FMC Corporation (NYSE:FMC) Q2 2023 Earnings Call Transcript

Vincent Andrews: I’m wondering if we could talk a little bit just about raw material costs. Obviously, that was a good news story, supposedly start in the second half of this year and into next year. Just wondering, with the reduction in production on your end and presumably others will have to do the same thing, should we be expecting more deflation, obviously, maybe not immediately, but as we move into 2024?

Mark Douglas: Yes, Vincent, good question. And let me just start it off and then Andrew, if you want to talk a little more granularity on the cost side. Certainly, we’ve been anticipating and we expected lower costs as we go through the second half of the year. We started to see that in Q2, and we’ve talked about an order of magnitude difference in Q3, which we know is there. I would say generally in the industry, prices have come down, continue to come down. I think we’re looking at perhaps a little better scenario than we thought at the beginning of the year. A lot depends on what China does. We’re seeing a lot of shutdowns in China after they’ve been selling products, what we believe has been below costs. Obviously, you can’t keep that going for very long.

So, it’ll be interesting to see what happens to many of the Chinese producers that are probably in some significant financial issues right now. We expect that — we expect some of those smaller companies to disappear. Our view is that we’ll expect to see the current level of lower raw materials and intermediate costs roll through into 2024. But Andrew, do you want to just comment on that further?

Andrew Sandifer: Yes, certainly. I think, Vincent, I think you’re spot on in that we are seeing improvement in costs as the pressures of the destocking hit every stage in the value chain. Despite the weak volume outlook for Q3, we still have substantial cost tailwinds in the quarter. In fact, the cost tailwinds are stronger now than what we anticipated three months ago. Some of the things that move more quickly through our inventory and into cost like packaging materials, for example, have improved. So we actually are seeing improved costs. We saw better than expected costs in Q2. We’re expecting stronger than what we had initially expected in Q3. And I think you see continued benefit of that in Q4. So, these dynamics pushing back into the chain, I think set up a very favorable cost position going into 2024. A bit hard to look too far out to 2024 just yet, but from what we can see, we should start the year in a very favorable input cost situation.

Vincent Andrews: Okay. And as a follow-up, I know with the reduced guidance when you pre-announced, it came with some incremental cost out efforts that you were going to do. And I just would like to get a better sense of what it is that you’re doing and how you’re sort of balancing the desire to sort of improve your near-term earnings situation through this challenge and then obviously look for cash flow versus the last year or two, we’ve been talking about the very successful investments you’ve made and opening up new markets and doing things like that. So, how are you trying to sort of balance? It’s obviously a very challenging period of time right now with sort of making sure that you’re continuing to do the right things to invest in the growth of the business over the medium to long term.

Mark Douglas: Yes. Vincent, listen, it’s a very good point. I mean, we run this company for the long term. And the Company really is built that way in terms of, I think, of R&D and the longevity of that R&D pipeline. We’re not cutting back on our R&D. That’s something that is very important to us. We believe the strength of that pipeline will drive the overall valuation of the Company over the long haul. So, we’re doing everything we can not to slow down the projects in R&D. That doesn’t mean to say we can’t save costs in R&D from an operating standpoint, but we’re not slowing down the main projects. That’s the important message. On the rest of the Company, we’re really focused on the front end, the very pointy end of the Company, which is all our commercial groups and marketing groups which drive revenue demand.