富美實 (FMC) 2017 Q3 法說會逐字稿

Good morning, and welcome to the Third Quarter 2017 Earnings Release Conference Call for FMC Corporation. (Operator Instructions)

I will now turn the conference over to Mr. Michael Wherley, Director, Investor Relations for FMC Corporation. Mr. Wherley, you may begin.

Thank you, and good morning, everyone. Welcome to FMC Corporation's third quarter earnings call. Joining me today are Pierre Brondeau, President, Chief Executive Officer and Chairman; and Paul Graves, Executive Vice President and Chief Financial Officer. Pierre will review FMC's third quarter performance and provide the outlook for the full year and fourth quarter. Paul will provide an overview of select financial results.

The slide presentation that accompanies our results, along with our earnings release and 2017 outlook statement, are available on our website and the prepared remarks from today's discussion will be made available after the call.

Mark Douglas, President, FMC Agricultural Solutions, and Tom Schneberger, Vice President and Global Business Director of FMC Lithium, will then 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. A reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today's call are provided on our website.

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

Thank you, Michael, and good morning, everyone. Before delving into our third quarter results, I just want to state that we successfully closed our transaction with DuPont on November 1, as expected. This was a great achievement for the hundreds of FMC and DuPont employees who worked diligently in a very compressed time frame to carve out and stand up the acquired portion of the DuPont Crop Protection business for day 1 operations and to separate our Health and Nutrition segment for divestiture. We're excited about this transformation at FMC and the way it positions our solutions business as a leader in crop protection.

FMC now enters its next phase as a focused growth company in both Ag Solutions and Lithium. We continue to expect that we will conduct a separate listing of FMC Lithium in the second half of 2018 to create 2 independent public companies with each becoming a pure-play investment opportunity for shareholders. As we prepare for that listing, we will continue to expand both our lithium hydroxide and our lithium carbonate capacity to capitalize on the significant demand expected in the coming decade.

But first, I will review the overall third quarter performance where FMC had a very strong quarter in both Ag Solutions and Lithium. Next, I will update our full year and fourth quarter projections, which now include 2 months of contribution of the DuPont Crop Protection acquisition. Paul will then provide commentary on select financial results. I will then finish with a few highlights of the 2017 performance of the acquired business, followed by updates on our 2018 assumptions.

Turning to Slide 3. FMC reported third quarter revenue of $646 million, which was up 3% year-over-year. Adjusted EPS was $0.70 in the quarter, nearly 60% higher than the same period a year ago. Adjusted EPS was $0.08 above the midpoint of our guidance, driven by strong operating results in each of our 2 segments.

We are very pleased with our third quarter results. Both of our segments posted record third quarter earnings. Ag Solutions faced challenging market conditions and many of our ag competitors discussed ongoing price and volume pressure in Brazil. FMC was able to outperform the market due to the work we did in 2015 and 2016 to proactively reduce channel inventories. In Lithium, we executed our phase 1 lithium hydroxide expansion extremely well in a market where delays have become the norm.

Let me now move on to Slide 4 and Ag Solutions performance. Third quarter segment earnings were very strong, growing by 31% year-over-year to $118 million. We also saw strong sales performance with 6% revenue growth excluding India. The growth was driven by a 12% increase in Latin America with Brazil volumes especially robust and a 9% increase in North America. Offsetting this growth was a 4% decline in Europe and a 32% decline in Asia, which was largely due to sales decline in India. We decided to take actions in India to prepare for the integration of the different market access channels between FMC and the acquired business, which reduced overall Ag Solutions revenue by 7%. India is the only market where FMC and DuPont have significantly different channels to market. In total, third quarter global revenue of $552 million was down 1% year-over-year.

The 31% segment earnings growth was driven by volume gains around the world excluding India, improved performance of our Brazilian business and overall lower operating costs. As you can see on the segment earnings bridge, the negative impact of the India sales decline was far smaller than the positive EBIT impact of the volume gains in the rest of the world. We expect overall profitability of the Indian market to increase significantly as a result of the DuPont acquisition. Foreign currency movements in the quarter offset modestly lower prices. Year-to-date, the net revenue impact from price declines is 2%, which is consistent with our expectations for the full year.

Moving next to Slide 5, where we outline 3 main drivers of the ag business so far in 2017. First, we have seen significant volume growth across many markets. In Latin America, FMC volume is 20% higher year-to-date driven largely by Brazil, where we are outperforming the overall market. We have also seen continual improvement of the fundamentals of Brazil's cotton and sugarcane market, 2 markets where FMC has significant share. We now expect the overall market in Brazil to be down high single digits for the full year 2017 due to ongoing channel inventory actions being taken by some of the competitors. However, we believe product usage is largely flat.

In Asia excluding India, FMC volume is up 9% year-to-date. This growth has been driven by successful product launches in China, strong demand for rice insecticides in Indonesia and increased herbicide demand in Australia. We believe the overall Asian market will be flat for the full year 2017, slightly worse than we thought 3 months ago.

In North America, FMC has posted a 2% volume gain year-to-date, which is largely in line with the market expectations. Our results were driven by stronger demand in the first half of pre-emergent herbicides as well as third quarter strength in post-emergent herbicides and foliar insecticides. We now expect the North American market to be roughly flat for the full year due to higher demand for foliar insecticides.

In Europe, FMC volumes are down 6% year-to-date, which is slightly lower than the overall market. Our results were largely due to the impact of FMC's business in France moving from distribution to direct market access. You will recall France is the final country to make this transition from the Cheminova acquisition. We continue to expect the European market to be down in the low- to mid-single-digit range for full year 2017.

Moving to the second key factor in our year-to-date performance, which is the significant improvement in our profitability in Brazil. The primary driver has been higher sales volumes leading to 24% revenue growth. One of the main reasons FMC is outperforming the market in Brazil is our proactive management of channel inventories over the last 2 to 3 years. Our actions have reduced channel inventories of FMC product by 35% year-over-year and by 50% since the peak at the end of 2015. We believe that we are operating with closer to normal channel inventory levels of FMC product today. We have also benefited from a significantly lower cost base and improved product mix. Combined, these drivers have led to operating margin in Brazil increasing nearly 400 basis points year-to-date.

The third factor in our year-to-date results is the significant top line headwind from the volume decline in India, which was primarily felt in the third quarter. As we stated earlier, this needed to be done so we could integrate 2 different channels to market after November 1. These actions mostly impacted the lower value in use portion of our business, hence the low impact on earnings. I will address the outlook for Ag Solutions as I'm covering Lithium's third quarter performance.

Moving now to Slide 6. Lithium delivered an exceptional quarter, driven by the successful ramp-up of production from the new hydroxide facility in China. Revenue of $94 million was up 28% sequentially and 35% year-over-year. Segment earnings increased over 50% sequentially and more than doubled year-over-year to $37 million in the quarter. Significantly higher volume and prices were the main contributors to the growth, driving the segment earnings margins of 39% versus 33% last quarter and 25% in the prior year period.

Regarding the ramp-up of our new hydroxide operation in China. We operated at an annualized rate well in excess of the 8,000 metric ton nameplate capacity in the month of September. We are very pleased to have delivered this capacity expansion on time and under budget and it speaks to the engineering expertise of our Lithium business. Our debottlenecking project and operation in Argentina also contributed to our Q3 results. The completed projects have delivered a run rate of 2,000 tons per year of carbonate, and we will be at the full 4,000-ton run rate by the end of 2018. We continue to move forward with the expansion in Argentina, where we plan to add at least 20,000 tons of lithium carbonate capacity with an initial investment of $250 million to $300 million. We are progressing the engineering work and we are in discussion with the local authorities to finalize these plans.

Turning to Slide 7 and the year-to-date results for Lithium. Revenue has increased by 21% compared to the same period last year and earnings are up nearly 70%. From an overall market perspective, much of the focus remained on the supply-demand balance. In 2017, we have seen conditions tighten further as demand growth continues to exceed supply additions. Incremental supply of lithium carbonate continues to be provided from high-cost spodumene resources. In lithium hydroxide, FMC was the only producer to add significant capacity in the year.

As we have discussed previously, pricing for FMC Lithium is significantly higher compared to last year. Year-to-date, the average price per LCE is more than 20% higher than the same period last year with hydroxide being the largest contributor but all major product groups showing increases.

Late in the quarter, our 2 China hydroxide units produced at full capacity, creating the second largest driver of improved performance, which is higher volume. These 2 hydroxide units, which were completed in less than 12 months at a capital cost of less than $20 million, operated in September at a rate of 9,000 tons per year, which is 12% higher than their nameplate capacities.

Just as important, the customer qualification process has gone very smoothly and the vast majority of our customers have signed off on the quality of the product we make in these 2 units. This means that we are now producing and filling at an annualized rate approaching 9,000 tons per year, doubling our lithium hydroxide capabilities compared to the same point a year ago.

Moving to Slide 8, which summarizes our outlook for the fourth quarter and the full year, including the impact of 2 months of results from the acquired business. We now expect adjusted EPS to be in the range of $2.59 to $2.69, which represents year-over-year EPS growth of 35% to 40%. This includes guidance for fourth quarter adjusted earnings in the range of $0.98 to $1.08 per share. We expect full year Ag Solutions revenue to be in the range of $2.5 billion to $2.6 billion and segment earnings will be in the range of $465 million to $485 million.

We anticipate the legacy Ag Solutions business will contribute $2.3 billion to $2.4 billion of revenue and $425 million to $445 million of earnings in 2017. The earnings guidance for the legacy ag business represents 9% year-over-year growth and a $5 million increase versus prior guidance at the midpoint. Fourth quarter segment earnings are forecasted to be in the range of $168 million to $188 million.

In Lithium, we are leaving our full year revenue guidance for the segment at a range $340 million to $360 million, a year-over-year increase of over 30% at the midpoint. We are raising our segment earnings guidance to a range of $124 million to $128 million, a year-over-year increase of nearly 80% at the midpoint and a $6 million increase versus prior guidance. We expect fourth quarter Lithium segment earnings in the range of $41 million to $45 million, which represents 17% sequential improvement at the midpoint as well as a doubling of earnings year-over-year.

I will now turn the call over to Paul.

Thank you, Pierre. Looking at cash flow on Slide 9. We continue to improve our cash generation performance with adjusted cash from operations 9% higher year-to-date compared to the same period of last year. This is underpinned by improved collection in Brazil, as mentioned earlier.

Although the credit environment in Brazil remains weak, our overall credit exposure has improved significantly in the last 12 months with account receivables in Brazil 13% lower than a year ago despite strong sales in Q3 of '17 and past due receivables declining significantly.

We're not yet able to give a detailed forecast for full year cash flows given the short amount of time we have owned the acquired business. However, our cash flow expectations for the legacy FMC business, excluding the acquired business, remains in line with our forecast of 3 months ago, with adjusted tax from operations in the $400 million range.

Looking forward to the end of the year and a forecast for our year-end net debt balance. We ended the third quarter at just over $1.6 billion, down $233 million from a year ago. Since the end of the quarter, we have fully drawn a $1.5 billion term loan to fund our acquisition, of which we transferred approximately $1.2 billion to DuPont under the terms of the transaction. The remaining $300 million will be held as cash to meet various obligations related to the transaction, primarily tax payable on the sale of Health and Nutrition. The actual payment of many of these obligations will fall into the first quarter of 2018.

In addition, we expect to receive significantly higher customer prepayments related to the acquired business in North America. Given this, we expect to carry a significant cash balance at the end of December 2017, with higher cash outflows relative to historical patterns in Q1 and Q2 of 2018. The net result is that we expect our gross debt at the end of calendar year 2017 to be approximately $3.2 billion with net debt of $2.8 billion to $2.9 billion.

And with that, I will turn the call back to Pierre.

Thank you, Paul. I mentioned at the start of the call that I would give you a few highlights on how the acquired business is performing this year.

The revenue growth for the acquired business has been robust year-to-date. For full year 2017, revenue is expected to grow about 6%, which is driven by very strong performance in India as well as increased sales of insecticides. The overall performance of the business is largely in line with our forecast made in March.

A second key driver in 2017 has been the acquired business' strong work this year to reduce channel inventories in its products in the Americas. We believe the acquired business has normalized inventory levels in both North America and Brazil. This performance positions FMC well to continue growing the business in 2018 at a pace at least as high as the 2017 growth. We believe this provides upside to our prior assumptions for the growth of the combined Ag Solutions business in 2018.

This brings me to Slide 11. We have updated some of the numbers and we would also like to offer a comment about how we feel after owning the DuPont business for a few days. As we mentioned earlier, we have increased our 2017 earnings guidance for both our legacy Ag business and for our Lithium segments. We have also lowered our estimate for incremental D&A related to the acquisition and we now have more certainty on the expected financial impact of the regulatory remedies in Europe and India.

We are not changing the cost synergies range. As we have explained, these cost synergies are not the usual savings seen in acquisition. Remember that we are getting the business from DuPont with almost no corporate or back-office structure. Cost synergies in our case are a combination of real cost decreases, such as opportunities to operate plants at a lower cost, and cost avoidance opportunities where we had less costs than were anticipated in the acquisition model.

Our assumptions for EBIT growth in the combined Ag Solutions segment has the potential to have the most upside relative to the initial forecast when we assume 2% to 4% revenue growth in 2018. Based on what we have seen so far regarding the acquired business, we are feeling more positive about 2018 growth for Ag Solutions. We will be able to give more clarity on this topic during our February 2018 earnings call.

Moving over to Lithium. We expect the positive trend we have seen year-to-year to continue through 2018, and we continue to expect Lithium earnings to increase by $40 million to $50 million.

In summary, we feel very good about where FMC is today. Our current Ag Solutions business delivered record Q3 earnings and we are set to deliver a strong Q4 driven by Latin America. The integration of the acquired business is in full motion with our team already -- teams already operating together.

Lithium had a very strong quarter and is on track to deliver even higher earnings in the fourth quarter as the new hydroxide units are in full commercial operations.

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

(Operator Instructions) We'll take our first question that will come from the line of Chris Parkinson with Crédit Suisse.

As your platform further transforms toward the discovery phase and AI development, can you just comment on your initial thoughts you have on long-term strategy and how you're positioning your team for success? And just that and any initial thoughts on product procurement given the size of some of the new products you now have and how that rolls through onto various global agreements and asset utilization?

Chris, it's Mark. I'll take the R&D piece and then I think Pierre is going to take the procurement piece. On the AI, obviously we have strong research capabilities with the DuPont acquisition and we've already had our first initial set of meetings. What we're going to be looking at going forward is in excess to what we have today, we're looking at what pests, what crops are going to be our focus in the future. If you look at our portfolio today, you can see we obviously now have a very strong insecticide portfolio. We have a very balanced herbicide portfolio. Where I feel we're behind the market is in the area of fungicides, so that's going to be an area of attention where we're going to be looking for hits coming out of basic discovery to help broaden that portfolio of fungicides. In addition, the area of nematicides also springs to mind, very much allied to our insecticide work, but an area of focus that we'll also go for. So I think you can see that the fungicide space is something that we really want to boost going forward.

Thanks, Mark. Regarding procurement and the size of the new ag business, I think, needless to say, that when we talked about synergies and cost synergies, that is typically one of the place where we're looking at significant synergies. We are still quantifying all of that. We believe that one of the #1 source of cost saving will be with our toll processors who are producing active ingredients. We do have the former DuPont business and FMC lots of toll processors in common and we know that we have possibilities to create significant saving here. We also have the same situation on some of the critical raw materials. So we are quantifying all of that. It will be part of the numbers we will be reporting early next year, but we have -- we feel we have 2 source of cost saving, one is tollers and one is direct raw materials.

And just a quick follow-up. Just I know it's obviously a little bit early, but just given what you've seen for Rynaxypyr this year, can you just give us some quick color on what you're seeing on a regional basis and your expectations? I imagine Brazil may be a slight headwind. But what do you see in the intermediate to long term on the opportunity front in Asia and any rice markets? Do you have any line of sight as it pertains to '18 and '19?

Well, since we've only had it for a few days, Chris, that's a deep question. I would say if you look at the spread of where the products are, obviously Asia is an area of focus for us. The business itself has a superb route-to-market in India, which is one of the fastest-growing markets in the world. So I think you can expect us to see -- make more headway in India. Obviously, on rice, Rynaxypyr is a big product, but I also feel Cyazypyr on the more niche crops, the fruit and vegetables area in Asia, will also be a benefit to us as well.

On your comments about Brazil, Chris, which is a great comment, remember, Rynaxypyr is not a Brazil story. It is much more of an Asia, Europe or North America story. The market is still fairly small for us in Brazil. The other point I would like to add, which is not a direct answer, but I want to use your point here of your question to talk about what we understand the team has done and we went through their numbers as quickly as we could. The team, when they were separated from DuPont and operating as a stand-alone organization for Rynaxypyr and other products, did a tremendous job in removing excess inventory from the channels. So think about a situation where not only this business in 2017 grew at 6%, but at the same time was capable of bringing its level of inventory in the channel almost to normalized level, which is giving us very strong expectation going into 2018.

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

And congrats on the closing of the transaction. Regarding the assumptions on 2018, it looks like your EBITDA is coming in somewhere around $1.2 billion or something on that order of magnitude. I was wondering if you could do a bit of a walk on where free cash flow may come in based on the guidance that you're -- the range of guidance that you're offering on the EBIT side for 2018.

Sure, Frank. Let me just give you a bit of color around what we're watching out for. I mean, clearly, when we run from EBITDA down to free cash flow, the 2 big areas that I tend to keep my eye out for, are number one, clearly working capital movements. In our business, historically, it has been a Brazil issue. As Pierre just mentioned, the acquired business really is not a large Brazilian business and so we do not see a big headwind from what I'll loosely call rebuilding receivables in Brazil. As you recall, the terms of the transaction were that we do not receive any receivables from this business, so there will certainly be a rebuild, and I would expect that almost all the sales that you see happening in the last 2 months of this year will run through to stay at Latin America, run through an increased receivables balance.

Offsetting that, though, we continue to make very, very positive progress in Brazil with the legacy ag business. You've seen some of the data we put down here. We continue to reduce the capital tied up in that business, and I expect that trend to continue through 2018. When we look at the rest of the business, clearly the single biggest factor that we will then be looking to add will be capital spending. The business we acquired from DuPont is a little more capital intensive than our business, but it is still not hugely capital intensive. Their Lithium business, we've made statements about $250 million to $300 million of investment in Argentina alone. Most of that will take a couple of years to spend. So again, while we'd expect capital spending to be higher in '18, I certainly would not expect it to be a huge swing on that data. So I expect that we will have a pretty strongly cash generative year next year. It's a little early to put specific numbers on it, but I certainly don't see anything that doesn't encourage me that we would expect to see significant cash generation in 2018 across the business.

Okay, that's helpful. And with respect to Argentina and that 20,000 ton expansion costing $250 million to $300 million, when -- I don't believe you've made a final investment decision on that, have you? And if not, when would you anticipate going down that path?

Yes. I think, Frank, we are very close to making a final decision. Hopefully, we're just a few weeks away from this, potentially bringing that to the board at the December board meeting for approval. So we are getting very close to making that decision. And I'm going to say also as long as we talk about that 20,000, today we are starting the market -- 20,000, I would say, is the minimum and we are looking at building capacity potentially beyond that, all the way up to 40,000. So it's a work in progress, but just a few weeks away from it.

All right. So I mean, the basic point is that if you do decide to go ahead and do this, this will be -- this project will be well underway prior to the IPO in the back half of next year?

Absolutely.

Your next question comes from the line of Robert Koort from Goldman Sachs.

Had a couple quick Lithium questions. First, I was wondering, do you guys make today more money selling carbonate or converting that and selling it as hydroxide?

Bob, it's Tom. We make more money today selling our hydroxide.

Got you. And then the expansions you mentioned, there hasn't been a lot of industry incremental expansion. Obviously, there's a lot of incremental enthusiasm for the high nickel batteries in hydroxide. What do you see from the industry in '18? And are you sensing any anxiety on the part of the battery supply chain about availability of hydroxide to feed some of this demand enthusiasm?

Yes, that's a good question. What we're seeing, and it's very significant in China and then we're seeing it around the world with OEMs, the ramp-up of the higher nickel cathode material capacity. So it is definitely accelerating and we're already having discussions around 2019-2020 volumes. And contract discussions are getting longer, not shorter.

And do you -- have you picked, Tom, where you're going to put those next modular hydroxide plants? I think you mentioned there's a couple more in the queue, but hadn't quite defined where those would go.

Yes. So again, similar to the carbonate comment that Pierre made, the 12,000 to get us to 30,000 total is a minimum and we're ready to progress more than that if need be. And the next units are going to go at both of the existing sites where we're operating today to get the benefits of the infrastructure there.

Both being China and North Carolina.

Your next question comes from the line of Steve Byrne from Bank of America.

This is Ian Bennett on for Steve. In the Ag business, year-over-year growth was influenced by cost, and other was a large contributor. Can you talk a little bit about what that cost and other line was and what the expectation is for 2018?

Yes, let me talk a little bit about margin improvements in general in the Ag business. First, let's talk about cost. We are operating with just a lower operations cost across the company and mainly in Latin America and Brazil. Remember, Brazil a few years ago was over $1 billion with a very large organization. We shrunk that organization and tightened up our structure in order to focus on more technical and higher-margin products. So we have a lower operating cost from a structure standpoint. We also have a lower operating cost in Latin America and Brazil because we are now, with the work we've done, operating with a much cleaner balance sheet. So we do have, yes, less financing costs, less hedging costs so we have a much, much cleaner balance sheet, which is lowering our balance sheet expenses. So that's one part of the improvement of the margin in the ag.

The second one is, especially this quarter, is a geographical mix. As we explained, we have to -- we realigned -- or we are realigning the channel to market in India because DuPont is coming with a very robust system business and channel to market. So we have lowered low-margin sales in India while we had a very strong quarter in North America, which is the highest margin. So we are benefiting from a good geographical mix. And final, you remember over the last 2 years, all the way to the end of 2016, we have been decreasing our sales of non-differentiated generic products over third-party distribution and that also is contributing to a strong increase in our margins. So those are the 3 key drivers. Mark, did I forget anything?

No, you got them all.

That's helpful. And as a follow-up, you mentioned earlier that year-to-date price is down 2%, but the outlook for volume growth next year looks quite favorable due to destocking. How do you think about price mix in the industry as we move into 2018? And are there particular areas or products that you're experiencing intensifying price mix pressure?

I think the price pressure has been mostly in Latin America and Brazil and it's linked to 2 things. First of all, one is the competitive nature of the business, where competitors maybe are starting to see the need to decrease the level of inventory in the channel, which is always creating price pressure. And also the fact that Brazil is a place where the price is indexed on currency. So that is -- that's the main driver. If you look at our -- what we're expecting this year is to have a 2% price decrease, that is mostly coming from Latin America and Brazil so most likely to remain next year because we believe our competitors are going to need a good couple of years, like we did, to clean up the situation. So those are the main drivers, but we don't expect more pressure than that in the market going into 2018.

Your next question comes from the line of Dmitry Silversteyn from Longbow Research.

I was just wondering, with all the conversions that you're doing to lithium hydroxide, can you update us on how much lithium carbonate capacity and lithium chloride capacity you have left to serve other nonbattery markets and where you are in sort of your drive to convert more and more of your carbonate to hydroxide? I'm obviously asking prior to this 20,000 ton expansion that you're looking to add.

Yes. So again, this is Tom. Thanks, Dmitry. We expect to come in between 18,000 and 19,000 tons of LCE production this year. We will be over 20,000 next year and up to 22,000 run rate by the end of next year. That's before any expansions. We may get a little bit more than that. Overall, in terms of a strategy, you have to realize we're trying to stay long carbonate. Some years will be a little bit longer than others. We don't yet see a year where we're going to be short carbonate, but we don't have as much to offer to the market as some do. In '19 also, we'll have the Nemaska volume begin to come to us for conversion as well and then we'll have the expansions start coming in as well.

Okay. And then just to follow up on the nonbattery market, the butyllithium and the stuff that goes into greases and more industrial applications, are you seeing strong pricing there as well? I mean, is that market becoming short as -- just as the battery market seems to be a little bit shorter of demand right now. And what are the pricing in those markets look like compared to the battery-grade stuff? I'm just looking in terms of year-over-year increases, not in absolute levels obviously.

Yes, so lithium is a pretty segmented market, especially outside of energy storage, so you need to look at case by case. In general, prices will go up. We expect prices to go up next year across the board. You do have some regional markets and then you have some different dynamics between the regions, butylli is that way to some extent. But across the board, we expect to see price increases.

Your next question comes from the line of Don Carson from Susquehanna Financial.

Pierre, I just wondered what your updated view on the overall market is. I know you've said in the past you thought '17 will be the third year of decline, albeit less of a decline and that you saw growth in the overall market for '18. Is that still your view? And then when will you have a better idea on the synergy side in terms of specifically on the costs you need to bring in? I'm thinking specifically on the distribution side because it seems in the past, you've just used industry average percentages to come up with your forecasted cost savings.

Yes, let me talk the synergy aspect first. We want to be very clear and I think that's what you're implying in your question: synergies here are not your regular type of synergies where you're measuring your headcount decrease and consequently you're measuring how much cost you are removing from your operation. We're going to have 2 type of what we call maybe a bit loosely cost synergies. One is the real cost synergies. We talked about procurement is one driver. We believe there are significant opportunities here and there is opportunity in plant operation and supply chain. Those are real cost synergies. The rest is just we are trying to define what is the operating cost we need for this business versus the model we had when we made the acquisition. Now understand that the business, which is coming at us. I know there is a tendency to push very large synergy number because we sometimes believe DuPont being a large corporation, they come with large corporate costs. But remember, none of that is coming to us. We are getting no corporate cost. We are getting almost no back office people, no back office structure.

So we are getting the manufacturing, the research, the sales, the marketing, supply chain people and that's it. From this, we are adding very carefully to operate the business with the TSA we have with DuPont. We believe by the time we get to January, we will have defined our operating costs to run the business, and that's the way we're going to be looking at it. So by the time we get to the February earnings call, we should be able to give you a very good sense for the bucket of real synergies and what is the operating cost of the business with those 2 business together. So our guidance in 2018 should be pretty firm when we give it with the Q4 numbers. Regarding the ag market outlook, the way we are looking at it today, we would say globally flat, maybe low single digits, but that's about -- we believe and we sense a stabilized situation. We definitely do not see a decline, but more a flat to low single-digit picture getting into 2018.

And your next question, that comes from the line of Joel Jackson from BMO Capital Markets.

When you talk about the $40 million to $50 million of Lithium EBIT growth for '18, can you maybe at least generally talk about how that might divide into buckets in terms of price, volume and margin? You talk about the volume on hydroxide, but maybe a little bit on how it might split across the different buckets?

Joel, this is Tom. Thanks for the question. I would expect it to be a little bit more than half price and a little bit less than half on volume. We're still early in the price discussion, so we may be able to get a little bit more than that, but it's hard to relay that to you right now.

Okay. Also back on crop protection, you talked about channel inventories of the acquired business to be somewhat stable -- somewhat just at normalized levels. Can you maybe give a little more color on what -- in what regions do you think that -- of the acquired business, the channel inventories are tight or normalized and maybe which ones are a little bit higher than normal?

Yes, what we see and what we studied, I mean, clearly, there is 2 place where there was a very high level of focus, where they have normalized their inventory level, that would be Brazil, Latin America and North America. What is not -- China, too. What is normalized, it depends upon the market, but anything around 25% is a number where you would consider you have normalized channel. And so those are the 3 places, China, Brazil, to some extent Latin America and North America where the biggest work has been done.

Your next question comes from the line of Aleksey Yefremov from Nomura Instinet.

I wanted to go back to the Argentina expansion. I think, Pierre, you mentioned that you're within a few weeks of making a final decision there. Does this also mean that you're within a few weeks of getting the government approval for the project as well?

Yes. When we say a few weeks, it's about everything which is required to build expansion, to get approval, to separate the business within a few months. So yes, includes all approval, internal, external.

Great. And then a follow-up on Lithium pricing question. Does your 2018 Lithium forecast at this point carry the risk of pricing being higher or lower? In other words, do you still have a lot of volume -- a lot of negotiations to conclude for the next year in terms of price?

Yes, this is Tom. I'd say that it's a muted risk. We've got defined pricing and most of the volume's already under contract. So there's still some discussion as to the actual '18 price within a defined range, but I don't think we carry a lot of risk there.

Your next question comes from the line of Mike Sison from KeyBanc.

You have a bunch of -- not a bunch, but you had a number of molecules you were developing on the legacy ag business. How are those unfolding? And will you have any impacts in 2018?

Yes, Mike, the portfolio itself, the pipeline is absolutely on track to where we communicated in past quarters. One of the first molecules that comes to market is Bixafen; that'll hit in the second half of '18 in North America. So it'll have some impact, but it'll be somewhat muted. Then we have the rest of the range coming through, really, in the '19, '20, '21 time frame. But everything is on track exactly as we said before. So we feel really good about that part of the pipeline. Obviously, as you know, the DuPont pipeline is much more early stage and comes in anywhere from mid-decade to end of next decade, but we're well suited across the whole portfolio right now.

Right, okay. And then in terms of the DuPont business, as we think about next year, I think you noted on the legacy business, it would be up mid single digits. What about DuPont's assets for next year? What type of growth do you expect to see from them on a year-over-year basis?

I think we need to dive into the numbers and specific customers and crops to really finalize that. The initial look we had -- I say it was a look we had, especially driven by this call here because we knew we'd have to give you a sense. The business is going to grow in '17 6%. Knowing that the 6% was driven by specific countries, region and crop plus was done with a significant work to decrease channel inventory. Between the drivers and the decrease of inventory, we see absolutely no reason not to have at least the same growth rate going into 2018. Actually, we -- in the analysis we've done, we are looking to demonstrate that very early in the year with a solid growth in Q1. So '18 at least the same number, starting pretty strong in Q1.

Your next question, that comes from the line of Daniel Jester from Citi.

So just on Europe. Year-to-date volume has been probably the weakest region for you guys. I know that there were some weather issues there, but is there anything else happening in Europe? And can you kind of frame how 2018 could evolve there?

Yes. No, nothing really else apart from the weather impacts that we saw earlier on in the year. And then obviously, as we're going through the rest of the year, we alluded to it in the script here from Pierre that France is the last country that we're changing the distribution channel from the Cheminova acquisition. So where we would normally be selling in Q3 and Q4 into that distribution channel, we're not selling right now because we'll be doing that directly ourselves as we go into the season in the first part of next year. So that has a somewhat meaningful impact. But apart from the weather impacts, which have been pretty severe depending on the north and the south, there's been no other fundamental issues in the business.

Okay. And then just another really quick one. If I remember last year, in the U.S. in the fourth quarter, you guys had a very strong pull forward of pre-emergent herbicide sales in the U.S. As you see the fourth quarter evolve this year, are you seeing the same set of trend? Or can that be a headwind if it doesn't work?

No, we're seeing exactly the same trend. Pre-emergents are doing well. I mean, there's a lot of changes in the herbicide market in North America, but our pre-emergent Authority brands are a market leader and continue to do very well and orders are strong.

One comment. One comment about that question, which I want to make sure is clearly understood. We had a very strong third quarter, but we see same trend in the fourth quarter, which mean, it was not moving forward orders or it's just things are following this pace and the fourth quarter is as strong as we're expecting it before with significant growth, driven mostly by Latin America, but also a healthy situation in North America despite the strong third quarter. So there was no pull by our customers or early buys. So it's important to see sales are fully in place in the right quarter.

Your next question comes from the line of Brett Wong from Piper Jaffray.

I just wanted to follow up on an earlier one. You talked about or provided some color on your ag R&D focus going forward, really talking about product categories, so I was just wondering if you can provide a little color on the crops that you're going to focus on.

Yes, Brett, we've said in the past that obviously we have more of a niche focus, a niche crop focus. When you look at our mix, we're somewhat more heavy in some of the niche crops such as cotton and sugarcane, less so in corn and then all the various tree fruits and vegetables. I think with the acquired portfolio, obviously that expands; Rynaxypyr and Cyazypyr are big on niche crops. Going forward, I think on the fungicides, if we can go into that space, we will focus on niche crops, but also Asia soybean rust down in Latin America is a major, major issue. If we can develop products into that space, we will be happy to do so and that would give us more of exposure in soy in Brazil. But outside of that, it's going to very much depend on the types of products that come out with regards to the crop focus.

Your next question now will come from the line of Laurence Alexander from Jefferies.

It's Dan Rizzo on for Laurence. You mentioned that focuses for growth going forward will be the nematicide, the fungicides. Is there a particular end crop that would be a focus as well to kind of go with those or that shows the most promise in terms of how they apply from -- with those products in mind or those product categories in mind?

Yes. Just to clarify, what I said was, from an R&D perspective from discovery, we would obviously like to expand our fungicide and nematicide. That's much more longer term given that it takes 10 to 12 years to bring a product to market. Our near-term focus will be continuous across the niche crops and then bringing products that are differentiated to any of the row crops, whether it's soy or corn. Obviously, with the acquisition, we have much a broader portfolio for cereals now, so we're going to be looking at potential growth opportunities there with the strong portfolio that we have.

Okay. And then with regards to Brazil, you've kind of laid out how things are going there. But is there any concerns about maybe farmers trading down to cheaper products this year kind of as -- just as kind of counter to what the environment has been doing there?

No, I don't think any more than normal. I mean, Brazil is a very competitive marketplace. We're used to operating there. You will remember, we jettisoned a lot of our generic third-party products a couple of years -- over the last couple of years. So we've really been focused on more of our proprietary portfolio. Doing very well both in sugarcane, insecticides, specialty insecticides for the soy area are doing well. Obviously, cotton is strong. So we're not -- it's there, but it's no worse than it normally is in my opinion.

And your last question comes from the line of Chris Kapsch from Loop Capital.

I had a follow-up for each segment. Just in Ag, following up on the discussion around synergies with the DuPont acquisition, I appreciate the opportunity there is really focused on -- or the big piece of the opportunity there is more about cost avoidance, in other words, costs you don't have to layer in as you absorb that business. But I'm curious about how that is juxtaposed against the TSAs that are in place. So what are the magnitude of the TSAs? And as you identify cost avoidance opportunities, are those mutually exclusive? Or do you have to -- or as you figure out what costs you don't need to avoid, do you then have to fade some of the costs associated with current TSAs in place? I'm just trying to understand when you'll be able to recalibrate on what the real costs are necessary to run those businesses.

Yes. So we have a TSA with DuPont, which had a cost we were expecting in the $50 million range for very well-defined services. And over the next 18 months, this TSA is going to be phasing out, which means we don't keep the TSA all the way to the end. Once this TSA was defined, our functional teams -- finance, IT and others -- define the bare minimum structure they would need to operate that business. And that's what we are putting in place and we are making good progress to almost get to this point. At this point, we're going to pause. This point will be well below the model, but we are not sure that this place where we'll pause will be strong enough for us to be able to operate the business for the 2-year period while we have a TSA in front of us. So that is the process we are following. Our target, I would say by early into next year we should have a pretty strong idea of bare minimum plus what do we need to run the business, which will create the operating model going into 2018.

Okay, that's helpful. And then just following up on the Lithium business. You're looking at the fourth quarter guidance for, I think, 17% sequential earnings growth. Just curious about, one, the pricing assumption that's baked into that sequential earnings progression. And then also you mentioned that in the month of September, your new hydroxide plant was running at 9,000 metric tons. Is that to imply that the product you're producing is fully qualified? Or are you in the process of still ramping up the qualifications? And if that's the case, can you just talk about how you see that qualification progressing sequentially in the quarter and into 2018?

Yes. This is Tom. So starting with the second question, the customer qualifications went extraordinarily well. Traditionally in these markets, it's 9 to 12, I've seen even multiple-year qualification processes, we are qualified across our customer base. There's a few still in the process, but it relies on customer processes. So there's no concern. We're qualified for the sales that we have forecasted. And in terms of the pricing, it's relatively minor impact, Q3 to Q4. The way that the mixes go, it's relatively minor on price, mostly volume Q3 to Q4.

And then could you just extrapolate on that last comment into '18 at this juncture based on the contract that you took?

Earlier, I had indicated, we expect more than half of the benefit going into '18 to be price, and we just started those conversations, so it could be a little bit better.

Thank you. I'd like to turn the call over to Michael Wherley for closing remarks.

That's all the time we have for the call today. As always, I'm available following the call to address any additional questions. Thank you, and have a good day.

Thank you. This concludes the FMC Corporation Third Quarter 2017 Earnings Release Conference Call. Thank you.