富美實 (FMC) 2016 Q3 法說會逐字稿

Good morning and welcome to the third-quarter 2016 earnings release conference call for the FMC Corporation.

(Operator Instructions)

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

Thank you and good morning. Welcome to FMC Corporation's third-quarter 2016 earnings call. Joining 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 discuss the outlook for Q4 and 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 available on our website and the prepared remarks from today's discussion will be made available at the conclusion of the call.

As with our prior calls Mark Douglas, President FMC Agricultural Solutions; Eric Norris, President FMC Health and Nutrition, and Tom Schneberger, Vice President and Global Business Director FMC Lithium will join to address 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 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 to 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. Q3 2016 was another strong quarter reflecting the continued execution of our strategy. FMC reported revenue of $808 million, adjusted operating profit of $134 million and adjusted EPS of $0.67. Adjusted EPS increased approximately 60% compared to the third quarter of 2015, exceeding the top end of our guidance range of $0.53 to $0.63. Performance through the quarter was driven largely by the results of Ag Solutions and Lithium both of which reported a significant year-over-year increase in segment earnings

In Ag Solutions, compared to last year, we saw an improved start of the season in Latin America, officially in Brazil, a stronger performance in both Asia and North America. Lithium continued to benefit from higher prices, improved mix and lower operating costs. Third-quarter segment earnings in health and nutrition varied -- were slightly below 2015, but in line with our expectations. The lower tax rate in the quarter contributed approximately $0.03 to adjusted EPS.

As noted in our outlook statement, and as Paul will discuss later in the call, we expect to continue to report a lower tax rate for the remainder of the year and into 2017. Based on our performance in the third quarter and on our outlooks for Q4, we are revising the range of our full range adjusted EPS guidance to $2.76 to $2.86 per share. At the midpoint, this represents an increase of $0.06 per share compared to our prior guidance and an increase of $0.14 compared to adjusted EPS for 2015. I will provide more detail on the outlook for Q4 shortly, but first I will discuss the third-quarter results for each of our three segments starting with Ag Solutions on slide 2.

For the third quarter, Ag Solutions reported revenue of $559 million and segment earnings at the top of our guidance range of $90 million. Compared to the third-quarter 2015, revenue declined 3% as lower sales volume in Brazil more than offset the benefit of higher prices in that country and volume growth in other regions. Year-over-year price increases were largest in Brazil where we continue to recover pricing US dollar terms.

Segment earnings increased over 50% and margin improved 600 basis points as higher realized prices improved mix and favorable for any change more than offset the impact of lower volumes and slightly higher costs in the quarter. Costs were higher principally because as the results of the timing between quarters of certain expenses. For the full year, we remain on track to achieve our integration cost-savings target.

Turning to slide 6, I will provide additional comments on Ag Solutions' regional performance and discuss the outlook for Q4 starting with Latin America. Revenue in the region declined 18% in the quarter driven largely by lower sales volumes in Brazil. General market weakness, ongoing product rationalization effort and our decision to allow channel inventory levels to reduce each contribution to the decline in sales volume in Brazil. The elimination of low margin third-party products accounted for over 50% of the volume decline in the quarter.

Revenue in the rest of Latin America was roughly flat compared to 2015. In Argentina we continued to see increasing demand for FMC's Quimica herbicides. In Mexico, our focus on high-value products is helping to assess the impact of the broader market decline. The absolutes we have taken throughout the past year in Brazil enabled us to realize significant increases in US dollar-based prices, improve operating margin and drive collections in the quarter.

Price actions increased operating earnings in Brazil by about 30% year over year, which, combined with lower operating costs, returns operating margins to 2014 levels. Our absolute in Brazil also enabled the business to reuse accounts receivables in the country and generate cash collections of over $200 million, a significant improvement over our performance in the same quarter last year. Moving on to Asia. Revenue in the region grew by 9% in the quarter compared to 2015 driven mainly by increased sales volume throughout the region.

Improving weather conditions in Australia created strong demand for all grazed herbicide and for our fungicide portfolio. A return to a more normal monsoon season in India and Southeast Asia supported increased demand for insecticide and fungicide with strong growth in Indonesia for rights applications. In Europe, revenue increased 6% in the quarter and created the synergies and higher volume in Eastern Europe as we expanded our direct market access coupled with strong herbicide sales in the UK more than offset challenging conditions in Northwest Europe.

In North America, revenue in the quarter increased 46% to 2015. We saw higher sales volumes related to new product introductions for winter and spring and increased demand for herbicide. Looking ahead to Q4. We expect market conditions to remain largely unchanged.

We are cautiously optimistic regarding Q4 in Latin America given the start of the selling season in Brazil and strong demand for FMC products elsewhere in the region. However, we're more cautious on market conditions in North America where we expect weak market conditions into 2016, 2017 crop season.

For the fourth quarter, we expect segment earnings to be between $117 million and $137 million. At the midpoint, this implies segment earnings growth of approximately 25% compared to the fourth quarter of 2015. Improved US dollars pricing in Brazil and lower costs year over year are expected to drive a meaningful increase in segment earnings margin in the quarter from 15% in 2015 to closer to 20%.

We are pleased with the progress made in Ag Solutions to drive margin improvement in the business. Pior to the creation of Cheminova lab, Ag Solutions consistently delivered contributed operating margins between 20% and 25% and we are well on our way to returning margins to that level. We are tightening our full-year segment earnings guidance to $390 million to $410 million, with the midpoint of our range unchanged and continue to forecast full-year revenue of about $2.3 billion at the midpoint.

Turning next to health and nutrition on slide 4. For the third quarter, health and nutrition reported revenue of $179 million and segment earnings of $45 million. Revenue declined 9% year over year largely as the result of lower volume. Timing of sales to certain farmer customers in Asia and Europe and headwinds performing that weak each contributed to the volume decline.

Segment earnings for $45 million declined 4% compared to 2015. However, operating margin improved 120 basis points to over 25% in the quarter. The negative impact of lower volumes and product mix was largely offset by lower operating costs as a result of ongoing operating excellence programs. For the fourth quarter, we expect segment earnings of between $53 million and $57 million and for the full year forecast segment earnings to be in the range of $190 million to $194 million. At the midpoint, Q4 segment earnings are expected to increase almost 20% compared to Q4 2015.

The bulk of the increase in segment earnings is due to the timing of certain favorable cost variances from prior period which will drive segment earnings margin to between 29% and 30% in the quarter. For the full-year, we expect margin of about 25% to 26%.

Moving on to lithium on slide 5. Lithium delivered another outstanding quarter. Revenue increased 22% to $70 million on the back of increased price and more favorable mix. Segment earnings rose to $18 million from just $2 million last year. Market conditions remain favorable with demand increasing ahead of supply.

As a result prices, across the portfolio were higher compared to last year. These price increases combined with a most favorable sales mix lowered cost and the benefit from foreign currency drove the improvement in segment earnings and margins in the quarter. We expect the positive momentum in lithium to continue with fourth-quarter segment earnings between $16 million and $20 million, approximately 60% higher year over year at the midpoint of the range.

Based on lithium's performance to date, and their expectation for Q4, we are increasing full-year guidance for segment earnings by $5 million at the midpoint to a range of $65 million to $69 million. Full-year segment earnings margin should be about 25% compared to 10% in 2015. Before turning the call over to Paul, I will comment briefly on the outlook for the fourth quarter and full-year 2016 on slide 6.

We are tightening full-year segment earnings guidance of both Ag Solutions and Health and Nutrition and increasing guidance for Lithium. Based on this segment guidance and the lower tax rates, which Paul will discuss in a moment, we expect fourth-quarter adjusted earnings per share to be in the range of $0.82 to $0.92 and full-year adjusted EPS in the range of $2.76 to $2.86. I will now turn the call over to Paul.

Thank you, Pierre. I will start with the tax rate and the noncontrolling interest on the income statements before I move on to the impact of currency, cash flow and the balance sheet. So first tax. Year to date our adjusted effective tax rate is around 23.5% which is slightly lower than we initially expected. This is driven by an increase in the contribution of earnings from our foreign entities, compared to prior years. And while this trend is most profound in Ag Solutions, we're actually seeing it in all of our businesses.

We expect the adjusted effective rate to be in the 23% to 24% range for the fourth quarter. While looking into 2017, we expect that rate may fall by as much as three percentage points resulting in a full-year adjusted effective tax rate closer to 21%. This further reduction is mainly the result of the operational integration of Cheminova which will impact our supply chain and our earnings mix globally.

Our noncontrolling interest line continues to shrink as part of the integration of Cheminova and taking advantage of opportunities to simplify the ownership structure of some of our international entities and our taking, or have taken steps, to consolidate ownership in places such as Argentina, China and Eastern Europe. Largely as a result of these steps, we expect our noncontrolling interest line to fall to approximately $5 million this year and remain near this level next year.

Touching on currency. This quarter saw none of the rapid movements in major currencies that we saw last year, and as a result, FX had a far smaller impact on our results. Across all businesses and regions, currency was a tailwind to earnings with a large favorable movement in Brazil, the biggest factor. The other major currencies for which FMC is exposed, namely the euro and the now mb, had no meaningful impact on our earnings in the quarter. For the year to date, currency has been broadly neutral to earnings.

Moving on to cash flow and slide 7, the first thing I want to point out is our increase in cash flow guidance for full year from a range of $450 million to $550 million to a range of $550 million to $600 million. The midpoint of this revised guidance reflects an increase in cash generation of almost 60% compared to 2015. Higher earnings and stronger working capital performance and tight spending discipline will all contribute to the year-over-year increase and give us confidence that the higher level of cash generation we have seen through the first three quarters will continue through Q4.

Underpinning our confidence and cash generation is our success in reducing Brazil exposure. Through September, we collected over $500 million of receivables in Brazil reducing the outstanding receivable balance by over $200 million. By the end of 2016, we expect to have collected over $700 million of our outstanding receivables in Brazil alone. Equally importantly, a significant proportion of the collections are coming from those accounts that were past due at the start of the year improving the quality of the remaining receivables balance.

Our receivables balance in Brazil however remains higher than we believe it should be and we expect to continue to reduce it over the coming seasons. Based on our current visibility, we believe that we have the ability to reduce the current balance by approximately $400 million. We will deliver this reduction over the next 18 to 24 months. Our strong cash generation has helped us reduce our net debt by over $200 million so far this year and we expect this to fall further by year-end.

Combined with higher trailing EBITDA, our adjusted FX to LTM EBITDA of ration will fall into the 2.5 to 3 times range as we enter 2017. We will continue to manage our debt to a level that's consistent with our current credit rating. And looking into 2017, we expect our capital expenditure to remain similar to 2016 at or just ahead of depreciation even allowing for our planned expansions in lithium hydroxide. We will continue to seek out opportunities to invest in technologies and products for our Ag Solutions business, and at an appropriate time in 2017, we would expect to revisit our ability to engage in share repurchases while maintaining our other net debt credit rating and investment objectives. With that, I will turn the call back to Pierre.

Before closing, I would like to share a few initial thoughts regarding 2017 on slide 8. Based on what we see today, we expect the global crop protection chemical market to be about flat in 2017 creating a more stable operating environment for FMC Ag Solutions. Market demand in Europe and Asia continues to grow and more normal weather conditions should lead to an improved demand environment in those regions next year. What it remains variably to predict the market crop protection chemicals in Latin America, we are pretty confident that we will enter 2017 with better market fundamentals than either of the previous two seasons.

In contrast, we expect market conditions in North America to remain challenging as we currently believe that the marketwide restocking process has run its course and that elevated levels of channel inventory combined with low commodity prices will dampen grower demand across the region. In a flat market and assuming stable currencies, we believe Ag Solutions is well positioned to deliver another year of growth in segment earnings. Revenue synergy opportunities in Europe and North America, planned new product introductions and continued cost savings will more than offset cost inflation. Our preliminary view is that Ag Solutions segment earnings will grow by a high single digit percent in 2017.

In Health and Nutrition. Next year we expect growth rates for revenue from segment earnings to return to historical levels of low to mid-single digit percent. In Lithium, the combination of higher price, increased lithium hydroxide volume and continued cost discipline should increase segment earnings by about 40% in 2017. We expect to realize higher prices in all major downstream products next year with the most significant increase in lithium hydroxide. The major review of our lithium hydroxide contracts are negotiated in the fourth quarter; and based on the studies of customer negotiations to date, we expect the other rates realized price to be significantly higher in 2017.

We also expect to see a meaningful increase in the product cycle of lithium hydroxide next year as a result of our previously announced capacity expansion. Construction of our hydroxide facility is ahead of schedule. Based on the current construction timeline, we expect production of lithium hydroxide to increase by 4000 metric tons in 2017 with total production capacity increasing to 18,000 metric tons per year by the middle of next year. Continuing the growth in demand for FMC Corp's downstream lithium products requires excess increasing volume of lithium carbonate.

Earlier this week we announced an agreement with Metcalf Lithium to source 8000 metric tons of lithium carbonate per year beginning in mid-2018. These agreements represent only one element of our sourcing strategy and we are actively pursuing multiple paths to diversify our carbonate source. In the near term, we will increase capacity at our Argentina operations by approaching maybe 20% through low capital cost actions. We continue to evaluate long-term supply agreements and partnerships with other producers of lithium carbonate and we retain the option of expanding our carbonate production operation in Argentina in order to ensure we have the secure, reliable and cost competitive supply of lithium carbonate.

At the corporate level, we expect costs to remain roughly flat and to continue to reuse debt. Combined with our lower tax rate for 2017, as Paul mentioned earlier, we expect to grow EPS at a faster rate than we grow operating earnings. Consistent with prior years, we will provide more details and specific guidance for 2017 in February when we report our Q4 and full-year 2016 results as we first need to see how the year ends and assess business and market conditions at that time. To conclude, I'm very pleased with the performance in the quarter and year to date. In volatile markets, FMC has continued to execute its strategy and deliver substantial growth in earnings. I believe we are positioned to continue this in Q4 and beyond.

We continue to invest in our technology pipeline in Ag Solutions and are launching new products that bring greater value to the grower. Last month, we announced that FMC has begun the registration process in North America to offer Bixafen fungicide one of the nine active ingredients in the herb R&D pipeline. With our unique high return R&D model for active ingredient innovation and strong regional formulation capabilities, FMC is well positioned to deliver the technology and service that growers demand. We will provide additional information regarding our technology pipeline in the coming months.

Health and Nutrition continues to generate high margins and strong cash flow and demand across our core nutrition and health market continues to grow. We are in the process of commissioning our new MCC products on specialty ET in Taiwan which will serve the growing nutrition markets in Asia. Demand for our downstream lithium product continues to increase. FMC is well positioned to maintain its leading position in lithium hydroxide, neutral lithium and lithium metals and we continue to pursue multiple paths to diversify our sources of lithium carbonate to feed the expected growth in the business.

Our agreement with Nemaska has just been posted and we look forward to announcing more action in 2017. In closing, the actions we are taking will continue to drive performance across our businesses and position FMC to deliver increasing value to our shareholders into 2017 and beyond. I thank you for your attention this morning. With that, I will turn the call back to the operator for questions.

(Operator Instructions)

Christopher Parkinson, Credit Suisse, please go ahead.

Your results far exceeded what your peers have been indicating for European crop protection growth especially in Q3. And you mentioned some things in your presentation such as direct market access across Eastern Europe and strong herbicide sales in the UK, but can you talk a little more about the longer-term key drivers in the market, let's say over the next two years. Are we in the early innings the Eastern European theme and what is the latest update on new registrations? Thank you.

Chris, this is Mark. You highlighted the points that we put out in the release regarding how we grew in Europe. I think for us, going forward in the next few years, it is very much what we just said in terms of direct market access. We're very pleased with what we see in Eastern Europe, but we are working off a pretty small base and we have just purchased the JV that we had in Czechoslovakia and Poland.

It's important for us to expand in that area, but we shouldn't forget that France, Germany, the UK, Spain, Italy, they are all important markets where we intend to put new products into the pipeline. We do have new products coming next year and the year after that are based upon our Clomazone franchise for herbicides, so we expect to see significant growth in herbicides as we move forward. And in addition, with the acquisition of Cheminova, we've also, as we said, expanded our fungicide portfolio. So you will see us grow our European fungicide business substantially over the next 3 to 5 years. That is mainly the growth for us.

And Chris, remember that many of the products, FMC was selling in Europe are registered today in places like France, Italy, Spain, Portugal southern Europe, UK. We're just not benefiting from a very strong sales organization as we were working with a distribution network which was mostly focused on northern Europe. So even without adding many registrations, which we will and we have new product coming, we just have to fight to increase our face-to-face presence with the market; it's going to dramatically increase our ability to grow.

Great. Just a quick follow-up. Can you just also quickly comment on where you think the insecticide inventory issue is in Brazil? And how that may or may not affect the market heading into 2017? And also you have seen some recent spikes in sugar and cotton prices, could you quickly comment on the conversations you're having with those customers as I imagine they have been better than they have for the last couple of years. Thank you.

Yes. You know I think we are always very careful when we talk about level of product inventory in the churn channel, overall at the market level, but the situation in Brazil including foreign insecticide is right now feeling, I would say, more stable. As you can see, year-on-year numbers show a decrease in sales in addition to the product rationalization. We believe there is actions which are being taken for insecticides and other products to decrease the level of inventory in the channel.

The discussions with growers out there, there is -- they are easier on pricing, they are easier on terms and our volume outcome look predictable. So we do believe it is decreasing. We do not believe it is decreasing fast enough to create a very robust 2017 number, but I would say we want to be entering 2017 in a more stable situation and more flattish market than we did in the previous two years. Mark, you want to comment on the issue again?

Sure. Chris when you mentioned cotton sugarcane, obviously important crops for FMC down in Brazil. I'm more confident in sugar cane than I am in cotton. As we talked about and Paul alluded to in terms of collections, we have been very prudent in our exposure to certain areas of Brazil uncertainty and crops. I would say the cotton growers have faced a very tough time in the north due to the drought, so liquidity is important for them and we are watching that situation very carefully. Acres are expected to be flat to slightly down in Brazil as we go forward into the next season.

Switching to sugar cane, you are right, sugar prices are at least double where they were last year; ethanol prices were up in Brazil, so the fundamentals for the business is good. The one thing they're lacking right now is liquidity given all the debts carried that they incurred over the last few years. We are ideally positioned; we have strong market shares in insecticides and herbicides. Planting is down right now, probably about 30% due to that liquidity. I think, as the business unwinds next year, I am very confident that our sugarcane business will grow next year and be a good buffer for some of the other downsides we might see in cotton.

Just to repeat Chris, I want to use your question to make sure that we are clear. We are continuing with our strategy. It is a different sort of strategy, but we are not focused on volume at all today. I mean what is very important for us today is pricing our technology where it should be priced, decreasing the level of our product in the channel, getting terms which are right and collecting. We believe the market is such that this is the right strategy which will make us much stronger when we get to a situation where the market comes around.

Very helpful color. Thank you.

Daniel Jester, Citi.

Maybe I can follow up on Chris's question in a different way. I think you said that the low margin product in Brazil which you are exiting contributed to 60% of the volume decline in the quarter, so maybe can we just talk about what is driving the 40% of the rest of the volume decline?

There is two things which are driving the remaining 40%. First of all, we believe and we will confront that at the end of the fourth quarter, but are believing, we believe that we are in a situation in Brazil where the market will soon be down in the 10% range year on year for the full-year. So there is a market driver. There's also the fact that we are moving away from sales, not because of rationalizations, but because of credit risks or terms.

We are very cautious in not selling for the sake of selling. We are selling when we know we can get normal terms for the region and we will be able to collect. So as I said before, volume is not the priority. So those are the three reasons. Sales which are safe with good terms, market which will decline and product rationalizations; those are the three drivers.

Okay. That's helpful. Thank you. And then, I think you also commented that operating margins in Brazil are approaching where you were in 2014, but I think for the Ag segment as a whole, margins are still below 2014 levels. So can you comment on some of the other regions and where you see margins today and how maybe they can improve into 2017? Thank you.

You know I think that if you look at when we made the acquisition of Cheminova, acquiring Cheminova would bring to us many benefits in terms of creating more global business, a broader fungicide portfolio, a direct access to markets in Europe and other benefits, more slowly the performance in most of these markets, a presence in India and Australia. But we also realize that the margins of Cheminova was realizing we're not at the level of what we are expecting and we had a plan to bring those margins through cost-saving pricing and new product introductions. To the easy to recall level of FMC and that is the road we are on.

I have to say that, despite the market conditions, a year and a half after closing on the Cheminova acquisition, we have brought back those margins to 20% for the fourth quarter, which is well in line, even ahead of our schedule. We still have work to do; we still have remember; we still have additional costs to extract from the business from the acquisition in the next 6 to 9 months, so we still have work, but we are well on our way to margins north of 20%. It is just integration of Cheminova, the pricing of the technology and the new product introduction, but we are well on the road map to come.

Okay. Thank you very much.

Mike Harrison, Seaport Global.

Hi, good morning. Eric, I was wondering if you could talk a little bit about the cost structure and some of the key margin drivers that you saw in Health and Nutrition this quarter. Did we see any of the variant's impacts during this quarter that you mentioned you are going to be seeing in the fourth quarter?

Hey, Mike. Eric here. It's a complicated question because the costs that flow through in any one quarter are related to a variety of factors where a lot of it is stemming from manufacturing excellence programs, so that is a sustainable component. However, as we talked about in the guidance Pierre gave for the fourth quarter, we will see benefits stem from things such as seasonality and how we harvest seaweed, right? There are times of the year, particularly off the coast of Norway where we get a higher quality seaweed and we have more access to the waters because of favorable weather, what have you. It drives one-off opportunities in costs and the way our variances work, that flows through and it's part of the benefit we see in the fourth quarter. I just want to make sure, does that answer the question you are after?

Maybe to answer a little bit more of your question, if you look at previous years, it is not an abnormal situation to see -- you could see it, maybe not to the same extent, but you can see it through the 2015 results where you would see higher margin in Q4 than you would see in Q3. We realized over the year a 25% margin for the business but we recognize that there is some seasonality to margin in this business so there is not always a connection between the margin improvements you will see in Q4 and what you could realize in Q3.

I guess the question that I had Eric, also had to do with the weakness in volumes during Also had to do with the weakness in volumes during the third quarter, yet you are able to show pretty nice margin improvement and I was wondering if there was some variability around the costs or if this was structural cost takeout that was really driving the margin improvement.

I would say it's more the latter. The structural improvements we've made, there's nothing unique about what's happened sequentially from one quarter to the next. Volumes were lower for the reasons Pierre referenced, omega-3 as well as some timing in our Health business, but the cost side of that is pretty consistent. There's a structural component that gets us to it. It's a sustainable margin that's in the mid-20s notwithstanding the occasional and what we have seen in prior quarters, the benefit we may get in certain quarters like the fourth quarter, that are not benefits you'd roll forward into the first or second quarters of the following year.

All right and then I had a question on the lithium business. Can you comment on what you were seeing in price activity sequentially across different products?

I think I will have Tom commenting more on the pricing. But right now, if you look, we had a lot of benefit from pricing on lithium carbonate up to now and maybe less of a pricing benefit of lithium hydroxide. We are now getting into the period of new contract negotiation of lithium hydroxide which will impact mostly 2017. So directionally, what we do expect is we do expect to start to see a very significant ramp-up in lithium hydroxide pricing which is very much in line with the negotiation we are having, why we will see maybe a more stable pricing in lithium carbonate, potentially lowering into 2017. Tom, you want to add some more color to the question?

Just to give a little more color to that, on the hydroxide, the contract negotiations are proceeding well and over the coming months they should be all solid. We are progressing well through those and on the carbonate, as most of folks on the market, there was a little bit of softening in Q3 particularly in China. What we will see going into next year is the smaller volume of carbonate that was locked in at lower prices, similar to the hydroxide, will come up and we expect some softening on the top end. So net net, we will go into next year on those more opportunistic product lines kind flat to slightly down.

Excellent. Thanks very much.

And the big story once again for us, because of our strategy focus, because of the timing of where we are in contract negotiations and increasing CapEx coming up next year, the big focus for us and where you are going to see the largest contributor to earnings growth is lithium hydroxide.

Don Carso, Susquehanna.

This is Ben Richardson sitting in for Don. Just sticking on with the topic of lithium. You say you are ahead of schedule with the ramp there. Can you just maybe speak to the timing of that additional tonnage?

Yes. We are expecting the mechanical completion of the plant -- I had the pleasure actually to be there two weeks ago and see the plant; it's looking really good. We are expect that the chemical completion of the plant in the fourth quarter this year; we are going to be able to start to have product coming out of the plant in the first quarter and then we're going to start to enter the customer qualification of the product. So we believe we will be in a commercial situation where the product are for use by the plan by the expansion and qualified at the customer by the middle of the year. So the 8000 metric ton capacity we have for next year should get to us a 4000 additional tons of product into 2017 and before 8000 when we get into 2018.

Okay. Again I guess flipping back to Ag and specifically potential divestitures in your space and how you see that developing.

We are in contact with any of the companies which are currently consolidating. We are standing ready to participating in the purchase of any molecule, any of those companies would be divesting if they meet our portfolio. I have to say that so far we have not seen anything which would be critical to our portfolio or any significant technology put on the market, but I think those companies are still in the early stage of the antitrust reviews. We are standing ready, but have not seen anything right now which has been attractive to us.

Okay. Thank you very much.

Thank you.

Joel Jackson, BMO Capital Markets.

This is Dylan on for Joel. Just following up there on the acquisitions. If you are to pursue something, can you give us-- put some numbers around magnitude and what would be the funding? What sort of leverage would you be comfortable going back up to potentially?

Our thoughts look to the level range, the size, really I would not like to speculate here on the result of any antitrust reviews and what could be the consequences in term of what product would be for sale and what would be the price. So of course we do our own work to be ready and try to anticipate, but that is only speculation on comp to stand ready but it is very hard to challenge in the antitrust process in each of the regions is taking place and cutting the companies making the additions around their portfolio. Paul, do you want to talk about deleveraging?

Again, to Pierre's point, it is difficult to be particularly satisfying to you with the answer without any real specifics, but I think it's fair to say, I think you've seen from our cash flow performance, we are generating a fair degree of cash right now; we're deleveraging quickly. One of the characteristics, because we've bought products like this frequently in the past, one of the key characteristics is that they are typically very cash generative from day one. And so they can stand a pretty decent amount of leverage from day one.

We are also disciplined on price. Based on everything we see, we do not see any risk to our credit rating from a cash acquisition of any of the available interesting assets that are out there right now. Again that could change depending on what assets become available, but we don't see any particular challenge to our balance sheet based on the opportunities that are available today that we see today.

Thanks. And switching to Omega-3, talk about some of the headwinds going into next year. Is the environment more competitive, equally competitive or less competitive than you were perhaps seeing last quarter and going into 2017?

Omega-3, I would say, it is not getting worse, but it is not getting better. I think it is a challenging environment. Right now we are focusing on actions for us to liberate some of the manufacturing capability and quality of product which is the flag that we have. Though we made product which have a very high quality and command a premium to try to improve our situation. But frankly, at that stage, with the oversupply there is in this market and the number of players, the improvements you will see on omega-3 will be driven by the work we do commercially and cost-wise more than us benefiting from the market.

We are very-- when we have announced the numbers for expected growth for the Health and Nutrition business next year, we are very, I would say, prudent around putting into those numbers any significant improvement in the omega-3 market which we do not see. So it is a challenge; we are addressing it. We are trying to. I would say, right now, I have to admit, we are more in damage control than expecting growth, but that is the situation for Omega-3.

Thank you very much.

Steve Byrne, BNA.

Thank you this is Ian sitting in for Steve. Cash flow generation has been very, very good this year and I appreciate the comments about some of the collections in Brazil and looking forward to 2017, you provided some preliminary guidance about expecting earnings growth, should cash from operations grow at the same level of earnings or higher or lower?

I think you heard in my comments we talked about probably still about $400 million of excess receivables on our balance sheet related to Brazil. We certainly expect to start to collect a significant proportion of those next year. So given that, we would expect cash flow to continue to grow, really at a similar length to what-- how it did this year. We will generate higher EBITDA where we do not expect to have any meaningful cash outflows for CapEx over and above what we have today and we expect to continue to decapitalize our balance sheet in Brazil. So yes, I would expect cash flow to continue to grow next year just as strong as it's been this year.

Thank you and as a follow-up, just kind of on the broader market, what, for Ag specifically in Latin America, what things would you be looking for to potentially become more optimistic about a rebound in that region? I think sales are still far below prior levels at peak. What does the industry need to see?

I think for me there's a couple of things. First of all on the macro level, obviously as commodity prices start to come back, we are going to see expanded acres down in Brazil for a lot of the row crops. That is one factor; and then the second factor is the internal health of that business in the sense of where channel inventories are, pest pressures, the normal seasonal to seasonal activity in Ag. I think if you can get those things coming together, you're going to see somewhat of a rebound in the marketplace. The pest pressures, obviously nobody knows where the pest pressures are going to lie. Commodity prices are going to take some change in overall yields in North America and Latin America. So we've said what we feel the market will be next year; those will be the two items in Brazil, in particular, and potentially Argentina that would change that picture.

The one thing I would add to that, I think having a stable macro political environment and improved access to credit for the growers will be a positive if we see that start to happen as well.

Thank you very much.

Mark Connelly, with CLSA

Pierre, last quarter you talked about some optimism in your outlook comments for Health and Nutrition but not about seasonality in Q3 and Q4. What I'm wondering is, do you think you have the right mix of products for what customers are looking to do with their products over the next couple of years or do you need to tweak your portfolio leaving Omega-3 aside?

That is a very good question and I'll tell you it is a difficult one to answer. I believe that we have a very solid position in MCC, Alginate and carrageenan. I do believe that we have the right formulation technology allowing us to meet the changing need of the market and the customers. The question for us is, and that is a business today, if you put Omega-3 aside. We have strong market share and we are the leading supplier and in the place where customers go today when they have needs for a new product or new technology.

So I believe this is a business which will for the next 2, 3 years continue to grow in the mid-single digits as we said in the guidance with very strong margin, 25% and good cash generation. So to answer your question, I am quite confident that around that business for the next 2 to 3 years we do have interesting new ideas based on the current product we have for our new technology for some of the changing market needs around Health and other applications. The question for me is more 3 years and beyond.

Really where do we want to take that franchise? We have great product today. We have great margin and good cash generation. The first attempt to do that was Omega-3; I think we did not do a good job there. the question is what do we want that business to be not in the next 3 years but beyond that. To answer your question, yes. For the next 2, 3 years; beyond that, we need to do a lot of work to define the midterm strategy for Health and Nutrition.

Okay. That's super helpful. If I could just come back, I hate to beat on the working capital issue, but just a clarification. Of the additional $400 million and everything else you are doing down there, are your credit practices in Brazil going to be materially different than legacy FMC or is this just a matter of, we've got the Cheminova cleanup and better execution, well and customers in better shape?

So the first thing I would say is that when we look back at the position that we find ourselves in Brazil, much of it is driven by some of the comments that Pierre talked about. About a change in the way we approach the business and instead of focusing on volume and volume growth and share growth, focusing on getting the maximum value. An important part of that is assessing the quality of the customer and the quality of the products that we sell. We do not expect to be in a meaningfully different place in terms of terms, in terms of structure, in terms of credit that we extend to customers to either history or the rest of the market, but we will be much more and we are being much more disciplined about where we are willing to take exposure.

It's really a function of multiple factors; it's a function of the movement in commodity prices. It's a function of the weaker access to credit for the growers down there in the market and it is to an extent a function of our ability to integrate the Cheminova portfolio and have a higher-margin more technical portfolio really across all regions and all crops. So it is more than one factor that is driving this, this move towards a stronger credit position with our customers down there.

I think, generally speaking, the crop chemical industry as a whole, for us and all of our peer companies, it is an industry which is, in Latin America and Brazil, which has been historically focused on growth and may be a bit more open to taking risks to gain market share and we are there with all of our competitors. I do think today we might have a strategy without fundamentally changing what we've done to be more careful for the foreseeable future. I think it is important; it is working for us and it is allowing to collect, to price. Our customers want our product. So we are going to be maybe on the lower end of the risk-taking without fundamentally changing the way we look at our receivables.

Okay. Thank you both.

Dmitry Silverstein, Longbow Research.

Good morning, thanks for taking my question. A couple of follow-ups, if I may. First of all, with regards to your announced deal for 8000 tons of carbonate that you are going to be getting from your new partner, is that pretty much all of their capacity and do you have the right to all of that capacity or is there more behind that?

The 8000-ton when you say their capacity, it's not their capacity, it's our capacity. These plans, if you talk about the expansion in China --

In Moscow

Oh in Moscow, okay.

Yes, I'm talking about 8000.

Dmitry, this is Tom, I can take that. Nemaska's installed capacity will be 28,000 tons, so it'll be a meaningful part of their capacity, but it will not by any means be all of their capacity.

Okay, and I am assuming you have some way of getting more if you need more, either from these guys or from other sources as you move past 2018 and 2019?

With respect to that, as Pierre outlined in his comments, we've got a multi-pronged strategy where we are continually evaluating one, how do we diversify, have security to supply low-cost supply, so we're not quite ready to announce the other pieces coming, but there will be multiple components to that including our own investments in our facilities as well as working with others.

I think it is important in all of these discussions we have, we have these Nemaska agreements. We are in current discussions with some other suppliers of carbonate or ownership, but let's not forget that there is one aspect for which we have 100% of the decision; it is expanding in Argentina. We can expand in Argentina. We do have the minds; we do have the capability; we have infrastructure. So it is an addition we can make. I have to admit that I am not in a rush to make that decision because with all of the companies today investing in lithium carbonate, I believe there will be plenty of lithium carbonate for the next 2, 3, 4 years, but this is an addition we can make at any time.

Okay and you actually kind of led into my next question, Pierre. This 20% debottlenecking expansion that you are undertaking in Argentina, what is the timing for that to come online? Is that a back end of 2017 as well?

This is going to start right now. We are going to see this capacity of carbonate coming in at some point during 2017 and 2018, so this is undertaken right now. It is low capital and normal debottlenecking. The team has been working and we have I think three work streams which are allowing us to get to these kind of numbers, but it's more routine capital expansion.

Got you.

Dmitry, just to give you a little more color on that. There are multiple complements to that. There are some operational efficiency changes; there are some low capital projects. It's a number of small projects that over the course of 2017 and 2018 we will add that.

And so it sounds like you're, if I do my math right, your Argentina production will go up to about 21,000 tons, is that about right?

Yes, that's right.

And final question on the, I'm sorry, on the crop protection business and so. Your margins have been in the past very differentiated between 25% level in the first half of the year and 20% level in the second half of the year given where the regions that you get your sales from. This year obviously has been distorted by everything that's going on, so it's going to be more like first half and second half will be more or less even in terms of margins. As the business gets back to normal execution, how do we think about 2017 margin cadence? Should we expect a 3 to 4 point margin difference between the first half and the second half of the year? Or is it going to be more like this year where margins are a little bit more even between the quarters?

Yes. We're going to get into it next year; and once again, it is a bit early for us to break down by quarter. We've given a directional number. But yes, the profile of the margins and the business is going to change versus historical just because we have a very different regional profile. I mean remember we are very small in Europe; we want to be much bigger in Europe. Well there is good margin in our business. So I would say that directionally we should have less variation in our quarterly margins than we had in the past.

Now there is two things happening today. There is the market situation, there is a different approach we are taking to the Latin America market and there is the cost synergies which are growing, quarter after quarter, so that is taking us to improve margin and taking us to the 20% range. But I would say in the future, you'll have more stable margin quarter over quarter.

Okay. Okay. Thank you.

We have time for one more question today. Robert Koort, Goldman Sachs.

Chris Evans on for Bob. Thanks for taking my questions. In Lithium specifically, pretty-- 40% earnings growth assumption for 2017. I think you mentioned earlier, kind of a low flat to down expectation for pricing in carbonate. Can you kind of give the other expectations that are driving that assumption for 2017?

I would say -- well, first, if you look at our business in 2017, we are expecting to be, and Tom correct me if I am a bit off here, but I would say almost 90% of business revenues being on the specialty side, the downstream and only 10% on the upstream which is carbonate and chloride. So we are going to be even more dependent upon the price, the downstream business. We are expecting, I would say, little benefit from carbonate chloride pricing knowing that it's only a small percentage of our business and we believe this pricing is going to level off in 2017.

So you would consider the 40% improvement, these are going to mostly come from two things. Pricing in lithium hydroxide and volume in lithium hydroxide. You will understand that I am going to be a bit careful on what I am expecting in term of lithium hydroxide price increase because we are in the middle of a bunch of contract negotiations. So we will give you more detail around pricing when we get to the February earnings call because those negotiations will be behind us.

And just to add a little bit more color to that. You have to realize that most of our specialty business is contracted in the prior year, so when we contracted a lot of that it was before we saw how strong the pricing had moved across the market overall. There is a little bit of catch-up that is happening across all of the specialty products.

Thank you and just on the supply agreements to feed your hydroxide ramp, should we expect the additional volumes to come from new entrants like the Nemaska? Or do you expect from existing brine or hard rock producers?

Yes. So of course when you look at a supply of carbonate to feed growth, you want to be certain that you have the appropriate mix of new entrants and established players. We will not have a strategy to supply carbonate into our business based only or mostly on new entrants to this market. Nemaska, we believe is one of the most solid today with one of the best source of lithium, so we believe it is a fairly, fairly certain supply we are going to get from them but we will do two things. One is supply from existing suppliers and not be forgetting that some of them are already supplying to us carbonate. And similar of all, to repeat, we can also increase our own capacity of carbonate which is something if we decide to do, it will be a sure supply.

Thank you.

Folks, we appreciate your time. That's all the time we have for the call today. As always, I'll be available following the call for any additional questions you may have. Thank you.

That concludes the FMC Corporation third-quarter 2016 earnings release conference call. Thank you.