— 2024 Q1

Yes. Thanks, Vincent. Let me just expand on the Q1 comment, first of all. We did highlight, obviously, a distributor arrangement that we changed in Argentina. We talked before about being very careful how we do business in the Southern Cone and in Brazil. We've been very -- extremely diligent in protecting our balance sheet. We saw an issue with a distributor that we had in Argentina, and we decided to take material back from that distributor and that relationship. So that's the type of activity that, yes, it slowed down the top line. But from a balance sheet perspective, it was absolutely the right thing to do.

This is Ryan on for Aleksey. Just a quick one for me. Can you guys talk about the level of pricing for your brand in diamides versus the rest of the portfolio? Just any color there would be helpful.

Yes, we don't give pricing for our products versus other parts of our products. I think you all know that the diamides are a very healthy franchise for FMC, continues to be so. When I look at Q1 and I look at this year, we expect that diamides will perform better than the overall portfolio. We did highlight in the release that our diamides in Brazil grew double digits in Q1 and that is against a very difficult backdrop. The reason they grew is exactly what we said we would do in November at the Investor Day. We're producing new formulations that are differentiated, and they are being accepted by the market. Premio Star is a brand-new insecticide for soybeans, and it has been well attended in the marketplace. That allows us to move from the older products to the newer products and gain market share and growth.

This is Harris Fein on for Chris. Just a quick one for me. In North America, obviously, volumes were down on a tough comp pretty significantly, but you still held price flat. Just curious what your thoughts are on potentially adjusting the rebate structures to get volume slowing again. Is that something that you think could be necessary or that you're exploring?

No. When we look at the portfolio, I think one of the facets that's kind of getting missed in FMC's North American business is just the sheer mix change that's going on there, something like 25% of our revenue has come from products launched in the last 5 years. That's probably the highest of any region we have in the world. The North American team has done a great job in introducing new insecticides based on the diamides, introducing brand-new fungicides, such as the one I mentioned, Xyway and Adastrio. This is new market opportunities for us. Generally speaking, when we introduced those new products, they are at a higher price point and a higher profitability point, they're bringing new attributes to growers. So when we change that mix, obviously, we see the business starts to change.

Andrew, do you want to make a comment?

Yes. Thanks, Josh. Look, I think you have to look at the price of where we are and the overall progression is correct. We have downward prices movement in Q3 and Q4 of last year as well as in the first quarter of this year with overall low single, mid-single digit, minus 3% in Q3, minus 5% in Q4, low single digit, mid-single-digit kind of price ranges overall, but with a significant amount of pricing being in Latin America. As we finished the season, we will be going into the new season in the fall, anniversarying very significant price reductions in Latin America. So we're not anticipating that there's big shifts and less price as we go into the new season given where we already are.

Yes. Thanks, Adam. Yes, India is -- it's a very important market for us and one that is facing its own individual challenges, not necessarily related to the same reasons as the rest of the world is facing, the channel inventories. I would say India is almost unique in the sense of the channel inventory pressure that we face there is purely due to weather and dislocated monsoons over the last few years. We're not the only market participant to comment on this. Others have also commented on it. It's an industry-wide phenomenon. And it's just time that takes us to get through that. The monsoon in the last season was not great. We're hoping for better weather conditions as we continue through the rest of the year.

Yes, absolutely, Kevin. Thanks for the question. I'll make an overarching comment and then Andrew, if you want to jump in with some different views. Yes, we peaked inventory basically around about August last year internally. And we've been obviously on a track since we first came into this channel destocking to really remove inventory as fast as we could. We're getting close to the point. We're not quite there yet. We're getting close to the point where at the macro level for our inventory, we're going to be pretty much where we want to be. We do have pockets, however, where our inventory levels are lower than they should be. And hence, we're now bringing back up manufacturing.

Yes, certainly, Kevin. I think we're certainly mid-innings in the journey and getting our own inventory in the right place. As Mark pointed to, we -- our reported inventory at June 30 was about $2.1 billion. We're down to just under $1.6 billion this quarter. We have another couple of hundred million to go. It won't be a one big step. It will be very -- it will be bit by bit because I think there's a very delicate balancing of ramping up production, as Mark mentioned, particularly for products where we are already in short supply and balancing it with the inventory we have on hand and its sell-through. This is a part of the algorithm for generating free cash flow this year as we ramp up that production, build up our payables back to more historically normal levels, but maintain inventories that are more in line with our current sales level. So there will be -- it won't be one big step, but through the rest of the year, you should expect another couple of hundred million of inventory to come out of our balance sheet and that will translate to a contribution to free cash flow generation for the year.

Yes. Andrew, just I'll add one comment, Kevin. Andrew mentioned here that it's what we call the fine balance. I call it a fine balance, find dense. Remember, we have to go to our raw material suppliers and ask for products to feed this pipeline. And many of them are in the same position that we are. In other words, they have their manufacturing shutdown. I think you know that this is a very, very complicated supply chain and quite long. So this whole notion of how product flows from our suppliers to us, to the customers.

Yes. Thanks, Joel. Yes, new management in Brazil. It's the first time that FMC in a very long time has brought somebody in to be the president of the region from outside the company. We have a very robust human capital process inside the company where we develop talent and move them around the world. We felt now was a good time to bring in talent from the outside, and we brought in a very experienced industry veteran, who has both crop protection background, but also retail and distribution background. So we're getting the best of both wells there.

Andrew, do you want to make some comments?

Yes, Steve, it's Andrew. Thanks for the question. First, just to put some of this in context, I think Q4 is the -- Q1, excuse me, Q1 of '24 here is the last quarter where we're comparing to a pre-channel inventory disruption world, right? As Mark mentioned earlier, Q1 of '23 was a record quarter for us. Our North America region was up 41% in Q1 of 23% year-on-year to put it in perspective, right? So we're dealing with a big swing from peak to more correction kind of zone. And the volume performance in Q1 of '24, very much in line with what we've seen with all 4 quarters of this channel correction. I mean Q2 of '23, we dropped 23% -- excuse me, 31%. Q3 of '23, we dropped 27% volume. Q4, we dropped 25% volume. This is -- the Q1 performance, I would say, just put in context, is just a continuation of the channel correction that we've always said was going to take at least a year to clear out that you had to get through an anniversary this change before you would start seeing any kind of volume return.

Certainly. Thanks, Andrew, I appreciate the questions. Look, I think on a dollars of cash flow basis, the free cash flow is very heavily weighted to the second half of this year. We were negative free cash flow in the first quarter as is normal, but significantly less so than the prior year quarter, right? And that's a big inflection and marks the change in inventory levels for us, where we would traditionally have a working capital build in Q1 with growing inventory. Q2, I would expect still probably to be breakeven until the negative cash flow. And we don't -- we're not going to guide it precisely. There is too many moving variables. But I would tell you that all of -- essentially all of the positive free cash flow for the years may come in the second half. And again, the key drivers for the full year on free cash flow, it's reduced inventory and it's rebuilding of payables. And this dance, this balance that Mark and I have been talking about this morning, we are starting to spool up and restart manufacturing lines.

Yes. Listen, as we go through '25, I think we've said that we expect what we would consider a more normal type of growth for the marketplace. Acres continue to grow in, certainly, in Latin America and Brazil. So we expect that to be a driver. And don't forget at that point, people will be then resetting from a lower level of inventory. So you would expect more of a normal market growth. Typical market like this grows at anywhere from 2% to 3% per annum. And we generally speaking, with our differentiated portfolio, outgrow the market in the long haul. So I think it's more about a normalized market.

Yes. I think, Mark, as we look at '25, obviously, one of the headwinds we're dealing with this year is unabsorbed fixed costs from low manufacturing activity. That -- as we go through this delicate dance we've been describing this morning and get back to more normal operating rates. By the time we get to the end of this year, we anticipate being past that, to where the relatively significant headwinds we've had this year from unabsorbed fixed costs are no longer there. So if you think about the absence of the headwind going into '25, itself being a bit of a tailwind or a stronger base for performance in '25 adding certainly that will be a key element of our outlook. Now we've got to see how the rest of the year develops. But I think based on how we see things today and the way we're planning to ramp up production, do expect that volume variance piece that unabsorbed fixed costs to really ease by the time we get through the end of this year.

Yes. Thanks, Mike. If you look at what we've been talking about today in terms of how we think about what we call NPI products launched in the last 5 years, we've gone from back in 2020, 2021, about 10% of our portfolio from those new NPIs. In '23, it was about 13%. We expect it to be about 17% this year. You can see that it takes a number of years for those numbers to start to creep up. And the reason is, you never get to peak sales in year 1. I mean it's impossible in this market. Peak sales going to be anything from 5 years through 10 years. I mean we still have some active ingredients that are 10-plus years old that continue to grow as we find new applications for them.

Yes. I think certainly, look, always cautious in trying to annualize a very seasonal business, right? And obviously different dynamics in each quarter with regional mix and product mix, et cetera. But I think your bigger point, right, return to sales levels that not necessarily 2022 by any means, but the sales and EBITDA levels that look more like where the business was a few years ago, not an unreasonable assumption going into 2025. It's too early to get too granular here. But I do think a combination from top line, we're in a situation right now where inventories downstream are really getting more and more light. People are targeting levels of inventory that we would argue are not sustainable over a multiyear period, downstream of those.

No, good review, Andrew.

This is Dan Rizzo on for Laurence. You talked a lot about getting inventories down and payables and working with those. I was just wondering with in terms of receivables, if there were -- you're comfortable where they are, that's something that has to be worked on as well.

Sure. Thanks for the question. I think -- yes, I think we're comfortable with receivables. There's always opportunities to continue to be more efficient. This is a working capital-intensive business. We get it. There will be some use of cash in the second half as we return to growth and that naturally brings some growth in receivables. But we have been managing very carefully our balance sheet. And I think if you look at our -- how we've chosen to manage through this correction period as opposed to some of our peers, we have been disciplined about pricing and about not chasing volume that wasn't there. So it's not to build up receivables and longer-term collection risk.

Thanks, everyone. Have a good day.