富美實 (FMC) 2015 Q3 法說會逐字稿

Good morning, and welcome to the third-quarter 2015 earnings release conference call for FMC Corporation.

(Operator Instructions)

I will now turn the conference over to Mr. Brian Angeli, Vice President Investor Relations for FMC Corporation. Mr. Angeli, you may begin.

Thank you and good morning everyone. Welcome to FMC Corporation's third-quarter earnings call.

With me today is Pierre Brondeau, President, Chief Executive Officer and Chairman; and Paul Graves, Executive Vice President and Chief Financial Officer. Pierre will begin the call with a review of FMC's third-quarter performance and business segment results and then discuss the outlook for Q4 2015 and comment on earnings drivers as we begin to look forward to 2016. Paul will provide an overview of select financial results.

The slides accompanying today's call are available on our website, and the prepared remarks from today's discussion will be made available at the conclusion of the call. After the prepared remarks, we will be joined by Mark Douglas, President FMC Agricultural Solutions; Eric Norris, President FMC Health and Nutrition; and Tom Schneberger, Vice President and Global Business Director FMC Lithium to address your questions.

Before we begin, let me remind you that 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 our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's information. Actual results may vary based on these risks and uncertainties.

Today's discussion will focus on adjusted earnings for all income statement and EPS references and pro forma revenue and segment earnings for FMC Agricultural Solutions. 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. I will now turn the call over to Pierre to begin the presentation.

Thank you Brian, and good morning everyone. As with the last quarter, we have published a slide presentation that accompanies our results, and I will refer to these slides as I discuss our results and the outlook for the rest of the year.

The third quarter of 2015 was marked by significant foreign-exchange headwinds, the effects of which were most pronounced in the results for Agricultural Solutions. However, excluding the impact of foreign currency, the Ag Solutions business performed in line with expectation, confirming the strength of FMC's portfolio and technology in a weak global Ag market. Health and Nutrition delivered another solid quarter, continuing to benefit from commercial and operating initiatives implemented over the past 12 months. Lithium continued to see strong demand for its specialty products including lithium hydroxide, Butyl lithium and high-purity metals.

You will see from the comments today that despite difficult market conditions, each of our businesses is performing well with a notable exception of Brazil Ag business. As I will discuss during the call, we are executing a comprehensive program to protect the profitability of our business in Brazil in the current market environment and position the business to deliver earnings growth and higher returns in 2016 and 2017.

Turning now to slide 1, FMC reported $831 million in revenue in the third quarter, an increase of approximately 1.5% compared to the same period last year. Adjusted operating profit for the quarter was $95 million, a 37% decrease compared to last year.

Adjusted EPS was $0.42, which was $0.42 below the third quarter of 2014. Adjusted EPS for the third quarter was higher than our earlier guidance due to lower tax rates, which Paul will discuss in more detail shortly.

The significant movement in foreign exchange rate compared to last year, especially in the real and the euro, was the main driver of the decline in FMC's earnings compared to the third quarter of 2014 as price increases in local currency were not enough to offset the impact of foreign currency devaluation on the reported results. In the third quarter alone, foreign exchange reduced FMC's reported adjusted operating profit by over $110 million. I will review the impact of FX in more detail when discussing the performance of each business.

First, Ag Solutions on slide 2. Ag Solutions delivered revenue of $578 million and segment earnings of $59 million in the quarter, a decline of 32% and 49% respectively from the pro forma results in the same period of 2014. Price increases and cost reductions only partially offset the negative impact of foreign exchange and lower sales volumes.

As noted in our October 12 press release, the rapid devaluation of the Brazilian real created significant headwinds for our business. During the third quarter of 2015 alone, the Brazilian real depreciated over 25% versus the US dollar, reducing segment earnings by over $100 million compared to the third quarter of 2013. While we were successful in implementing significant price increases during the quarter in Brazil, these price increases only offset about half of the currency impact.

Following the acquisition of Cheminova, FMC initiated the program to rationalize our global product offering and increase our focus on proprietary technology platforms and differentiated products. This portfolio rationalization, which was accelerated during the third quarter, reduced revenue in Brazil by approximately $120 million compared to the third quarter of 2014.

Excluding these actions, sales volumes in Brazil declined only modestly compared to the third quarter of 2014 as demand in Brazil for FMC's differentiated product remains strong. We saw continued volume growth in FMC proprietary product offerings, including sales of insecticides for cotton, fungicides for soy beans and herbicides for sugarcane.

In other countries in Latin America, we continue to see strong demand for FMC's product, including selective herbicides in Argentina and products for non row crops in Columbia and Mexico. Argentina remains an attractive market for FMC. However, obtaining import licenses for formulated projects remained a challenge in the short term, reducing our ability to fully take advantage of strong demand for our product in the country.

Outside Latin America, revenues declined mainly as a result of unfavorable currency effect, particularly of the euro, and lower volumes largely as a result of weather, weakness pressures or excess channel inventories. Due to our focus on cost control globally, earnings outside of Latin America were essentially flat with the same period in 2014.

In the face of continued difficult market conditions, FMC aggressively reduced operating cost in the quarter. The cost savings achieved to date will continue to increase throughout Q4 as we accelerate the integration of Cheminova and execute the restructuring of our Ag Solutions operations in Brazil, which I will now discuss on slide 3.

Through September, we estimate sales from crop protection chemicals in Brazil are down approximately 18% in US dollar terms. For the full year, we estimate the market for crop protection chemicals in Brazil will be down mid to high teens percent compared to 2014. Despite the significant decline in sales across the industry in Brazil, there is healthy demand for growers -- from growers for technically differentiated, higher value in use product to address specific pests and weak pressures.

The acquisition of Cheminova has allowed FMC to rationalize its products offering and refocus the combined business in Brazil on FMC's and Cheminova's proprietary technology platform. We firmly believe these actions will position FMC to deliver high growth and higher returns in Latin America in 2016 and beyond.

Let me qualify for you the impact of these actions on our 2015 revenue. Pro forma for Cheminova, Ag Solutions revenue in Brazil was approximately $1.2 billion in 2014. In 2015, FMC will eliminate some $250 million of lower-margin third-party product sales. This includes action taken through the first six months of the year such as the previously announced sale of our generic subsidiary Consagro as well as action taken in the second half of this year. Excluding this portfolio rationalization, FMC's sales volume in Brazil are expected to be down slightly compared to 2014, reflecting current market conditions.

As I discussed earlier, foreign exchange will have a significant negative impact on our reported results for the year. Assuming stability in the current US dollars Brazilian real exchange rate through the end of the year, we expect price increases to recover about 40% of full-year impact of foreign currency. Taking these impacts into account, revenue in Brazil is expected to be about $750 million in 2015.

The successful execution of the ongoing portfolio rationalization will have three very important implications for FMC. First, it will enable the business to eliminate additional operating cost, which will protect the profitability of the business during this downturn and position FMC to take advantage of a future market recovery. As I will discuss shortly, based on these actions currently underway, we expect to realize the meaningful reduction in operating cost in both 2016 and 2017.

Second, these actions will allow us to generate higher operating margins in return in Brazil. We will eliminate sales of our lowest margin product and further enhance our focus on FMC's core technical portfolio in Brazil, including higher-margin sulfentrazone, Clomazone and Malathion proprietary formulation. We will take this opportunity to reduce the capital employed in the business, leading to higher returns on capital, lower energy and financing cost and stronger cash generation.

Third, the steps we have taken to reduce FMC's revenues base in Brazil combined with a larger revenue base in all other regions pro forma for Cheminova will result in greater geographic balance of our Ag Solutions business. As you can see in the chart, on the right side of the slide, Latin America accounted for more than 50% of Ag Solution sales in 2014. In 2015 on a pro forma basis, and including the actions I just described, sales in Latin America will account for just over 40% of Ag Solutions revenue.

Brazil itself will account for less than 30% of Ag Solutions pro forma revenue in 2015 compared to over 40% in 2014. Equally important, revenue distribution from North America, EMEA and Asia Pacific is much more balanced. The mix shift in the regional mix will also contribute to higher overall segment earnings moving into 2016 as our two highest margin regions, North American and Europe, will contribute over 40% of Ag Solutions revenue.

As you can see on slide 4, the original cost reduction targets announced as part of Cheminova synergies was $90 million. As result of the actions we are taking in Brazil and with the reduction in certain corporate function, we expect global run rate cost savings of $140 million to $160 million. To be clear, this target is inclusive of the $90 million in synergies related to the integration of Cheminova, which we have discussed at length before today.

Headcount reductions will be the single largest contributor to the incremental cost savings. FMC is now targeting total reduction of 800 to 850 positions. This compares to the 500 to 550 positions announced previously.

The majority of the additional headcount reduction will be in our Brazil operations. We are moving quickly to realize these cost savings, and the majority of these actions needed to deliver these savings will be implemented in the next six months. We expect to realize approximately $35 million to $40 million in cost savings in 2015. These savings principally related to previously announced actions to integrate Cheminova into FMC.

The additional benefit from the further cost reduction program will be realized through 2016 and the first half of 2017, and we expect to deliver additional cost savings of between $[50] million to $[70] million in 2016. The success we have achieved to date in delivering the product synergy targets and the pace at which we have commenced the most recent cost reduction program give us a high degree of confidence that we will deliver the $140 million to $160 million in run rate cost savings by the middle of 2017.

Let me now turn to Health and Nutrition on slide 5. Q3 was another strong quarter for FMC Health and Nutrition. Reported revenue declined 3% compared to the third quarter of 2014 as foreign exchange headwinds offset favorable volume and improved mix in the quarter. Excluding currency, revenue increased by 2% compared to Q3 2014.

Segment earnings increased 7% compared to the third quarter of 2014 to $47 million in the quarter. The business so continued strong volumes and realized improved mix in the quarter. The increase in sales volume was due to continued demand from growth for FMC's MCC-based product for the pharmaceutical market specialty for multinational companies in Europe and generic producers in India, and for full applications in both Asia and North America.

The operating performance of the Health and Nutrition segment continued to benefit from ongoing manufacturing excellence programs. Segments operating margins in the quarter increased [250] basis points over last year to 24%. We are pleased with the performance of the business to date and believe Health and Nutrition is well positioned to deliver continued earnings growth and higher returns going forward.

Turning to Lithium, next on slide 6, reported revenue of $57 million decreased by [15]% compared to the third quarter of 2014. Segment earnings of $1.8 million were $3.5 million lower than the same quarter last year. We continue to see increased demand for FMC's downstream specialty products. However, sales volumes were down 13% compared to third quarter of 2014, due to lower third-party carbonate supply in the timing of a scheduled maintenance outage at our lithium hydroxide unit in Bessemer City.

In 2015, we entered into a new agreement for a third party to supply lithium carbonate to FMC. Volume under this agreement will increase as we move through Q4 and will help feed our specialty businesses.

Operating performance continues to improve. Our facility in Argentina continues to operate at record production rates. However, continued strong operating performance was not sufficient to offset the impact of lower sales volume and foreign currency.

Last night, we published our outlook statements for the fourth quarter of 2015. I will take a few minutes now to briefly discuss the outlook for each of FMC's business segments on slide 7.

We expect most of the headwinds that impacted Q3 results for Ag Solutions to persist through the end of the year. However, as we discussed on our second-quarter call, a significant portion of the 2015 cost savings as associated with the integration of Cheminova will be realized in the fourth quarter. These cost savings, combined with additional price increases and ongoing portfolio rationalization, will largely offset the FX headwinds we are facing in Latin America. Outside of Latin America, we expect the business to be flat to 2014. As a result, we estimate Ag Solutions segment earnings to be in the range of $110 million to $130 million for Q4.

For Health and Nutrition, fourth-quarter segment earnings are expected to be in the range of $45 million to $47 million, driven by continued demand for Health and Nutrition's MCC product line and lower operating cost as a result of ongoing manufacturing excellence programs. For Lithium, fourth-quarter segment earnings are expected to be in the range of $4 million to $6 million. We continue to see strong demand for our specialty products and expect sequentially higher carbonate and hydroxide volumes as well as higher ceiling prices as the previously announced price increases begin to take effect.

While inflationary headwinds in Argentina are likely to continue, we expect they will be offset by lower manufacturing costs in the fourth quarter. After corporate costs, which we estimate to be around $20 million in Q4, adjusted EBIT will be between $140 million and $160 million for the fourth quarter of 2015, a decline of approximately 8% from the fourth quarter of 2014 at the midpoint of the range.

Before I turn the call over to Paul, let me spend a few minutes discussing the outlook for 2016. While it is premature to give full-year guidance, I do want to highlight some of the factors that will impact our 2016 performance.

In Ag Solutions, there are a number of factors which are largely in our control that will favorably impact 2016 segment earnings. These include the previously described incremental cost savings, a full year of earnings contribution from Cheminova, and lower operating cost in Brazil due to the benefit of a weaker real. We have a high degree of confidence in the impact of these three items, which combined are expected to contribute north of $75 million to segment earnings in 2016. However, external factors, most notably market demand and currency, will have an impact on our reported results.

We do not expect any improvement in market conditions in 2016. In fact, based on what we see today, we expect global market demand for crop protection chemicals to be down next year. The extent of the decline will essentially depend on the level of channel inventory not only in Brazil, but also North America and Europe assuming normal weather and pest pressures.

While foreign currency headwinds appear to have moderated so far in Q4, microeconomic and geopolitical events impacting foreign exchange rates in each of our key geographic regions continue to evolve. Assuming stability in foreign exchange rate in Brazil, we believe there will be to opportunities continue to recover pricing in this market. However, it will be difficult to quantify the benefit of any future price increases until we are well into 2015 in the next selling season in Brazil.

We expect Health and Nutrition to deliver another year of solid earnings growth, driven by higher volume and an improved cost position. In particular, we see continued strong demand for FMC's MCC and alginate product portfolio across both the pharmaceutical and nutrition market. As we have discussed throughout the year, Health and Nutrition has successfully reduced its operating cost as a result of the ongoing implementation of manufacturing excellence initiatives across the business. These efforts will continue into next year and deliver incremental cost savings in 2016.

Foreign currency, principally the euro, has negatively impacted reported results in the recent quarters. However, the potential impact of foreign exchange aside, we currently expect Health and Nutrition to deliver segment earnings growth of $10 million to $15 million in 2016.

In our lithium business, we expect to realize higher selling prices and continued mix improvement from our focus on specialty products as well as the full-year benefit of lower operating cost in 2015, which we estimate could increase segment earnings by approximately $10 million. We will enter 2016 with a strong pricing environment for lithium products. In September, our lithium business announced price increases on all product lines. The majority of these price increases will be realized throughout 2016.

Product mix will benefit from the third-party supply of lithium carbonate. This supply will supplement our own lithium carbonate production and feed our specialty businesses. In addition, we will realize the full-year benefit from ongoing process improvement programs as well as the new natural gas pipeline which began operation late in the third quarter this year.

Inflation in Argentina has been a significant drag on lithium earnings over the past few years. While the election of a new president in Argentina may bring a change in monetary policy and eventual devaluation of the Argentine peso, such actions are difficult to predict and may take time to unfold. Unallocated corporate costs are expected to decline by $15 million to $20 million, reflecting the benefit of the cost reduction actions discussed earlier.

As you can see, there are a number of factors within our control that we believe will deliver earnings growth in each of our businesses in 2016. During FMC's Q4 2015 earnings call in February, we will provide more detailed guidance for the coming year.

I will now turn the call over to Paul.

Thanks Pierre. Before I discuss cash flow on slide 9, let me start by explaining the changes we made to the tax reporting this quarter. As the schedule for our press release clearly explain, our adjusted tax rate is intended to reflect the underlying tax rate related to business operations. We have always looked to remove those items that are unrelated to the businesses in presenting our tax rate.

However, one item that has been causing increased unpredictability in our reported rate is related to currency movements. For us historically, that's meant the Argentine peso, the Norwegian krone and of course the Brazilian real. Simply put, we finance and operate our businesses in these countries in a currency that is different than the local currency, but are forced to remeasure certain financial assets and liabilities into local currencies for US GAAP tax purposes. This remeasurement creates adjustments to our US GAAP tax rate without any corresponding impact on our profits before tax.

Historically, these items have been small and have not had a material impact on our reported tax rate. However, movements in the euro last year and the Brazilian real this year have created larger distortions through our tax rate than we have ever seen previously. To put this into context, if we had not made this change in presentation, our effective adjusted tax rate in the third quarter of 2015 would have been negative. Clearly this would not have been a reflection of our true adjusted tax rate associated with our underlying business and would not have helped any of you understand our business performance any better.

Looking forward and with expectations of larger movements in the Argentine peso and continued volatility in the Brazilian real, we do not expect this issue to go away. Consequently, we have decided to present our tax rate such that it excludes these discrete remeasurement items. We have recalculated our tax rate under this method for each of the last six quarters and included the revised of adjusted net income in our press release schedules.

Let me now move to cash flow performance on slide 9. As you know, in the current environment, we have placed a significant focus on cash generation. We appreciate that the combined effects of the acquisition of Cheminova, the sale of Alkali and foreign currency movements make it more difficult to extract underlying cash flow performance from our financial statements this year, so I will now walk you through the major components.

Through the first nine months of 2015, our EBITDA is almost $100 million less than the same period last year. Despite this, when you look at operating cash flow generated from continuing operations, you can see that FMC generated double the cash flow in 2015 compared to the same period of 2014. Part of this improvement can be attributed to lower cash outlays in areas such as capital expenditure and taxes, allowing us to fully offset the temporarily higher interest expense in pension payments.

We will continue to be very disciplined in capital spending and look to further optimize our tax position as we take advantage of the opportunities presented to us by Cheminova's footprint. However, the bulk of the improved operating cash flow performance has come from working capital.

So far this year, total cash released from working capital across all three segments is approximately $75 million, the majority of which has been from Ag Solutions. While still well below what we are looking to achieve, it represents an improvement over the same period last year of over $300 million, a period when working capital continued to consume cash. This improvement can be largely tracked to lower levels of receivables in the inventory.

Ag Solutions has generated cash from receivables in all three quarters of 2015, something it only achieved in one quarter last year. In two of the three quarters so far this year, it has seen a reduction in inventory compared to last year when inventory actually increased in each of the first three quarters.

We continue to focus on these two largest drivers of working capital and expect to see the year-on-year improvement in performance continue into the fourth quarter. We expect Ag Solutions to generate a modest positive cash flow from working capital as high receivables are largely offset by reduced inventory levels. Taken together, we forecast that our cash generated from working capital in 2015 will be almost $350 million better than 2014, which will more than offset the decline in EBITDA over the same period.

This focus on cash flow is reflected in our strengthening balance sheet. Our quarter-end net debt was just under $2 billion, slightly better than our prior forecast. Our debt consists almost entirely of medium- and long-term maturities with our only short-term maturities, namely our commercial paper balances, largely covered by cash on hand. Approximately 50% of our outstanding debt is fixed rate debt.

We are expecting net debt to remain broadly flat at year-end. Our net debt to EBITDA ratio currently sits at just above 3 times, largely due to the lower-than-expected EBITDA. As our EBITDA improves and we continue to generate cash from working capital, and exercise discipline in all areas of spending, we expect this ratio to improve rapidly as we progress through 2016.

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

Thank you, Paul. As you've heard, our Ag Solutions business faces a challenging market environment. On the positive side, the issues we face are largely in Brazil and the impact of its currency. Ag Solutions performance in the current market environment reinforced the strength of FMC proprietary portfolio and technology.

We will continue to invest in our technology pipeline and in the value we bring to growers. Our Health and Nutrition and Lithium business have delivered -- will deliver solid performance this year and are positioned for a strong 2016. We are taking aggressive actions to protect our 2015 financial performance and position FMC to deliver earnings growth next year in what we expect will continue to be a challenging ag market. We are very confident that the lower cost of operating post restructuring, our focus on the technical differentiated parts of FMC portfolio, the improved regional balance and our unique asset light manufacture model will position FMC Ag Solutions for a strong growth as soon as the market starts to turn.

I want to thank you for your attention, and with this, I'm going to turn the call back to the operator for questions. Operator, please.

(Operator Instructions)

Aleksey Yefremov, Nomura Securities.

Good morning everyone. Could you discuss the credit terms that you extend to farmers in Brazil currently and how do they -- how are they different from what you had earlier this year?

Hi Aleks, this is Mark. The credit terms are not fundamentally different this year to any other year.

You know very well, people that follow the Ag space, that a lot of the terms are on crop terms. And we currently have the same terms this year that we've had in the past.

Thank you, and as a follow-up, a question on pricing. How do you see the opportunity in raising local prices in Brazil to offset the remaining 50%, 60% of FX headwinds? Could you do some of that in the fourth quarter or early in 2016? Thank you.

Price increase in Brazil is very much a factor of where the dollar is. What we are saying is, if the real versus dollar is in a stable situation, we will over time recover a very large part of what we have lost in currency.

Now, our ability to do it will go anywhere from six months to a year and a half or two years depending upon the market channel and the demand. But what we have visibility for right now is the fourth quarter, so we believe in a stable currency environment, what we just said is really about 40% of the currency impact in the fourth quarter. That's what we have put into the fourth-quarter forecast, and we really believe it's highly achievable.

The question mark for us and the most interesting conversation we will have in February when we announce Q4 results and forecast for 2016 is, is the real showing signs of stability where it is today and what is the market demand? Because that's when the opportunity comes to increase price without suffering the negative impact of currency.

So right now focused on fourth quarter, will recover about 40%. And then filling up the gap will depend upon the stability we will see in the real.

Don Carson, Susquehanna Financial.

Yes, you expressed some caution about the outlook for next year in crop chemicals globally because of channel inventories. Can you specifically discuss the level of channel inventories in Brazil as well as in the US?

Yes Don, it's Mark. Start with Brazil first. You've seen a lot in the press recently about channel inventories, predominantly around insecticides and herbicides in Brazil. Insecticides due to weather and low pest pressure, so we see elevated channel there.

In North America, it really depends on the types of products. Certainly insecticides we see higher channel inventories, both for foliar and soil insecticides.

We've had basically three years of very low pest pressure, and so you can imagine the channel inventories built up there. For us, we had a very good year in North America with our pre-herbicides on the authority brands, and we see normal to slightly higher channel inventories there. And then on fungicides, fungicides are pretty normal in North America.

And as a follow-up, does the expansion of [intactura] acreage this fall in Brazil have any impact on your soy insecticide business down there?

Intactura are has been in the market now -- this is I think its third year. Obviously the acreage is growing.

It does impact the number of sprays for certain types of pests, and yes, we along with others are impacted there. But we have other products that take out the secondary pests. For instance, our Talisman insecticide is very good on stink bugs, which is a growing past in the soy area in Brazil.

So we expect to see increase in usage of those types of product. So there's always pluses and minuses when you see these new traits introduced.

Thank you.

John McNulty, Credit Suisse.

Good morning, thanks for taking my question. So we saw a pretty solid -- or you guys saw a pretty solid jump that you articulated in the cash flow for 2015. I guess do you have -- can you give us some granularity if the Ag markets play out the way that right now you're expecting them to, what can we see in terms of further cash improvements in 2016?

It's Paul, let me try and tackle that one. Most of the opportunities, I'm sure you're aware, comes through our Brazil receivables balance. And as we look to into next year and obviously not forecasting a rapid recovery in demand in Brazil, we would expect to see the trend that we've seen in the first three quarters of this year of releasing cash out of working capital continue.

We've I think been pretty consistent when we've said that to unwind the positions that we have as the market slows down will take at least a full season, which takes you into second and third quarter of next year before we start to see the benefits. As I said, we've have generated from working capital across the business something in the range of $75 million of cash out of our working capital. I would expect that we could do much better than that if the market continues as it is because we will start to see an acceleration of the release in the Brazilian receivables balances.

Great, that's helpful. And then with regard to the headcount reductions in Brazil, Brazil has been one of the crown jewels. And obviously it's a tough market right now, but it may not always be. I guess how do you gauge or how do you set up a system where you don't end up tarnishing permanently the crown jewel by cutting too deeply into the heads?

It is a very important question. The work we did was really to preserve the ability of Brazil to grow and to grow earnings.

So the way we did it, we didn't go at it by cutting cost and that's it. As you can see, a Brazil organization has evolved over the last two years into an organization which has used maybe a bit too much its position of strength with customers to increase sales in more generic products.

Now in normal times, with the real at that time pretty strong, it made more sense. We were making some profit out of it. But I can tell you the situation like the one we have today, the terms which are given to farmers, the weakness in the real do not allow us to have those kinds of sales because they do not bring any profit to the Company once all of the cost, including the cost of edging.

What we did, the first step we did was to remove sales -- and we say this year it's going to be about $[250] million -- to remove sales we had which were not profitable. Once you've adjusted to a size where you pretty much have a country which is in sales about 60% of what it was before, then you can adjust your technical sales and most importantly support functions to serve a business which is smaller, but having the same type of profit and much higher margin.

So that's the way we did it. We believe -- we protected this process our technology group, our resell group, our technical sales, but really eliminated all of the non-profitable sales and used that to reduce our organization. We believe that we will be at least as capable an organization to benefit from growth in Brazil than we were before if not better.

Frank Mitsch, Wells Fargo Securities.

Good morning, gentlemen. Paul, I really appreciated the discussion on working capital savings and noticed that inventory's down $100 million sequentially to a level of $900 million.

A couple of questions -- where can you get that to? And then also in the discussion on the cost, the increase to $140 million to $160 million, what is the expense associated and the pace of those expenses necessary to achieve those cost reduction targets?

Let me pass it to Mark first to provide inventory because most of the opportunities in inventory are going to be in the Ag business.

As you can see, we have reduced inventories. And what we're doing is we're taking advantage of the Cheminova acquisition to look at the combined businesses and understand the flow of materials.

We are essentially reducing the channel inventories within our own supply chain, so we're not putting customer supply at risk. And we're tending to shift products away from formulating ahead of the season to formulating at the latest possible time. So we're carrying less formulated inventory, but we're carrying active ingredient inventory which allows us to reduce the total amount but still have flexibility at the customer level.

So it's been successful so far, we have more programs in place. I can't actually, Frank, give you a number for the reduction, but you will see it go down as we head into 2016 and probably through the first half of the year.

All right, Frank. Let me take your question on the cost realized synergy. The cost to realize the total $140 million to $160 million of synergy, which of course includes all of the cost for the integration of Cheminova consulting cost. So it's not the cost which is only associated to the incremental part.

The total cost for the $140 million to $160 million will be in the range of $120 million to $130 million. We have of that cost, about $65 million were spent so far in the process. And most of the rest of the spending will take place in 2016 and a very large part in the first half of 2016. All right. Terrific. And coming back, Mark, on the ag side, Pierre mentioned that there was a hold up in Argentina to receive some approvals. And I was wondering if you guys could give a little bit more color on that and what the order of magnitude opportunity that could present for you if and when you do get those approvals.

Frank, we have ongoing business in Argentina, and essentially what we do is we currently import fully formulated materials into the country. The Argentine government has changed some of the rules where it's a little more difficult to get fully formulated products in.

So we are looking at a strategy in Argentina where we will import the active ingredients and then formulate in Argentina itself. That should allow us more flexibility in terms of taking advantage of the market down there.

For us, that market is pre-herbicides for soy, big market for us when we use our authority brands based upon sulfentrazone. Currently today we're in the $80 million to $100 million of revenue range. We see that growing despite a difficult market.

So it's significant for us, getting the import licenses has been frankly a bit of a pain over the last year or so. But eventually that will free up because the growers down there do need the technology to get the highest yields for a especially the real crops of soybeans.

Thank you so much.

Laurence Alexander, Jefferies.

Good morning. Two questions. One, as you look at the corporate cost reduction, what happens once you resume -- you get back on a growth trajectory in 2017, 2018? Do you see that being a flat run rate, or should it start glowing in line with sales?

So the change we are making really is a very sustainable change. So of course there is always inflationary cost, but those are not cost reductions which are temporary holding back on hiring people.

Those are fundamental change in the processes that we operate benefiting from the synergies of Cheminova. So those are permanent change which ought to remain -- the spending has to remain at the same level when we go back on the top line growth.

And then just putting together all of the factors you called out, it seems as if -- just to be clear on the message that there is a tailwind of about $150 million to $175 million for your EBITDA in 2016. But then you have your FX and the contraction in the crop protection chemicals to offset. Is there anything else in terms of possible tailwinds that you see as a possible swing factor?

The big tailwind as you say, we've listed all of the numbers we see which we control and we feel very comfortable to deliver. Then there is the question of growth synergies with Syngenta. We are very careful -- sorry, with Cheminova. We have a difficulty to really quantify that.

We know it's happening, we know it's in line with our expectation, but the problem is when you are on in a down market, to requalify growth synergies is always difficult. So there is growth synergies which we have not factored here.

There is growth for specific product, but we are very strong market demand. And the last one which could be significant is price increase depending upon FX, but that's difficult one to forecast because if FX stays where it is today, and there is a decent fourth quarter this year which means even in a slightly down market, we will have opportunities to increase price in Brazil to recover the gap we have today. But if we continue to have a volatile real next year, we're going to be back in a situation which will be challenging.

So hopefully by the time we get to the February call, we will know if we have full month or not of real stability. And then we should be able to make a little bit better prediction around price. So I would say specific growth on the technical product, specific growth synergies with Cheminova and price would be a tailwind you could have in addition to what you see here.

Can you give any granularity around taking the Cheminova products and relaunching them in the US progress has been made or when it should become a material callout?

Yes Laurence, this is Mark. We're obviously in negotiations now for the 2016 season in North America, and this will be the first time we've had the portfolio of Cheminova to sell to the major distributors and co-ops.

We are focusing on the fungicide portfolio that Cheminova brought to us. They have some excellent products there that we've not had access to, so they will be put into our programs. And then there's some other herbicides that Cheminova brought that we will also be putting into the program.

So early stages as we are today, but as we've always said, we believe that one of the reasons for the acquisition to be strategic in North America was our access to the major co-ops and distribution. We are taking advantage of that, and we will be selling those fungicides and herbicides through that channel.

Thank you.

Peter Butler, Glen Hill Investments.

Good morning. Pierre, if this was the third-quarter 2016 conference call, obviously in late next year, what would you guys be hoping for to see in a relatively good case entering 2017? The odds on having a surprisingly good rebound in earnings in 2017.

Peter, the way we way we are looking at where we are today -- and I have to say that it feels like we are right now at a position of stability going forward for the Company. I think we have the structure in place, the integration is well advanced, the cost savings are coming as we are expecting.

So the first step for us besides delivering on Q4 is really to position FMC for earning growth regarding of the market demand in 2016. That's why we started to try to give a sense for the earnings driver we control, which we expect to earnings participate in the earning growth for the Company next year.

Your question is the right one in terms of the market demand. In the third quarter, or when we are talking about the third-quarter results, if we see a situation which starts to unlock in Brazilian Latin America, it will be the definitive signal that the turn of the market is going to take place in 2017.

If it is the case, then we are in a strong position because by that time, integration will be finished and our cost structure will be very solid, will be lean. Without losing potential for growth, our portfolio technically will be strong, and we have new product coming from technology in 2017, 2018 and 2019.

So that's where you're going to get your first signal. If we see a Q3, Q4 very challenging in Brazilian Latin America, then we will have to understand where is the channel in the other countries because then you have to worry that it is going to be a slow recovery in 2017.

We're still banking right now. All the indicators are pointing toward a 2017 recovery, but you're correct that third-quarter call next year we should have a better indication.

Okay, thanks for the help, Pierre.

Thank you.

Brian Maguire, Goldman Sachs.

Thanks for taking my question. Pierre, there's been a lot of increasing chatter about the need for consolidation in the agricultural chemicals space. And one of the larger companies in that space last week mentioned that every company's talking to each other in this environment.

Just wonder if you could comment on that, if you're having any discussions with folks. And given your balance sheet, you're probably not in a position to do any acquiring. But do you see yourselves as a target, and would you entertain anyone in those discussion?

Well, there is no question that there is lots of talk which are going in the industry which will most likely lead to some sort of consolidation. I think everybody is talking to everybody and everybody is watching what everybody else is doing. So right now it's like playing chess. Everyone's making a move and waiting.

Lots of discussions are taking place. How this is going to unfold, I don't think many people know. I don't know if anybody knows, but certainly there is discussion which will lead to some consolidation.

Where FMC stands in such a situation, first of all, we believe we are a strong company which can strive no matter what is the result for the Company. But we will be doing good by shareholders.

So what is right for our shoulders, what is right for our employees and what is right for our customers is what we will do. But we know we have a rather strong responsibility toward our shareholders.

All I can tell you, the only thing I can tell you for sure is we are not an active buyer of a large company. I don't think today it would be reasonable.

We made our move, we've acquired Cheminova, we believe there's a strong geographical footprint, and we don't have the balance sheet to make a major acquisition. So for us, we are in the execution phase.

Now, if two companies get together and there is antitrust issues and they have to drop sale some product or technology which are of interest to us, absolutely we will look into buying those technologies if they fit our portfolio. But that's about the limit of our proactivity in terms of being on the acquiring side

Just one last one if I could. I appreciate the increased disclosure on the slides, with the Ag volumes showing them down 25% there. Just wondered if you could break that out, how much of that was impacted by divestments, and maybe we could get some color regionally if there were any pockets of strength within that number.

I think if you look at the 25% reduction, it's a reduction of about $215 million of sales for the business. There is two buckets to it. There's the third-party sales, which we walked away from in Brazil, and that's about $120 million. And the rest are just volume.

We lost about $95 million across the world, which are much more linked to the market. If you look at the $44 million, I would say three quarters of that number is earnings loss which are coming from the $95 million more than market driven losses where maybe one fourth of the $10 million is linked to the $120 million third-party sales we voluntarily worked away from.

In general, most of the loss of sales took place in Latin America and mostly Brazil overall and especially because that's the place where we walked away from third-party. We also saw reductions of sales in other regions of the world. Channel inventories are pretty high in North America and in Europe.

Remember we also have the situation where we are going to direct model in Europe, so we will go -- we have sales which are being moved from this year into next year. So overall, it's across the Board.

The big difference I say which is very important is the sales loss outside of Brazil and Latin America are generating very little earnings loss. We believe our earnings are essentially flat outside of Brazil around the world, and then for some reasons we have much more leverage around large facilities, cost control in North America and all other places in Asia. So that's the overall picture.

Very helpful, thank you.

This concludes the FMC Corporation third-quarter 2015 earnings release conference call.