just broader color on the region. And is it just rice in India? I nearly any mention of China, North Asia and just how you see competitive dynamics in that region and market outlook there. Speaker 300:37:53Yes, sure. India is the main factor for us, as I said, that working through that channel inventory due to rice. I would say the ASEAN countries are continuing to grow for us, especially on rice and fruit and vegetables are 2 big segments for us in those countries. Australia on cereals with the launch of the new herbicide last year is doing very, very well. We don't mention China because it's not one of our biggest countries. Speaker 300:38:21Certainly, it's a sourcing point for us. But from a revenue perspective, it's not of $100,000,000 It's a highly competitive market. It's not a market that we consider one of our top strategic markets. We'll grow there. We'll introduce technologies. Speaker 300:38:37But it's not something that is driving the region. The region is really being driven by ASEAN and all the countries in ASEAN, India, Pakistan and And Australia, those are the key drivers. Now interestingly enough, from a plant health perspective and a biological perspective, South Korea and Japan are very important markets, especially South Korea, as they have quite a flourishing biological industry there And a lot of very high quality fruit and vegetables, which can use the biologicals. So Asia is becoming very interesting from that plant health perspective for us. Speaker 200:39:16Okay, that's helpful. And if Speaker 1000:39:17I could just have a squeeze another one in on costs and really thinking about the movements You're seeing in natural gas and power in Europe and you've got some important operations in Denmark. But broadly is how we think about your comments about inflation evading and what you've assumed on the Energy Power side, especially in Europe and any thoughts and risks around some of the intermediates that you might still have to source that Comments on direction from Europe? Speaker 300:39:50Yes. So from an energy perspective or use of energy in our manufacturing All our manufacturing facilities and especially our major one in Ronland, we can use flex fuel to run the facilities. So in Ronland, We traditionally run on natural gas. Obviously, that's been curtailed given Russian activities. We can also run on diesel fuel in Runeland and have been doing for some time. Speaker 300:40:13There are cost inflation elements there that are built into our overall cost structure. We have a pretty good view on What we think costs will be going forward longer term for those facilities. From a raw material perspective, I think we procure something like $200,000,000 of raw materials out of our $2,700,000,000 purchases Come from Germany, and we have dual sources for all those materials into the parts of the world. So from a supply perspective, We have that one pretty secured. Speaker 1000:40:50Okay, great. I really appreciate that color. I'll pass it on. Thanks. Thank you. Operator00:40:56Thank you. The next question comes from the line of Vincent Andrews with Morgan Stanley. You may proceed. Speaker 1100:41:06Thank you. Good morning. Just Mark, you mentioned in the Q4, you'll have Some new launches, and obviously they'll have a positive impact to revenue. Maybe just want to talk a little bit about those? And then I'm also within that wondering whether 3Q is also incurring some launch costs associated with those new products that you're not going to obviously see the revenue for until 4Q. Speaker 300:41:28Yes. The launches that are coming are mainly herbicides in Europe, which kind of start now, but really pick up steam in Q4. We've got insecticides in Canada that have started now. We're seeing that growth. Obviously, that will continue. Speaker 300:41:43And then we have Quite a number of smaller products in Asia that get launched. I don't think at this point that we're seeing any lumpiness in terms of launch expense. It's pretty much built into our SA and R or SG and A expense as we go through each quarter. We have a very good view of our launch schedule, so we know what's coming. We pretty much spend money on launches About two and a half years before the actual launch itself. Speaker 300:42:11So it's not all of a sudden a step up. It's rather a gradual spend increase as we go over numbers of quarters. So in Q3, it really is not necessarily to do with any launch expense, although there is launch expense Within that SG and A number. Speaker 1100:42:29Okay. Thank you. And Andrew, maybe on the cash flow from operations, I'm sure it will all look a lot clearer once we see the queue. But could you just talk a little bit about sort of how the working capital played out In the first half versus how it's going to trend in the second half to get you to that 67% conversion that you're still targeting? Speaker 400:42:51Yes. Sure, Vincent. I think certainly the big story in the first half is in working in cash flow of working capital. And it's very, very substantial growth in receivables particularly, both from high volume growth, but not the least from the impact of price increases. So those price increases directly inflate our receivables. Speaker 400:43:12So in the first half of 22, the big story and the big difference versus the prior year really is the growth in working capital. Now that said, Given the positive market backdrop, we have good farmer economics around the world pretty uniformly. There are spots here and there as always, but we're in pretty good shape. We've actually seen good collections performance. So the absolute dollars of receivables are going up, but days receivable Improve pretty meaningfully versus the prior year. Speaker 400:43:41As with people having concern about security supply and with very strong and very healthy grower Balance sheets at the moment. We are collecting and collecting aggressively. So we will see the seasonal swing. We have a very pronounced seasonal distribution with working capital, amplified a bit more by the size of prepayments And the North America business, which really is a use of cash in the first half of the year. So in the second half with very high collections I am shift from selling mode to collecting mode in many parts of the world. Speaker 400:44:18That will drive a big reversal and very, very strong Operator00:44:33The next question comes from the line of Steve Brown with Bank of America. You may proceed. Speaker 1200:44:40Mark, you mentioned that 70% of your LatAm orders for the second half are already in place. Do you have visibility on when that revenue will be recognized? You normally have A bigger Q4 in LatAm than you do in the 3rd. Do you have view on how that's going to play out this year? Could there actually be a bit of a shift more into the Q4 that could be an additional contributing factor to The somewhat slow third quarter expectations. Speaker 300:45:22No, not really. When we kind of plan for what we call a normal season, that means in Brazil Planting start sort of mid September to the end of September. That can shift around given weather patterns. So Q4 is obviously a big quarter for us in Latin America, not just Brazil, but Argentina. We've kind of factored that into how we look at Q3, Q4. Speaker 300:45:46I don't think there's anything meaningful there. Obviously, it will depend on how the weather plays out. But I think we have most of that factored into Q4 as we normally do. Speaker 1200:45:58And wanted to drill in a little bit more on the diamide franchise. What fraction of that revenue stream is from direct sales from FMC Versus from your licensees that you have supply agreements with and has that split between those two buckets Changed in the last year as you've been growing the supply agreements. And What does how does that affect price? Is that a mix shift down in price? And more importantly, how does that affect EBITDA? Speaker 300:46:41Yes. So when you look at where we are today, we're in that we're in the range of about It's kind of like sixty-forty, 60 percent FMC branded products into the marketplace, about 40% through our 3rd partner partners. That has obviously been growing as we've added more partners. I think it's fair to say though, we pegged our growth rate for the diamides in sort of the high single digits. In Q2, we grew sort of mid teens, and it's pretty evenly split between both sources of income. Speaker 300:47:16On the price side, we don't talk about the specifics of the individual contracts that we have obviously. But generally speaking, the EBITDA impact for us on a Percent basis is neutral. So we manage it that way. So the growth for us is equally as valuable from an EBITDA perspective From either FMC or from our partners. So I would expect to see that sixty-forty I would expect the forty to continue to grow We've got more partners on board now. Speaker 300:47:46They are obviously now gearing up and selling into the marketplace. I think the most important takeaway that you should Takeaway from this conversation is the 40% as it grows does not detract from the 60% as we grow. It's an expansion of the market pool for the diamides. And as I alluded to earlier on one of the other questions, we see the diamides taking share from A number of older chemistries, whether they be neonicotinoids, some of the pyrethroids and certainly some of the carbonates around the world. Thank you. Speaker 300:48:20Thank you. Operator00:48:23Thank you. The next question comes from the line of Alexey Yefremov with KeyBanc Capital Markets. You may proceed. Speaker 1300:48:34Thanks. Good morning, everyone. Mark, you were talking about costs for Q4 and then your 6 months kind of lag. Do you have any visibility on the Q1? Do you expect costs to decline further from Q4 level in the Q1 of 2023? Speaker 300:48:55Yes. I'll let Andrew pick Speaker 400:48:56that one up, Andrew. Yes. Alexia, I think as Mark described, Since we turn inventory about twice a year, things that we buy today start flowing through our P and L 2 quarters out. So Things that we're starting to buy now, certainly, we're getting a little bit of visibility into Q1 of 2023, but it's not a complete picture yet. We've not gotten through that far of the buying. Speaker 400:49:17Yes. Some of that volume is tilted in different parts of the quarter. I do want to be very careful with the phrasing of the question and that Our expectation is that costs do continue to increase, particularly in the first half of twenty twenty three. They just do so at a much lower level. And what we're seeing from Q4, Q4 is the largest cost actually, Q3 of 2022 this quarter coming quarter, is the largest cost increase we've seen, and the largest cost increases we expect, for the year. Speaker 400:49:48We expect the rate of cost increase to Drop down in Q4, but there still is year on year inflation in Q4. So at this point, what we're seeing is a flattening off in the inflation, But not necessarily yet an absolute drop off in costs. So I think for Q1, we'll continue to see how purchasing goes through the rest of this quarter to see What the outlook for Q1 is, I think at this point, we'd still anticipate some cost headwinds in Q1 and likely into Q2. And then with the opportunity that we start seeing the swing in the second half of twenty twenty three. Speaker 1300:50:26Thanks, Andrew. And as a follow-up, Mark, in the first half, volume gains were roughly the low teens, 11% or so. How are you Optimizing for volume or market share versus profitability and price on the other end and how Frequently do prioritize. If demand is this strong, why is it not worse to raise prices more At a higher profit level and gain less share or less volume or maybe it's not optimal. Speaker 300:51:00Yes. Listen, I think clearly you can look at our price increases and we're targeting that high single digit price increase and we're moving in that direction. For a company like FMC, those are unheard of price increases. I mean, normally, we price kind of in the very low single digits to offset inflation on a general basis. I think when we're looking at the marketplace, we sell products in some of our categories that are extremely high margin You all know the success of the diamides, for instance. Speaker 300:51:32Taking volume from older chemistries with the newer chemistries Adds tremendous value to the bottom line, whether you increase price or not with those products. Sometimes we do, sometimes we don't. It's a mix Of decisions that are made at the local level with the overall mantra that price increases will offset cost. And that's how we've been working this year. So for us, it's somewhat of a complicated discussion inside the company, Except, I would say, over the last year or so, it's changed to be much more aggressive on price. Speaker 300:52:05We have driven price in every region of the world More so than we ever have before. Thanks a lot. Operator00:52:16Thank you. The next question comes from the line of Michael Sison with Wells Fargo. You may proceed. Speaker 600:52:26Hey, good morning. Nice quarter. So just when you think about your volume growth in the second quarter It was pretty impressive, up 14%. EBITDA growth was 3%, and I understand why in terms of the cost that you had on Slide 6. But just Curious, of the $148,000,000 of costs that you occurred in 2Q and maybe in the past, is any of this costs more structural than just Sort of just inflation, you've had to change the way you process some of your materials, logistics are getting more. Speaker 600:53:01So I'm just curious how much of this cost is maybe more structural than just might go away over time. Speaker 300:53:10Yes, Mike. Thanks for the comment on the quarter. Listen, I do think that most of that cost is variable in the sense of its raw materials, Packaging, it's logistics that will obviously ebb and flow, and we expect them to obviously decrease over time. I would say the only structural cost that's been embedded is as we're investing in SG and A Resources And R and D projects that are more longer term. Those are driven around the growth of the company, the market access that I talked about in places like Brazil, Argentina, India, parts of the ASEAN region and in the U. Speaker 300:53:50S. As well. Those are Structural costs because they're headcount, they're investments. The other investments around precision agriculture as we're growing out Our precision ag apps such as Farm Ark Intelligence, those are structural costs. But the vast majority Is what I would call more transient. Speaker 600:54:15Got it. And then when you think about the Q4, it tends to be A quarter which has a wide range for the outcomes for EBITDA and revenue. So just curious, What do you think sort of drives the upper end and lower end of that those ranges? Speaker 300:54:37Well, I think from a revenue perspective, obviously, it would be what does pest pressure look like in some parts of the world. We just talked about the success we had in our North American business. As pressure in Canada was much higher than we normally forecast, That drives demand that gets used immediately. So if you have those series of events around the world, that can drive you to the upper end of the range. Also as we look to expand our market access and the success and the speed of that success that can drive us to the upper end in Operator00:55:21Got it. Thank you. Speaker 400:55:23Thanks, Mike. Speaker 300:55:25Okay. Thank you. Operator00:55:26Thank you. The next question comes from the line of Josh Spector with UBS. You may proceed. Speaker 400:55:35Yes. Hey, guys. Thanks for taking my question. I guess just to follow-up on the Q2 and the volume outperformance. I guess, optically, the volumes did a lot better. Speaker 400:55:44The drop through was essentially pretty minimal given the cost side. I'm not really sure how much of that is higher spend on the incremental volumes or the higher cost for the base. But I'd be curious if you were to have a repeat into 3Q, 4Q volumes a lot better, should we expect a similar result Speaker 300:56:09Thanks, Josh. I'll let Andrew give you the details. But generally speaking, the drop through in Q2 was not far off our average. And we have a wide range of drop through Because it can be affected through different reasons. Andrew, do you want to comment on that? Speaker 400:56:21Yes, Josh. I think, look, there can be a big variation in that the drop through, the Contribution to EBITDA from volume relative to the contribution to revenue growth from volume. On a trailing 4 quarters basis, that was about 58% in Q2. The quarter itself was about 57%. So it's right in line with what we expect. Speaker 400:56:44Our long term average is about 60%, which reflects the high value mix component of our volume growth. A reminder to everyone that in our bridges mix is in volume. You can see significant swings in that because there is lumpiness in cost increase. It's not perfect. It's not a perfect indicator, but I think you should continue to expect that on a rolling basis, That volume drop through to EBITDA should be in that 55% to 60% range for the next several quarters and beyond. Speaker 400:57:18Thanks. I mean, I guess, asked another way, the volume drop through was normal on that bar, but is offset by the cost bar. So if volumes were 5%, 10% greater and you had visibility of what you bought 6 months ago, Would you expect the volume bar to offset the cost bar if you saw volume upside in your forecast? Is there any reason why that wouldn't happen or would be different? Yes. Speaker 400:57:48Josh, I think certainly The stronger volume growth is going to have that pretty healthy drop through, and that will help offset further cost increases. Yes. I think what we've been trying to do is pace the price increases to where price increases cover as much as possible, increasing COGS. And then we make up any investments in SG and A and R and D as well as FX headwinds with volume. But certainly, when you look at The second half together where we're looking at very substantial volume growth, there will be a piece of that, that will help bridge the difference between the cost headwinds and what we're able to cover in price. Speaker 400:58:28Okay. Thank you. Operator00:58:33Thank you. The next question comes from the line of P. J. Juvekar with Citi. You may proceed. Speaker 800:58:44Yes. Hi, good morning. Your top line growth was organic growth was 21% in 2Q, But EBITDA was up only 3%. And you talked about your cost inflation and Raw material cost and all that. I was wondering if you can just break down your raw material cost in sort of 3 buckets. Speaker 800:59:06What's So the inflation from AIs, what are the logistical costs and what maybe other costs like packaging or labor? Can you just kind of break down within those 3 buckets? Thank you. Speaker 300:59:20Yes. P. J, thanks for the question. We don't normally break down those types of costs, But I would tell you that the vast majority is the active ingredients intermediates that we buy, followed by logistics and then packaging. But by far, the biggest chunk is the whole raw material spectrum that we buy. Speaker 300:59:38Do you want to say anything, Andrew? Speaker 400:59:40Yes. Peter, I think, look, As Mark said, that biggest chunk is raw material intermediates and active ingredients we buy. I don't think there's been any There's not a there's an overall category that I'd point to of those 3 big categories, raw materials, packaging and logistics. We've had substantial inflation in all of them. We've had substantial impact from disruption and the need to use secondary and tertiary Fires in all of those. Speaker 401:00:10So I wouldn't point to one of those categories being disproportionately growing versus the other. Speaker 801:00:18Okay. Thank you. And my second question is on your Plant Health and Biologicals. You acquired BioPharo. What are the areas of biologicals that you believe that you have some holes or you would like to make some acquisitions? Speaker 801:00:33And what are the multiples that these biologicals are being bought at these days? Thank you. Speaker 301:00:40Thanks, PJ. Yes, listen, we're building out the technology portfolio. Our biologicals today are really based around microbe technology. Obviously, we've extended into pheromone technology now. We also have through FMC Ventures investments In peptides, which is a whole new area of potential pesticide development, we have a relationship with Novozymes developing enzymes So we feel we have quite a good floor of what we call basic structure around technology. Speaker 301:01:15That will continue. We'll continue to look for M and A opportunities, probably as much on the geographic side of biologicals as on the Technology side because market access here is important. And from a microbe perspective, there's many countries in the world where you can't import microbes, but they're not indigenous to that So therefore, you need R and D and you need development in those countries. One easy way to get that is to acquire it. So it's something we're looking at. Speaker 301:01:42From a multiple perspective, I haven't seen any deals go through in the near term that are indicative. But Andrew, you may have a A better review of that than I do. Speaker 401:01:52Yes. P. J, just a few thoughts on multiples. A lot of the kinds of acquisition targets we are looking at in the biological space Our more early stage. Biofera, for example, where small amounts of commercial revenue, but not large scale sales yet. Speaker 401:02:09So multiple is really not meaningful in considering the value of the acquisition. It really is a case where NPV and IRR really come into play. And certainly as we looked at the acquisition economics for Viafera, the IRR on that transaction was multiples of Cost of capital, so even on a risk adjusted basis very, very attractive. So when we think about the types of targets that are out there, they tend to be smaller companies, More early stage, so traditional EV EBITDA multiples are less relevant in terms of thinking about valuation. Speaker 801:02:46Great. Thank you for the color. Speaker 301:02:48Yes, absolutely. Thank you. Operator01:02:52Thank you. The final question comes from the line of Tony Jones with Redburn. You may proceed. Speaker 1401:03:01Yes, good morning, everybody. Thank you for the chance to ask a question. With all the supply chain dislocation And we've seen this pass shift to local supply or local more local production. From your perspective, have you found over the past year Any sort of regional capacity mismatch? And does that have any implications for CapEx over the medium term? Speaker 1401:03:25Thank you. Speaker 301:03:26Thanks, Tony. No real, what I would call, mismatches, although we are And we have said that we will have a much more balanced supply chain and operation structure as we go forward. When you look at our investments for the molecules that are coming and Putting steel in the ground, we're active in India. We're active in Europe. We're looking at potential toll manufacturers and More tall manufacturers in the Americas. Speaker 301:03:56So overall, I wouldn't say we have a mismatch. But certainly as the industry grows, the need for formulating capacity is something that we're investing in quite heavily, especially in the U. S. To feed our U. S. Speaker 301:04:10Business. So I think that notion of getting your formulating capacity as very local as you can and as close to the customer base as you can It's something that's driving our strategic thinking around manufacturing and operations. Speaker 1401:04:25Thanks. That's really helpful. Speaker 401:04:27Tony, I would just add to that. When you think I think the second part of your question there on the CapEx piece related to this. Yes. Our capital plan had envisioned building out supply chain that was more geographically diverse. Yes. Speaker 401:04:42And that's very much a part of our thinking in terms of having multiple source points and balancing out points of supply. So that has been factored into the way we've been Thinking about the CapEx stepping over the stepping up over the past couple of years, including our CapEx guidance for this year. And I would just also comment when we start talking about formulation plants that those This is not heavy equipment. This is not chemical censuses. It's not trivial, but they're not significant capital investment Compare it to a new AI plan for Speaker 1401:05:14it. That's great. Thanks guys. Speaker 301:05:16Thanks very much. Speaker 101:05:17All right. That is all the time that we have for the call today. Thank you and have a good day. Operator01:05:24This concludes the FMCRead morePowered by