FMC Corporation (NYSE:FMC) Q1 2024 Earnings Call Transcript

FMC Corporation (NYSE:FMC) Q1 2024 Earnings Call Transcript May 7, 2024

FMC Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to the First Quarter 2024 Earnings Call for FMC Corporation. This event is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Curt Brooks, Director of Investor Relations for FMC Corporation. Please go ahead.

Curt Brooks: Thanks. Good morning, everyone and welcome to FMC Corporation’s first quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer; and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Mark will review our first quarter performance as well as provide an outlook for the second quarter and implied first half expectations. He will also provide an update to our full year outlook and implied second half expectations. Andrew will provide an overview of select financial results. Following the prepared remarks, we will take questions. Our earnings release and today’s slide presentation are available on our website and the prepared remarks from today’s discussion will be made available after the call.

Let me remind you that today’s presentation and discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including, but not limited to, those factors identified in our earnings release and in our filings with the Securities and Exchange Commission. Information presented represents our best estimates based on today’s understanding. Actual results may vary based upon these risks and uncertainties. Today’s discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, free cash flow and organic revenue growth, all of which are non-GAAP financial measures. Please note that as used in today’s discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA.

A reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today’s conference call are provided on our website. With that, I’ll turn the call over to Mark.

Mark Douglas: Thank you, Curt. Good morning, everyone. Our Q1 results are detailed on Slides 3, 4 and 5. We delivered a solid first quarter with EBITDA at the higher end of our guidance range and excellent improvement in cash generation. First quarter revenue declined 32% versus the prior year period. Volume declined by 27%, in line with the magnitude we’ve observed in the prior 3 quarters. The volume reduction was driven by continued channel destocking and is consistent with the change in grower behavior to delay purchases until closer to the timing of application. Market conditions were largely as we anticipated. And if not for some negotiated returns in Argentina, first quarter sales would have been in the lower end of our guidance range.

We delivered EBITDA in the high end of our guidance range and earnings per share above the midpoint of guidance. In addition, we reported a very significant improvement in free cash flow versus the prior year period. Our earnings benefited from restructuring actions, and we still expect to deliver the targeted savings net of inflation of $50 million to $75 million this year. Slide 4 provides detail on our sales at a regional level. North America sales declined 48% due to lower volume against a record prior year period. Price was essentially flat. New products introduced in the last 5 years, or NPI, showed greater resilience versus the rest of the region’s portfolio with strong growth in fungicides, including Xyway, which is based on flutriafol and Adastrio, which is based on our newly launched active ingredient, fluindapyr.

Turning to Latin America. Sales were down 20%, a decline of 22%, excluding FX. Volume was lower in most countries and included negotiated returns in Argentina, resulting from a change in the distribution relationship. LATAM reported the least volume decline of our four regions. Our differentiated products in the portfolio performed well. Branded diamides grew double-digits aided by the recently launched Premio Star insecticide and continued growth of our Cyazypyr brands. New products reported strong growth, including sales of Onsuva fungicide, which is based on fluindapyr. Sales in Asia declined 29%, 28% lower excluding FX. Reduced volume was the primary driver with the most significant downturn in China driven by poor weather. India channel destocking continues, although dry weather limited the applications.

Pricing pressure was in the high single digits. NPI sales were essentially flat to prior year and outperformed the rest of the portfolio, including sales in Australia of Overwatch herbicide based on Isoflex. EMEA sales were 20% lower than the prior year period, a decline of 17%, excluding FX, driven primarily by volume, including headwinds from registration removals and rationalization of lower-margin products and poor weather in the UK and Northern Europe. We did grow volume in other parts of Europe, most notably France, Poland, Italy and Spain. A moderate FX headwind was partially offset by low single-digit price increases. Adjusted EBITDA declined by 56%, primarily due to volume and to a lesser degree, price. Costs were favorable with significant contributions from our restructuring actions and lower input costs more than offset other COGS headwinds.

Slide 6 includes further detail on our restructuring actions. We’re making strong progress, and we’ll continue to transform our operating model, including how we are organized, where we operate and the way we work. We’ve moved quickly to right-size our organization and remain diligent in our cost and reducing indirect spend. These changes have been made without sacrificing strategic investment in areas such as plant health and our R&D pipeline. Restructuring provided significant year-on-year savings in the first quarter. As the year progresses, our prior year comparisons will include cost actions taken in 2023 to limit spending. This resulted in an outsized cost saving versus Q1 in the prior year compared to what we expect will be reflected in Q2 through Q4.

We are tracking to deliver cost savings within our $50 million to $75 million range in 2024, net of any inflation impacts to our operating costs. We continue to anticipate $150 million of run rate savings to be realized by the end of 2025. The sale of our Global Specialty Solutions business is progressing well. We’re now in the second round of a robust bid process. There has been significant interest from a mix of both strategic buyers and financial sponsors. We expect the sale of this business to be completed towards the end of the year. Slides 7 and 8 cover FMC’s Q2 and full year earnings outlook. Our full year outlook remains unchanged. The fundamentals of our business are strong. grower incomes have come down from peak levels, but remained positive in most countries.

Generally speaking, weather has been favorable in many countries, which has led to steady application of product on the ground. Overall, we see a healthy ag industry. Data from third parties as well as input from our commercial teams shows that the inventory reduction actions in the channel are making good progress. On a regional basis, the pace of destocking is varied. We see North America furthest along with inventories at the retail and grower level back to normal, while distributors are still working to reduce their level of inventory. EMEA is in a similar condition, except in countries hit by unfavorable weather. In both these geographies, our customers are now targeting to operate with inventories at lower-than-normal levels. In Latin America, inventories are materially lower and are expected to trend towards more normal levels as we move through the rest of the year.

We expect India destocking to persist well into 2025, but parts of Asia, such as ASEAN and Pakistan, have made strong progress in destocking in Q1. While these activities continue to run their costs, we’re encouraged by the first signs that customers are starting to return to historical order patterns. In North America, we continue to receive orders for products that will be used early in the current season, which indicates that the inventories of such products have now been depleted. In Brazil, customers are now discussing next season’s volumes providing visibility that we did not have last year. Our full year outlook assumes that the market improves as the year progresses, but the customers will seek to hold lower levels of inventory.

We are forecasting our second quarter results to be similar to the prior year. Sales are expected to be between $1 billion and $1.15 billion, which represents a year-on-year growth of 6% at the midpoint, driven by higher volume. This is the first quarter during which we expect to report an improvement in year-over-year volume since the start of global destocking. Price is anticipated to be a headwind in the low to mid-single digits and the FX outlook is neutral. Our outlook assumes customers continue to reduce and maintain inventory levels in many countries with a significant amount of the volume growth we’re forecasting in the quarter coming from new products. These include Coragen eVo insecticide in our Argentina in the U.S., Premio Star insecticide in Brazil, Adastrio fungicide in the U.S. and Jordi fungicide in Germany.

EBITDA in the second quarter is expected to be between $170 million and $210 million, up 1% versus the prior year at the midpoint. At the EBITDA midpoint, we expect that volume growth and restructuring benefits will be offset by lower price and COGS headwinds. Adjusted earnings per share is expected to be between $0.43 and $0.72, an increase of 15% at the midpoint, due mainly to lower interest expense and D&A. Slide 8 provides our full year financial outlook, which is unchanged from our last update. Sales are expected to be between $4.5 billion and $4.7 billion, an increase of 2.5% at the midpoint. Volume growth is forecasted to benefit from improving market conditions in the second half with a substantial amount of the growth expected to come from new products.

We anticipate strong growth in new products between Q2 and Q4 with the major contributions coming from Coragen eVo insecticide in Argentina and the U.S. Premio Star insecticide in Brazil, Isoflex active herbicide in Australia and Argentina and on Onsuva fungicide in Brazil and Argentina. We’re also excited to launch new diamide formulations in Australia, Indonesia and other countries throughout Asia. We expect moderate pricing pressure for the full year with the largest impact in the first half. FX is expected to be a minor headwind. Our EBITDA outlook remains between $900 million and $1.05 billion, which is essentially flat to 2023 at the midpoint. Volume growth and restructuring benefits are forecasted to be offset by lower price and COGS headwinds.

Adjusted earnings per share is expected to be $3.23 to $4.41 per share, an increase of 1% at the midpoint from lower interest expense and D&A. Slide 9 illustrates the implied growth in sales and EBITDA in the second half to deliver the midpoint of our full year guidance. Revenue growth of 23% and EBITDA growth of 46% may appear outsized on a percentage basis, but considering the low 2023 comparison, we believe the required growth on an absolute dollar basis is achievable. The implied second half revenue and EBITDA are both in a range that we’ve delivered in the second half of 2020 and 2021. We expect improving market conditions as we progress throughout the year and transition to more normal conditions in 2025. Slide 10 outlines the various factors that will impact our results within the EBITDA guidance range.

The magnitude and timing of improving market conditions remains the biggest variable. Our expectation is that recovery will vary by region. But broadly speaking, we anticipate meaningful improvement in market conditions in the second half. We expect new products will continue to show greater resilience in sales, which is a trend they’ve demonstrated for several quarters. We also anticipate the raw material costs stay flat for the year, and that pricing will be a modest headwind, mainly in the first half as we shift to more favorable comps in the second half. As for what we directly control, we’re confident not only in our ability to successfully launch new products but also in delivering the $50 million to $75 million of restructuring benefits in 2024.

With that, I’ll turn the call over to Andrew to cover details on cash flow and other items.

Andrew Sandifer: Thanks Mark. I’ll start this morning with a review of some key income statement items. FX was a minor, less than 1% headwind to revenue growth in the first quarter, with the most significant headwind coming from the Turkish lira offset in part by a stronger Brazilian real, Mexican peso and euro. Looking ahead to the second quarter, we see continued minor FX headwinds, primarily from the Indian rupee and Turkish lira, offset in part by strength in the Mexican peso. Interest expense for the first quarter was $61.7 million, up $10.3 million versus the prior year period driven by higher commercial paper borrowings and, to a lesser degree, by higher interest rates. We continue to expect full year interest expense to be in the range of $225 million to $235 million, down slightly to the prior year, driven by lower debt balances as we reduced borrowings through the year, offset in part by a change in the mix of short- and long-term debt as compared to 2023.

Our effective tax rate on adjusted earnings for the first quarter was 15.5%, in line with the midpoint of our full year expectation for tax rate of 14% to 17%. As a reminder, we are forecasting a 1 point increase in tax rate at the midpoint versus 2023 and providing a broader guidance range to reflect uncertainty related to tax law changes associated with Pillar 2 as well as transitionary impacts related to our recently awarded Swiss tax incentives. Moving next to the balance sheet and leverage. Gross debt at March 31 was approximately $4.3 billion, up $378 million from the prior quarter. Cash on hand increased over $100 million to $418 million, resulting in net debt of approximately $3.9 billion. Gross debt to trailing 12-month EBITDA was 5.6x at quarter end, while net debt to EBITDA was 5.0x.

Relative to our covenant, which measures leverage with a number of adjustments to both the numerator and denominator, leverage was 5.7x as compared to a covenant of 6.5x. As a reminder, our covenant leverage limit was raised temporarily to 6.5x through June 30 of this year. It will step down to 6.0x at September 30, 2024, and then again to 5.0x at December 31, 2024. We believe we have ample headroom under these limits as we progress through the year. Leverage is improving as we shift to positive year-over-year EBITDA comparisons in the second half and as we reduce debt through strong free cash flow generation and through proceeds from the anticipated divestiture of our Global Specialty Solutions business. We expect covenant leverage to be approximately 3.5x by year-end.

We remain committed to returning our leverage to levels consistent with our targeted BBB or Baa2 long-term credit ratings or better. As I discussed at our November 2023 Investor Day, we’ve shifted our midterm net leverage target to approximately 2x on a rolling 4-quarter average basis. While we will still be meaningfully above this level at the end of 2024, we are confident that with EBITDA growth and disciplined cash management, we should be approach targeted leverage by the end of 2025. Moving on to free cash flow on Slide 11. Free cash flow in the first quarter improved over $725 million versus the prior year period. This is a critical first step towards substantially improving cash flow in 2024, which is an essential part of our deleveraging plan.

Adjusted cash from operations improved by $748 million compared to the prior year period driven by working capital release from lower inventory as well as lower accounts receivable. Capital additions were lower as we continue to constrain investment to only the most critical high-return projects. Legacy and transformation cash spending was up due to costs related to our restructuring program. We continue to expect free cash flow of $400 million to $600 million for full year 2024, a swing of more than $1 billion from 2020 performance at the midpoint of the range. This increase is expected to be driven by a significant cash release from rebuilding accounts payable and reducing inventory, partially offset by higher accounts receivable due to the revenue growth in the second half of the year and with modest improvement on other items such as cash interest.

With this guidance, we continue to anticipate free cash flow conversion of 104% at the midpoint for 2024. And with that, I’ll hand the call back to Mark.

Mark Douglas: Thank you, Andrew. We started 2024 as we planned, serving customers with innovative technologies, improving our cost structure to deliver on our restructuring targets as well as delivering much improved cash flow. The crop protection market has started to turn to more normal buying behavior, and we believe market conditions will continue to improve as we move through the rest of the year and into 2025. Growers are constantly looking for new technologies to combat pest resistance and FMC is delivering these innovative new products. We expect approximately 17% of our revenue this year will come from products introduced in the last 5 years, a record for our company, up from 10% in 2021. This growth is despite the challenges the industry has faced over the last year and shows the value growers place on new technologies. With that, we are now ready to take your questions.

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Q&A Session

Operator: [Operator Instructions] First question today comes from Vincent Andrews of Morgan Stanley. Vincent, your line is open. Please go ahead.

Vincent Andrews: Thank you and good morning everyone. Wondering if you can give a bit more color on the first quarter sales. You referenced Argentina issue that, that would have gotten you to the low end of your sales guidance. Could you just tell us a little bit more about that, and then help us understand what could have happened that might have gotten you to the midpoint of 1Q. It also sounds like you’re expecting volume growth in 2Q to largely come from your new product initiatives. So what does the base business need to do in 2Q in order to hit your guidance?

Mark Douglas: Yes. Thanks, Vincent. Let me just expand on the Q1 comment, first of all. We did highlight, obviously, a distributor arrangement that we changed in Argentina. We talked before about being very careful how we do business in the Southern Cone and in Brazil. We’ve been very – extremely diligent in protecting our balance sheet. We saw an issue with a distributor that we had in Argentina, and we decided to take material back from that distributor and that relationship. So that’s the type of activity that, yes, it slowed down the top line. But from a balance sheet perspective, it was absolutely the right thing to do. I think the second feature that impacted us in Q1 that we were not expecting was really the terrible weather in Northern Europe.

For those of you that follow these things, the UK has had, I think its wettest spring in – for about 200 years and the same in Scandinavia, the same in Germany, Holland, Belgium. That was really the other factor that brought down our revenue. So over and above everything else, pretty much all the regions performed as we expected. Moving forward and looking through Q2 and then into the rest of the year, I would start by saying, first of all, the market, the fundamental market, the use of products and technologies on the ground remains robust around the world. Yes, there are pockets where weather has impacted, but generally speaking, growers are protecting their crops with the best technologies they can find. What does that mean for us? Well, relationships with our growers are, I would say, at a different level in terms of communication and conversation about the future today than we’ve seen last year.

I’ll give a couple of examples. Brazil, our orders on hand today are significantly higher than where they were this time last year. In other words, growers have depleted much of their inventory. They are now asking distribution and retail and hence FMC, we need materials going into the next season. Acreage is expected to increase in the ‘24, ‘25 season in Brazil, so they’re expecting a good year. We now have those orders on hand. What does that mean for us? It gives us better insights into the second half, but also it’s given us confidence to now carefully start bringing back manufacturing lines that have been closed over the last year. So we’re bringing back manufacturing on the basis of the orders that we have on hand for Brazil.

That also means we’re extending payables now, which is the first time we’ve really started to buy raw materials, I would say, over the last year, and Andrew can comment on that a little later. In Europe, conversations with growers are now changing to be what do I need for the rest of the season rather than what do I need for this week or the next week. So that starts to give you the feel that there is more of a longer-term view. Yes, people have changed their inventory levels, and that’s the way they’re going to operate their business, but they’re asking for materials. In the U.S., we’re still selling products that are used very early in the season, even in May, which is unusual. What does that tell you? It tells you that the inventories of those products have been totally depleted.

We’re selling for products that will be used right now. So you take those three big regions alone. There is better visibility for us as we go forward. That also contributes to our view of new products and our launches of new products. I listed in the scripts numerous products that are being launched from herbicides through the new fungicides through insecticides. It’s the new technologies that drive the value and growers are always looking for new tools to invest in resistance breaking, and that’s what we provide. So generally speaking, that’s how we expect the year to flow. It’s why today in May, do we feel confident to leave our forecast where they are versus where we were in February. We have a better sight of where our customers are today than we had in February.

Operator: The next question comes from Aleksey Yefremov from KeyBanc. Aleksey, your line is open.

Unidentified Analyst: Thanks, and good morning. This is Ryan on for Alex. Just a quick one for me. Can you guys talk about the level of pricing for your brand in diamides versus the rest of the portfolio? Just any color there would be helpful. Thank you.

Mark Douglas: Yes, we don’t give pricing for our products versus other parts of our products. I think you all know that the diamides are a very healthy franchise for FMC continues to be so. When I look at Q1, and I look at this year, we expect the diamides will perform better than the overall portfolio. We did highlight in the release that our diamides in Brazil grew double digits in Q1 and that is against a very difficult backdrop. The reason they grew is exactly what we said we would do in November at the Investor Day. We’re producing new formulations that are differentiated, and they are being accepted by the market. Premio Star is a brand-new insecticide for soybeans, and it has been well attended in the marketplace. That allows us to move from the older products to the newer products and gain market share and growth.

Operator: The next question comes from Christopher Parkinson of Wolfe Research. Christopher, your line is open. Please go ahead.

Unidentified Analyst: Great. Thank you. This is Harris signing on for Chris. Just a quick one for me. In North America, obviously, volumes were down on a tough comp pretty significantly, but you still held price flat. Just curious what your thoughts are on potentially adjusting the rebate structures to get volumes flowing again. Is that something that you think could be necessary or that you’re exploring?

Mark Douglas: No. When we look at the portfolio, I think one of the facets that’s kind of getting missed in FMC’s North American business is just the sheer mix change that’s going on there, something like 25% of our revenue has come from products launched in the last 5 years. That’s probably the highest of any region we have in the world. The North American team has done a great job in introducing new insecticides based on the diamides, introducing brand-new fungicides, such as the one I mentioned, Xyway and Adastrio. This is new market opportunities for us. Generally speaking, when we introduced those new products, they are at a higher price point and a higher profitability point, they’re bringing new attributes to growers.

So when we change that mix, obviously, we see the business starts to change. So no, we’re not doing anything with our rebate programs in North America. We believe that our proposition to grow is based upon technology and availability of that technology. We feel very good about where the North American business is. I think if you looked at that on the face of that statement, I said, but you dropped 48% in Q1, why – if your business is good, why is that, frankly speaking, Q1 2023 was a blockbuster quarter, mainly driven by Canada. There was huge pest pressure in Canada last year, and we haven’t seen that same pest pressure this year. That’s normal for these ag markets, but the North American business fundamentally is in very good shape.

Operator: The next question comes from Josh Spector from UBS. Josh, your line is open. Please go ahead.

Josh Spector: Yes. Hi, good morning. So I wanted to ask specifically on your second half guidance. I think one of the parameters you have in there is second half pricing out flat year-over-year. Can you characterize your level of confidence in that just especially given that you’re seeing mid teens down in Latin America today, high single digits down in Asia. What normalizes that? And would you flag that at risk or not at this point?

Mark Douglas: Andrew, do you want to make a comment?

Andrew Sandifer: Yes. Thanks, Josh. Look, I think you have to look at the price of where we are and the overall progression is correction. We have downward prices and movement in Q3 and Q4 of last year as well as in the first quarter of this year with overall low single, mid-single digit, minus 3% in Q3, minus 5% in Q4, low single digit, mid-single-digit kind of price ranges overall, but with a significant amount of pricing being in Latin America. As we finish the season, we will be going into the new season in the fall, anniversarying very significant price reductions in Latin America. So we’re not anticipating that there’s big shifts in less price as we go into the new season given where we already are.

Operator: Next question comes from Adam Samuelson from Goldman Sachs. Adam, your line is open. Please go ahead.

Adam Samuelson: Hi. Yes. Thank you. Good morning, everyone. I was hoping to get a bit more color on kind of the market expectations and performance in India. It’s the one area where I think the destocking kind of trend is kind of stalling to high channel inventories. It feels like that’s been a pretty narrative in that market for running on 2 years now. And just love to get kind of what gives you kind of line of sight to maybe that ending, if anything? And how maybe you’re disaggregating kind of channel destocking and potential lower application rates from any competitive pressures that might exist there? Thank you.

Mark Douglas: Yes. Thanks, Adam. Yes, India is – it’s a very important market for us and one that is facing its own individual challenges not necessarily related to the same reasons as the rest of the world is facing the channel inventories. I would say India is almost unique in the sense of the channel inventory pressure that we face there is purely due to weather and dislocated monsoons over the last few years. We’re not the only market participant to comment on this. Others have also commented on it. It’s an industry-wide phenomenon. And it’s just time that takes us to get through that. The monsoon in the last season was not great. We’re hoping for better weather conditions as we continue through the rest of the year.

We are reducing channel inventory every quarter. Some quarters is faster than others, but it will take some time to remove what is a fair degree of channel inventory. The markets themselves are good in India from where the weather is good. Generally speaking, the Indian growers do like to use the latest technologies and the more advanced technologies. It’s one of the only markets in the world right now where we have online spray services with drones. It just shows you that some markets like India that appear highly fragmented, really do adopt technology very quickly. So we’re drone spraying. I think we run over 5,000 acres right now. That number is growing. That’s a differentiated approach because it allows us to take our brand-new products and apply them in a way that is very beneficial to the small farm holders in India.

Operator: The next question comes from Kevin McCarthy of Vertical Research Partners. Kevin, your line is open. Please go ahead.

Kevin McCarthy: Yes. Thank you, and good morning. A lot of talk about destocking, but I had a question on your own internal inventory. It looks like that came down $324 million on a year-over-year basis, if my math is correct. Can you frame out where you are now versus where you would like inventories to be thinking about Mark, I think you made a comment, bringing some manufacturing back online as it relates to Brazil inventories in other parts of the world, maybe a little bit higher. So maybe you could just kind of put that internal effort of rationalization into context for us? And any related thoughts on operating leverage would be appreciated.

Mark Douglas: Yes, absolutely, Kevin. Thanks for the question. I’ll make an overarching comment and then Andrew, if you want to jump in with some different views. Yes, we peaked inventory basically around about August last year internally. And we’ve been obviously on a track since we first came into this channel destocking to really remove inventory as fast as we could. We’re getting close to the point. We’re not quite there yet. We’re getting close to the point where at the macro level for our inventory, we’re going to be pretty much where we want to be. We do have pockets, however, where our inventory levels are lower than they should be. And hence, we’re now bringing back up manufacturing. As normal, not everything moves at the same pace.

But I would say by the time we get through Q2 and into Q3, we’re going to be in pretty good shape in terms of where our revenue has reset this year versus where the inventory needs to be. It’s important to notice that we really took some hard steps here. I mean we really did crash manufacturing in the sense of stop manufacturing. That’s painful to do in an organization like ours. But we’re now coming through the other side of that. And we will rebuild specific inventories as we see that demand come forward. Andrew, do you want to make any other comments?

Andrew Sandifer: Yes, certainly, Kevin. I think we’re certainly mid-innings in the journey and getting our own inventory in the right place. As Mark pointed to, we – our reported inventory at June 30 was about $2.1 billion. We’re down to just under $1.6 billion this quarter. We have another couple of hundred million to go. It won’t be a one big step. It will be very – it will be bit by bit because I think there’s a very delicate balancing of ramping up production, as Mark mentioned, particularly for products where we are already in short supply and balancing it with the inventory we have on hand and its sell-through. This is a part of the algorithm for generating free cash flow this year as we ramp up that production, build up our payables back to more historically normal levels.

but maintain inventories that are more in-line with our current sales level. So there will be – it won’t be one big step, but through the rest of the year, you should expect another couple of hundred million of inventory to come out of our balance sheet, and that will translate to a contribution to free cash flow generation for the year.

Mark Douglas: Yes. Andrew, just I’ll add one comment, Kevin. Andrew mentioned here that it’s what we call the fine balance. I call it a fine balance, find dense. Remember, we have to go to our raw material suppliers and ask for products to feed this pipeline. And many of them are in the same position that we are. In other words, they have their manufacturing shutdown. I think you know that this is a very, very complicated supply chain and quite long. So this whole notion of how product flows from our suppliers to us, to the customers. It’s not easy and starting this up is going to be interesting because as we run down our inventories over the last year, our customers have got used to us holding their inventory. That is not going to be occurring in some places in the world with some product lines.

So I think this whole notion of the distribution and retail folks running at very low inventory levels compared to historical. We’ve never done that. So it’s going to be interesting to see how this plays out for the value chain, and how we manage inventory going forward as growth starts to come back.

Kevin McCarthy: Thanks very much.

Operator: The next question comes from Joel Jackson from BMO Capital Markets. Joel, your line is open. Please go ahead.