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FMC Corp. (NYSE:FMC)
Q4 2018 Earnings Conference Call
Feb. 12, 2019, 9:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning and welcome to the Fourth Quarter 2018 Earnings Release Conference Call for FMC Corporation. Phone lines will be placed on a listen-only mode throughout the conference. After the speakers' presentation, there will be a question-and-answer period. I will now turn the conference over to Mr. Michael Wherley, Director of Investor Relations for FMC Corporation. Mr. Wherley, you may begin.

Michael Wherley -- Director of Investor Relations

Thank you and good morning, everyone. Welcome to FMC Corporation's Fourth Quarter Earnings Call. Joining me today are Pierre Brondeau, Chief Executive Officer and Chairman; Mark Douglas, President and Chief Operating Officer; and Andrew Sandifer, Executive Vice President and Chief Financial Officer.

Pierre will review FMC's fourth quarter performance and provide the outlook for 2019 in the first quarter, Andrew will provide an overview of select financial results and then all three will address your questions. The slide presentation that accompanies our results, along with our earnings release and the 2019 outlook statement, are available on our website and the prepared remarks from today's discussion will be made available after the call.

Finally, 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 press 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 and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, and free cash flow, all of which are non-GAAP financial measures. Please note that earnings shall mean adjusted earnings and EBITDA shall mean adjusted EBITDA for all income statement references. A reconciliation and definition of these terms, as well as other non-GAAP financial terms to which we may refer during today's conference call, are provided on our website.

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

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Thank you, Michael, and good morning, everyone. 2018 was a critical and very successful year for FMC. In Ag Solutions, we delivered tremendous performance in both Q4 and the full year that significantly outpaced our peers in the broader ag market. Our sales team aggressively pursued revenue synergies made possible by the limited customer overlap and the strength of our broader portfolio. They delivered 11% pro forma sales growth for the full year, posting gains in all geographies.

Our entire organization executed well against our growth goal. We achieved this performance in 2018 while taking great strides toward integrating the largest acquisition in FMC history, separating our Lithium business, which included an IPO, and advancing the implementation of the SAP S/4HANA platform. We also reduced debt $500 million and completed a $200 million share repurchase program.

Turning to Slide 3, FMC reported over $1.2 billion in fourth quarter revenue, including Lithium, which reflects a year-over-year increase of 24% on a reported basis and 17% on a pro forma basis. This increase was driven by strong commercial execution that enabled broad-based growth in every region in Ag Solutions, along with 6% sales growth in Lithium. Adjusted EPS came in at $1.69 in the quarter, an increase of 54% year-over-year. This was $0.02 above the high end of our announcement from January 31, 2019, and $0.31 above the midpoint of our guidance given on our last earnings call.

Slide 4 will shed some light on this outperformance. The guidance beat was due to very strong operational performance in Ag Solutions, which drove $0.08 of the outperformance, and lower taxes, which drove another $0.21 of the gain. The lower tax was primarily driven by a more favorable earnings mix by jurisdiction and, to a lesser extent, by the clarification of certain international tax provisions of the 2017 U.S. Tax Cuts and Jobs Act. We also gained $0.02 of incremental EPS from a lower share count due in large part to the repurchase of 2.4 million shares.

Moving on to Ag Solutions' financial results on Slide 5, revenue of nearly $1.1 billion increased 27% year-over-year and 18% on a pro forma basis. Excluding an estimated 5% headwind from currency, the pro forma organic growth was a very strong 23% and far ahead of the market. Performance in the quarter and the year was driven by strong commercial execution and robust demand for industry-leading products. Our sales organization has developed valuable cross-selling opportunity due to minimal customer overlap between FMC and DuPont to deliver significant sales synergies. Additionally, we reduced expected operating costs for the acquired business through accelerated functional integration, leveraging FMC's capability and reducing manufacturing costs in legacy DuPont plants.

Fourth quarter segment EBITDA of $302 million increased 35% versus the year-ago period and was $13 million above our original guidance. Our EBITDA margin for Q4 increased 160 basis points year-over-year to 27.4% and full-year margin increased 560 basis points to 28.4%.

Turning now to fourth quarter regional financial results on Slide 6, Q4 revenue growth was sharply up on a pro forma basis, led by strong commercial performance in Latin America at 27%, followed by North America at 21%, EMEA at 13%, and Asia with 4%. In Latin America, price increases more than offset the effects of currency headwinds. The outperformance in the region was driven by strong demand from cotton growers in Brazil, with acreage expected to be up 25% year-over-year, and wheat farmers in Argentina, where acreage is forecasted to grow by 5%. Robust demand for insecticides in soybean applications was also a key factor in the region.

In North America, despite an expected shift in acreage away from soybean, strong demand for pre-emergent herbicides remained a key to our growth, as glyphosate resistance continues to spread. We saw strong customer uptake of our pre-emergent herbicide, especially Authority Supreme that was announced last year, in addition to strong sales of insecticide and new fungicide.

EMEA experienced strong growth in France, Germany, and Russia, with combined sales of those three countries growing 45% year-over-year. This growth was driven by a range of SU herbicides and Rynaxypyr insect control.

In Asia, we continued to benefit from a commercial integration and strong demand in Pakistan, Vietnam, Philippines, and Malaysia. If we exclude the India restructuring, which included the discontinuation of certain product, and the loss of sales from the required antitrust divestiture in Asia, sales in the region would have grown 14% on a pro forma basis.

Moving now to Lithium results on Slide 7, Lithium fourth quarter revenue was $120 million, up 6% year-over-year. Segment EBITDA came in slightly above the midpoint of guidance at $46 million in the quarter. As you most likely saw in a separate press release yesterday, FMC's Board of Directors has officially declared the spin of the remaining stake in Livent to FMC shareholders, which will occur on March 1, 2019. This will complete the separation process. Please refer to the press release posted on fmc.com for details.

Looking ahead at our 2019 outlook on Slide 8, as we disclosed in the press release on January 31st, our 2019 earnings per diluted share are expected to be $5.55 to $5.75. This represents an 8% increase at the midpoint of our recast 2018, excluding Lithium and the impact of any share repurchases in 2019. All comparative values from 2018 will now exclude the Lithium business entirely. Shortly after the spin on March 1st, we will file an 8-K with recast 2018 results that strip out the Lithium business.

We expect 2019 revenue for FMC will be in the range of $445 billion to $455 billion, up 5% at the midpoint year-over-year versus 2018 recast sales. Excluding an expected 3% FX headwind, organic sales growth estimate is 8% at the midpoint. We also expect total company EBITDA of $1.165 billion to $1.205 billion, which would represent 7% growth at the midpoint versus 2018 recast results. As a reminder, in 2019, our EBITDA guidance includes all corporate expenses. We will no longer delineate between Ag segment results and corporate expenses, as we had in the past when we had multiple segments.

For FMC, first quarter revenue is expected to be in the range of $1.18 billion to $1.21 billion, which represents growth of 8% at the midpoint. Excluding an expected 6% FX headwind, organic sales growth estimate for Q1 is 14% at the midpoint. We are also forecasting EBITDA of $320 million to $340 million in Q1, which would be flat year-over-year at the midpoint. This is despite significant FX and raw material cost headwinds. We expect first quarter EPS to be in the range of $1.58 to $1.68, up 3% versus recast results from Q1 2018.

Our 2019 expectation for the overall global crop production market growth is that it will be flat to up low-single digits. We expect North America, EMEA, and Asia will also be flat to up low-single digits, driven by a variety of factors, and Latin America will grow in the low to mid-single digits.

In North America, growth will come from an increase in corn acreage and normalized pest pressures. In Latin America, Brazil is experiencing dry weather in important soybean and corn areas throughout the year but we expect this will be upset by favorable planting conditions in Argentina and another strong soybean season across the region next fall. In EMEA, we expect a recovery of the winter and spring cereals area and strong cereals pricing. Asia is expecting strong growth, driven by a more normal monsoon season in India, as well as a recovery from the drought in Australia.

-We expect that FMC's above market growth in 2019 will be driven by the continued strength in global demand for diamides, pre-emergent herbicide growth, sales expansion in Brazil, SU herbicide growth in key European countries, as well as new product introductions. These new products will account for approximately $60 million to $70 million or 1.5% in incremental sales growth in 2019.

In our third largest country, India, which had over $300 million in sales in 2018, we're expecting strong top-line growth in 2019 from our insecticide portfolio, as well as new applications of our herbicide portfolio in sugarcane. Our well-structured, super distributed network in India drives increased market access and demand generation, further lowers our credit at risk, and requires less working capital while increasing profitability.

Earlier this year, we launched our first new active ingredients from the legacy FMC R&D pipeline, Lucento fungicide, in time for the 2019 growing season in North America. Our R&D organization also reached several very important milestones since our Investor Day in December. We advanced one of our insecticide active ingredients out of the discovery phase and into the development pipeline. Launch for this product continues to be expected in 2026. This means we still have six AIs in our development pipeline after launching Lucento commercially. We will continue to update you with progress within our innovation pipeline on future calls.

As you can see from this full-year 2019 EBITDA bridge on Slide 9, the headwinds from FX and higher raw material costs are significant factors in 2019. The full-year headwind from FX is expected to be 7% at the EBITDA level, plus another 10% headwind from higher costs for raw materials, representing a total of about $190 million. We expect price increases will offset $130 million of these combined headwinds, or approximately 70%.

Turning to Slide 10, the first quarter EBITDA bridge reflects the pressure on profitability at the beginning of the year. Q1 headwinds from FX are expected to be 15% at the EBITDA level, plus another 18% headwinds from raw material costs, representing a total of about $110 million in headwinds. We expect price increases in Q1 will offset $65 million, or about 60%, of these headwinds.

We will absorb about half of this full-year impact from raw materials impact in Q1 alone. It will diminish significantly in the second half of the year. Likewise, about two-thirds of the full-year headwind to EBITDA from FX is expected to occur in Q1 and this is also expected to diminish greatly in the second half. Our plans to offset a large part of these adverse costs with price increases throughout the year are in place and the execution is taking place as we speak.

I will now turn the call over to Andrew.

Andrew D. Sandifer -- Executive Vice President and Chief Financial Officer

Thanks, Pierre. There's a lot to cover this morning, so let me start with a few specific income statement items for 2018. I'll then move on to the year-end balance sheet, cash flow, share count, and finish with a few comments on the 2019 outlook.

Foreign exchange had a meaningful negative impact on fourth quarter Agricultural Solutions revenue, estimated at approximately 5%. We believe this impact was more than offset by our price increases in the quarter. For the full year, we estimate FX was an approximately 2% headwind on Ag Solutions revenue. In the Lithium segment, FX was a modest headwind to revenue in the quarter and the full year.

Corporate expense was $28.4 million for the quarter, $4 million than implied by guidance given in our last earnings call. There were several drivers of this variance, including: a higher than anticipated year-end LIFO inventory valuation adjustment, reflecting continued raw material price increases; higher health and welfare benefits expense; and, to a much lesser extent than in the third quarter, foreign exchange impacts on intercompany fund movement.

Interest expense was $1 million higher for the quarter than guided, with higher than expected commercial paper balances throughout the quarter due to higher working capital.

Our tax rate for full-year 2018 came in much better than anticipated, at an effective annual rate of 13.7%. The primary driver of the outperformance was the earnings mix by jurisdiction that was substantially improved versus our forecast, with more profit being earned in lower tax jurisdictions than expected. Also contributing to a lesser extent to the lower 2018 tax rate was the impact of the proposed regulations released in the fourth quarter related to U.S. international tax provisions. This resulted in a less unfavorable impact than projected for global low-taxed intangible income, also referred to as GILTI. The 5.1% effective tax rate in the fourth quarter is a result of bringing our full-year provision for income taxes in line with the full-year rate.

We took a $106 million non-cash charge against GAAP earnings to adjust our environmental reserves to reflect the recent agreement in principle reached with the New York State Department of Environmental Conservation that would, among other things, settle past costs and govern remediation of historical contamination within a defined area attributed to FMC's Middleport, New York operations. Upon finalization, this settlement will resolve a significant portion of the issues related to the Middleport site and provides FMC with certainty of the cash outflows required to support these liabilities. The cash outflows specified in the pending agreement will be capped and are well within the assumptions we've made for ongoing cash spending on legacy expenses.

Moving on to the balance sheet and cash flow, gross debt at December 31st was $2.7 billion, down more than $500 million from the beginning of 2018. Gross debt to trailing 12-month EBITDA, excluding Lithium, was 2.4 times, consistent with our long-term target of 2.5 times or less.

Now, turning to Slide 11, FMC generated adjusted cash from operations of $576 million in 2018, up 47% compared to the prior year. Adjusted cash from operations was lower than expected in the fourth quarter, as growth in working capital, as well as higher legacy and transformation expenses, more than offset better than expected EBITDA.

Working capital was higher than expected in both Agricultural Solutions and Lithium. For Agricultural Solutions, higher working capital was driven by stronger than expected sales in the quarter and recovering inventory levels due to the faster than expected return to full production from our China toll manufacturing partners. We continue to monitor our inventory and safety stock levels very closely as we move past this period of uncertainty in China.

Transformation expenses were higher than expected, primarily due to timing of spending on our SAP implementation.

In early December, we completed the $200 million share repurchase program announced on our November earnings call, purchasing 2.4 million shares at an average price of $81.97 per share.

Looking ahead now to 2019, as Pierre mentioned, FMC expects meaningful FX headwinds to revenue growth, particularly in the first half of the year. Interest expense should be roughly in line with 2018. We expect our effective tax rate to be between 14% and 16% for 2019 based on our current forecast for earnings by jurisdiction and our evolving understanding of the implications of the newly proposed regulations governing the taxation of foreign income. As Pierre also noted earlier, we anticipate full-year 2019 earnings per share to be between $5.55 and $5.75, with first quarter 2019 earnings per share to be between $1.58 and $1.68.

We are in the process of developing fully recasted financials for 2018 to remove all impacts of the Lithium business to provide a clean year-on-year comparison for EPS and other metrics. Due to the complexity and evolving interpretation of the 2017 U.S. tax law, it will be March before we can provide fully recasted financials for 2018. At present, we estimate that like-for-like earnings-per-share growth, removing all impacts of the Lithium business, at 8% for full-year 2019 and 3% for the quarter.

Slide 12 shows a summary of our 2019 cash flow outlook, laid out in generally the same way we discussed cash flow at our December Investor Day. FMC expects to generate adjusted cash from operations of $750 million to $850 million in 2019. With capital spending expected to be in the range of $140 million to $160 million for 2019, as well as with legacy and transformation costs in the range of $200 million to $250 million, we expect to generate free cash flow of $375 million to $475 million. This suggests free cash flow conversion from adjusted earnings to be in the range of 50% to 60%, a significant improvement though not yet at our target conversion rate of greater than 70%. This is due to continued legacy and transformation expenditures in 2019, in particular, costs to complete our SAP implementation.

With this growing cash flow and improving cash conversion, we will continue to regularly purchase shares through 2019. Year-to-date, we've repurchased 1.25 million shares at an average price of $79.84 for a total of approximately $100 million. We intend to purchase a total of up to $500 million of FMC shares in 2019, inclusive of those already completed.

FMC expects to maintain gross debt at 2.5 times trailing EBITDA for full-year 2019. You should expect some variation quarter to quarter due to the seasonality of cash generation relative to our desire to be consistent purchasers of FMC shares through 2019.

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

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Thank you, Andrew. All is in place for FMC to deliver a strong 2019 as a pure-play agricultural sciences company with above-market growth. Quarterly earnings in 2019 will be atypical because of cost pressure in the first half of the year. The first quarter itself will see nearly 60% of the full-year raw material cost increase and FX impact. Q2 will continue to see strong headwinds with relief in the second half of the year.

We are highly confident in our ability to recover a large part of these adverse costs throughout the year and deliver 5% revenue growth with 7% EBITDA growth. Our high confidence is driven by the current work on price increases, which is going well, and the fact that cost pressure from raw materials will decrease considerably in the second half of the year. We are also highly confident that we will deliver EPS growth of at least 8%.

I will now turn the call back to Michael Wherley.

Michael Wherley -- Director of Investor Relations

Thank you, Pierre. As Livent has just had its own conference call, we'll keep this Q&A session primarily focused on our Ag business. Operator, you can now begin the Q&A.

Questions and Answers:

Operator

Okay. If you would like to ask a question at this time, please press "*1" on your telephone keypad. Please limit yourself to one question plus one follow-up question. If you have additional questions, you can jump back in the queue. To withdraw yourself from the queue at any time, press "#". We'll pause a moment to compile the Q&A roster.

Our first question will come from the line of Chris Parkinson with Credit Suisse. Please go ahead.

Christopher Parkinson -- Credit Suisse -- Analyst

Thank you. Can you just give us a quick update on active ingredient procurement and how the Chinese market evolved in '18, what your key assumptions are in '19, and just any longer term thoughts you have on your global procurement? Thank you.

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Yes. Right now, as I said in the previous remarks, we are in a good place from supply of active ingredients from China. All of our units, as well as all of our toll processors, are currently functioning and we were able to quickly rebuild the safety stock, which are needed for us to operate. And we were able to do all of that at a faster pace than expected in the fourth quarter. From a situation in China today, there is still the same pressure around environmental issues but it is, I must say, in a calmer and more organized approach. I think this approach, which was a bit, at times, surprising, with one violation at an initial park and everybody shut down, is going away to a much more targeted and rational approach. So, right now, the situation has changed.

It is also one of the reasons for which we have so much certainty around our ability to deliver on our targeted earnings for the year, because we have a very good view of raw material, active ingredient price increases, which will in the first year. But we already have the contract in place for what will be coming to manufacturing in the first half and sale in the second half, in terms of pricing. So, all of that is very clear.

Now, from a strategic standpoint, as Mark has said many times before, China remains very important to our active ingredient supply but we are looking at diversification in the U.S., increasing the capacity of some of our plants. In Europe, where we do have active ingredient plants, also we're increasing our ability to supply from there. And also India. So, yes, we will tend to diversify our active ingredient supply in the future.

Christopher Parkinson -- Credit Suisse -- Analyst

That's great color. And just as a quick follow-up, given your current portfolio pipeline, as well as the existing product suite, can you just comment on your existing perception of your competitive positioning versus some of your larger peers? And then also just quickly comment on your willingness to purchase and/or trade for third-party molecules? Thank you.

Mark A. Douglas -- President and Chief Operating Officer

Yeah, Chris, when you look at our pipeline we predominantly showed in December, we feel very confident that the pipeline we have stacks up extremely well with anybody else in the industry. When you think about having six products in development, that means, within the next few years, those six products are going to come to market, three within our five-year plan timeline, the first one already out this year. And then the 16 products that we have in discovery that continue to evolve -- and as Pierre said in the script, we moved one of those discovery molecules, which is an insecticide, into development -- that's a very good sign that when we make those strategic decisions, moving from discovery to development, that's when we start to spend significant amounts of money. So, we're very confident that that new insecticide will hit the market in mid-next decade.

So, we feel very good about where our pipeline is. But, more importantly, we feel good about what is coming through into that pipeline from discovery. We have a tremendous amount of new leads that we're developing down in Stine and I fully expect that that discovery pipeline will continue to expand over the next few years.

Christopher Parkinson -- Credit Suisse -- Analyst

Thank you.

Operator

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

Stephen Byrne -- Bank of America Merrill Lynch -- Analyst

Yes. Curious as to what your full-year revenues were in 2018 for the Rynaxypyr and Cyazypyr and how did that compare versus [audio disruption]. What were the key drivers? And any other new formulations in development that incorporate those active ingredients to extend the patent life?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

So, you cut off a little bit on the second part of your question so I'm going to answer the first part and ask you, if you don't mind, to repeat the second part.

On the first part, what we are doing is trying to measure the legacy FMC and the legacy DuPont business and look at the year-on-year growth. So, we believe that the legacy DuPont business, on a like-for-like basis, on a pro forma basis, was for the total portfolio but mostly driven by Rynaxypyr and Cyazypyr but also including indoxicom and the SUs, the growth rate was north of 20%, most likely in the 25% range, while the FMC portfolio was more in the low to mid-single digits. Now, you always have to be very careful because we have pushed a lot of sales, cannibalizing FMC sales with DuPont sales because of the quality of some of the products and the profitability of these products. So, it is not exactly a like-for-like but I would say north of 20% for the DuPont and low to mid-single digit for the FMC.

Could you repeat the second part of your question?

Stephen Byrne -- Bank of America Merrill Lynch -- Analyst

Yeah, sure, Pierre. Sorry about that. I was asking about any new formulations that include Rynaxypyr and Cyazypyr to extend the patent life on those active ingredients. And maybe I'll catch that in a broader question of the present value of your pipeline being fairly insecticide-heavy because of the potential for mutation-driven demand increases and more difficulty being disintermediated by seed-based insecticides. Just wanted your views on that.

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Sure. Let me start around mixture and then I'll move that to Mark, who will give you the detail. But, absolutely, we do have a full strategy around mixtures and finding the right formulas for Rynaxypyr sales. First of all, for normal growth -- and that's what we do at FMC. We use formulations for growth but also for our patent extension strategy. Now, you do not see these formulations impacting '19 sales or even '20 because every time you do create those new formulations, you do have to go through the full registration process. So, depending upon the countries and the region, it could be from two years to four or five years. So, that is the process we are going through. All of these products are currently in development with a very active portfolio. Mark, you want to add a couple of things?

Mark A. Douglas -- President and Chief Operating Officer

Yeah. Steve, your question around the insecticides versus the rest of the portfolio for us -- yes. I mean, you look at our portfolio, we're one of the world leaders in terms of insecticides and we're very happy with that situation. Pest pressure continues to expand around the world, especially in Asia. But if you look at our pipeline, if you think of the development molecules, they're all fungicides and herbicides, with the exception of the new insecticide we just put into development. If you look at the discovery pipeline of 16 molecules, 11 of them are herbicides and fungicides. So, as we talked about many times, we're very active from a discovery and development perspective to rebalance that portfolio. And, of course, we are talking to other parties around expanding the use of fungicides and herbicides. So, I'm very confident that we have the right programs in place to help sort of rebalance or continue to grow the portfolio. But I'm not unhappy with where we are with insecticides right now.

Stephen Byrne -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

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

Daniel Jester -- Citigroup -- Analyst

Hey, good morning, everyone. Just a few questions on the quarter. First, in Latin America, was there any benefit in terms of pull-forward? I think the soybean season in Brazil this year was pretty quick so any benefit in the fourth quarter from that? And then on Europe, you called out very strong sales in France, Germany, and Russia, much, much higher than the segment overall. Was there any countries that were particularly weak in Europe in the fourth quarter?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Really, your question in North America around pulling -- and I think the question for us would apply to any region of the world. There was a very strong performance of all of our regions from a growth standpoint, even including Asia. It does not look like there was a very strong pull but we do believe customers were anxious to procure our product. They have all heard about the tension around China, even if they all understand today that it is quite stable. So, could there be some? I couldn't say no. But in all regions, we saw very healthy sales, especially in Latin America. Slight pull by customers to make sure they will be supplied, possible, but nothing which jumped at us in Latin America.

Daniel Jester -- Citigroup -- Analyst

And then with regards --

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Yeah. Mark is going to give you on Europe. Mark?

Mark A. Douglas -- President and Chief Operating Officer

Yeah. You're right. In Europe, France, Germany, Russia were very strong for us. Good mix. I would say from a weakness perspective, the UK was certainly weak. Certain parts of southern Europe as well but far outweighed by the other areas. And I have to say the other areas are growing very quickly, mainly because of the things we've done over the last few years with direct market access. That's been an important element of our growth in Europe, continues to be so. And certainly in France, where we now have a much stronger presence with a much broader portfolio, we see them growing very well.

Pierre R. Brondeau -- Chairman and Chief Executive Officer

One additional statement around your question around Latin American and potential pull. I can guarantee you that following our experience in 2016, we are keeping a very, very close eye on inventory and we are doing a physical check of our inventory at customers, at distributors, and in-house. And we are in a good place today with a very normal inventory level in the supply chain of FMC products.

Daniel Jester -- Citigroup -- Analyst

Thank you. That's really helpful. And then on your 2019 guidance, you have 8% organic growth and you commented that the market is only going to be up low-single digits. So, you're certainly outgrowing the market at a very brisk pace in 2019. Can you comment about what regions you think that you have the best shot to outgrow the market or where you may be taking incremental share? Thank you.

Mark A. Douglas -- President and Chief Operating Officer

Yeah. First of all, Asia. Asia is one of the fastest growing parts of the world, especially in India. We have a very good market access model in India. The portfolio has grown. We're introducing some of our herbicides from around the world. We have a new formulation in India, which is a mixture of Sulfentrazone and Clomazone, which has specifically targeted the sugarcane industry, where we've not had herbicide growth before but we have tremendous market access. So, we're very confident that we're going to see that business grow.

And then I would shift to parts of Latin America. Argentina last year was a very down market. We continue to see growth with insecticides but also with our pre-emergent herbicides. And then Brazil. We continue to take share in soy with our insecticide portfolio, not just the acquired diamide portfolio but the FMC formulations as well. And then I would say in parts of Europe where we see that strong market access and growth.

Daniel Jester -- Citigroup -- Analyst

Thank you very much.

Operator

Our next question comes from the line of Don Carson with Susquehanna Financial. Please go ahead.

Donald Carson -- Susquehanna Financial Group -- Analyst

Thank you. Pierre, a question on your 23% organic growth, pro forma, in 2018. What was the price-volume break out there? And as you look to your 8% organic growth in 2019, what are you expecting on price versus volume?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

You're talking about 2018 versus 2017 or 2019 versus 2018?

Donald Carson -- Susquehanna Financial Group -- Analyst

Well, first, in 2018, you had 23% pro forma growth, ex-FX. What was the price-volume breakout on that?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

You have to understand that we cannot do a break out of price-volume on a year-on-year because we can only do it on the FMC product and most of the growth came from the DuPont product. We do not have the information to have EBITDA year-on-year or volume-price mix on the DuPont products. So, we believe a very large part of what we did was driven by volume and most of the price increase was focused on Latin America to overcome the currency. But we do not have a geological, like we have for '19, geological breakdown.

Donald Carson -- Susquehanna Financial Group -- Analyst

And how about for that 8% in '19? What would be price versus volume?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

So, '19, what we have is, for the full year, we believe we're going to have an FX impact of about negative 3%. On revenues, I'm talking, OK? So, a price mix of about positive 3% and a volume of 5%. So, your price mix offsetting your FX. If you go to EBITDA, the drivers are a bit different because, of course, you have FX and costs, but volume would be, on your EBITDA growth, driving 9%.

Donald Carson -- Susquehanna Financial Group -- Analyst

Okay. And then, finally, last year, you were quite aggressive. You changed your policy on hedging sales in Latin America. Are you continuing with that policy of basically hedging the full sale as soon as you book the order?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Actually, let me take that question to elaborate a little bit why we have a bit of a very high confidence around our target despite the fact that a lot of the earnings are coming into the second half. First, to answer your question on currency, we're taking the forward values for currency and we have a very significant part of our currency exposure which is hedged, like every year. So, we have the same hedging process we have every year in place. And like last year, we will make a decision, I would say most likely in the next four weeks, if we do the additional hedging for Brazil. If you would ask me to guess right now, I would say yes, most likely we're going to go with the same approach for Brazil as we did last year. There is a little upfront cost but we believe it's giving us much more certainty. So, I feel pretty strong around hedging. The current programs we have in place and the next one we're going to most likely take for Brazil will put us in a very predictable situation.

For the raw materials, which is the other part, we saw the increase, which is primarily, we think, in the first half, coming from raw materials which we are contracted and use in manufacturing last year. Those are the products which are sold in the first half. What we have procurement contracted for the second half is already done at a pricing which is lower than what we saw in the first half and, actually, pretty neutral versus the prior year. So, we have a very strong visibility around our costs in the second half of the year.

Operator

And, as a reminder, if you do have a question, please press "*1" and, in the interest of time, please limit yourself to one question going further. Our next question comes from the line of Frank Mitsch with Fermium Research. Please go ahead.

Frank Mitsch -- Fermium Research -- Analyst

Hey, good morning, fellas, and a nice end to the year. Pierre, I want to expand upon that raw material headwind. And I like the description that you pretty much have already contracted for your raw materials for the first half of the year so you know what the headwind is going to be and then it seems like you already contracted for the second half of the year at a much lower rate. But what are the key drivers there? Because I don't normally think of FMC's Ag business as being very raw material driven. So, can you help explain why we're seeing the big swings here on the raw material front? What are the key factors there?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Yeah. Actually, Frank, it's a good question. I should have said that. It's a very simple factor. It's supply from China. The specialty chemical industry for the ag industry is mostly coming from China. China went to a pretty abrupt approach to the environmental issues last year, which created a lot of shutdown and shortage on raw material supply and active ingredients supply. Those were the products that we were procuring at that time to manufacture them in the end of 2018 and sell them in the first half of 2019.

Now, everything has been reorganized. The shutdowns are not so visible or high as they were last year. The supply has normalized. There are less emergency shipments. So, we are much more back to a normal situation. So, the product which are being contracted and sold now are contracted under a normal supply from China. So, we are back to a normal level of inventory, normal supply, and back to normal quantity available, which gets the price back to normal.

Operator

Our next question comes from the line of Mark Connelly with Stephens. Please go ahead.

Mark Connelly -- Stephens Inc. -- Analyst

Thank you. I'll keep it to one. Can you remind us of how working capital is going to change from here once everything with the DuPont acquisition is settled through the system and your product launches are settling in too? I'm particularly interested in how seasonality might shift a little bit.

Andrew D. Sandifer -- Executive Vice President and Chief Financial Officer

Hey, Mark, it's Andrew. I think, certainly, 2018 is a bit abnormal, in terms of working capital growth because, as you point out, when we acquired the DuPont business, we bought inventory but we didn't get receivables or payables with that. So, we had to build up receivables and payables to normal levels to support the acquired DuPont business. As we look through to 2019, we would expect to see working capital as a use of cash normalize, with incremental working capital in the 20% to 25% of sales kind of range. I do think you have to think about the seasonality of working capital a bit. And, certainly, from a cash generation perspective, it's not even during the year, Q2 and Q3 being very strong cash-generative quarters. Let me let Mark talk a little bit more specifically about some of the other seasonality elements.

Mark A. Douglas -- President and Chief Operating Officer

Yeah, Mark, it's a good question. The business has changed a lot over the last few years. I'll throw some numbers out for you just so you can get a feel for how 2018 played out. And 2019 is probably going to be pretty similar so this is, I would guess, a new norm for us. If you look by region, North America has about 60% of the revenue in the first half of the year. Latin America has 70% in the second half of the year. Europe has 70% in the first half and Asia has about 55% to 60% in the first half. So, you can see we have some very big swings in terms of where our business comes from. And, as Andrew said, that is obviously going to impact what you see on a quarterly and semiannual basis. So, just bear those numbers in mind and I would say 2019 will be very similar to that going forward.

Mark Connelly -- Stephens Inc. -- Analyst

That's super. Thank you.

Operator

Next question. One moment. Our next question comes from the line of Aleksey Yefremov with Nomura Instinet. Please go ahead.

Aleksey Yefremov -- Nomura Instinet -- Analyst

Thank you. Good morning. On Slide 9, you're showing cost and other part of the EBITDA bridge for 2019 at $150 million headwind. Is it fair to assume that this is mostly raw materials headwind? And, also, if prices have now fully reversed, is it fair to assume that we could see a similar positive item on the 2020 EBITDA bridge?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

I would say yes and yes. I think the $150 million is all cost. And, certainly, especially in the first half, when we're going to move to 2020, we should have a very favorable year-on-year comparison because, as far as we see today, with a more normalized situation from the supply standpoint, we will not have in the first half of 2020 the raw material headwind. So, we're going to like our comp in the first half of 2020 much better than we do right now.

Aleksey Yefremov -- Nomura Instinet -- Analyst

Great. Thank you, Pierre.

Operator

Next question comes from the line of Mike Sison with KeyBanc. Please go ahead.

Michael Sison -- KeyBanc Capital Markets -- Analyst

Hey, guys. You have a really strong start to the first quarter, in terms of volume growth. It implies that one of the other quarters will be a little bit less than the outlook for the full year. Can you maybe just walk us through some of the seasonality again in the business on a quarterly basis and maybe just what we need to keep an eye on as the year unfolds?

Mark A. Douglas -- President and Chief Operating Officer

Yeah, Mike, it's Mark. Similar to what I just answered the other question with regarding the seasonality, if you looked at Q3 in 2018, it was our slowest quarter. You'll see that similar trend again. It won't really change. Q1, Q2 are the highest quarters, followed by Q4 and then Q3. You should not expect to see that change. There shouldn't be material shifts unless there is some major weather impact in one of the regions. People are talking about what's going to happen in North America this year. Will the spring come early? Will it come late? Well, obviously, planting comes right around that Q1/Q2 border so who knows? We plan for a normal year when we do our forecasting. Same thing in Brazil, with late September being the planting season. That swings between Q3 and Q4. So, those are the kind of bridges you have to watch for.

Michael Sison -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

Our next question comes from the line of Kevin McCarthy with Vertical Research. Please go ahead.

Kevin McCarthy -- Vertical Research -- Analyst

Yes, good morning. I was wondering if you could comment on the expected contribution margin in 2019 associated with your volume growth projection of 5%. The reason is ask is, if I look at Slide 9, on the lower right, you show the 5% and, on the upper right, it seems as though the attached EBITDA benefit is 12%, which seems to imply a very high contribution margin of, I don't know, 65% to 70%. So, I guess my question is, is that correct and, if so, what is driving that or perhaps there are other factors baked into there.

Pierre R. Brondeau -- Chairman and Chief Executive Officer

I think you're correct. I think, usually, contribution margin, it's going to depend which region and which product, but quite a few of our insecticides or other products do have a profit on sales which is north of 60%. And when you're growing, because we are not adding resources, it drops straight to the EBITDA line, to the earnings line. Now, we don't see it in the full P&L this year, as we should, because of the FX and raw material issue but your calculation is correct.

Kevin McCarthy -- Vertical Research -- Analyst

Fantastic. Thank you so much.

Pierre R. Brondeau -- Chairman and Chief Executive Officer

And, also, our regular earnings, we have on some of the growing product line.

Operator

Our next question comes from the line of Mike Harrison with Seaport Global. Please go ahead.

Michael Harrison -- Seaport Global Securities -- Analyst

Hi. Good morning. Can you hear me OK?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Yes.

Michael Harrison -- Seaport Global Securities -- Analyst

Thanks. You talked about your ability to grow faster than the underlying market in Asia, Latin America, and Europe. It seems like you forgot an important region in North America. Can you maybe talk about how you expect to grow in North America relative to underlying markets that might be flat to up slightly?

Mark A. Douglas -- President and Chief Operating Officer

Yes. Thanks, Mike. Certainly not intending to leave North America out of the mix, given the scale of its important to us. I think you're going to see a couple of areas where we continue to grow. First of all, the whole pre-emergent herbicide space. I think that you know that we have a very large position in that area. We're introducing new products and cannibalizing our own product range, which allows us to lift up value to distribution, retail, and growers while introducing new technologies to us, which allows us to keep ahead of the competition. So, that's one area.

Second area is, obviously, our insecticide portfolio. And when you look at our growth in specialty and niche crops in California and Florida, that's an area that we see as significant potential for us. And then the third one that we don't talk a lot about but is quietly for us and nicely so is our herbicide portfolio in the corn segment. We are introducing new products there. You'll see us continue in that area. It helps our balance with soy, especially in a year like this where there may be swings between soy and corn. And then last but not least, obviously, fungicides. We're introducing a brand new fungicide. We have two others that are growing nicely on more niche crops. So, I think if you take those areas together, you'll see us continue to outpace the market in the U.S. and Canada.

Michael Harrison -- Seaport Global Securities -- Analyst

All right. Thanks very much.

Operator

And the last question that we have time for will come from the line of Laurence Alexander with Jefferies. Please go ahead.

Laurence Alexander -- Jefferies -- Analyst

Hi. Just a quick one. Are you seeing, in your discussions with regulators, any shift in how they're thinking about insecticide legacy effects or lingering effects or the duration of insecticide effectiveness, particularly in Europe?

Mark A. Douglas -- President and Chief Operating Officer

No. Laurence, listen, the regulatory environment that we work in is an extremely stringent one anyway. You're not allowed mixtures of insecticides in Europe. The neonics have been removed in Europe and that's created opportunities for more targeted insecticides, like our diamides. So, we're not seeing anything that I would say is out of the ordinary with regards to insecticides. In fact, I could argue that the technology players that are introducing newer, more targeted chemistries will continue to take market share in those markets.

Laurence Alexander -- Jefferies -- Analyst

And in the past, when those kind of impulses have happened, I mean, is it about a 5-10 year kind of tailwind or is it faster than that that the market shifts?

Mark A. Douglas -- President and Chief Operating Officer

Sorry, what was the first part, Laurence? I couldn't quite get that.

Laurence Alexander -- Jefferies -- Analyst

When such regulatory shifts have happened in the past, where a class is taken off the market, can players like yourselves who have the newer products, does the shift happen fairly quickly over three or four years or is it more of a 5-10 year kind of transition?

Mark A. Douglas -- President and Chief Operating Officer

It tends to be more quick, depending on the space in which the product is removed by the regulatory authorities. If it's very quick, then obviously growers need something that they can use to combat the pest pressures. You can step into those spaces rather quickly. But it does generally take that 4-5 year timeframe to get the whole market moving.

Laurence Alexander -- Jefferies -- Analyst

Perfect. Thank you.

Michael Wherley -- Director of Investor Relations

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

Operator

And, ladies and gentlemen, this concludes the FMC Corporation conference call. Thank you.

Duration: 62 minutes

Call participants:

Michael Wherley -- Director of Investor Relations

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Andrew D. Sandifer -- Executive Vice President and Chief Financial Officer

Mark A. Douglas -- President and Chief Operating Officer

Christopher Parkinson -- Credit Suisse -- Analyst

Stephen Byrne -- Bank of America Merrill Lynch -- Analyst

Daniel Jester -- Citigroup -- Analyst

Donald Carson -- Susquehanna Financial Group -- Analyst

Frank Mitsch -- Fermium Research -- Analyst

Mark Connelly -- Stephens Inc. -- Analyst

Aleksey Yefremov -- Nomura Instinet -- Analyst

Michael Sison -- KeyBanc Capital Markets -- Analyst

Kevin McCarthy -- Vertical Research -- Analyst

Michael Harrison -- Seaport Global Securities -- Analyst

Laurence Alexander -- Jefferies -- Analyst

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