富美實 (FMC) 2016 Q1 法說會逐字稿

Good morning, and welcome to the first-quarter 2016 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 first-quarter 2016 earnings call.

Joining me this morning 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 first-quarter performance and discuss the outlook for Q2 and the full-year 2016. Paul will provide an overview of select financial results.

The slide presentation that accompanies our results, along with our earnings release and 2016 outlook statement, are currently available on our website. The prepared remarks from today's discussion will be made available at the conclusion of the call.

Following 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 I turn the call over to Pierre, 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 earnings 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 upon 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.

With that, I will now turn the call over to Pierre.

Thank you, Brian, and good morning, everyone.

2016 marks the beginning of a new era for FMC. Today's FMC's are more focused and streamlined companies. Our businesses operate in attractive end markets, mainly agriculture, nutrition, pharmaceuticals and lithium. The actions we have taken over the past 18 months have aligned operations with regional market demand and positioned each of our businesses to better capitalize on market opportunities. With our transformation complete, we are now solely focused on the execution of a strategy to drive performance in 2016 and beyond.

In Agricultural Solutions, we continue to see the benefits of the Cheminova acquisition. Prior to the acquisition, Ag Solutions was very much an American business. In 2014, more than three-quarters of its revenues were generated in North and South America.

Cheminova significantly increased the size of Ag Solutions operations in Europe and Asia, bringing greater scale and market access to Ag Solutions operations across all regions. The increased global scale of operations, combined with the actions we have taken in North and South America, will bring greater regional balance to Ag Solutions, align operations with a global crop protection chemical market and limit Ag Solutions' reliance on any one region or market to drive performance.

For example, in 2014, almost 40% of Ag Solutions revenue was generated in Brazil alone. In 2016, we expect Brazil to account for less than 20% of segment revenue and only 15% of total company revenue.

Across the global Ag market, conditions in the Americas remained the most challenging. With greater scales and regional balance, FMC is able to better manage our business in the Americas to address market conditions. Specifically, we restructured operations in Brazil to align the size of our business with market conditions and rationalize our product offering to increase our focus on high margin proprietary technology platforms and differentiated products. While these actions reduced our revenues in Brazil, they improved the quality of operations and enhanced the potential to deliver higher earnings and return on capital.

In North America, we are supporting customer inventory drawdowns to more closely match our sales with underlying grower demand, an important step to further strengthen FMC's position from which to protect price and terms.

Cheminova also extended our product portfolio and technology pipeline and provided the opportunity to realize meaningful cost savings. We are already seeing the benefits of our extended product portfolio in North America and Europe, and the integration of Cheminova is progressing well. We remain on track to deliver the full run-rate cost savings of $140 million to $160 million by the middle of 2017.

In Health and Nutrition, global demand for FMC's naturally derived ingredients product line continue to be robust, and we remain focused on maintaining the business' high margins through the implementation of manufacturing excellence program, process technology improvements and product differentiation.

In Lithium, we are seeing the benefits of a strategy to focus and grow FMC's business in the technology driven specialty end markets where demand continues to climb and pricing trends across FMC's portfolio remain favorable.

I will discuss the performance of each of the businesses shortly and provide an update on our outlook for Q2 and the full year. First, I will start with a brief review of FMC's consolidated reported results on slide 2.

FMC reported first-quarter revenue of approximately $799 million. Adjusted EPS of $0.58 for the quarter was flat compared to the first-quarter of 2015, but was towards the top end of our guidance range as a solid performance in Ag Solution and a very strong quarter for Lithium drove the results.

Turning now to Ag Solutions, on slide 3. Ag Solutions reported revenue of $546 million, a decline of 22% compared to pro forma results for the first quarter of 2015, as lower sales volume in North America and Brazil, due to high channel inventories, planned product rationalization and currency headwinds more than offset the impact of price increases, revenue synergies and new product introductions the quarter.

As I mentioned previously, we are focused on executing our strategy to drive improved performance. This includes completing the process of rationalizing the Ag Solutions product portfolio that began in 2014. The actions we took to eliminate certain products from our portfolio reduced revenue by approximately $30 million, or 4%, compared to pro forma revenue for Q1 2015. However, as discussed in prior quarters, this product rationalization has a limited impact on segment earnings.

We also remained focused on pricing discipline. At the operating earnings level, price increases implemented in Brazil more than offset the year-over-year impact of the weaker real. However, the broad-based strength of the US dollar resulted in headwinds in Europe and Asia that were only partially offset by price increases.

Despite challenging market conditions, the Ag Solutions business delivered segment earnings of $82 million, ahead of the midpoint of our guidance, and maintained operating margins year over year on a pro forma basis. I will make a few additional comments regarding regional market conditions and Ag Solutions performance now on slide 4.

Overall market conditions and our performance in the quarter were very much as expected. In North America, as we discussed on our Q4 earnings call back in February, the deterioration in farm incomes over the past year, combined with elevated channel inventory levels led distributors and growers to delay purchases of agricultural inputs, including crop protection chemicals.

We determined it was critical to maintain price and payment terms in North America this season. And as part of our strategy to achieve this, we believe it was important to allow the level of FMC product inventory in the sales channel to reduce. Our decision to allow FMC product inventory in the sales channel to be drawn down was the main factor behind the 35% decline in revenue in North America in the quarter compared to pro forma revenue from first-quarter 2015.

However, we anticipate full-year revenue performance for Ag Solutions in North America will be largely in line with the broader North America crop protection market as the action we are taking today will facilitate increased sale in the second half of the year. In fact, the data we are seeing give us increased confidence that our approach to managing Ag Solutions business in North America will help protect price and terms in 2016.

Despite lower sales into the channel, FMC continues to gain market share when looking at grower's use of product. Based on independent data, application of FMC products, or product on the ground, rose 7% in the quarter compared to Q1 2015. In particular, we continued to see strength in FMC's Authority brand pre-emergent herbicides, which address the growing number of soybean acres which exhibit glyphosate resistance.

As a result, we are confident the reduction in revenue in Q1 is due more to our decision as when to sell than it is to any change in underlying demand for FMC products, and it is the strong grower demand for FMC's portfolio of technical products which will ultimately provide the support for pricing and terms that we are focused on.

In addition, we continue to see demand by growers for new innovative and differential products that provide high value and use. Recent product launches by FMC in core herbicides, and the introduction of our extended fungicide product offering as a result of the Cheminova acquisitionreceived strong support from growers and distributors in the quarter. We also saw strong acceptance of our new biological and synthetic product combinations, including brands such as Capture VGR and Ethos XB.

In Latin America, revenue declined approximately 25% compared to the first quarter of 2015. Lower demand and planned product rationalizations in Brazil more than offset increased sales volume in the rest of Latin America. Excluding this portfolio rationalization, sales in Latin America declined approximately 15%, in line with the overall market.

Market conditions in Brazil were little changed from the fourth quarter of 2015. Channel inventory levels have improved, but remain elevated, most notably in soybean insecticide in the northern states. However, we are seeing an increase in demand in the north for insecticides, such as FMC's Talisman, to address secondary pest pressure and soybeans.

In southern Brazil, market conditions have improved, especially in sugar cane and certain niche crops, such as coffee and citrus. We continued to remained disciplined on pricing in Brazil. As we have explained previously, greater stability in the Brazilian real to US dollar exchange rate supports price increase to offset FX headwinds. Paul will comment further on the impact of foreign currencies later in the call.

Outside of Brazil, we continue to see increasing demand for pre-emergent herbicides in Argentina and products for niche crops in Colombia and Mexico. In Argentina, we see improved conditions with far fewer restrictions on imports and with the lifting of export taxes for key crops.

In Europe, sales declined approximately 11% as foreign-exchange headwinds and lower market volume more than offset commercial synergies from the Cheminova transaction and new product launches in the quarter. The cold snap at the end of the winter impacted the season in certain Western European markets, and we have seen some tightening of demand by growers in an attempt to control costs in the face of persistently low grain prices.

Strong demand in Central and Eastern Europe and FMC's transition to Cheminova's direct market access model in Europe partially offset the pullback in market activity in the quarter. Sales volumes across Europe increased for FMC's legal portfolio, including herbicide and insecticide for cereals. With the benefit of a broader combined portfolio, we believe the business is well positioned to address market demand in key crops, including cereals and oil seed rape.

Profitability in the region improved meaningfully year over year as the move to direct market access, combined with other cost savings from the Cheminova integration, increased operating margins in Europe by about 200 basis points.

In Asia, we saw increased demand in China and Australia; however, the stronger US dollar, combined with planned product rationalization and poor weather in India and Southeast Asia, resulted in a 13% decline in pro forma revenue compared to the prior-year quarter. Excluding the impact of currency and planned product rationalization, revenue decreased about 3%, driven largely by lower sales volumes in India.

Globally, we expect the challenging market conditions to persist for the remainder of the year. As previously stated, we believe the global crop protection chemicals market will decline by a mid- to high-single digit percentage in 2016 on a US dollar basis, driven largely by market conditions in North America and Brazil. We remain highly focused on decreasing FMC product inventory levels in the channel, holding on pricing terms and increasing collections of accounts receivable.

Our full-year guidance for Ag Solutions remains unchanged. We continue to forecast full-year revenue of between $2.3 billion and $2.5 billion and full-year segment earnings in the range of $380 million to $420 million. In the second quarter, we expect to deliver segment earnings in the range of $90 million to $110 million, along with sequential margin improvement as we move toward the main selling season in North America and Europe.

Turning next to Health and Nutrition on slide 5. First-quarter performance for Health and Nutrition was broadly in line with expectation. The business reported revenue of $192 million and segment earnings of $47 million.

First-quarter 2016 revenue declined approximately $19 million compared to the first-quarter of last year. As discussed on our fourth-quarter earnings call, last year's first-quarter revenue included certain Omega-3 sales, which were not expected to occur in 2016. These sales relate principally to pharmaceutical API products and account for the decline in revenue compared to the prior-year period. Excluding these sales volume and the impact of currency, revenue was essentially flat compared to last year.

Global demand for FMC's Health Excipient products continues to grow, resulting in higher sales volume of binder and disintegrant products in the quarter. However, lower sales in functional health due to timing and a more competitive Omega-3 pricing environment broadly offset the increase in Health Excipient revenue. For the first quarter of 2016, Health and Nutrition reported segment earnings of $47 million, while lower operating costs resulted in an increase in segment earnings margin to 24.6%.

Looking forward, we continue to expect full-year revenue in the range of $775 million and $825 million and segment earnings of between $198 million and $208 million, driven principally by continued growth and demand for MCC-based Health Excipients and nutritional ingredients in North America and Asia and lower operating costs from ongoing manufacturing excellence program and process technology improvements. We expect Health and Nutrition second-quarter segment earnings of between $49 million and $53 million, with a sequential improvement in segment earnings margin in the quarter.

Turning to Lithium on slide 6. Lithium delivered an outstanding quarter. Compared to the first quarter of 2015, revenue increased 8% to $60 million and segment earnings almost tripled to $14.9 million. Segment operating margin climbed from under 10% last year in Q1 to almost 25% this quarter.

These results reflect the impact of our strategy to focus on the downstream specialty markets. As a result of our advantaged product technology and ability to manage sales mix, FMC is uniquely positioned to serve the higher growth and higher value specialty segments while maintaining the flexibility to take advantage of favorable market conditions in lithium carbonate and chloride.

Demand trends across specialty end markets remain strong. Demand for lithium hydroxide for energy storage and electric vehicle, or EV, applications continues to grow at double-digit rates. Our success in increasing throughput from our existing hydroxide assets allowed FMC to deliver higher sales volume in the quarter. In addition, we managed our production mix in order to optimize our sales of butyllithium and high purity lithium metals.

Favorable market conditions supported price increases across the FMC portfolio. We continue to realize price increases for lithium hydroxide while our approach to the carbonate and chloride market is allowing us to achieve meaningful price increases on these limited sales volumes. The extent to which carbonate and chloride prices remain elevated will depend on how quickly new supply comes online. We expect market supply of all product to remain tied in the near- to mid-term.

Lower operating costs coupled with higher specialty sales volume and price increases resulted in significant increases in segment earnings and margins in the quarter. Manufacturing efficiencies from ongoing process improvement initiatives and lower costs associated with the natural gas pipeline installed in 2015 reduced operating costs by more than $5 million year over year, helping to drive the increased operating margin in the quarter.

We expect the second quarter to be another strong period for the lithium business. We continue to shift our sales mix to grow our specialty product line, serving markets such as EVs and polymers while capitalizing on favorable market conditions in lithium carbonate. However, we expect to have slightly lower available carbonate volumes in Q2 compared to Q1 as result of lower seasonal production in Argentina.

Consequently, we expect quarter segment earnings to be in the range of $10 million to $14 million and segment earnings margin in the range of 19% to 20%.

Based on Lithium performance to date and our expectations for the remainder of 2016, we are raising our full-year outlook for the Lithium business. We now expect full-year revenue to be between $245 million in $265 million and segment earnings to be in the range of $43 million to $53 million, up $10 million from the prior range.

Moving next to our outlook for the second quarter and full-year 2016 on slide 7. I previously commented on the outlook for each business for both Q2 and the full year. As I mentioned, we are maintaining segment earnings guidance for the full year for both Ag Solutions and Health and Nutrition. Segment earnings guidance for the second quarter reflect normal earnings levels for these businesses based on their expectations for 2016. We are increasing the full year segment earnings guidance for Lithium as stated earlier.

On a conservative basis, we are increasing full-year 2016 adjusted earnings per share by $0.05, versus previous guidance, to a range of $2.55 to $2.85. And we expect second-quarter 2016 adjusted earnings to be between $0.62 and $0.72 per share.

I will now turn the call over to Paul to discuss select financial results including taxes, foreign-exchange and cash flow.

Thank you very much, Pierre.

As usual, I'll start with the income statement and specifically the tax rate. Our adjusted effective tax rate fell from 27.5% in the first quarter 2015 to 26% in Q1 2016. Part of this was the continued change in the mix of our earnings away from the US and Brazil and towards Europe and Asia where rates are typically lower. We continue to take steps to increase our tax efficiency and expect that the full-year rate will come in somewhere in the 24% to 26% range.

The theme in our earnings in recent quarters has been the impact of foreign currency movements, and the movement in the Brazilian real has been a particular area of focus. In the first quarter, the average rates of real to the dollar was 3.9, significantly weaker than the 2.87 average of the same quarter a year ago. However, the total impact on our earnings was far less than we have seen in prior quarters for two main reasons.

First, as you know, Q1 is not a large selling quarter for us in Brazil, reducing the impact of currency moves. Also, since we have not seen particularly volatile movements in the currency, our price list has been able to reflect the new currency levels for the entire quarter. As a result, the $13 million headwind created by the weaker real year on year was completely offset by price increases. In fact, the positive impact of the weaker real on our cost base meant that the change in the real was actually a net positive to our income statement in Q1.

Looking to the rest of the world, although a number of Asian currencies collectively reduced earnings, the only major currency in which we faced a headwind in the quarter was the euro, which devalued by 2% versus the same period last year. The net hit to operating earnings from currency movements in the quarter was approximately $14 million.

A second common theme on our earnings has also been the challenges of operating in Argentina, including areas such as import license restrictions, negative impacts of export duties and the headwind created by the disconnect between cost inflation and the pace of devaluation of the peso against the dollar. Since the election of Macri as President, we've seen a rapid shift in all of these areas to the benefits of our operations in Ag Solutions and, especially, Lithium.

The devaluation of the peso had a relatively limited impact on our earnings in the quarter in Lithium since the lower cost of operations takes one to two quarters to work its way out of inventory and into the income statement. And our earnings guidance for 2016 reflects this lower cost of operations. We remain cautiously optimistic that the business environment in Argentina will remain positive and will continue to create opportunities for FMC.

Turning to the balance sheet and cash flow in slide 8. Q1 is historically the period in which we consume the most cash, given the seasonal nature of our Ag business. However, discipline around spending, the increased focus last year on sales terms and, of course, the ongoing collection measures globally, resulted in an improvement of operating cash flow of over $100 million compared to the same quarter last year.

Cash flow was helped by higher EBITDA and a better performance around working capital, most notably from collection of receivables. This improvement was seen in all regions.

With certain cash outflows, particularly capital spending and pension expenses, also lower than last year, we were able to hold net debt flat during the quarter. As noted in our filing of March 28, we elected to amend the debt covenants for our term loan and revolver, deferring the timing of stepdowns of our leverage ratios such that we retained the covenant limit of 4.5 times for Q1. Our actual leverage ratio under the covenant calculation was 4.0 times, giving the half a turn of headroom that we consider to be prudent.

Looking to the rest of the year, adjusted cash from operations is forecast in the range of $450 million to $550 million, an improvement over last year of over a third at the midpoint of the range. This is driven by improvements in both EBITDA and working capital performance. Capital expenditure will remain broadly flat to 2015 in the $120 million to $140 million range.

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

Thank you, Paul.

To conclude, we continue to expect the challenging market in Ag Solutions, but we are managing the business to increase visibility and to protect both price and term. As a result, we continue to expect full-year earnings to be in line with prior guidance. Health and Nutrition is performing largely in line with expectation and Lithium is well ahead of our initial forecast. The portfolio transformation is done. We are now in execution mode targeting year-over-year earning growth for each of the three businesses.

Thank you for your attention, and I will now turn the call back to the operator for questions.

(Operator Instructions)

The first question comes from Christopher Parkinson with Credit Suisse.

Perfect. Thank you, very much.

You mentioned in your presentation that Central and Eastern Europe were showing solid demands, but can you comment on the pricing landscape given the FX headwinds there, as well, and whether or not you're able to offset that?

And then, also, on the demand front, do you believe the growth is simply driven by the market, or do you believe there's any benefit from adding the FMC portfolio to the legacy Cheminova one in the region?

I think on the Central and Eastern Europe, the pricing is pretty stable and it's not a very, very large market. Interesting for us because there is a strong possibility to increase volume, but pricing is quite stable. And I think, definitely, the growth is one of the place where FMC had no structure in Central and Eastern Europe where it was an area of focus for Cheminova.

So, definitely a place where using the infrastructure and commercial organization from Cheminova and bringing in the product portfolio for FMC is going to create some significant opportunities for us.

Perfect. And just kind of a tangent question to that one. Given the progression of cost savings with Cheminova, it's clearly going well, can you comment on the other geographies as far as intermediate to long-term revenue synergy opportunities, inclusive of the US and then also in Latin America with Argentina, in particular? Thank you.

Yes, Chris, this is Mark. We've talked about North America in the past. In the US, we are seeing very good synergies with the fungicide portfolio from Cheminova going through our distribution network.

In Latin America, obviously Brazil in the South, we're seeing increased sales through co-ops where we've made decisions which co-ops and which distribution network we'll go through. Argentina, certainly very beneficial for us. Obviously, we have a bigger footprint there now. We have the right products for the soy market, so we're expecting to see growth in Argentina.

And then in other parts of Latin America, I would say, obviously Mexico, Columbia, our two countries that we're focused on, and we're seeing very good synergies in Colombia on these crops.

I think when we did the last earnings call, as well as multiple discussion we've had, we've been talking about the share getting to $50 million to $100 million run-rate, in between the synergies and the new products. And very much on track with that. It is a place I think, the opportunities created by Cheminova from the cost saving and the revenue synergies are very much in line with what we're expecting.

Your next question comes from the line of Frank Mitsch with Wells Fargo Securities. Please go ahead.

Good morning, gentlemen. And a nice start to the year.

Pierre, when you were talking about the Ag business, you were talking about some positives with respect to the glyphosate resistance in terms of providing a boost. I was wondering if there was a way for you to quantify it and in terms of where you see that over the next 18 months, or so. And what sort of concerns may you have about some new technologies that Monsanto and others are rolling out in that area?

Yes, Frank, it's Mark. I think, for us, when we look at glyphosate resistance, we're really talking about the US, Argentina as the two big markets. I think you know that through our Authority brands based on sulfentrazone, we've had great success the pre-emergent area in both of those countries.

I expect that to continue. There will be some headwinds with new technologies coming in. But I think to offset that, we still see more weeds getting resistance to glyphosate and more acres increasing, especially in Argentina. It wouldn't surprise me if we don't start to see that in the next few years start to develop in Brazil, as well; and we are already positioning our brands in Brazilian soy for that area.

Okay. That's very helpful.

And as you think about some of the combinations coming, some of the major combinations in the Ag-Chem world coming over the next 12 months, or less, how do you see yourselves perhaps participating in picking up some pieces there? What's the interest level? Talk about your participation in industry consolidation here.

Well, Frank, as you know, we made a move which was in line with what was our strategy intent by acquiring Cheminova. We have now a stable situation from a structural standpoint in Ag. We're finishing up on the integration.

What we intend to do at this stage is watch what is happening, specifically in places when two Ag companies are coming together. So, every time there will be consolidation of Ag companies, if at any point during this process there is, because of anti-trust reasons, products which are made available that is something we are usually very good at doing -- which is taking a product and commercializing it with our own sales organization.

So, we're going to be opportunistic, but it's certainly something we will be able to afford to do, and we would be very interested in doing. Beyond that, do not expect us making any merger move or acquiring any type of company. It will be an acquisition of technology and product.

Our next question comes from the line of Daniel Jester with Citigroup. Please go ahead.

Hi. Good morning. Maybe a couple of questions on lithium. Price mix was a 4% benefit in the quarter, but by some spot measures, lithium prices were much higher. So can you just kind of elaborate as to how we should be thinking about pricing, kind of commodity versus your specialty end markets and spot sales versus the contract market as we continue throughout the year?

Yes, if you think about our retail business, look at strategy price increase in place where we are technology fully advantaged in grain markets where we have significant contracts which are renewed every year like in lithium hydroxide.

And then think about on the chloride and carbonate side, for what is not used for internal purpose or sold in the contract, we are using the spot market to do one-off price increase.

We believe that situation is going to carry-on for the next few quarters. I think the market will remain tight which will allow us to use the spot market in more commodity businesses like chloride and carbonate to increase price on a spot basis.

And where we have opportunities where people need our technology or product, we will be increasing price on contracts when the contract renews. So, it is a situation which we see fairly stable for the future.

If you look at our increase in gallons for the lithium business, most of it is going to be, of the over performance, will be due to pricing.

Okay. And then just sticking with lithium, you commented that you think the outlook is going to be tight in the near- to medium-term, can you just flush out a little bit about what your expectations are for supply additions over the coming years? Thank you.

Well, I cannot comment too much beyond what all of you know on the lithium carbonate side, because that's a decision of the people who have announced capacity increase. I'm sure, when they talk on their earnings, we'll be able to tell more about the timing. But we believe this will be (indiscernible).

And we believe some Chinese and Australian company will be bringing carbonate capacity in the next couple of years. We, ourselves, are focused more on the downstream and we will bring, in time, more detail in the weeks to come. But we'll be focusing more on increasing lithium hydroxide capacity as we need it.

And next, we will go to Mike Harrison with Seaport Global. Please go ahead.

Hi. Good morning.

Good morning.

Pierre, if we could just continue on the lithium front. I guess I was just surprised to see that you put up a $15 million quarter in lithium, and your guidance is only calling for $43 million to $53 million for the full year. What's going to change during the remainder of the year that would suggest earnings could be lower than the Q1 level as we get through the rest of the year?

I will ask for Tom to comment with me. As we said in the script, remember there is seasons in terms of manufacturing in lithium. And we are getting into a period which is the winter part of the season and we're going to have more rain and more snow and conditions which can limit more, to some extent, our production of carbonate.

So, what we're expecting in the next three quarters is less carbonate available because of our manufacturing, like most people operating in this part of the world, in the next couple of quarters. On the positive side, our costs continue to be good, and our pricing will be positive. So, it's a differential between all of this which creates maybe a little bit less of an over performance in the remaining three quarters than we have in the first quarter.

I don't know if you want to add anything, Tom, to this?

Yes, I think if you look, historically, at the earnings, the seasonality has been there. We're doing what we can to reduce volatility, but that seasonality is going to remain where the first and fourth quarter give us the most volume and flexibility on the mix we can sell.

And then, as I think about some of the lithium carbonate that you're actually purchasing to convert to hydroxide, are you experiencing higher raw material cost for that, or do you have lower prices locked in the for the year and you're actually getting a margin benefit for some of that raw material you're purchasing?

Yes, first, as you know, most of the carbonate, by a long shot, we use, is produced by us. So, what we are buying under contract today versus the overall usage is incremental and what we are buying is locked under a long-term supply agreement. So, we are not facing significant price increase in carbonate.

But, if it plays the way we expect it to play, and once again it will have to be confirmed, but the way we look at it is, for now, we are producing enough carbonate and buying enough to run our strategy around chloride, butyllithium metal, and hydroxide.

And as time will go, we're going to have to sell more hydroxide. We're going to have to increase our capacity in hydroxide, and we'll have to buy more of carbonate on the actual market, which should be at a time when our peer companies will be increasing capacity and making the product more available in the markets. It looks like all of this is falling in place quite well.

Tom, do you want to add something?

Yes, thanks for the question. Pierre has it down well.

The other thing we look at, always, is incremental things we can do in Argentina, and there are small opportunities for small capital to increase our throughput in Argentina which gives us some flexibility as we go forward.

So, right now, I would say there is no major issue around potential increase in the future of our cost in terms of our ability to execute our strategy around carbonate and hydroxide.

Next we'll go to the line of Mike Sison with KeyBanc. Please go ahead.

Hi, guys. Nice start to the year. Pierre, when you think about, you didn't change your outlook for crop protection markets, this year. I understand it's still difficult out there, but it does sound like you're feeling better about the integration and maybe the long-term potential. Can you maybe map out where Ag Solutions op income can go over time as, hopefully, things recover?

Yes, I'll tell you the way we look at Ag Solutions, right now.

First, let me talk about the Ag market as we see it for this year. I think we are not changing our view for 2016. We still believe it's a mid- to high-single digit downmarket, mostly driven by North America and Brazil within the high teens. And maybe Asia and Europe in the high single-digit, while Europe and Asia would be in the low- to mid-single digit decrease. So, we are not changing our view.

It could be maybe turning more toward the high single-digit overall global market. The way -- and why do I feel better about the way we are operating in the Ag market, it is not because we're seeing a fundamental change in the market in the short-term. But, what I think we are doing at FMC, I think the key difference is that we know better how to operate in this type of market.

I can tell you, you see it in our numbers. We are not fighting to keep market share on sales of product. We are much more looking at three types of objects here.

First, it's very important for us in focusing only on FMC product, is to decrease FMC product in the channels. The second aspect is we want to be able, by doing that, to focus more on the quality of the sales which is: more term, price, and collection. And then, looking at all of that, the objective is to align more sales with the normal demand pattern.

You see that in the numbers in Q1 in North America. Sales down 35%, I think on slide 4, while product on the ground, we're up above market 7%. So, the way we are operating in the market, today, I believe we have more control over our selling process than we might have had in the past when we got hit by the downturn.

Beyond that, I would say, I would not exclude the market to turn around in 2017, but I have no indicators telling me it will be the case. So, I think we are much more focused, Mike, on operating under the current conditions with very high control on term, price, and managing very closely in partnership with our customers our inventory to create much more predictability in ourselves.

That's where the level of confidence for me is increasing at this stage. Market turnaround, I think we'll have to wait a little bit more, and certainly, to go into Q3, Q4 to have more visibility.

Okay. And, Paul, just a quick one.

I thought you said at the current levels where the Real is that, is it going to be a negative this year? Is it a positive? I just wanted to make sure I understood your commentary around foreign currency, there.

That's the million-dollar question with the real. The truth is that the stability, or the predictability, in the movement of the Real is really what matters to us.

We've talked about it in the past with regards to the timing of changes and the pace of changes. Q1 and Q2 just aren't really periods in which we have a lot of commercial activity going on in Brazil, so it's really what it does in Q3.

Again, it isn't so much the level. We've shown that in Q1 where with an average rate of 3.9, today it's closer to 3.5, we were able to still capture pricing on the limited number of sales we have in Q1. The question will come in Q3, how stable, how predictable is the Real.

In the rest of the world, you look at the forward curves on the currency, it does not feel like a strengthening dollar is what the market is expecting. That, generally speaking, is what's factored into our numbers, relative predictably, not a big strengthening of the dollar around the world.

Q1 feels like, when you look at where the dollar is today compared to a year ago, Q1 feels like the last of the quarters that we have those tough FX comps. So, subject to any changes away from where the market expects today, doesn't feel like currency will be quite the high level story that it was last year.

Our next question comes from the line of Joel Jackson with BMO. Please go ahead.

Hi, good morning. You have really guided up your operating cash flow projections for the year by $50 million, but raised your EBIT projections by about $10 million. Can you give us a sense of where the big delta is coming in the operating cash flow? Is it really an improvement in working capital?

Sure. It's a pretty straightforward story. We clearly have an increased expectation around EBITDA, but the truth is, it's largely around working capital.

And you have to bear in mind, if you look over the last few years, two years ago we had a terrible performance with working capital with, largely, cash outflow. Last year, we turned the corner, and sort of stopped the bleeding and improved it slightly, but this year, we expect that trend to continue so that working capital becomes a positive generator of cash flows.

Our biggest focus is always going to be the Brazil receivables balance and getting that receivables balance down. But we're also very, very focused on inventory levels, our own inventory levels and making sure that we are very efficient and very thoughtful about what inventory we hold, where we hold it, and how much of it we hold.

So, it's coming in multiple different areas, but you really should be looking at working capital as the primary driver of the increase in cash flow for 2016.

I'm sorry, this was asked already, but in terms of synergies from Cheminova, 60 million to 70 million for the year, do you still maintain that? Maybe give us how much more you think you can still get in 2017 versus your prior guidance?

In general terms? Yes, we are not changing, actually we still have the same numbers, so the numbers would be talking about 60, 70 are very well in line.

And a full run-rate of 140 to 160 getting into the middle of next year are, also, still the targets. So, there is no change in our numbers, right now.

Our next question comes from the line of Steve Byrne with BOA. Please go ahead.

Hi. Thank you. In the US crop protection market, are you seeing any increased discounting or bundling by your competitors? And, do you see any risk of, perhaps, maybe losing some shelf space in the retail channel from allowing your product inventories to be trimmed?

You know, I think whenever you talk about terms and pricing, we want to be highly cautious and solely comment about we do. Our strategy, today, is quite simple.

We are highly focused on maintaining our pricing at a healthy level. We are very vigilant on terms, as you know, balance sheet is always a key challenge for a company like us, and more than ever, we are highly disciplined on terms and not giving terms.

What it means for us, and I'm only talking for FMC, what it means for us is, certainly, we are prepared to see timing change in our sales, and that's what I've been talking about. We're not being willing to do anything to push product in the market if there is not a complete need for this product by the market.

You know, space shelves is a word we use a lot, but, when you have technical product to be sold, those products, you know there are needed. And then you have commercial contract with customers. So, it is not a situation where, because we are aligning our sales with the market demand, that we are taking an enormous risk to see somebody taking our shelf space by the end of the year and us not being able to sell a product.

For example, Mark talked about our Authority product line. It's a pre-emergent product. It's required -- needs to be bought in Q4 and Q1. We know this product will be sold. So, I think our strategy might be a bit differentiated, but we are only focusing on ours along the lines of what we discussed before.

And, Pierre, considering your comment about Authority, would you say that the outlook for eventual penetration of the Xtend and the Enlist soybean products, is that a risk to your Authority franchise within the Americas, or could you see that as potentially an opportunity where you might expand your herbicide franchise and move more over-the-top and bring in formulations with either 240 and Dicamba?

Yes, Steve, this is Mark. You know, we talked about it earlier. I got a question earlier about whether we thought it would be a headwind or a tailwind. I think in initial stages, I expect rates to be reduced.

Good news is we know with Enlist and Xtend that they will still be recommending the use of the pre-emergent herbicides, of which Authority is one of the market leaders. So, we know we're going to have a substantial market there.

I would say weed resistant acres continue to grow, so we're going to see that pre-emergent continuing, certainly in the US and, as I said earlier, in Argentina.

I think from an over-the-top perspective, we have some very good products that we're going to be promoting, such as our Cadet herbicide, which we think will be a great tank mix partner for those products and really offer a broader spectrum of control.

Don't expect to see us in 240 in Dicamba. That's just not the sort of business we're going to be in. We're going to be in the more differentiated products, more highly specialized where we can bring value to the growers and distribution.

Next will go to the line of Mark Connolly with CLSA. Please go ahead.

Thanks. Pierre, the trend among food companies to reformulate to simplify is clearly getting faster. How much is that reformulation trend actually helping you, do you think. And do think about it as a tailwind?

You know, I think the food market for us, there is an acceleration. The way we look at our market in nutrition and in health, are interesting.

In health, the good news is when you are with the customer, you are there for a while because you're not being reformulated out easily. The problem with that is it's not easy to gain new business.

While the same applies to food, but the reverse. I think there is a trend to reformulate, change formulation. There is a very fast cycle which gives opportunities for us. So, the stronger we are with our product, the more opportunities.

But, by the same token, also, it opens the door for new product and competitors. So, I would say today, it could be a slight tailwind, knowing that we are, maybe, the largest market shareholder and maybe the more complete product line. But, I don't see that as a major change from the past.

Eric, do you want to add some comment to that?

I would say we see it as a trend. This is Eric Norris. I see it as a trend. We see it as a trend like many others that have come and go in the industry. The industry is very that fad-based.

To Pierre's point, unlike the health markets where there's very little change over periods of time, there is a great deal of change from every two or three years whether it's low-fat, Atkins and now this simplification, clean-label phenomenon.

It really does come down to the breadth of product line we have. The fact that they are well-suited to being all naturally-based. And then having the applications capability to respond to them in the right places around the world, having a spread of knowledge in the right places in your customers.

So, we're well-positioned for it. Anytime there's a reformulation, there's a challenge, so it does create an effort on our part to respond. Going forward, we see it as a tailwind though, for us, given the breadth of our product line and application capabilities.

Eric, in Pierre's comments, you talked about product differentiation. Can you talk about how you think about product differentiation?

Specifically in the food market?

Sure, yes.

It comes down to understanding very well, not only what is going on with your direct customers, the large food or small food company, but with consumers. And then being able to put together a formulation that meets the needs. So, product differentiation, for us, is less about proprietary technology, intellectual property, such as a patent that might drive more what happens in our Ag business.

It's more about the know-how. Being able to put a sum of ingredients together that meets a specific need and understanding either color, texture and/or taste issues that might impact the success of that brand. So, it really comes down to the differentiation around the application and the ingredients we bring as opposed to a proprietary ingredient in the food product itself.

Our next question comes from line of Brett Wong with Piper Jaffray. Please go ahead.

Hi, guys. Thanks for the fitting me in here at the end. Pierre, you were talking about the overall crop chem market and the focus that FMC is going to have in terms of working inventory down and being disciplined on price and terms.

So, I just want to get a clarification, so if others, other competitors are not acting rationally and pushing product into the market when the product doesn't need it, as you were saying, FMC is not going to be participating in that kind of activity?

Listen, I don't know what strategy our competitors are operating around. Their own market push of product, discounts and how rationale they intend to be. I think what we have made is a decision. And that is a decision we have made globally.

We believe we are in a situation where the markets are such, and the level of inventory in the channel are such, that you can't guide your activity by what the others are doing. I think we have a plan in place. We are working very, very closely in cooperation with our customers who understand our strategy.

We are not going to try to sell in Q1 or Q2 or Q3 a product which is needed in Q4. And in exchange, we maintain a healthy pricing and terms situation. And you know, that's where we're going to be focusing.

I believe what we're going to do during this downturn, and until this turns around is, we are not going to work hoping that the overall level of inventory in the market channel is going to go down. I think it's to tall of an order and too unpredictable. So, we will be focusing solely on FMC products.

I think the numbers are quite spectacular. You know I said that many times. 34% sales down in the first-quarter in North America, plus 7% product on the ground. That is millions of dollars of inventory which are outside of our customer's inventory which they will need to replenish when the markets need it. And that's the way we are operating.

Our competitors will have to use a strategy which is appropriate for them.

Okay. And then just focusing again on inventory. Obviously, in the quarter, your inventories were significantly elevated due to the strategy that you're speaking of. Could you just talk about the timing that you expect to be able to work through that inventory along with what the channel is going to be doing.

And then, ultimately, I think you said you expect improvements in the second half in North America. Can you just talk a little bit about that?

I think the way we look at it, and you know there was a question before, I think it was Mike who asked that question on the level of confidence in the market.

I think our strategy, today, allow us to have more visibility in terms of the timing and level of our sales, because we become less dependent upon what the market is doing and rushing to place sales to be safe and those on the shelves.

So, what it does to us is creates more predictability and maybe increase the level of confidence of how the quarters ahead of us are going to be unfolding. We know which product will be required, usually which technology will be required depending on the season in Q4, Q1 and Q2. And that's a discussion we have with our customers, and that's the way we our operating, right now. So it's just giving us a bit more certainty on how things will unfold.

Our last question comes from the line of Aleksey Yefremov with Nomura Securities. Please go ahead.

Aleksey, your line is open.

I guess he didn't have a question anymore. That was our last question. Please go ahead.

Well, that's all the time we have for the call, today. I want to thank everyone for joining. I'll be available for the rest of the day to go through any additional questions. Again, thank you. Have a good day.

And that is all the time we have for today. This concludes FMC Corporation first-quarter 2016 earnings release conference call. Thank you.