Pinnacle Financial Partners Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 30, 2024

There are 14 speakers on the call.

Operator

Good morning, and welcome to the Q3 2024 Earnings Call for SMC Corporation. This event is being recorded, and all participants are in listen only mode. After today's prepared remarks, there will be an opportunity to ask questions.

Operator

I would now like to turn the conference over to Mr. Curt Brooks, Director of Investor Relations for FMC Corporation. Please go ahead.

Speaker 1

Good morning, everyone. Welcome to FMC Corporation's 3rd quarter earnings call. Joining me today are Pierre Rondeau, Chairman and Chief Executive Officer Andrew Sandifer, Executive Vice President and Chief Financial Officer and Reynaldo Pereira, President. Following our prepared remarks, we will take questions. Our earnings release and today's slide presentation are available on our website, and the prepared remarks and today's discussion will be made available after the call.

Speaker 1

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 and organic revenue growth, all of which are non GAAP financial measures. Please note that as used in today's discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA.

Speaker 1

A reconciliation and definition of these terms as well as other non GAAP financial terms to which you may refer during today's conference call are provided on our website. I'll now turn the call over to Pierre.

Speaker 2

Thank you, Kurt, and good morning, everyone. Before we get into the details of the Q3 and the forward guidance, I want to start by giving an overview of the company's performance and our view of the current market conditions. Overall, we reported strong Q3 with growth at the top and bottom line. The quarter unfolded mostly as expected in Europe and Asia. However, we operated in the weaker than expected market landscape in Latin America, which was offset by a stronger than anticipated performance in North America.

Speaker 2

Latin America faced some unanticipated challenges this quarter, but we still delivered growth. Markets in Brazil and Argentina were more challenging than expected due to the delayed rains and increased borrowing rates. The bankruptcy of a large customer in Brazil added specific challenges for FMC. Given that we believe we are only a couple of quarters away from a more normal market situation, we decided to take pricing actions to maintain a market position. In fact, about 2 thirds of the total company price decline in the quarter came from Brazil and Argentina.

Speaker 2

The rest of the region performed at or above expectation. While conditions are improving, it is clear that Latin America has not yet emerged from the down cycle as distributors and growers continue to manage their inventories carefully. On the other hand, North America performance was stronger than expected. More than half of the region sales growth was due to increased order by diamide partners. I would add a note of clarification here.

Speaker 2

While the sales to these partners are recognized in North America, the final product is not always sold by the partner in that region. This creates the potential for North America sales to appear higher at the expense of other regions. The North America region also benefited from distributors shifting purchase from Q4 into Q3 in response to lower than expected inventory levels in the channel. On the product line front, Syazapyr, 1 of the 2 diamide products, reported growth in every region and was the fastest growing molecule with 58% higher sales than the prior year. Strong branded Cylazapyr sales and increased orders from the partners led to the diamides outperforming the overall portfolio.

Speaker 2

As we mentioned on the Q2 earnings call, the performance of new product is critical to a second half growth expectation. These products include new formulations of the diamides as well as 2 of the 4 new of the 4 brand new active ingredients we highlighted during our Q2 earnings call. Fluentapyr based fungicide and herbicides containing IsoFlex Active are already receiving strong interest and demonstrating their growth potential. We expect combined sales of Fluidapeer and Isoflex based products to reach over $100,000,000 in sales in the second half of the year. The launch of Fluentapyr is especially important as fungicides are a product category in which FMC has historically been underway.

Speaker 2

These products are opening up new markets for FMC. As I mentioned earlier, we saw more challenging markets than expected in Latin America, especially Brazil and Argentina. With expected channel inventory improvement on the horizon, we made the conscious decision to protect our market share in those countries even if it created price pressure beyond what was forecasted. This strategy is validated by North America, where price pressure was the lowest this quarter as its channel normalized. Looking ahead, our view on the timeline of channel inventory recoveries is relatively unchanged from what we communicated during our August earnings call.

Speaker 2

The U. S. And most countries in Europe are normalizing the fastest, and Latin America is expected to be much improved in the Q2 of 2025. Asia markets are still expected to be challenging in 2025 with no recovery expected until 2026 as India continues to work through excess channel inventory. On a cost basis, we are accelerating the delivery of savings and increasing our targets.

Speaker 2

We are now targeting cost benefits from restructuring of $125,000,000 to $150,000,000 to be reflected in the P and L in 2024 with greater than $225,000,000 of gross run rate in 2025. To accomplish this, we're accelerating restructuring, taking new critical initiatives to realign our manufacturing footprint and using attrition as a key tool to drive further savings. We are confirming our full year guidance adjusted for the sale of the Global Specialty Solutions business, which we are now expecting to be sold in early November. This translates to 4th quarter sales growth of 19% at the guidance midpoint. Despite continued channel inventory issues in India and less than optimal early season conditions in Brazil and Argentina, we are confident in our ability to deliver on our guidance based on our strength of our new products as well as cost benefits from the restructuring actions while market conditions improve.

Speaker 2

With that, let's review the company's 3rd quarter performance in more detail. Slide 3 through 5 provide an overview of the 3rd quarter results. Sales growth of 9% was above the midpoint of the guidance range with organic sales growth of 12%. Volume grew by 17%, led by Brazil and the U. S.

Speaker 2

In addition, sales to diamide partners grew strongly in North America. Pricing was lower by 5% with approximately 2 thirds of the decline attributed to Brazil and Argentina due to the challenging conditions I mentioned earlier. On a regional basis, North America sales increased 48% because of strong volume growth. Insecticides delivered significantly higher sales due to increased order from Diamis powder and gains in branded sales appear products. Latin America sales grew 8% with 15% growth excluding currency.

Speaker 2

Sales were higher across all product categories due to volume growth versus the prior year period, mainly in Brazil, more than offset lower pricing and FX headwinds. New products were a key factor to growth, most notably from the Fluenda peer based on SUVA fungicide now commercialized in Brazil, Argentina and Paraguay. We also saw increases in the new diamide formulation Coragen EVO in Argentina and the sifentrazone based herbicide Borofuel in Brazil. The robust sales of new products in the challenging market environment reflect the strength of FMC R and D pipeline. In Asia, the 10% sales decline was mostly due to lower sales in India.

Speaker 2

Destocking in that country's channel is making good progress aided by favorable weather. Finally, in the EMEA, sales declined 7%, driven by lower volume from expected registration losses. Branded diamides showed very strong growth, especially Exireal in Germany. Excessive wet weather in Central Europe acted as a moderate headwind, especially in herbicides. Turning to Slide 5.

Speaker 2

Adjusted EBITDA grew 15% year over year, above the high end of our guidance range. Increased sales volume, FX tailwinds and above target cost savings from restructuring more than offset lower pricing and unabsorbed fixed cost from prior periods. Slide 6 provides an update on these restructuring actions. We are pleased to report continued solid progress on this front. As I stated in my opening, we now expect cost savings of $125,000,000 to $150,000,000 delivered to the P and L in 2024 with gross run rate savings greater than $225,000,000 in 2025.

Speaker 2

Earlier this year, we announced our agreement with Enview to divest our global specialty solutions business for $350,000,000 We expect this deal to close in early November. As such, we are confirming a full year guidance less the foregone revenue and earnings from this business after the sale closes. This equates to an impact of $20,000,000 in revenue and $10,000,000 in EBITDA. This adjustment for GSS has been made to the full year outlook on Slide 7. Other than this adjustment, the outlook for the full year remains unchanged.

Speaker 2

We expect revenue to decline 2% as volume growth is more than offset by lower price and FX headwinds. EBITDA is expected to be lower by 8%, and growth in the last 9 months of the year is not expected to fully offset the lower results from the Q1. EPS is guided to be lower by 12% at the midpoint from lower EBITDA. Slide 8 provides our expectations for the 4th quarter, which has been revised from the prior guidance to adjust for the GSS sale and the over delivery in Q3. At the midpoint, we expect revenue growth of 19%, driven by higher volume in all regions.

Speaker 2

Price is expected to be a big single digit headwind as challenging market conditions persist mostly in Asia and Latin America. FX is expected to be a low single digit headwind. New products are expected to be a key contributor to growth, including new formulations of diamides across the region such as Cora Genivu in Argentina fungicides such as Onsula in Brazil and Sywo in the U. S. And AZUGRO in Brazil, the herbicide based on isoflex active.

Speaker 2

New product sales are expected to contribute about half of the sales growth for Q4. They are key to overall growth as they were in the Q3 performance despite suboptimal market conditions. EBITDA in the quarter is expected to grow by 32% at the midpoint due mainly to higher sales as volume more than offsets lower price and FX headwinds. The unabsorbed fixed cost and sell through of higher cost inventory that have acted as COGS headwinds for most of the year are expected to have a much smaller impact in Q4 and will be more than offset by lower raw materials and restructuring benefits. EPS is expected to grow by 54% at the midpoint, mainly from higher earnings.

Speaker 2

I will now hand the call over to Andrew to cover some financial items including our cash performance and outlook.

Speaker 3

Thanks, Pierre. I'll start this morning with a review of some key income statement items. FX was a 3% headwind to revenue growth in the Q3, largely stemming from the Brazilian real. For the remainder of 2024, we anticipate continued low single digit FX headwinds at revenue, again driven primarily by the Brazilian real. Interest expense for the Q3 was $58,700,000 down nearly $6,000,000 compared to the prior year period, driven by lower debt balances.

Speaker 3

For full year 2025, we continue to expect interest expense to be in the range of $235,000,000 to $240,000,000 essentially flat year on year at the midpoint with the impact of higher rates on domestic debt offset by lower overall borrowings. We've lowered our outlook for effective tax rate on adjusted earnings for full year 2024 to a range of 13% to 15%, reflecting improved clarity on the impacts of recent tax law changes on FMC's 2024 tax rate. In light of this, our effective tax rate for the Q3 was 11.8%, bringing our year to date accrual for income taxes in line with the 14% midpoint of this range. Moving next to the balance sheet and leverage. Gross debt at September 30th was approximately $4,100,000,000 down $110,000,000 from the prior quarter.

Speaker 3

Cash on hand decreased $55,000,000 to $417,000,000 resulting in net debt of approximately $3,700,000,000 Gross debt to trailing 12 month EBITDA was 5.0x@quarterend, while net debt to EBITDA was 4.5x. Relative to our covenant, which measures leverage with a number of adjustments to both the numerator and denominator, leverage was 5.0 times as compared to a covenant of 6.0 times. As a reminder, our covenant leverage limit will step down to 5.0 times at December 31, 2024. We expect covenant leverage to be approximately 4x by year end, reflecting both year on year EBITDA growth in the second half as well as the receipt of proceeds from the sale of our Global Specialty Solutions business, which as Pierre noted earlier, is expected to close in early November. We remain committed to returning our leverage to levels consistent with our targeted BBB, Baa2 long term credit ratings.

Speaker 3

We will do this through EBITDA growth and disciplined cash management with all discretionary free cash flow directed towards debt reduction until we return to our targeted metrics. Moving on to free cash flow on Slide 9. Free cash flow in the Q3 was $132,000,000 an improvement of $100,000,000 versus the prior year period. Improved cash from operations and lower capital additions more than offset somewhat higher legacy and transformation spending resulting from our ongoing restructuring program. Year to date free cash flow of $225,000,000 is an increase of over $1,000,000,000 compared to the prior year period.

Speaker 3

Cash provided by improved accounts payable and inventory more than offset increased cash used by receivables, lower EBITDA and restructuring spending. We continue to expect free cash flow of $400,000,000 to $500,000,000 for full year 2024, driven by significant cash release from rebuilding accounts payable and reducing inventory, partially offset by higher accounts receivable due to revenue growth in the second half of the year. I'll now hand the call back over to Pierre for some closing comments.

Speaker 2

Thank you, Andrew. The crop protection industry is in the process of recovering, although at different paces depending upon the region. In this context, we delivered on a Q3 target and have a positive momentum heading into Q4. The growth embedded in the guidance we put forward for the Q4 is sizable, but it is centered largely around sales of new product and improved costs, both of which are real under our control. This should pave the way into 2025, where we continue to expect solid earning growth driven by cost favorability along with moderate top line growth as demand continues to recover.

Speaker 2

Before we open up for Q and A, I want to provide a brief look forward to our earnings score and 2 key areas we'll cover. I mentioned on our August call that we're introducing 4 new active ingredients and developing a post patent defense strategy for diamide. At our next call, we will focus on these two pillars of growth and how they will contribute to the new 3 year target, which will demonstrate the strong revenue and earning growth potential for the company. With that, we are now ready to take your questions.

Operator

We will now begin the question and answer session. The first question comes from Joel Jackson with BMO Capital Markets. You may proceed.

Speaker 4

Good morning. Pierre, Andrew, you were very gracious a few months ago to give some building blocks for what the bridge for 2025 to look like. I was hoping if maybe you could give an update on that. So I think you talked about targeting 6% revenue growth next year, which would be volume growth with maybe some price contraction and flattish pricing, talk about $150,000,000 to $200,000,000 of cost favorability, talked about $35,000,000 of lower EBITDA, of course, in

Speaker 5

the sale of the GSS.

Speaker 4

Are you able to update those numbers or reiterate today?

Speaker 2

Thank you, Joel. Yes, we pretty much have the same view for 2025, but let me maybe give you some more detail around our latest thoughts. So yes, we are we believe in a growth of around 6%, 6% range next year. This being said, when we say 6%, we made no assumption on pricing, which was pretty much pricing flat and didn't make any assumption on FX. At this stage, could we be facing more challenging pricing?

Speaker 2

Possible. But frankly, we do not know yet. We have not been able to go deeper into those considerations. On the other hand, on the positive front, I think with the progress we have made on the cost front, we are heading more to the higher end of the range we gave at the last earnings call, so closer to the $200,000,000 than the lower end. So CL 6% range, undefined pricing situation at this stage.

Speaker 2

We're not able to make assumptions. We need to see how Q4 is going to be unfolding and maybe stronger savings than we were expecting and toward the higher end of the range.

Operator

The next question is from the line of Alexey Efremov with KeyBanc Capital Markets. You may proceed.

Speaker 6

Thanks and good morning everyone. Pierre, I mean you stated that Latin America was worse than expected in Q3. Is it getting any better in the Q4? And also if you could just describe why Q3 was worse? Specifically, was it more weather issues?

Speaker 6

Was the drought in Brazil? Or was it just fundamentally the market is weak due to low crop prices?

Speaker 2

Yes. I think Q3 was a bit more difficult than we were expecting for multiple reasons. First of all, I think that the weather did not help the beginning of the quarter with delayed rain. Rain came in and it's actually right now in a pretty good situation. But in Q3 and beginning of the quarter, it was delayed.

Speaker 2

I think overall, the pricing situation remains challenging. The region is still with a channel inventory situation, which is in a couple of quarters before going to normal. I also think that it was a bit more difficult for FMC than some of the competitors for multiple reasons. Versus where I was when I gave the first call, just a couple of months coming back, I am more and more convinced that FMC was later than some of the other competitors in adjusting pricing. So I believe we've lost market share More toward some of our peers like the Bayer BSF or Syngenta of this world, there is pressure from generics, but I don't see a big change versus the past.

Speaker 2

But the lack of adjusting of pricing is forcing us to keep a market share. And while making the intentional decision to keep a market share, we had to accelerate pricing adjustment. On top of that, we had to do it in the face of losing a very large customer. You know about the bankruptcy of a large distributor. We were highly exposed to that distributor and we clearly not wanted to lose that volume.

Speaker 2

So we had to go get that volume elsewhere. And there is always a price to pay when you have to go to find 2 other customers, what you lost from 1. So all in all, the situation was not helping with increased rates, weather, delayed rain, the loss of a large customer for us and the deliberate decisions we have made to stay where to keep our market share position and maybe get back more to all the market share we had pre downturn than where we are today.

Operator

The next question is from the line of Kevin McCarthy from VRP. You may proceed.

Speaker 7

Yes. Thank you and good morning. Pierre, can you elaborate on the forward price trajectory? Maybe you can comment on your experience in diamonds versus non diamonds. What is behind the competitive intensity that you alluded to?

Speaker 7

And what does the path to 0 price look like in your crystal ball as we progress into 2025?

Speaker 2

Certainly, yes. I think the pricing situation is the way we look at it, we believe that the number one correlation to pricing is the state of the channel. Certainly, farm income has an impact. But by far, when you are in a shrinking market and all of us suppliers of product trying to retain market share, you create a competitive situation, which has a negative impact on pricing. So that's why we wanted to stand our ground in Latin America because we do believe that pricing the strongest correlation is with the state of the market.

Speaker 2

And that's why we saw maybe the lightest pressure on price in North America, while Latin America and Asia were the place where we had the highest pressure. Diamides, there is no more pressure on pricing in diamides, except maybe in places where we are in countries where there is not the same consideration for a patent protection. And I'm mostly talking about India and China. In other places, the pricing situation is not worse for diamides than it is for other products. It's even better when the in the countries where there is a stronger respect for patent protection.

Speaker 2

Going back to 0, I think it's going to highly depend upon the recovery of the market. I do believe that the price pressure will be way less when we get to a more normalized cycle. And right now, crystal ball, I would see price pressure lighter potentially in the second half of twenty fifteen. That is when we should be in a situation where most of the regions, maybe beside Asia, will be in a more normal situation from a channel inventory standpoint.

Speaker 7

Thank you very much.

Operator

The next question is from the line of Stefan B. Byrne with Bank of America Merrill Lynch. You may proceed.

Speaker 8

Yes. Thank you. With respect to your volume gain in North America, can you split that into 3 buckets? How much of that increase was to your diamide partners? And then for the balance that's targeting the North American market, what fraction do you sell to wholesalers versus retailers that sell directly to growers?

Speaker 2

The growth to diamide partners, I think, is as a percentage of diamide growth, it's going to be more than half of the growth of the diamide. In terms of the selling, I would say 100% of the sales are going toward the wholesalers. Then from this point, it goes into the channel toward the growers, but wholesalers represents our customer base.

Speaker 1

Thank you.

Operator

The next question is from the line of Laurent Favre with BNP Parampas. You may proceed.

Speaker 9

Yes. Good morning. Ken, my question is around R and D. And I think of the cost reduction plan, there's about €50,000,000 I think this year that will come from lower R and D. I was wondering if you could talk about the approach that you're taking there, whether the reduction is temporary or whether you're actually structurally being more selective in the areas where you're investing.

Speaker 9

Thank you.

Speaker 2

Yes. Thank you. I think it's more of a sustainable cost saving. We might decide at some point in the future to increase because of specific reasons. But let me talk to you about how and why we are reducing our R and D spending.

Speaker 2

First of all, just to make sure we are very clear on this one, there is absolutely no impact on the launch of the 4 products, new molecules, Ronaldo described at the last earnings call. 2nd of all, a large part of the saving is coming from the discovery part of our process. We have now a process where we are much more strict on the decision to hold in the pipeline in discovery low probability products. We had a tendency maybe to keep them longer and usually it comes with significant expenses. And we have a process which allows us to go faster in making those decisions.

Speaker 2

We also have developed better screening tools. And I think I wasn't there, but I think they were presented at the Investor Day. But those are also allowing us to make faster and better decision in early stage research. The last point is we've changed the governance process for R and D. You know that about if you take the spending in R and D about half goes to central R and D and half spending goes to regional R and D.

Speaker 2

We are increasing the coordination between the original research center and the central research center in allow in order to make sure we do not have duplication and we create synergies. So we are just changing the way we work to make those saving not negatively impacting the quality of our innovation pipeline, but at the same time reducing our cost. Thank you.

Operator

The next question is from the line of Josh Spector with UBS. You may proceed.

Speaker 10

Yes. Hi, good morning. I wanted to ask a couple of things about volumes. So 3Q came in better than expected. You talked a little bit about pull forward, but your 4th volume guidance is still kind of the same ballpark, mid-20s ish plus year on year growth.

Speaker 10

So one, what happened there? Is there any increased confidence, I guess, in Q4? And then related to that is with the diamide sell in North America, Is that a headwind we need to worry about next year? Or is that not at the magnitude where that's a risk? Thanks.

Speaker 2

I think regarding sales, we pretty much took our full year forecast we gave in Q2 and remove the sales, which we knew were expected to be delivered in Q4. So we just took the over selling in North America and removed that from a full year target in order to stay at the same level we were initially planning, of course, adding the correction for the GSS business. Regarding diamine in 2025, I must confess that we have not yet done a 2025 precise budget. We are in this process right now. We are going through it.

Speaker 2

It's complex because we have to look at all of the branded diamides and the sales with the partners, all of those negotiations are taking place right now. I cannot answer specifically on the year on year growth of diamide in 2025 versus 2024 at this stage. I almost have one certainty is that sales at here will be doing very well in 2025. It's a product, it's a good product. We have a very, very strong demand.

Speaker 2

There is very little competition. There is no generic. But the overall diamide, runexapyr plus salesapyr, it's a bit early for me to comment until we've moved we're more advanced in terms of a contract with our partners.

Speaker 3

Okay. Thank you.

Operator

The next question is from the line of Chris Parkinson with Wolfe Research. You may proceed.

Speaker 11

Good morning. Pierre, just thinking about things, I'm not going to ask you to forecast the weather for 2025. But at the same token, how should we be thinking about the new product introductions in terms of the cadence in the 25% as that relates to the growth rate you've already given as well as your own registration losses? And as just a real quick corollary of that second part, do you view your competitors' registration losses or likely registration losses over the next 2 years as more of a potential tailwind for your new products? Thank you.

Speaker 2

I think those are 2 separate events. We have the registration lots, which are mostly happening in Europe, where we know it's been there for many years. And so it's going to be part of the forecast going into next year. And then there is the new product. New products usually more than cover on a global basis, whatever registration loss we have.

Speaker 2

The new product also we are introducing next year and especially Fluindapyr and Isoflex. Those 2 molecules will be a little impacted by the channel situation. Those products are not in the channel. They are new. So pretty much we believe will be required will be sold.

Speaker 2

So on balance, 2025 is going to rely the growth, going to rely a lot on new product. We do not believe it's hard for us to think about taking into account potential whether it's hard to do, but that's one of the part which will be the most certain parts of our forecast will be the new product. Registration loss, we usually know them pretty well in advance, especially for Europe. So we're expecting the balance of the 2 to be a significant positive. The more question we have looking to next year is how fast the channel will recover and the overall growth of the portfolio.

Speaker 2

As I said, we are not excluding a big bump in H2 2025. We just can't predict it. Ronald, do you have any other comments around new products and the registration side?

Speaker 5

What I can share is where these products are expected to be sold in 2025. So registrations, Pierre already mentioned the importance of Europe. That is already embedded in our plans. You asked, Chris, about whether or not we benefit from those. The overall market in Europe has been flat despite of the registrations.

Speaker 5

So I think the short answer is yes for the products that remain in the market. There is an increased opportunity because of the lack of options driven by those registration losses across the entire industry. Same way that sometimes it hits our products, it also benefits us throughout the quarters. We for next year, we expect Fluenda Pier to continue to grow. And I think the number one geography for that product will continue to be LatAm followed by U.

Speaker 5

S. That means that most of that growth should come in the second half of the year just because of seasonality in LatAm. The U. S. Portion of that will come probably between the 2nd Q3 of 2025 in U.

Speaker 5

S. We also expect to launch the first launches in Europe for Isoflex, but that is more on the UK side, the broader Europe registration we expect in a couple of years. So not for 2025, but for the near term future.

Speaker 11

Thank you for the color.

Operator

The next question is from the line of Simpson Andrew with Morgan Stanley. You may proceed.

Speaker 12

Thank you and good morning. Maybe on the Q4, I just want to dig into 2 things you mentioned before. First on the incremental cost out that you announced, how much of that was already achieved in the Q3 and how much of that can you count on for 4Q? And then at the same time, you referenced 4Q being heavily a function of new product introduction. What's your visibility on those sales or those orders?

Speaker 12

How much do you already have in hand versus how much are

Speaker 1

you still waiting to achieve?

Speaker 2

Maybe I'll take the saving and Realdo, you'll take the orders in hand. I'm going to do all right, I'm going to do high level math under the control of my CFO here. So you correct me, Andrew, if I'm not correct. So off the top of my head, we saved $50,000,000 of saving in H2. So think about it that way roughly.

Speaker 2

We beat in Q3 by $20,000,000 EBITDA. $10,000,000 came from sales, which were higher than expected. And we also faced about a $20,000,000 price decline. That leaves you lead to about a $30,000,000 saving. So your $20,000,000 bid is plus sales in 10, plus $30,000,000 in saving, minus $20,000,000 in price.

Speaker 2

So which means that for the remainder of the year for Q4, we're expecting about $20,000,000 So the $30,000,000 in Q3, dollars 20,000,000 in Q4 is about the break I would see for the overall $50,000,000 like additional savings. Andrew is not reacting, so it must be about right. It's about right, Pierre.

Speaker 5

So that's for the orders. We track that more closely in Brazil, as you know. The other countries, we tend to get the orders and start shipping right away. In Brazil today, we have about 40% of the orders that we forecast for the quarter. This is better than we had last year, and it's lower than we had in the best years in the region.

Speaker 5

So it's more or less in between, which is in line with our view that, that market is still recovering. But once again, about 40% of the orders that we need for the quarter.

Operator

Okay. Thanks

Speaker 12

for all the detail. Very helpful.

Operator

The next question is from the line of Jebus Zekauskas with JPMorgan. You may proceed.

Speaker 13

Thanks very much. We think that prices or it may be the case that prices of technical grade, CTPR, active ingredient in your diamides in China have fallen from maybe, I don't know, dollars 350,000 a ton to $30,000 a ton over the past 2 years. And it may be that new product registrations have, I don't know, tripled or quadrupled over that time. What do you see if you think that's true, what do you see as the analytical significance of CTPR prices coming down so sharply in China? And if you can remind us how big is your diamide business in China roughly?

Speaker 13

And what's happening to it in terms of prices and volumes?

Speaker 2

I'll have Ronaldo helping with that question around the pricing. The size of the China market for us in terms of the AMI is small. It is not a major, major market for us. But, Renaldo, on the pricing, do you want to make your comments?

Speaker 5

We have seen different references for pricing, way more references that we have seen products flowing around the world. So it's still unclear in terms of capacity and how much of that those prices are real or not. What we have seen is in 2 the 2 markets that they are commercializing, China and India, as you pointed out, the prices have come down. I'll just make a correction for the price that he mentioned. It's for the kilo of technical product, not for the ton of technical product.

Speaker 5

We do believe though that some of the prices that we have seen in reference are lower than the production cost of even the low quality providers, which would suggest more of a dumping of existing inventories in the market. We back calculate how low it can be and some of those products are being offered, not necessarily sold, but offered at costs that are lower prices that are lower than the production cost. So I think that gives you a sense of how we think about this going forward. We do not believe those are the stable prices of the diamide.

Speaker 2

I think I want to and I hate to do that, but we are truly doing a deep dive in our diamide strategy. We intend to be very open at our February call on what future we see for diamide. We're actually pretty optimistic, but we're going to have to explain how we see a way to expand this market. I am not right now too much concerned by the kind of pricing we see in India or China. As Ronaldo said, a lot of inventory was built, which could not be sold because we won multiple litigation in other countries, creating very, very high inventory people had to get rid of at price which seem to be incredibly low versus even a low manufacturing cost.

Speaker 2

As part of the diamide strategy, we do have a we're working on a very aggressive manufacturing cost roadmap, allowing us to compete in a different way. So all of that is being put in place right now. We do have time because beside China and India, we do not have to worry about this kind of pricing, which do not seem to be sustainable and be the pricing we'll be facing when we are off patent in the future in the regions where we are competing. So, hate to that to you. I think it's a very valid question, but I want to come with a more complete and solid answer on diamide at the February call.

Speaker 13

Well, if I could follow-up, just in terms of descriptively what's happening to your business. In Asia, what's happening to your diamide volumes and prices quantitatively, roughly?

Speaker 2

So right now, what is happening to a market to a diamides market right now, okay? And it's difficult because we are combining a situation where we have 2 countries which are accepting illegal sales of products, below production cost in the middle of a downturn. So it's not a very normal situation. But today, overall, diamide growing, driven by very strong demand of cyazapyr. I think when we talk diamides, we have to separate cyazapyr from ronaxapyr.

Speaker 2

Onethree is selazapyr, twothree is ronaxapyr. Selazapyr is growing very fast. Ronaxapyr is because and mostly because of Asia has a negative growth in the low single digits globally, driven by Asia. So think about it overall growing positively. But at the same time, I think our overall market for diamide globally is up 10%.

Speaker 2

It's driven by sales appear being up in the 50% to 60% and runex appear down in mid single digits driven by Asia. That's what is happening today to the overall diamide portfolio. Thank you

Speaker 13

very much.

Speaker 2

Hope to answer your question.

Speaker 13

Yes. Thank you.

Operator

The next question is from the line of Laurence Alexander with Jefferies. You may proceed.

Speaker 8

Good morning. Could you just characterize how your production capacity is positioned for the signals you're getting from the distribution channel? That is, do you have any product areas where capacity is down and you won't be able to ramp up fast enough to meet what distributors are saying they may need this winter? Or do you think you're appropriately positioned to get the full operating benefit and the leverage that would come with a restock cycle?

Speaker 2

No, I think we're good. We do have capacity now that being said. We are much more, I would say, manufacturing is much busier than it was a year ago. Most of the lines are actually operating, but we do have capacity to face the demand to come and the increase we are facing. So we are not concerned about capacity.

Speaker 2

From a raw material supply, we are also in a good shape. We are securing the product we need. As we said before, it's going to be a tailwind going into next year. But this is not a concern at this stage. Thank you.

Operator

Thank you. The final question comes from Patrick Cunningham with Citigroup. You may proceed.

Speaker 6

Hi, good morning. Thanks for taking my question. Just on the pricing challenges in Latin America, how should we think about additional incremental incentives to gain or maintain share in the Q4 and perhaps any into 2025?

Speaker 2

Yes. So the forecast we've made for this the Q4 includes a mid single digit price decrease year on year for the Q4. We still believe we are in a challenging situation. We still believe there are going to be price pressure, I would say, until the end of the Q2 of the season, which is the end of the Q1 in 2015. I believe the pricing pressure is going to start to relieve significantly when we as we move into 2025.

Speaker 2

As we say, the pricing is linked to how competitive the situation is versus the market. Plus, as I said before, it is very much also an FMC situation where we decided to reposition our market share where it was pre downturn and we had to do what we had to do to get to this position. So Ronaldo, maybe you want to comment on anything else specific on pricing in Latin America?

Speaker 5

Particularly in Brazil and Argentina, what I can share is there are some products that we have been very stable in terms of market share traditionally. I can talk about sulfentrazone and sugarcane, malathion and cotton. Those are products that are very traditional products from FMC and those are the products that we priced at a point that we allowed growers to make a decision on replacement. And we are now fighting back for share, getting back to the share that we had before the downturn on those products. So there are specific so our pricing actions are specific to some products.

Speaker 5

They are primarily very traditional products in our portfolio And it takes us back those actions take us back to the share that we used to hold before the downturn of the industry.

Speaker 2

And I will just add something I've already said and it's been because there has been many comments. Generics are not the drivers of what we do. Generic pressure is here. It's always here. But there is nothing which has fundamentally changed the last couple of quarters versus where it was before.

Speaker 2

It is truly positioning our pricing against our peers, competitors, also technology based, where we think we've lost ground from a volume standpoint because of a more aggressive pricing strategy we need to reset.

Operator

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

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Pinnacle Financial Partners Q3 2024
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