Good morning and welcome to the Third Quarter 2019 Earnings Release Conference Call for FMC Corporation. All lines will be placed on listen-only mode throughout the conference. After the speakers' presentation, there will be a question-and-answer period. I will now turn the conference over to Mr. Michael Wherley, Director, Investor Relations for FMC Corporation. Mr. Wherley, you may begin.

Thank you and good morning everyone. Welcome to FMC Corporation's third quarter earnings call. Joining me today are Pierre Brondeau, Chief Executive Officer and Chairman; Mark Douglas, President and Chief Operating Officer; and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Here we will review FMC's third quarter performance and provide the outlook for the remainder of 2019. Mark will take an in-depth look at our Latin America business followed by Andrew, who will provide an overview of select financial results, we will then address your questions. The slide presentation that accompanies our results, along with our earnings release and our 2019 outlook statement are available on our website and the prepared remarks from today's discussion will be made available after the call. Finally, 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 press 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 and free cash flow, all of which are non-GAAP financial measures. Please note that earnings shall mean adjusted earnings, and EBITDA shall mean adjusted EBITDA for all income statement references. A reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today's conference call are provided on our website. With that I will now turn the call over to Pierre.

Thank you Michael and good morning everyone. FMC continued to deliver strong financial performance in the third quarter and navigated difficult market conditions, particularly, in North America and Europe. This performance is consistent with prior quarters due to our unique blend of balanced geographic exposure, strong sales in specialty crops and the technology advantage portfolio. A good example of how all these elements drive strong growth is our diamide franchise that has grown 35% since we acquired the business two years ago. This growth was enabled by the previously mentioned elements in addition to robust commercial approach that has led to volume demand in previously untapped markets. We believe that our business is well positioned to consistently deliver strong growth. Turning to Slide 3, FMC reported more than $1 billion in third quarter revenue, which reflects a year-over-year increase of 10% on a reported basis and 12% organic growth excluding FX headwinds. This increase was mostly driven by double-digit organic growth in Brazil, Argentina, Mexico, France, India, China and Pakistan, as well as, price increases across all regions. Adjusted company EBITDA was $219 million, an increase of 18% compared to recast financial from last year and $19 million above the midpoint of our guidance. Company EBITDA margins were 21.6% - 140 basis points year-over-year despite $42 million in combined headwinds from raw material costs and tariffs. Adjusted EPS was $0.94 in the quarter, an increase of 32% versus recast Q3 2018 and $0.14 above the midpoint of our guidance. The strong outperformance versus our guidance was driven primarily by higher volume and pricing, which led to a $0.125 beat on the EBITDA line. Moving now to third quarter revenue on Slide 4. Q3 revenue growth by 10% versus prior year with volume contributing 8% growth and pricing for another 4%…

Thank you, Pierre. Turning to Slide 9. It has been some time since we reviewed our regions in depth. We thought it would be appropriate to start with Latin America, since that is one of our key markets in the second half of the year. It is our largest region by annual revenue and as margins in line with the rest of the world. Over the next few minutes I will walk you through the business and highlight our country exposure, as well as crop diversity. In addition, our review our go-to-market strategies and market shares as well as discuss growth drivers for the coming years. And last of all, I will explain some of the key factors that are driving much higher margins than we had five years ago in this region. In the Latin American North sub region our annual revenue was approximately $130 million to $140 million with Mexico delivering the vast majority of that revenue. In a market that is only grown 1% over the past few years, we have increased our market share to approximately 9%, as we have grown our business by double-digits over the same period. Our route to market is generally through local distribution and retail companies. We have a strong presence in the corn market and we are market leader in several specialty crop markets, where our innovative products help protect fruits and vegetables, that will be exported to the US and Europe. We sell the full range of crop protection products in Mexico, but we have a leading market position in insecticides. Our portfolio is also complemented by a growing plant health business, particularly biologicals, which represents approximately 5% of our business in the country. Our Mexican organization also supports our team in Central America, where we work with distributors…

Thanks Mark. Let me start this morning with a few specific income statement items. Interest expense for the quarter was $5.5 million higher than implied by our prior full year guide, primarily due to higher than anticipated foreign borrowings, additional interest resulting from the refinancing completed in September, as well as, slightly higher than anticipated commercial paper balances in rates. Interest expense for the full year is now expected to be in the range of $153 million to $157 million. We revised our expected adjusted effective tax rate for the full year to 14% to 15%, reflecting our updated expectations for earnings by jurisdiction. With this change in full year expectations, the resulting adjusted effective tax rate for the third quarter was 12.6%. Weighted average diluted shares outstanding for the third quarter was $131.6 million, down nearly 5 million shares versus the prior-year period, reflecting the benefit of the $500 million in share repurchases we've made over the past four quarters. EPS growth was particularly robust in the third quarter. Lower share count taxes and minority interest more than offset higher interest expense to expand EPS growth to 32% versus the 18% growth in EBITDA. As Pierre outlined earlier, we are expecting very strong financial performance in the fourth quarter with revenue growing 8% and EBITDA growing 13% at the midpoint of our guidance range. Expected EPS growth of 3% is muted by a very low tax rate in the prior-year period, which resulted from a year-end true-up of the full year tax rate last year. Moving the balance sheet and debt. In September, FMC raised $1.5 billion of new debt equally weighted across 7-year, 10-year and 30-year maturities. We use the majority of the proceeds to immediately reduce both term loan debt and commercial paper balances. We will use…

Thank you, Andrew. In December 2018 we shared a five-year plan with annual sales growth of 5% to 7%, EBITDA growth of 7% to 9% and EPS growth about 10% per year. Based on our guidance for Q4, we expect to deliver at the high end of the range in the first year and expect to meet our objectives in the remaining four years of the plan. We continue our focus of driving strong growth for technology. In 2019, we expect about $16 million over total revenue growth of $315 million will come from new product. Our discovery and new product pipeline are advancing as expected. Two new molecules have moved from discovery to development in 2019 including an insecticide in January and herbicide in October. These are significant steps in advancing products toward commercial launch. We are pleased with the performance of the Company. We delivered another strong quarter and are expecting strong year. Our technology advantage portfolio, geographical balance, crop exposure and diversified product seeing continued to drive our financial outperformance. I will now turn the call back to the operator for questions. Thank you very much for your attention.

[Operator Instructions] And your first question comes from the line of P.J. Juvekar with Citi. Please go ahead.

Mark, very helpful overview on Latin America. If I look at your Latin American market share. It's all less than 10%. So, that seems like a big opportunity in the future. How do these market shares compared to other mature markets and what - how would you characterize the opportunity there?

Yes, P.J., I think you're right, when we look at Latin America, we do see continued opportunity to grow and take market share. I think obviously was strong in Brazil in certain segments, as I highlighted, but frankly as we've introduced our pipeline across the region, we see growth opportunities outside of Brazil that will raise our market share, in particular, places like Argentina where frankly, we didn't have great market access. But now we have and we're seeing that accelerated growth, not only on the big soy business, as I talked about, but on some of the more specialty crops as well. I think those margins - sorry those market shares in some of the other regions outside of Brazil are lower than some of our more established markets to be expected, given our market access. So, yes, I mean, I said it in the script that Latin America will be a major driver of our growth going over this five-year plan and beyond. We see no reason that that won't continue to accelerate given where we think portfolio fits. And more importantly, the market access that we continue to build across the region.

Your next question comes from Chris Parkinson with Credit Suisse. Please go ahead.

You highlight a few implied 4Q cash flow drivers on Slide 11 of your presentation, in fact, strong collections presumably in LatAm as well as some inventory discipline. Just can you highlight on what degree of confidence or general line of sight do you already have into these improvements. And how we as investors should be thinking about these better conversion into next year as well as into 2021, just the key puts and takes. Thank you.

This is Andrew, let me just give you some quick comments on the cash flow for Q4. Certainly collections are expected to be robust in Q4. They'll actually be driven more out of Europe and Asia in terms of the seasonal build receivables - we see build a receivables in LatAm in Q4 with the entry into the new season. So, yes, in terms of line of sight there, we feel very confident in the collection forecast for Europe and Asia. In North America, there is some collections, there's also prepays and rebates systems and puts and takes in the quarter there. I think when we look at inventories, we've been very, very focused on managing our inventories this year. It is a place where we have opportunity as we get better systems and better visibility with our new SAP system to drive further efficiencies. But we feel confident in our inventory forecast for the full year. I think the payable situation, we mentioned in the prepared comments, just some short-term impacts from having to use alternate suppliers with shorter payment terms during the middle of the year, that will reverse as we go into the end of the year. We can see that as we're building payables with our more traditional suppliers in longer term. So all in all, I think, yes, it is a large release of working capital in Q4, but we think we have very good visibility there.

Your next question is from the line of Mark Connelly with Stephens. Please go ahead.

I think the biggest question that we're getting from investors now is on the legacy and transformation costs, which were such a huge drag on free cash. Can you help us understand how those begin to roll off across 2020 and 2021?

Hi, it's Andrew again Mark. Certainly understand the questions there, and I think it's a key part of our long-term cash conversion improvement story is managing these legacy and transformation costs. For this year, we've guided legacy and transformation costs of $200 million to $250 million of that, about $100 million of it is true legacy costs, which are some of these environmental and other liabilities that are part of our long heritage is a previously very diversified conglomerate. Those are a very - those are pretty stable, pretty predictable, but they're not going away. Next $150 million which is really the transformation spending, its a combination of finishing the integration of the DuPont acquisition and the work we're doing around the Company to implement the SAP S4 HANA system. Yeah, that's the additional $100 million to $150 million that you see this year. That spending should step down materially in 2020 but will not go away. And then in 2021. I would expect that spending to go to a very low level. As we move to a different phase of more steady-state operation. So when you think about our cash conversion in the way we've spoken about it as a - as a percentage of our adjusted earnings and net income that $150 million in transformation spending relative to the roughly 770 and net income we're forecasting for this year that alone would be a 15% increase in cash conversion for the Company. So, you will see some benefit in 2020, but the most substantial benefit you'll see in 2021. We'll also continue working on working capital improvements and just the growth of the underlying operating cash flow to drive up that cash generation.

Your next question is from Adam Samuelson with Goldman Sachs. Please go ahead.

I was hoping you could provide a little bit of color just on cost trends as we go into 4Q and kind of what that implies into 2020? How raw material costs have been tracking, kind of, some of the impacts of the supply disruptions in China and potentially moving past that and kind of where cost inflation is just an aggregate level is for 4Q and into the first half of the year?

Yes, certainly. I think the dual comment I would make around cost is it has been continuing into the second half of the year maybe beyond what we were expecting at the beginning of the year. As you see on our guidance for EBITDA, it will have adverse costs in the fourth quarter of $40 million with - about the same number for the Q3 EBITDA $39 million. So, all in all, the two together, close to $80 million where we had about $100 million in the first half. So we had a continuation of the cost, mostly due to the channel disruption and some of the toolers shutdown. As we said in our prepared remarks, we expect our last the strategic tooler to be back on stream in a couple of weeks. So, most of the major partners and suppliers will be back on track. So if I think those comments now and extrapolate 2020 and maybe - I'll use that to give you carryovers on 2020. 2020 we believe will be a year of directionally at the global level, a bit equivalent to 2019 but with some differences. I think in 2019 we had Latin America growing very fast in the high single digits. So difficult to expect another year at this level, so we could see Latin America slightly in lower in growth than in 2019. On the other hand, we could see North America seeing better condition and we have a negative mid-single digit for 2019. So we could expect 2020 to be stronger. So all in all, may be slightly slower in Latin America, faster in North America balancing out and they're actually same thing for Europe and Asia. If you look at what we talked about cost. Cost in 2020 will be a tailwind. They will be favorable more versus 2019. That being said they will not be favorable to the extent we're thinking at the beginning of the year because we saw a continuation of those cost into the year - into the second half of 2019 and that will impact the cost of a product into 2020. FX, a bit too early for us to look at where it's going to go next year. If I put all of them together a five-year plan, revenue growth in the 5% to 7%, EBITDA growth in the 7% to 9% and EPS growth over 10% seems to be quite achievable and - for 2020 year.

Your next question is from Vincent Andrews with Morgan Stanley. Please go ahead.

The comments on the Asian market decelerating versus expectation due to foreign exchange. Is that a function of actual decline in takeaway at the end-user or grower level or is that just sort of management of working capital by the intermediaries in the supply chain?

Yes, Vincent, it's Mark. Bit of both actually. Asia is such a big part of the world that you have different conditions around Asia, I'll give you a quick run around us, as I see it today. Australia, very, very difficult market extremely dry not in good shape at all. Indonesia in much better position somewhat elevated channel inventories, but not everywhere. Monsoons were pretty good in India, we had - we have a very good business in India. Channel inventories at normal levels. China, difficult market in China, a lot going on, a lot of movement going on in terms of companies repositioning themselves. Channel inventory is okay, some areas slightly high. Rest of Southeast Asia very good. Pakistan, very good for us, very good season. So, I think that declined generally as a part of what Pierre said is the currency impacts that we've seen over the last few months, but part, is some of the - some of the actions in some countries to make sure that everybody is on top of their business.

Your next question is from the line of Laurent Favre with Exane. Please go ahead.

Yes, good morning, bit of a mid-term question from me, please on insecticides. We're hearing a bit more on phase out for use of the organophosphates. And I'm just wondering for you guys, do you see it as an opportunity to grow share in diamides? Or do you think that - those phase-outs are more likely to switch over to Japan than diamides. Thank you.

Yes, Laurent, some of the product you're talking about, the diamides actually particularly, the Cyazypyr would have a fit in that market, but it is a more of a low value market than where the diamides traditionally would fit. So, yes, there could be an upside, but whether we would want to take it and I don't know at this point. We do have other chemistries though in our portfolio where we're very strong such as the pyrethroids which fit very well. So we do see those organophosphate that are going away, the marketing and commercial teams do see it as a potential upside for us in the coming years.

Your next question is from Frank Mitsch with Fermium Research. Please go ahead.

I was intrigued by the comment that the access - the market access to Argentina has been improved. Can you talk about how specifically and what are the implications for 2020 growth and beyond?

Yes, thanks Franck, I'll let Mark any addition, but it's quite a simple situation from a market access for us. We use - couple of years ago we used to hit through a - an exclusive arrangements with a distribution company in which we had an equity participation. So we were not fully running market access and we were very dependent upon a distributor. We broke that relationship and do you have an organization today, which is in direct relation with the - the market in Argentina. So we've changed our structure to a structure, which is much more similar to what we have in other parts of Latin America and Brazil or other countries in the world, which is a direct FMC market access with the larger and maybe more traditional organization. Mark if you want to add anything on this?

Yes. In addition to what Pierre said Frank, we had that traditional relationship than we bought Cheminova which gave us some market access as well. And then the DuPont assets came along and we had further market access. So we had a very complex situation where we essentially had three organizations that we had to bring together. We've got through all of that now. And in fact, Pierre and I were down in Argentina about three weeks ago and I have to say the growth we're seeing today frankly, I think it will continue to accelerate as we go over the next three-year to five-year period. The team is really uncovering a lot of growth opportunities. And the portfolio fits very well in Argentina. So it's a highlight for us. It's a country that we're focused on. We're investing in more resources, so expect to hear more about it from us.

I think when you think about the question from PJ at the beginning around market share. Clearly, Argentina for us, when you look at the blend of changing market access together with portfolio that is going to be a place where we do have great opportunities in the future.

Your next question is from Joel Jackson with BMO Capital Markets. Please go ahead.

Maybe give a little more color on some of the - where you've got progress right now on possibly expanding diamide production over the next little while. And also, do you have any progress on possibly locking in some customers or competitors on some longer term agreements to produce Rynaxypyr and Cyazypyr for them. Thanks.

So, Joel, just you cut out a little bit. Did you say the diamide capacity?

We received the beginning of your question, we missed the end.

Yes, just, sorry so, diamide production you talked about possibly expanding more, you have to get a little bit of color on this - maybe give a little bit more into what will decide the timing? And then longer term, have you guys made any progress on locking in some arrangements or some terms that you may lock into for producing Rynaxypyr and Cyazypyr for customers and competitors. Thanks.

Yes, diamides, well we spent the last two years basically, debottlenecking what we - what we acquired. And I have to say the supply chain group of manufacturing have done an excellent job in feeding us more diamides and allowing us to continue that growth trajectory over the last couple of years. We are looking now at what excess capacity do we need to build for our next phase of growth. So, that is not something that's hitting right now, but it is certainly something as we alluded to on the capital front that we're looking at. I think the other - the other aspect of this is what you were alluding to where we talked last time about the relationships that we're building. We are progressing those relationships and I obviously can't - I can't speak to them in detail, given the confidentiality nature. But suffice to say that they are moving forward and we're very pleased with where we are with the breadth of those diamide potential relationships and actual relationships. One thing I would like to add around the growth of the diamides, some of you will remember back in 2018. I talked about, part of the aspect of the growth that we were seeing was the fact that we had about 200 registrations and label expansions that we were looking at that would allow us to increase our market space and allow the growth to continue. Where we are today? Out of that 200, about 100 of those registrations and label expansions are now in place. So, hence you see when we talk about places like Vietnam, like Malaysia, like say Cyazypyr in the Philippines. We now have registrations that we didn't have before, so that naturally opens up new markets for us and accelerates the growth. Something that we've put in place over the last 18 months is not only the fact that we originally had 200 and 100 of those are now real. We now have another 240 registration and label expansions on top of what we had at the beginning of 2018. So, if you think about it in terms of how we see our market expansion different crops, different pests, different geographies that growth will continue to go for the next 5, 10 plus years easily given what we see from a registration and label expansion.

And that's a comment made by Mark relates very well to the comment in the prepared remarks around Cyazypyr being now the fourth largest molecule, really the fastest growing molecule and close with $300 million, great growth potential here.

Your next question is from Steve Byrne with Bank of America Merrill Lynch. Please go ahead.

Yes. The two big seed companies have recently rolled out some bundles in the US market where there - they're bundling their seed position with farmers to also drive crop chemical sales and I just wondered if you're seeing any evidence of that the distributor or retail level where there could be a shift over to those chemistries. You mentioned lower pre-emergent herbicide sales in the US in our third quarter. I would assume that's not demand for pounds on the ground product, but channel refilling and whether there is anything going on there with respect to dynamics in the market?

Yes Steve, it's a good question. First of all, there are programs being rolled out, but nobody knows all the details of them yet. So, it's a bit of a premature - it's a bit of a premature question to say how will it impact. And there are some high level views of what those programs look like. Let's be clear, I mean, we have very, very strong relationships with major distributors in the US. Those major distributors continue to show very strong partnerships with us, given the growth rates that we have, especially around our new technologies. We also have very strong programs in place, the FMC Freedom Pass program in the US has many different aspects to it that allow us to reward both retailers and growers for using our products on various different acres and crops. The advantage that we have, we're not tied to anybody's seeds. You can use whoever seeds you want and we will provide the best chemistry. So, certainly we have seen no impact on those programs this year. And I can tell you, given where the commercial groups are next year with regards to growth of new products and especially on the specialty crops, we don't think that's going to have an impact at all in our business in the US.

I just would like to reinforce what Mark said. Mark and I, we spend a large amount of time with our customers in the US and the big retailers. I can tell you with no doubt the retail world in the US welcome a crop chemical company, which is focused on those product biologicals and chemicals with no seed and which is agnostic to the seed and doesn't bundled product. It's been repeated to us over and over. If anything today, I would say it's one of the strength. The fact that we do not have seeds and one of the driver of growth.

And any comments on the pre-emergent herbicide sales in the third quarter.

No, it's pretty much what we expected actually. We knew we had channel inventory there. It's still too early to say how the next season will go. We're not even in discussions yet around what will happen in Q4 and Q1 for that business. I think you know we have class-leading chemistry with our Authority brands and what's more important out of those Authority brands, the very high end of those brands, the ones that have the highest technology they're the ones that are the fastest growing. So, not all pre-emergents are made equal and we do participate across the whole spectrum, but have a lot of products at the very high end.

Your next question is from the line of Arun Viswanathan with RBC Capital Markets. Please go ahead.

Just wanted to ask about the price mix and the cost bridge. So in 2019, it looks like you got like $156 million on price mix that's your expectation for the full year and negative $185 million on cost. Maybe you can just help us and provide a little bit more detail next year, you see some of the $150 million from TSA and SAP would roll off. I'm curious on the raw side how much of that you would get potentially get back, I know you said it would be less. But how much of that would you get back. And then price mix if you're not getting back as much, do you expect a little bit better performance out off price mix. Thanks.

Appreciate your question because its an important question, but it's a bit too early for us to really state the raw material impact next year. Particularly, the adverse impact it's going to be - we believe it's going to be a tailwind compared to the number we had this year in term of the $180 million cost we were facing. But it's a bit early, we are still digging through the numbers. Looking at the impact of our major total restarting in a couple of weeks. We will have a lots of detail in the forecast at the February call, but difficult to assess that number. We will adjust as we always do. Our pricing strategy to the currency situation and to - and to the cost, we are seeing, but we need another few weeks to be able to see those numbers.

Then just as a quick follow-up. Latin America now 31% of your revenue or so this year, that's kind of ebb and flow. And do you still expect kind of a 25% make up across your regions for each in the ensuing years or will Latin America continue to be your largest region? Thanks.

Yes, I think you know we often talk about that geographic balance, I think this year obviously Latin America had an accelerated year. So it's, as you said, I think it's 30%, 31%. I would expect over time, it stays in that range. It is one of the largest markets in the world. One of the fastest growing, it's one of the only places on earth where you have more land that can be turned to agriculture mainly from converting pasture land to agriculture in Brazil. So you're obviously going to have that impact. I would say though that longer-term Asia will also continue to grow rapidly, especially for us given our excellent portfolio on fruit and vegetables and the other crops in India and Southeast Asia, especially. So I think you might see a little more balancing with Asia. North America and Europe, I expect pretty much steady as it goes in those sort of ratios.

At any point, any year you could have one region going - sort of taking a stronger position. I think this balances out in over the years. North America, we don't expect the year - next year to be as bad as this year. I mean we think would happen. But really was a very negative year in North America and very favorable situation, Latin America. That could reverse next year at any point. So, all in all, it should balance. As Mark said Asia we should not underestimate the potential we have in India. India is a very large country with us. The portfolio and the new commercial structure we have in place is going to create significant growth opportunities in the future. So, all of these to say that these 25% region over the year should remain in this kind of a range.

Your last question comes from the line of Chris Kapsch with Loop Capital. Please go ahead.

You did address my question about the dynamics in North America and headed into the 2020 year, sanguine view about prospects. Just I guess, one nuance on that though is, I understand the strong relationships with the channel partners that you referenced is - is it just also just a function of your sort of de minimis relative to the broader market exposure to the row crop and addressing the horseshoe part of the North American market? And just visibility of the competitive dynamic based on channel inventories going into 2020. Any comments on that?

Yes, it's pretty much as you said, Chris, when you think about it. Soybeans, obviously important to us, but we're not on every acre of soybean where you have strong wheat resistance you're going to see our Authority products. Certainly as you said in the horseshoe California all the way around the south of the East Coast where you have specialty crops. We have a superb portfolio, to fix there and continue to grow. So you're going to have that different type of mix from FMC, which is different to as you said, some of the other companies that have a very large row crop exposure that's advantageous to our distribution partners and retail partners. We offer them products that are very different and a different type of mix. So yes, we do consider North America to be a very, very important market for us with a lot of growth opportunities.

And then just one follow-up on Latin America and Argentina, specifically. You had pretty bullish comments about gaining share over time there given better access. Can you just talk about the obviously this recent election that the result with signal a couple of months ago, and the peso was devalued on the preliminary results. Just any influence that has on your operations your ability to execute a growth plan in that country. Thanks.

It's Andrew, Chris, I think, its a good question. I think with Argentina and the market is for our products is US dollar denominated, they are some delays in collections that can create a little bit of FX exposure. But yes, while there would certainly be challenges with future - likely future devaluation Argentina. We think it's quite manageable. It is - the issues around capital controls et cetera are also quite manageable for us in terms of bringing in pretty necessary crop inputs. So it's something we watch very closely, but not something we're overly concerned about at this point.

All right. That's all the time we have for the call today. Thank you and have a good day.

Ladies and gentlemen, this concludes the FMC Corporation conference call. Thank you.