富美實 (FMC) 2014 Q2 法說會逐字稿

Good morning and welcome to the second quarter 2014 earnings release conference call for FMC Corporation. (Operator Instructions) I would now like to turn the conference over to Ms. Alisha Bellezza, Director, Investor Relations for FMC Corporation. Ms. Bellezza, you may begin.

Thank you, Moses. Good morning everyone and welcome to FMC Corporation's second quarter earnings call.

With me today are Pierre Brondeau, President, Chief Executive Officer and Chairman who will review our quarter performance, business segment results, and provide an update on our 2014 outlook. And Paul Graves, Executive Vice President and Chief Financial Officer, who will present select financial results.

Pierre will conclude the call with an update on our separation activities and on our vision 2015 goals. Following his comments, we will be joined by Mark Douglas, President FMC Agricultural Solutions, Ed Flynn, President FMC Minerals, and Mike Smith, Vice President and Global Business Director, FMC Health and Nutrition, to address your questions.

Today's 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 release and in filings with the Securities and Exchange Commission.

Information presented represents our best judgment, based on today's information. Actual results may vary based upon these risks and uncertainties. Today's discussion will focus on adjusted earnings for all income statements and EPS references.

A reconciliation and definition of these terms as well as other non-GAAP financial terms that we may refer to during today's conference call, are provided on our website. Our 2014 outlook statement, which provides guidance for the full year and the third quarter of 2014 can also be found on our website.

I will now turn the call over to Pierre.

Thank you, Alisha. Good morning everyone.

In our release, you saw that we generated $988 million in revenues, an increase of 13% over the second quarter of last year. Adjusted operating profit increased to $203 million, a 10% increase compared to last year. And we delivered $1.01 in adjusted EPS, an increase of 9% over last year.

The Health and Nutrition and Mineral segments performed largely as expected. Results were strongly ahead of the second quarter last year. As you already know, compared to original expectation, the effects of poor weather conditions, negatively impacted our Agricultural Solutions segment in the first half of the year.

Dry conditions in [Cabo], Brazil reduced sales to the sugarcane segment prolonged cold in North America lead to different patterns of crop protection use. Despite this, the business delivered above industry growth with segment earnings and revenues higher than the second quarter of 2013.

Second quarter sales and Agricultural Solutions were $531 million, a 20% increase over the second quarter of 2013. Segment earnings were $131 million, up 5% over last year. Segment margins were impacted by changes in product mix, unfavorable foreign exchange and a planned increase in business spending. We chose to continue to increase our sales and technology investment, despite distant [poor] pressure on our earnings growth.

Within Agricultural Solutions, all regions showed year on year growth in revenue. In North America, the unusually cold and prolonged winter lead to later than usual plantings. This was followed by a very strong early growing period with lower than normal price pressures. Which is leading to the forecast a very strong yield in both corn and soybeans. All of these factors combined have created unusual market conditions and some challenges for the crop protection industry.

For example, the delayed planting of corn this spring led to later and faster planting cycle with farmers choosing to use fewer applications of at-plant insecticide including our capture LFR product. Initial market indications suggest that the broader market for this product was down low to mid teens percent compared to last year's planting season.

Despite this, we were able to increase both our market share and our average realized prices of capture LFR. Countering these challenges were some better-than-expected opportunities. Higher planted soybean acres resulted in increased sales of pre-emergent herbicides an important segment for us, with our Authority brands. Early market dollar is showing that sales growth of our products in this segment out paced market growth, which itself was significant.

We believe this share gain in some of most important segments demonstrate the strength of our North American portfolio. Particularly in high technology areas, such as corn root worm resistance in the growing area of treating glyphosate-resistant weeds.

In Europe, favorable growing condition increased demand for our herbicide used in spring crops, while increased demand for fungicide in China, in various products in Pakistan, Korea and China, also drove additional sales versus the same quarter last year.

In Latin America, sales increased in all countries, as we began to see additional benefits of extended market access in the region. However, the poor conditions faced by Brazilian sugarcane growers continue to significantly reduce herbicide and insecticide demand from this segment.

Offsetting this, we saw stronger than expected sales and some secondary products including third party products. This mix shift had a negative impact on margin in Latin America this quarter.

Our sales force remains focused on mentioning a premium on the high-valued technologies and services that we provide to our customers. We're launching some important new product in the second half of 2014, such as our Rugby nematicide for soybeans. These products already have strong brand awareness among soybean growers in Brazil. Given its historical application pattern. And we are seeing a favorable market reception for these new product applications.

We also expect to take advantage of strong market position in Brazilian cotton, with our launch of a miticide/insecticide into the segment this year. This product is a novel broad spectrum insecticide that controls the bowl [control]. The pests are increasingly affecting yield and quality in the custom crop.

Additionally, we're extending our market access in many other Latin American countries and expect significant growth to take place outside of Brazil. For example, we are seeing a sharp increase in demand for pre-emerging soybean herbicides in Argentina. The market that is experiencing increasing pressure from glyphosate-resistant weeds.

We have been able to use our formulation science and in addressing this issue in North America, to quickly register and bring our technology to growers in Latin America. As we look toward the second half, we expect that Latin America will once again drive most of the year-over-year growth.

In the third quarter, we expect that our focus on higher margin, differential products will increase segment earnings by low- to mid-teen percent over 2013. For the full year, we expect revenues to grow mid- to high-single digits percent, while earnings are expected to increase mid-single digit percent compared to 2013.

Our segment operating margin expectations remain between 24% and 26% for the full year. Now turning to Health and Nutrition. Segment revenues of $207 million increased 9% and operating profit of $49 million, was up 11% over last year.

In the quarter, we saw increased demand for pharmaceutical excipients in Asia. Most of these growth to date has been with our multi-national pharmaceutical customers who produce generic prescription products for sale in North America and Europe.

We also saw increased demand for alginates used in pharmaceutical applications. We continue to see relatively stable demand patterns in the health markets that we serve. Our Omega-3 product line also contributed to sales growth in the quarter. Most of the Omega-3 sales in this quarter were sold into high concentration nutraceutical markets.

These markets have experienced steady demand in 2014 and we expect to launch a number of new products in the second half to target these market segments. Pharmaceutical application will also remain the focus of a new product development efforts in Omega-3. Nutrition markets experienced mixed results in the second quarter compared to last year.

In North America, we saw higher demands for texture and stability solutions used in beverages. Offsetting this, demands for similar beverage products across Asia slowed showing little year on year growth. Although we believe this is a temporary, slowdown, we are watching these trends carefully.

Additionally, we have large NLP project pipeline that will we believe will continue to generate stable growth across global nutrition markets.

Looking forward, we expect third quarter segment earnings in Health and Nutrition to increase in the mid- to high-single digit percent over the previous year. For the full year, we continue to expect segment revenue to increase low- to mid-teens percent, with earning increasing mid-teens percent over last year.

Now let me review Minerals. Both businesses, performed in line with our expectations, with higher pricing in alkali and improved operations in both alkali and lithium, resulting in stronger profitability.

In the quarter, revenue of $215 million increased 2% and operating profits of $43 million, increased 21% versus the same period last year. In alkali chemicals, revenue of $193 million was flat to the previous year quarter. Higher realized pricing was offset by the impact of the timing of shipments and lower freight, due to a different geographic mix.

During the quarter, earnings improved over the previous year as improved plant performance, manufacturing efficiencies, and higher average pricing offset higher energy costs.

In lithium, sales of $57 million were up 11% that the previous year. Improve operations produced additional volumes and allowed for higher sales and profitability in the quarter. The environment in Argentina was relatively in line, with inflation and exchange rates largely in line with our expectations.

For the third quarter, we expect segment earnings to increase by about 30% over the same period in 2013. Improved profitability will be delivered through higher soda ash pricing and increased volumes in both alkali and lithium. For the full year, we have assumed stable pricing for the remainder of the year in both businesses.

We continue to expect segment revenue to increase in the mid- to high-single digit percentage with segment earnings up high-teens over 2013. Turning now to our outlook. For the third quarter, we expect to deliver adjusted earnings of $0.90 to $1 per diluted share a 16% increase versus the third quarter of 2013 at the midpoint of the range.

In Ag, we expect segment earnings to be up mid-teens percent over third quarter 2013. We are anticipating a solid start to the southern hemisphere season with market access initiatives and new product launches, providing opportunities for continued strong growth.

In Health and Nutrition, we expect segment earnings to increase mid- to high-single digit percent over 2013. Driven by increased demand in all major end markets.

In Minerals, continued operational excellence is expected to provide additional volumes in both businesses. This performance is expected to deliver about 30% earnings growth year on year. For the full year, our expectation of adjusted earnings continued to be between $4.10 and $4.30 per diluted share, an 8% increase over 2013 at the midpoint of the range.

In Agricultural Solutions, we expect full year venue to increase mid- to high-single digit percent and segment earnings to increase mid-single digit percent over 2013. Second half growth will be driven primarily by new product introductions, expanded market access positions and market share gain in Latin America.

We are confident that our focus on new technologies in the high-value segments will demonstrate the stability and sustainability of our marketing profile. In Health and Nutrition, we anticipate full year revenue and segment earnings growth in the mid-teen percent over 2013.

We are pleased with how our portfolio is performing in markets that continue to exhibit solid underlying growth. In Minerals, operational excellence programs will result in record annual volume in 2014 for both alkali chemicals and lithium.

We continue to see stable to positive pricing trends in soda ash and strong market demand in lithium. As a result, we reaffirm our expectation of revenues growth in the mid- to high-single digit percentage and segment earnings improvements in the high-teens percent over 2013.

I will now turn the call over to Paul to cover financial highlights.

Thanks, Pierre. Today, I will focus on a few notable items in the quarter, including foreign exchange impact and cash generation. I will also update you on our capital deployment plans for the rest of the year.

Movements in the Brazilian real and multiple Asian currencies, adversely impacted adjusted earnings on a year-over-year basis. In addition, the greater volatility within currencies has led to higher hedging costs versus last year. Across all of the businesses, these unfavorable currency movements and related cost reduced adjusted EPS compared to last year by approximately $0.05 in the quarter and $0.10 in the first half.

For the first half of 2014, cash provided by operating activities was $149 million versus $248 million in the prior year. Much of the lower cash generated was due to lower EBIT from Ag Solutions in the first quarter and higher receivables balances, again due to our Agricultural Solutions.

As we've previously highlighted, late to timing of sales in North America and a changing crop mix especially in Brazil is resulting in a different receivables collection pattern than prior years. As a result, we expect a greater weighting of cash flow generation to the second half of the year compared to last year.

We remain focused on increasing our operating cash flow and we continue to rollout working capital improvement projects across the businesses. We believe we are on track to generate approximately $400 million of cash from operations, before separation costs.

Capital additions in the quarter were approximately $46 million. Spending continues to be primarily associated with construction of the Thailand MCC facility, which is progressing well and remains on track to begin commercial sales in early 2015.

We've also focused capital resources on the construction of a new gas pipeline in Argentina. This pipeline will provide a more economical and safer transport of natural gas, up the mountain to our processing facility. We anticipate completion by the end of the year with benefits increasing our earnings starting in 2015.

Finally, while Pierre will provide more details on the separation, let me note that in the quarter, we incurred approximately $14 million in separation costs.

With that, I will turn the call back to Pierre.

Let me now update you on the status of the separation.

We have completed the initial organizational design for both companies and are working on project planning and legal entity [sell out]. The cost to complete the separation, we expect approximately $100 million to $130 million, of one-time cost. These cost are in line with cost seen in other companies undergoing similar separation processes.

Once the separation is complete, we expect additional ongoing corporate expenses to total approximately $25 million, across the two entities. These are mainly associated with supporting an additional publicly traded company.

I will now update you on progress towards meeting the goals of our Vision 2015 plan. As you recall, the Vision 2015 strategy plan set a number of goals that reflected our objective of delivering to shareholder returns that we believe reflected the quality of the FMC portfolio.

Also, the combination of -- by the middle of 2014, we can demonstrate tremendous progress against these goals. We have met or exceeded our original targets for return on capital and capital return to shareholders. We remain on track to achieve our organic revenue targets. Our target for EBIT and EPS offer the greatest challenge to this.

Despite our Ag business significantly outperforming against the plan and our core Health and Nutrition segment performing in line with target set for it, there is currently a gap to our 2015 EBIT target. The reason for this can be explained by the two factors that are largely outside of our control

First, related to Minerals. Soda ash pricing is not as high as we had forecasted. And the Argentinian Peso to US dollar exchange rates is not in line with where fundamental suggests it should be. These two factors alone account for a large portion of the gap to the targets.

Also, the combination of large EBIT contributions from businesses that we have sold or closed, which were part of the portfolio when we first drafted the Vision 2015 plan and lower contribution that we had targeted from acquisitions extend another portion of the differential.

Given that these shares have seen some business patterns that are different from recent years, there is less predictability that we have seen during the plans so far. At this point in the year, it is certainly true that forecasting is more challenging in this enrollment.

Agricultural markets are coming off a year of abnormally low growth. But science [compute] suggests acreage expansion in crops where we have strong portfolios. We have seen good traction in soda ash price increase, that could continue to strengthen.

Our new businesses, Epax and [Calarose] are demonstrating additional growth of both entities. In this changing environment, we will refine in the coming months our 2015 expectation. As a result, we believe that Vision 2015 has highlighted the strength and quality of our asset portfolio and will continue to deliver premium shareholder returns.

To conclude, like others in the Ag space, we are hearing concern about a slow down in the agricultural markets. The industry is facing uncertainty. And we're monitoring the situation closely. And are in constant dialogue with our customers. We are also closely watching all patterns and inventory levels.

Like many other in the [Brazil business] we believe there is greater uncertainty than in previous years. But we still a see a strong second half of the year driven by the strength of our Brazil business and expansion of our presence throughout Latin America.

As we look ahead, for the next few seasons, we are keeping a close eye on our market, but we remain very confident that our technology pipeline will deliver strong long-term sales growth, while maintaining our industry-leading margins.

Health and Nutrition has also a strong pipeline of new products. That will drive continued growth through broader product offerings and organizational leverage.

In Minerals, we believe that our constant focus on operational excellence, will result in record volume for both alkali and lithium. This increased volume combined with price improvement of soda ash, position us for earnings for solid earnings improvement in 2014, with continued momentum in the next few years.

We remain focused on strengthening our portfolio and executing on the evolution of FMC. We also look forward to sharing with you our vision for the future of our companies, at our investor day.

Now, I will turn the call over to the operator for questions.

(Operator Instructions) John McNulty, Credit Suisse.

Good morning. Thanks for taking my question.

When I look at the guidance for the back half of the year, in particular -- look at the weighting of how it sequences, the fourth quarter's obviously is going to be having to carry a lot more weight then it normally does.

I guess I am wondering, how much of that kind of backend loaded guidance is really tied to stuff that you have complete control over versus -- the markets moving in maybe in a direction that you anticipate or hope, but you don't necessarily control?

I would say that, today and I will ask Mark to give more color to it, with a specific product discussion. I would say that the last part of the forecast we are making for the quarter depends upon things we are controlling. So we are looking at a normal fourth quarter from a weather standpoint.

And most of the growth is coming -- I could pretty much put three buckets, that get you to the growth. First, the first bucket would be a mix. Our forecast is today, with products which are much more different shaded, less third party project that we did last year. So we have a much stronger mix in the fourth quarter.

The other bucket would be -- as we have proven, we've been able to grow our market share in soybean. And this soybean market share is forecasted to market share gains, forecasted to continue for us. Together, we've significant as mentioned in the Street, significant new product launch that we are seeing again very good reception now in Latin America and in Brazil.

And the third bucket will be -- we are very much seeing the benefit from our newly structured market access. For example, in Argentina.

There is also one element, which we do not control, but we are just expecting no major change. If you remember last year, we got very negatively impacted in the fourth quarter in our Ag business by FX. We are not planning any major swing, in the fourth quarter of this year around FX, which would create a significant year on year benefit. Mark, if you want anything around specificity?

Yes, Pierre, and John, I know you know the market pretty well down there.

I think the piece that I would add is the focus we've had, not only in Brazil, in terms of expanding market access through co-ops and distribution, where traditionally we've had a lower share. We've put commercial people down on the ground, especially in the South of Brazil, where we're starting to see traction now with the products we sell to a lot of the mega-growers going through distribution.

That really wasn't in place last year at this time. There's a push their that you'll see. I will also add that the market accessed outside of Brazil is paying off. Pierre just mentioned Argentina. I think you know that we had a very good season in North America with our pre-emergent herbicides for glyphosate-resistance. We'll we're seeing exactly the same sort of acceleration in Argentina.

We have the same brand name. The Authority brand. A lot of the technology used in North America is now being used in Argentina. So that's an accelerated market that we have, which should give confidence that we continue to grow in the soy area.

A lot of the smaller countries in Latin America that are extremely high value with specialty crops, we now have new market access in Ecuador where we didn't have it this time the last year. We've expanded our presence in Chile and Peru. So all in all when I look at Latin America, there are a number of things that are in our control and we feel very confident about putting those new technologies into the marketplace.

Great. Thanks very much for the color. And then just as the follow-up question. With regard to the pipeline that you're putting through, it sounds like in your lithium platform, can you walk us there how that changes the profitability? And how we should be thinking about the margin progression from ex-pipeline to with pipeline?

Yes. First, we are expecting the pipeline to be in place toward the back end of the year. The back end of the fourth quarter. We will see a real impact -- real impact this year. I would qualify the benefit in EBIT about the mid-single digit, million dollars benefit over the year.

Your next question comes from Kevin McCarthy, Bank of America Merrill Lynch.

Good morning. I was wondering if you could speak to your contribution margins in the Ag business? It looks like you did have a nice sales growth of $89 million on a year-over-year basis. But about $6 million on the profit side. So maybe 7% incremental margin there. You mentioned FX perhaps you can walk us through some of the math there?

I will give you a view. I will get to the Mark to get you into the specifics.

Let's put first the two things which are very concrete. First, FX went against us in the business in the second quarter. And the second aspect is the fact that we decided not to slowdown. We have faith in this business in our product development market access. So we have decided to continue to invest in technology and selling.

We had negative FX impact and increased investments into the business. But really, the main story is a mix story. First of all, as you know, we do have a very strong position in sugar cane in Brazil. Those are very differential product, high-margin products. And with the drought, we sold much less of these products than we were expecting.

Second of all, in North America, as I just told in the script before, it was a very different pattern, from what we were expecting, from a mix of product and a mix of pre-emergent versus post-emergent product. These are -- within those high-margin products there is new product with higher margin than others, even if all of those are differentiated. It went against us

So even in our high-margin products, we saw a lower sales on the very differential high-margin products. Now there is also a sentimental, which happens and I unfortunately have to admit a bit against what we would have liked. As you know, we have a very sales driven organization.

And when they recognize that we were losing ground on the EBIT, they very aggressively went at selling products where customers, because of a strong relationship, all things would equal, would be willing to buy from us rather than competition. But those quick sales are mostly of a low differentiation or third-party products, which do not carry at all. The same margins, as our regular products.

So we had a very strong push in Latin America, to some extent in North America, of products I would not or we would not have pushed that hard to get those products in the market, if we had a full understanding of what was going on. We have a very strong, very sales driven organization. And they work to increase EBIT and they went for it.

Maybe the way we went at it was a mix we should not -- would not have been the one we would have chose. So when you put those together it created a very strong top line growth.

There is places where we gained market share. We talked about it, I think Authority is one of the brands where we have strong market share. So there is some very good reasons for the top line growth.

But the big story behind the FX and investment in the business, is a big mix shift, which we will control much better in the next couple of quarters.

Mark, did you want to add something?

The only thing I would add, Kevin, what Pierre touched on the business spending. I think it's important to recognize that, that business spending is primarily based around research.

I think a lot of people know that we're investing in research for the new active ingredients that we're bringing through that will come through to the decade. It's important to recognize that once we start that work and get into the chronic tox work and we get into the regulatory side, we can't slow that down. So that's being the major investment when it is comes to the business expense side.

That is really helpful color from both of you. Appreciate that. As a second follow-up question -- maybe for Paul.

Your DSO declined about 11 days sequentially. Can you update us on some of the initiatives on trade working capital? How much lower do you think you can take that metric? And what would be an appropriate equilibrium target for you?

Sure. Clearly, the business is really driven by the working capital targets, it's really driven by Ag. Some of the moving pieces that we have going on in Ag at the moment, we touched upon the North American sales patterns being a little different. Sales being made later in the quarter, changes the year-end receivables balances that we would normally have.

And in Latin America, particularly in Brazil, we sell in crop terms. So when you get a different mix of crop terms, particularly when you moved from the very short payment periods of sugarcane to the much longer payments of soybeans and cotton, you start to get a very different pattern emerging.

What I would say is -- we look at a few key metrics. As well as DSO, we do look at industry terms and to make sure that we are not selling on any different terms to the rest of the industry. We also look at the collection rates and past due and default rates. All of those things are bang in line with where they've always been, historically. So we're not seeing any major shifts.

I think to Pierre's point around some of the mix challenges we had in the second quarter. I think what we believe is that there is an opportunity around the DSO to be somewhat more differentiated about the terms we offer for different products that we're selling to our customers.

We also think there are opportunities in some of our other businesses in Health and Nutrition. We have some opportunities for sure around inventory levels in that business. We have some aggressive programs in place.

So you put all of those pieces together and we're still working through all of this as you can imagine, particularly in Ag, moving the needle in working capital when you have very long dated terms and you're cutting across growing seasons in different regions.

You don't move things quickly but we're comfortable with the progress we're making so far. We recognize we need to start showing that in the cash flow numbers. But we're pretty confident we're on the right track.

Dmitry Silversteyn, Longbow Research.

Yes. Good morning, guys. A couple of questions. I'm just trying to understand your outlook statement for the -- particularly in the Ag business versus where you thought it would be, three months ago.

It looks like -- at least revenues in the second quarter, you did a little bit better. But if you sort of can contrast and compare your view about the Ag market in the second half of the year, now versus what it was three months ago?

I don't think that we have a major change in the view, Dmitry. We're looking at the market. I think the first quarter -- the year -- the year is very much tainted by the first and second quarter. First quarter, sales were down 6%. EBIT was down 26%.

In the second quarter, sales were up 20%. And EBIT was only up 5%. So when you have such a start of the year, when you get a penalty, and it's all weather driven. I would tend to admit, at the end of the first quarter, we misread the impact of the weather on the second quarter.

We thought we had a good handle and it was much more -- I mean a couple other companies fell into the same trap as we did. We had a change in view of the second quarter, as we were going through the second quarter. Now getting into the second quarter -- I'm sorry, the third quarter and the fourth quarter, we have kept pretty much the same view.

The fourth quarter, we are believing will be very strong from a mix standpoint. We are looking at top line growth, very strong from a mix standpoint. Where we are targeting sales and where we are forecasting sales is these -- our new product. And the third quarter also, we're showing improvement.

So mid-single digits growth rate, for the third quarter. And high-teens for the fourth quarter. All driven by Latin America, with a very strong mix lea to the kind of numbers we are showing. We are forecasting just a normal backend of the year. Nothing special around acreage, space acreage change or nothing special around the weather.

Got it. Thank you. That's appreciated. Switching gears to the Mineral side of the business. Can you talk about sort of the pricing trends in the ANSAC business in Latin America and Asia?

Also there's been, I'm sure you're aware, a couple of announcements of capacity expansions in soda ash or at least plans in the Wyoming area. From your competitors.

So I was wondering how you look at the market now with -- after several years of no capacity or additions of any size? Just your bottle necking, you do have some CapEx projects starting up. And how does that impact your decision on bringing the rest of the Granger online, in terms of timing or cost or whatever you can share with us?

Sure. So pricing. We had the pricing steadily in the low-single-digit percent in domestic in North America. And pricing, I would say, stability in Latin America. And good pricing traction with double-digit percent increase in Asia.

Now we didn't get the full benefit of these double-digit pricing increase in Asia, because the mix was a bit unfavorable. Pricing in Asia remains still lower than Latin America. Through ANSAC, we has more sales in Asia then we did and Latin America. So the mix was not as good. But certainly we've seen some firming in the pricing in Asia.

Now, still for the next couple of quarters. Until this can get better, we're not going to keep forecasting a continuation of this price. But the quarter was robust at this level. And Asia is the place where we saw the highest increase.

We believe the pricing situation, if we look at the next couple of years, is firming up in Asia because there is no major capital spending which are forecasted in Asia. And we start to see the demand and supply balance getting better.

The capital spending I think you're mentioning about -- on the announcement from colleagues at Solvay -- I suppose that's the one you mentioned. We see more as a de bottle-necking than truly a capacity increase. As you know when you per use de bottle-necking plants, in Wyoming's natural soda ash, you are a very low pricing.

Usually it is not a very big issue to place those volumes. And the amount is almost such that they are changing the supply and demand pattern. Ed, do you want to add something?

I would add -- if you recall, Solvay also had announced that they shut down operations in Portugal. And that is actually more of a decrease than the roughly 150,000 tons they're going to bring on in Green River. In terms of that additional capacity as it relates to the overall market, it's about 0.5% of global market demand. So we don't think it will have much of an impact.

There has been, and the last year or so, about 1.5 million tons of shutdowns that actually have occurred across the globe. So net-net supply has actually been decreasing of capacity that has currently been online. And I think the second part of your question, Dmitry, was related to Granger.

We have experienced great success in the manufacturing excellence arena. So while we've done pre-engineering work for the Granger facility, I can't go to Pierre and asked to make an investment until I can assure him that I've really been able to get everything I can out of the assets that I currently have in place.

Thanks, Ed. So in summary we are, I would say, very cautiously optimistic around pricing. With stability in Latin America and North America. And strengthening in Asia.

As Ed said, we are focusing capacity expansion through de bottle-necking and we are still manufacturing. Our excellence is still getting us opportunity.

Dmitry, I don't think I would be comfortable making a decision around a very large investment at this stage of the Corporation. We are still looking at a separation. And I think it's a decision which will be better made by the business when we're acting as a standalone business.

Frank Mitsch, Wells Fargo.

Good morning, gentlemen. Pierre, that allows begs the question as to who you will Ed be asking about the capital allocation project or when might we find out, when the CEO comes?

And actually more broadly, regarding this 130 -- I'm sorry, $100 to $130 spending target for the cost of the separation, which you indicated was is in line with other separations out there, how should we think about the timing of that?

Very little has been spent. Well not very little. 15% has been spent so far. But how should we think about the timing of that? And what are the big buckets that account for that $100 million to $130 million?

Certainly. So about who will be making the decision? We are still in the interview process. I'm interviewing candidates and I would like to say that I have a meeting with very high quality candidate today. So we have a -- we are down to a handful of high-quality candidates today. And as soon as we've crossed the bridge of deciding who it is, you guys will be the first to know with an announcement.

From the timing, I think we still believe it's a very complex process. The timing for -- the timing for a separation is always hard to predict, but we have no reason to believe it will not stay within the timeframe we've announced, which was the first half -- the first half of 2015.

The spending for a separation, I would say if you think about, in between now and the separation, I would say the bulk of the spending will be happening in the next six months. That's really where we will have a large part of the spending. Spending, if I look at the big bucket, I'm going to ask Paul to help me, but certainly IT is definitely one of the big buckets we do have today. Tax is another part of the. So those are the big hitters across the Corporation.

Those are the two big ones. And there's obviously the external consultant costs, which is all around managing the project. And legal costs, consultant costs, bankers fees, all the wonderful third parties that are willing to come and help us do this. They don't do it for free unfortunately. Those are the big bucket.

So external help, we would call that. IT and taxes. Would represent about 80% of the cost.

Great. And that's over the next six months. And one of the things you mentioned with the respect to Vision 2015 and coming short was on the M&A side.

I guess it's been about a year since you did the Epax transaction. Can you update us on how that's going, the integration and the accretion you're seeing there?

Yes. The integration is going well. The plant is operating. We are delivering to our customers. I think they -- we are very pleased with where we are. It's accretive this year.

The key question for us and when I talk about Vision 2015 and ramp up is there is a base business, which we got with Epax. But there is all of the creation of this new business with the new manufacturing process and the new plant for the high concentration, high purity, either for the pharmaceutical or for the high concentration nutraceutical. That is really for us what will differentiate a decent acquisition from a great acquisition.

So really, if I want to think about today, very pleased. Nothing wrong with what we've done. Good results. I'm feeling quite good with our new product line. But what will make it a great acquisition, is how much progress we're going to make with the new [seal seams] plant and the high concentration, high purity product. That's to be seen in the next, I would say, 12 month.

Laurence Alexander, Jefferies.

Hi. This is George D'Angelo sitting in for Laurence of this morning. Can you give some color on the comments around glyphosate-resistance? What regions are you guys seeing the most interest in those types of products?

Yes, George, this is Mark. First and foremost, North America is the market where we're seeing the most spread of glyphosate-resistance. Not only in terms of acreage, but in terms of types of weeds. So that's a market where our sulfentrazone based products, the Authority brands are taking share and doing very well.

Secondary to that, we're seeing the resistance in Argentina, as I talked about earlier. That's another large soy market and a market that we're focused on. Also, outside of glyphosate we do see resistance, insect resistance in Brazil growing. So we will have opportunities there with our range of insecticides.

Overall, it's been an important market for us. It will continue to be as we go into the next few seasons. Resistance is continuing to grow, not only in North America, but down in Latin America as well. Not only in Brazil, but Argentina. So an important market.

Thanks. Any update on the JV with Chr. Hansen, what kind of products that might be yielding?

Yes. Thanks are asking. The biologicals platform for us is, as you know something we are focusing heavily on.

I have to say that we to put the alliance in place, back in October. We have, right now, five new products that are in field testing in North America. A suite of products is expected to go into Latin America for field testing as we hit their season the second half of this year.

The collaboration is working very, very well. As you know, we also put into that, a company we bought, which is a research-based company, for screening and identifying of microbial agents for use in biologicals. They're doing a tremendous job. We have a very strong pipeline of opportunities, both in fungicides and in plant growth regulators.

So we're very hopeful that, that project will come to fruition. We expect the first products to be out in the marketplace in 2015, predominantly in North America. But I have to say, as an alliance given the short space of time we've been working with them, we are very impressed with Chr. Hansen, in terms with their ability to scale up the products we're feeding into that alliance. So it's doing well.

Thank you.

Mike Harrison, First Analysis.

Good morning. If I am looking at the Ag business, you commented that you're going to keep an eye on customer inventory levels. Is there any concern that some of the aggressive selling tactics that came about in Q2 led to some inventory build and maybe pulled some of your top line from Q3 back into Q2?

Mike, it is Mark. No. What Pierre was referring to in terms of the aggressiveness of the sales group was predominantly down in Latin America.

And as you know, Q2 is a pretty quiet period in Latin America rolling off one season and starting to get ready to gear up for the second season in Q3 and Q4. Then there will be pockets of increased inventory throughout that enormous market down there. But fundamentally, it's not going to slow down the growth of FMC with our active ingredients and our proprietary products.

I would say North America, given the conditions that we saw with weather, it would not surprise me that in some segments that as the numbers come in, that we see elevated levels of channel inventory. I'm particularly thinking of the corn market. That was particularly affected in terms of insecticides.

We may well see elevated levels there. However, to offset that, we did extremely well with pre-emerging products. And I would expect when the numbers come in, that those inventory levels are extremely low.

So just to support what Mark said, he aggressiveness in terms of selling. Those were not on product we are focusing on in Q3 in Q4. Those are products, we sold, I believe we gained market share. But it's market share gained on low margin product, based on relationship with customers. And certainly not critical to the sales projection for Q3 and Q4.

And then, Mark, maybe you can give a little bit more detail to help us understand the issues around the Brazil sugarcane market. And maybe with the drought means to the long-term trajectory of growth in acreage there?

Yes, sure. We talked about it a lot in the various calls over the last few quarters. The drought had a significant impact on productivity from the sugar mills themselves in terms of how much sugar is produced out of the actual acreage.

But combined with that, is the economic impact of what's been going on with ethanol and with sugar pricing in the world markets. That's also been a significant impact. We expect longer-term and certainly as we go through the rest of this decade, as we think about the next phase of our growth, that sugarcane will continue to be a major growth area for us.

This business has gone through these cycles in the past where you've seen significant consolidation on the back of weaker economics for the smaller players. That is also playing out as well. But for us, with our suite of herbicides and insecticides, new products coming to the marketplace, we continue to see strong.

Ethanol mandate will change in Brazil at some point. Prices will change. Sugar prices have been coming back over the last few months and continue to look more healthy. SO we do expect the fundamentals to continue to look good. But in the short term, it's been a rough ride.

James Sheehan, SunTrust.

I think with that, that's about all the time we have for the call today. I want to thank everyone for joining us. I am available for additional questions that you might have. And I hope you have a great day.

Thank you. This concludes the FMC Corporation's second quarter 2014 earnings release conference call.