FMC Corp (FMC) Q1 2019 Earnings Call Transcript

FMC earnings call for the period ending March 31, 2019.

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FMC Corp (NYSE:FMC)
Q1 2019 Earnings Call
May. 7, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the First Quarter 2019 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 J. Wherley -- Director of Investor Relations

Thank you, and good morning, everyone. Welcome to FMC Corporation's First 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 first quarter performance and provide the outlook for 2019 and the second quarter.

Andrew will provide an overview of select financial results, and then all three will then 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 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. As you saw in our earnings release, FMC continued to outperform the market as we have for the past 6 quarters. We are especially pleased with the strong volume growth. This in addition to a price increase in all regions as well as cost control, which led to strong top and bottom line results. Our outperformance relative to the market is driven by 3 key elements: balanced geographic exposure; the strength of our product portfolio; and finally, our diverse crop exposure.

Turning to Slide 3. FMC reported $1.2 billion in the first quarter revenue, which reflects a year-over-year increase of 8% on a reported basis and 14% excluding FX headwinds. This increase was driven by strong commercial execution that enabled growth in the region. Adjusted EBITDA was $343 million, an increase of 4% compared to recast financials from the year ago period and $13 million above the midpoint of our guidance. Company EBITDA margins were nearly 29% despite $95 million in combined headwinds from raw material costs and foreign currencies.

Adjusted EPS was $1.72 in the quarter, an increase of 9% versus recast Q1 2018 and $0.09 above the midpoint of the guidance. The strong EPS was driven by higher volume, price increases and product mix. Moving now to first quarter revenue analysis on Slide 4. Q1 revenue grew by 8% with volume contributing 9% growth and price mix another 5% growth for a total of 14% organic growth. This was offset partially by a 6% headwind from FX. Performance in the quarter was driven by strong commercial execution and demand for product, which led to above-market growth.

The strongest growth came from Latin America at 30% followed by North America at 7%, EMEA at 3% and Asia at 1 -- with 1%. Excluding foreign currency headwinds, our organic growth was even stronger with Latin America up over 40%, EMEA up 11% and Asia up 8%. Although Q1 is a seasonally smaller quarter of the year in Latin America, the outperformance was broad-based. The role we rolled in infestation and increased acreage drove strong demand in Brazil for cotton insecticide. Demand for herbicides and insecticides in sugarcane as well as robust demand for insecticides in soy bean applications were also key contributors to the growth. Our price increases in the region offset nearly all the impact of FX on both the top and bottom lines.

Over the past 3 years, we have implemented a disciplined channel inventory management system in Brazil, so that we can maintain visibility on inventory levels of FMC products throughout our distribution channels. The FMC sales team conducts monthly check of all third-party warehouses, retailers and growers and then capture the data in our inventory tracking system. These data indicates that channel inventories of FMC products are low and in line with levels typically expected during this time of the year despite very strong growth in 2018 and in Q1 2019.

In North America, despite the weather issues in the quarter that caused a late start to the season and an expected shift in acreage away from soybeans, demand for preemergent herbicides remained more of growth drivers as glyphosate resistance continues to spread. We saw good customer uptake for preemergent herbicides, especially Authority Supreme herbicide that was launched last year. We saw robust sales of Rynaxypyr insect control for fruit and vegetable applications including Altacor insect control for tree nuts. Our Anthem herbicide and Topguard EQ fungicide also had strong sales.

Also in North America in Q1, we launched our first new active ingredient from the legacy FMC R&D pipeline Lucento fungicide. It is gaining traction already in corn, soybean and peanuts applications and the successful launch suggests we can reach peak sales of $30 million to $50 million sooner than previously expected. Growth in EMEA was driven by favorable weather with very strong sales in Turkey and South Western Europe as well as new direct market access in Belgium and the Netherlands. Our diamide products including Coragen, Altacor and Prevathon insect control had robust demand across the region and pricing actions helped offset the significant portion of the FX headwind.

In Asia, we saw double-digit growth in Pakistan, China, Japan and Southwest Asia. China growth was led by diamide products including Coragen and Benevia insect control. In India, we are seeing the benefits of a commercial restructuring last year as we are gaining sales traction as we are gaining sales traction across more of the portfolio. In addition to reviewing our regional business, I would like to highlight our plant health business, which is globally managed with financial results embedded in all the regions. It consists of biological, micronutrients and seed treatment products and continues to grow over 20% per year.

This part of the portfolio is approaching revenues of $200 million in 2019. Slide 5 shows the balance of our revenue across geographies and crops. From a geographic standpoint, our revenue is spread nearly equally in 4 regions, which provides a natural hedge against the effect of microeconomic and weather events in the region or country. These types of events impacts our industry on a regular basis. Our geographic diversity provides a certain amount of insulation from specific events as we have demonstrated during the recent flooding in parts of U.S. and the drought in Australia.

As you can see on the right side of this slide, the spread of FMC revenue in each region across the 4 quarters of the year is relatively balanced in North America and Asia while the seasonality in EMEA and Latin America are complementary. This means we have a meaningful revenue contribution from 3 regions every quarter of the year, which also gives us some protection from adverse events in one region or country. When considering crop exposure, 60% of FMC revenue is in a wide variety of higher-value niche crops with the remainder of the revenue on row crops. FMC does not rely too heavily on any one crop or any one region making our performance more predictable and sustainable.

Turning now to Slide 6. First quarter EBITDA was $343 million, up 4% versus recast reserve from Q1 2018. Strong demand led to year-over-year volume increase of $55 million of EBITDA. We achieved price increases in all region, which contributed $53 million to year-over-year EBITDA growth with the strongest contribution from EMEA and Latin America. Volume and price together more than offset the headwinds from raw material costs and FX, which totaled $95 million in the quarter. Looking ahead to our 2019 outlook on Slide 7. Given the strong performance in Q1 and more clarity on the outlook for the year, we are raising our guidance for 2019 revenue, EBITDA and EPS.

We expect 2019 revenue for FMC will be in the range of $4.5 billion to $4.6 billion, up $50 million at the midpoint versus prior guidance and reflecting 6% year-over-year growth at the midpoint versus 2018 recast sales. Excluding a forecasted 3% FX headwind, our organic sales growth estimate is now 9% at the midpoint. We also expect total company EBITDA of $1.18 billion to $1.22 billion, up $50 million at the midpoint versus prior guidance and representing 8% growth versus 2018 recast results.

As a reminder, in 2019, our EBITDA guidance for the total company and includes all expenses. We are also raising our guidance for 2019 earnings per diluted share to a new range of $5.62 to $5.82, an increase of 7% at the midpoint compared to our prior guidance. This represents growth of 9% at the midpoint over recast 2018 and only includes the impact of the $100 million in share repurchase completed in Q1. For the second quarter, we expect revenue to be in the range of $1.185 billion to $0.1215 billion, which represent growth of 4% in the midpoint. Excluding an expected 4% FX headwind, our organic sales estimate is 8% growth at the midpoint.

We are also forecasting EBITDA of $325 million to $345 million in Q2, which would be an increase of 5% year-over-year at the midpoint. This is despite significant FX and manufacturing cost headwinds. We expect second quarter EPS to be in the range of $1.60 to $1.70, up 10% at the midpoint versus recast results from Q2 2018. For 2019, we expect the overall crop protection market will be flat to up low single digit. We expect Latin America to grow in the mid- to high single digit, North America and Asia to be flat to up low single digit and EMEA to be flat to down low single digit.

All these estimates are in U.S. dollar terms. In Latin America, continued strength in cotton in Brazil, recovering conditions in Argentina and an expected strong soybean season across the region next fall will drive the market growth. In North America, market growth will come from an increase in corn and wheat acreage and more normalized price pressure. In EMEA, we expect recovery of cereals acreage for the strength of the U.S. dollar relative to the euro is likely to reduce the market growth rate in the region by 200 to 300 basis points. We expect growth in Asia to be driven by more normal weather conditions across the region. FX is expected to be an headwind in Asia, which is embedded in our outlook for the market. As you can see, the full year 2019 EBITDA bridge on Slide 8. The headwinds from FX and higher manufacturing costs are significant factors for 2019.

The full year negative impact from FX is expected to be 7% at the EBITDA level plus another 13% headwind from higher raw material costs representing a total of about $220 million. We expect price increase will offset the $145 million of this combined headwinds or approximately 65%. As was widely reported in late March, there was an explosion in an industrial park in China. One plant operated by one of FMC's contract manufacturing tollers is located near the explosion. That plant has been shut down temporarily, as the government shut the entire plant down to investigate the root cause of the blast. It is important to note, however, that FMC's global manufacturing network provides us significant supply chain flexibility.

Due to the strength of our partnerships and our alternate sourcing options, we are confident that we can continue to secure supply of the FMC active ingredients normally manufactured at the impacted tollers location as needed. We have already included the impact of this situation in our guidance. Turning to Slide 9. The second quarter EBITDA bridge reflects a $55 million cost headwind similar to Q1, but lower FX headwinds of $20 million representing a total of about $75 million in headwind. We expect price increase in Q2 will affect $60 million or about 80% of these headwinds.

I will now turn the call over to Andrew.

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

Thanks, Pierre. Let me start this morning with a few specific income statement items. Foreign exchange had a negative impact on revenue of approximately 6% in the first quarter, offsetting this for strong volume growth of 9% and price increases of 5%. For the full year, we continue to expect foreign exchange to be an approximately 3% headwind to revenue. Interest expense was $1 million higher for the quarter and implied by our prior full year guidance with higher commercial paper balances through the quarter due to the timing of share repurchases.

Interest expense for the full year is now expected to be in the range of $137 million to $143 million, reflecting primarily changes in the mix of foreign versus domestic borrowings as compared to our initial outlook for 2019. The higher levels of foreign borrowing will allow us to more cost effectively manage currency risks in certain countries, in particular, Argentina. Adjusted effective tax rate for the quarter was 15%, in line with the midpoint of our guidance range. We are maintaining our full year tax rate guidance of 14% to 16%.

Moving onto the balance sheet and cash flow. Gross debt as of March 31 was $3.1 billion, up roughly $450 million from the end of 2018, reflecting the expected seasonal build in working capital and our decision to continue regularly purchasing FMC stock across the year rather than waiting for the more cash generative quarters later in the year. Gross debt to trailing 12-month EBITDA at quarter end was just below 2.8x.

This is above our targeted leverage of 2.5x, again due to the seasonality of our cash flow and the timing of share repurchases, but we expect to rapidly return to leverage levels below 2.5x in the second half of the year. Turning to Slide 10. Adjusted cash from operations was negative in the first quarter as expected, reflecting a more normal seasonal build of working capital. Cash from operations was also substantially below the prior year period, although this comparison is misleading due to several nonrecurring impacts that benefited working capital in the prior year period including a step down in pass-through balances in Brazil, which reduced cash used for receivables, lower cash used for inventory given inventory levels in the acquired business at the time of acquisition and a significant increase in accounts payables associated with the ramp up of the acquired business post acquisition.

Excluding these onetime items in the prior year period, the impact of working capital on cash from operations was generally consistent with the prior year and our expectations. Capital investment and spending on legacy and transformation efforts in the quarter were at a pace consistent with our full year guidance for those uses of cash. As expected, free cash flow was negative for the quarter and well below the prior year period due to the fact as I just mentioned impacting cash from operations as well as 2 additional positive impacts to legacy and transformation spending in the prior year period.

First, the prior year period results include proceeds from a required antitrust divestiture; and second, the prior year period results reflect certain transaction true-up payments received following the closing of the acquisition of the deposits. FMC continues to expect to generate adjusted cash from operations of $750 million to $850 million in 2019. With capital spending anticipated to be in the range of $140 million to $160 million for 2019 as well as legacy and transformation spending in the range of $200 million to $250 million, we expect to generate free cash flow before financing of $375 million to $475 million for the full year.

We've repurchased 1.88 million FMC shares year-to-date at an average price of $79.70 for a total of approximately $150 million including $100 million of repurchases made early in the first quarter as discussed on our last call along with $50 million of repurchases thus far in the second quarter. It is our intent to remain a regular purchaser of FMC shares throughout the year, purchasing a total of up to $500 million of FMC shares in 2019 inclusive of the $150 million already completed as of today.

In summary, 2019 looks to be another year of exceptional financial performance for FMC. With increasing cash generation and improved cash conversion, 6% top line growth despite FX headwinds and tepid market growth, 8% EBITDA growth despite significant cost increases and FX impacts, 9% EPS growth with potential further upside from additional share repurchases and return on invested capital in the mid-teens percent.

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

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Thank you, Andrew. Following a very strong 2018, FMC delivered exceptional performance in Q1, and we expect this to continue for the foreseeable future. The growth rate and EBITDA margins are at the very top of the industry and sustainable. Additionally, we have a clear path to expand EBITDA margin another 200 to 300 basis points with improving mix from new product introduction, existing TSAs and finishing the implementation of our new SAP system. Starting with our Q2 earnings call, we will provide an annual update on R&D pipeline, which includes 6 synthetic molecules in the development phase, 15 synthetic molecules in the discovery phase and 6 biological phase. We plan to do this every year on the Q2 call.

I will now turn the call back to the operator for questions. Thank you for your attention.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from the line of Chris Parkinson from Credit Suisse. Please go ahead.

Chris Parkinson -- Credit Suisse -- Analyst

Thank you. You did touch on this, but there has been a lot of noise on active ingredient procurement in China over the past 2 years. And as you accurately flagged the recent accident that is driving the flare up again, can you just give us your perspectives on how FMC can overall insulate itself from these pressures? And also offer some color on kind of where we were on this team a few years ago? Where we are now? And then how you see this developing for the future for FMC as well as the industry as a whole?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Thank you, Chris. Yes, it's a very valid point and the situation in China is certainly impacting many of the ag companies. Let me talk specifically about FMC. I think 2018 was a difficult year, you remember with what happened in China, and I must say that our manufacturing and supply chain organization used 2018 not only to resolve the 2018 problems but to diversify further our source of intermediates and AIs for the future. I have to say that following 2018, we've developed a very broad network with multiple sources for critical intermediates for for active ingredients.

And we've done that in different ways. So I would say what we are doing today beyond 2018, beyond 2019, is focusing on the high-priority product intermediates or AIs, and we are already implementing solutions outside of China. And how do we do that? For example, right now, working on developing capacity in our European plants, mostly in Denmark, to produce some of these products. We are also contracting with some of our key partners in China to produce outside of China for -- especially in Europe. We're looking also to the outsourcing from Europe, from India through partners for our own plant.

So we are diversifying our network. It's moving fast. But, of course, it will still be for the next few years a strong need for China to operate. For 2019, we believe today that we can face the situation of the shutdown assuming it's reopening within the time frame we are expecting, which is in a very conservative forecast. There is a cost to it because we have to implement last-minute solutions, and we have factored that $30 million cost in EBITDA forecast for the year, but we do believe right now we are pretty secure from a supply standpoint to our customers as long as things do not get worse. So 2 pro actions. One was making sure we could act in a way which give us what we need for 2019, but we've used this 2018 situation and 2019 to broaden our supply of intermediates and AIs, using Europe, using India to produce outside of China.

Chris Parkinson -- Credit Suisse -- Analyst

Great. And just a quick follow-up. You previously laid out some framework to improve cash flow conversion at your Analyst Day. I fully understand it's a little bit early, but can you just update us on your progression as well as your conviction to hit these targets? Just anything to help us conceptualize the opportunity here will be greatly appreciated. And that's -- may be just a quick point on updates on uses of cash.

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

Sure. Chris, this is Andrew. Thanks for the question. I think certainly where we stand today, we continue to believe it's a strong trajectory for improving cash generation and cash conversion from FMC. The biggest driver in the step-up over the next 2 years will be moving past the spending for -- on legacy and transformation, particularly the transformation efforts, finishing the DuPont integration, the implementation of our SAP S/4HANA system and the related spending. And as you can see in our slide today, that spending is about $200 million, $250 million this year.

Of that, a certain portion, less than half of that, 1/3 to half of that will continue as sort of ongoing legacy spend. That's one of the biggest step changes we'll see in '20 versus '19 in cash conversion combined with the ongoing growth of the top line. We're expecting still very substantial 7% to 9% EBITDA growth over the -- in the mid-term horizon and that will flow through cash flow pretty directly, with a small headwind from working capital growth 20% to 30% of incremental sales. So we can very easily see a path from guidance this year would have free cash flow before financing at about 55-ish percent of net income.

Very easily in -- within the next 2 to 3 years, I would expect that number to be in the upper 70s, if not the 80s percent as we move past this big lump of transformation expense. So that's the story on cash generation and conversion. From a cash deployment perspective, I think we continue to be committed to fully funding the organic growth of the company. We're guiding spending between $140 million and $160 million on capital expense this year, notably, not particularly heavy load.

In aggregate, that's about 3.5% of our sales and then with the other funds that are not committed to organic growth, pretty sizable amount, we are strongly committed to continuing to return those to shareholders through dividend, which we made a significant raise last year and through share repurchases, which as you see we made pretty steady progress and chipping away this year with $150 million done so far.

Chris Parkinson -- Credit Suisse -- Analyst

Thank you.

Operator

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

Mark Connelly -- Stephens -- Analyst

Thank you. So Two things. Investors seem to be particularly concerned about the potential for the molecules you picked up from DuPont. So can you give us a sense of how that group performed in the quarter and whether your expectations have changed any? You mentioned diamide, specifically in Asia and EMEA. Can you tell us whether the growth that we're seeing in those sales is coming primarily from your FMC customers or is it coming from your continued growth that was already in place before you bought the assets?

Mark A. Douglas -- President and Chief Operating Officer

Yes, Mark, to your first question in terms of growth of the acquired assets. In the first quarter, those growth rates were in the mid-teens for the acquired assets. Pretty broad-based as we said in the press release and in the slides that you see. It's very difficult to actually parcel out exactly where that growth is coming from in terms of the synergy growth. What we are seeing is market expansions. So from a geographic standpoint, we highlighted Southwestern Europe, which is very good area for us.

That is coming from distribution where we've expanded our distribution networks over the last 18 months. Places like China where again, we're gaining traction with major distributors and retailers. Latin America on some of the crops we mentioned, such as cotton. So it's very broad based. I don't think our expectations have changed at all in terms of growth rates for these products. We were surprised last year at the amount of traction we got, and obviously, we've continued that in Q1. We expect that to continue for certainly the next few years.

Mark Connelly -- Stephens -- Analyst

Super. And just a question on late planting. Clearly, you haven't been hurt by it. But do you approach the selling season any differently when planting is delayed? I mean obviously aside from the potential for acreage shifts, do you anticipate any different -- significant differences in application that would affect the way you're rolling product into the market?

Mark A. Douglas -- President and Chief Operating Officer

Not really, Mark. I think from our perspective, when things do get delayed, you better have product in the right place in the distribution channel because when the planting does start, I think everybody knows, it goes 24/7 and demand is very high. So for us, it's very much a case of from a logistics and supply chain perspective, working with our distribution partners and retail partners to make sure we've got the right products in the right place. Obviously, we talked about the pre-emergent side of our business. Uptake has been very strong, and I would say uptake has been very strong in the high end of our preemergent. So products like Authority Supreme, which are extremely high performance. We've seen good demand there getting ready for the market when it eventually gets here.

Mark Connelly -- Stephens -- Analyst

Super. Thank you very much.

Operator

Your next question comes from the line of Don Carson from Susquehanna. Please go ahead.

Don Carson -- Susquehanna -- Analyst

Yes. Just wanted to follow-up on the U.S. season, the preemergent. So is the product actually going out to the grower? And are the pounds in the ground being applied? Or is there a risk here that we could see a build up in channel inventories of your preemergent products?

Mark A. Douglas -- President and Chief Operating Officer

No, Don, I think the preemergent now is -- some of it is going on the ground. The market is delayed, so some of it's waiting in distribution channel. That's normal. Obviously, the timing of application will be critical. We're getting into the period now where growth will come. We're very confident in terms of how much we expect from our preemergent businesses year. And certainly, we have the right products in the right places today.

Don Carson -- Susquehanna -- Analyst

And a follow-up on Latin America. You had very strong 40% organic growth, but obviously this is your lightest quarter of the year. How should we think about sustainable organic growth as the year progresses and for the year as a whole?

Mark A. Douglas -- President and Chief Operating Officer

Yes. We've talked about a market in Latin America that is obviously going to grow in that mid- to high single digits. I think Brazil will be at the top end of that range. Q1, although a light quarter, we had very good performance on the cotton throughout across the portfolio. Insecticides were strong, obviously increased acreage. All the trade issues that are working their way through today. Obviously, Brazil is a major exporter of soy. We continue to expect soy acreage to increase in Brazil. And with that, we should expect to enjoy increased sales as well.

Don Carson -- Susquehanna -- Analyst

Thank you.

Operator

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

Steve Byrne -- Bank of America -- Analyst

Yes, thank you. Just continuing that discussion about Brazil. You had very strong insecticide demand in Brazilian soybeans. Would you say that, that is driven by the economic benefits that those growers are having, given the trade disputes or is this a reflection of just insect populations that are effectively not controlled by INTACTA or maybe INTACTA had some waning efficacy issues?

Mark A. Douglas -- President and Chief Operating Officer

Yes, Steve. I think it's a combination of the two. I mean, obviously, the Brazilian growers are looking to get the maximum yields they can given the high demand they see from the export markets, especially to China. So that's one factor that, I think, the whole industry is seeing. I think second for us is the growth in our insecticides in the quarter were really focused on the pest spectrum that is more related to a lot of the legacy FMC products, not necessarily the diamide products here, although we are seeing slight leakage on leps which is very strong for the Rynaxypyr portfolio. So it's a bit of both. Actually, it's a bit of the market growth, but then it's pests that are particularly adept to what we have in our portfolio and that's mainly the legacy side of FMC business.

Steve Byrne -- Bank of America -- Analyst

And just also wanted to ask you a little bit about the diamides, particularly your efforts to create some new formulation that contain multiple modes of action, potentially giving a little longer patent estate there. Can you give us an update on those efforts?

Mark A. Douglas -- President and Chief Operating Officer

Yes, sure. Maybe I can take the opportunity to talk about that patent estate and how we see the world. We talked about that at the Investor Day. I think people have to be aware that we have a patent estate that is very deep and very broad and also covers multi-years. For instance, we talked about Rynaxypyr and some of the main patents coming off in 2022. Well, the reality is they don't come off until 2023 in Brazil and in the European Union until 2024.

So you can see there is a longer period of time. We have a number of activities under way within the portfolio. Some of it relates to formulations. Those activities are in high gear. We are applying for registration today as we speak in many countries across the world. So from a formulation capability standpoint, it's for us steady as she goes. We are looking at other activities as well to defend these high-value franchise that we have. I'm not going to talk too much detail about what they are, but it is very broad. So we're expecting that post patent, you will see continued growth in the FMC portfolio from the diamide's perspective.

Pierre R. Brondeau -- Chairman and Chief Executive Officer

I think in India, something -- I think contrary to what has been written in some reports, where dates of patent expiration were actually wrong. There is the composition patents, which are protecting a product, but everybody does that in that field. You do have an estate of patents, which are protecting the manufacturing as well as the composition and the performance. All of that make it very difficult for people to come and produce the product on the day there is somewhere in this world an expiration.

So we have the composition, which protect the product. Then we have all the manufacturing patents, which make it difficult for people to manufacture even when we get to a place where they can from a patent standpoint manufacturer. They need to get the registration and they need to do the capital investment for the manufacturing, which I can tell you, in some cases, is quite high. So you can see today even on some products, take an example, so essentials which is, by the way, a very large molecule that has a market in the world of $600 million, $700 million?

Mark A. Douglas -- President and Chief Operating Officer

Yes. It's probably more in the $350 million to $400 million.

Pierre R. Brondeau -- Chairman and Chief Executive Officer

$400 million. It's a molecule where we end up supplying a lot. The people who are selling that molecule because you need to have the capacity and the technology to do it. So it is not something where sales disappear on the day of the expiration of the composition patent, which for us go to 2022, '23 and '24.

Steve Byrne -- Bank of America -- Analyst

Thank you.

Operator

Your next question comes from the line of Joel Jackson from BMO Capital Markets. Please go ahead.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi, good morning. You gave some good commentary, you expect the crop protection market globally to grow I think flat to up low single digit. Obviously, your guidance, mid- to high single digits FX here. Can you walk through exactly why you're outperforming the market? Is it all just the diamides? Maybe break down a bit through the highest buckets here between the diamides and legacy products, what's really letting your outperformance?

Mark A. Douglas -- President and Chief Operating Officer

So, yes, I mean, Joe, the diamides are growing obviously. We believe we're taking share in certain markets, and we're also expanding in terms of crops and geographies. I would say on the other side of the curve, our herbicide portfolio continues to grow. We see that growing in Latin America. We see it growing in the U.S. and Canada. We also see growth in India on new applications, such as sugarcane. We also -- another area that we don't talk a lot about though is the herbicide portfolio that we acquired.

We're seeing good growth there in Europe on cereals and also new formulations being introduced into Europe. So that's another area of growth. And then, lastly, there's 2 other areas, the fungicides, which will continue to expand with new formulations both in the U.S. and in Europe. And then we also have our plant health business that Pierre highlighted in his script, where we see growth in biologicals and micronutrients. So if you think of the buckets of activity, that's how I would describe it.

Joel Jackson -- BMO Capital Markets -- Analyst

I want to follow-up on one of the topics, your biologicals. So -- and I have is wrong, but at your Investor Day in early December, my memory was that biologicals are tough to develop efficacy, tough to reproduce and maybe this wasn't to be something that FMC was going to throw a lot of money in on the R&D side. Maybe talk about -- you can give an R&D pipeline update in a few months and talk about some of the things in the pipeline for biologicals. Is there been a shift at FMC in the last 5, 6 months about what you may be able to do down the road biologicals?

Mark A. Douglas -- President and Chief Operating Officer

No, actually, Joe. May be we didn't communicate in the right way because we've been invested heavily in biologicals since around 2013. We have very much the belief that biologicals are going to play an important part in the crop protection industry either as stand-alone products or equally as important with formulations with synthetic chemistry. We have 6 strains in our pipeline, both fungicides, biostimulants. I can tell you now that the money we're putting into this has increased every year since 2013.

So for us, we see this is an important growth area. And as we said, the plant health business is growing at greater than 20% and is getting close to $200 million. So it's becoming a meaningful part of the portfolio. We do a lot of educating not only internally on biologicals but with our retailers, distribution and growing network. Selling biologicals is different. They behave differently, they have different modes of action. So all that has to be built up over time, but I can tell you now we're very committed to biologicals.

Pierre R. Brondeau -- Chairman and Chief Executive Officer

It's going to be miscommunicating because since 2013, we've made acquisitions of research laboratory. We have been investing in R&D. We have actually built an R&D center in Denmark, which is solely focused on biologicals including fermentation capability. So it's one of the priorities we have for the company. And the spending has been growing year-after-year since 2013.

Joel Jackson -- BMO Capital Markets -- Analyst

Thank you.

Operator

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

Daniel Jester -- Citi -- Analyst

Yeah. Hi, good morning everyone. I just wanted to go to your 2019 EBITDA bridge. It looks like you have price and mix being $145 million benefit, but that's fully offset by cost. So I know it's a little bit early, but conceptually does that mean that you're going to continue to push price later this year and into 2020 to make up for some of these logistic challenges that you talked about? And you've been raising price for a while now, but farmer economics are still maybe uneven globally. So how confident are you that these price initiatives are going to be both to come to fruition?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

I think pricing situation continues to be sell-through. We are definitely not increasing systematically across the board. We do it where the molecule can afford an increase in pricing. We are very thorough around it and very systematic. We also use the seasons, for example, you increase price in Latin America in the third and fourth quarter of the year, well, you will do that at different timing in North America.

So it's over a long period of time, but it's not constant across the year for every region. So we do believe that the pricing increase we do have for the full year right now. We have quite a high level of confidence that it's sustainable and manageable. And like anything, price increase has to be a -- our customers are smart and they understand what they are buying and what they are paying for. So it's going to be very well thought through and done where you believe you can do it.

And that's what we've been doing. So I think we have a situation, which is right now quite stable, and we have a good way forward in 2019. The critical question which should be asked because we don't have an answer is how sticky those pricing are when the headwinds are disappearing. So that is a 2020 situation. And we don't have an answer. As you can guess, we're going to try to hold onto those prices even in the face of less headwind as long as possible.

Daniel Jester -- Citi -- Analyst

That was very helpful. And then on the inventory situation, really appreciated the additional color you talked about in Brazil about how you're doing checks throughout the channel. Do you do similar exercise in some of your other regions? And what is that telling you about the channel inventories of FMC products?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Yes, we -- not to the same extent. For example, in North America, we do not have to do it as much because there is data, which are generated by the industry, especially around what we call EDI, which are product on the ground. So when you have regular data coming at you from all of the suppliers of what goes into the market versus what goes underground, you are usually able to have a pretty good view of the inventory situation North America.

And I'd say, Mark may be you want to add to this. But I think North America is one of the places where we are concerned, not concerned, may be too strong of a word, but we are watching the situation around inventory level where we have much more visibility today or less concern in Latin America. But on a regular basis, yes, it is a process, different methodologies we're using, but we are very highly focused on inventory of products into the channel. Brazil and Latin America being a place where we have developed our own system because that's the place where things could get out of control faster.

Operator

(Operator Instructions) Next we'll go to the line of Kevin McCarthy from Vertical Research. Please go ahead.

Kevin McCarthy -- Vertical Research -- Analyst

Good morning. I Appreciate the detail that you've provided on geographic trends on Slide 4. I was wondering if you kind of disaggregated the sales in a different way by product category, insecticides, herbicides, fungicides. Where would have seen the fastest growth globally and which category would have been the slowest?

Mark A. Douglas -- President and Chief Operating Officer

Yes, let me think -- let me quickly think about that through. So insecticides are the fastest-growing segment, broad-based, not any one particular product. I would say pockets in Asia, China, India are fast-growing. Brazil, depending on the crop. Obviously, we mentioned soy and cotton as 2. Sugarcane is more balanced. And then, I would say in the U.S. as well on the niche crops, tree nuts, fruits that would be a good market for us. And then, in Europe on pretty much all the niche crops down the South of Europe. Next would be herbicides for us, growing the next strongest and then followed by fungicides.

Operator

Your next question comes from the line of Mike Harrison from Seaport Global Securities. Please go ahead.

Mike Harrison -- Seaport Global Securities -- Analyst

Hi, good morning.

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Good morning, Mike.

Mike Harrison -- Seaport Global Securities -- Analyst

The $30 million in higher raw material costs that are baked into your guidance, is that exclusively related to the plant explosion that you referenced or are there other factors that are worsening in China? And also just wondering the timing of that $30 million impact? Is that going to be more of a Q3 or Q4 phenomenon? Or is it something you're seeing right now?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

So first, yes, the $30 million is exclusively due to the plant explosion and where we had to procure some of the products with different type of contracts. So answer to your first part of the question, yes. In terms of impact, highest impact of the $30 million will be in Q3 and then about even between Q2 and Q4.

Operator

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

Mike Sison -- KeyBanc -- Analyst

Hey, guys. Nice start to the year. When I take a look at your 2019 outlook, volume growth of 6%, levering to 15%, EBITDA growth pretty impressive given how high your margins are. Is that kind of the right operating leverage to think about the business going forward? And is there any major changes between the regions in terms of volume growth to EBITDA growth?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

I think the numbers -- you're talking about our numbers, which not the kind of leverage we were expecting. Of course, you could have have worse or better leverage depending upon the traditional exit. Remember that we are facing very significant adverse costs this year, which are going against us, and we are mitigating that with price increase, but that's a kind of leverage we could expect globally.

Looking forward, especially with a -- to an eye on 2021, we hope to be able to leverage our systems plus exit of TSAs where you could have even higher translation of sales growth into higher EBITDA growth and margin. So all in all, we don't believe there is nothing out of the ordinary in the numbers we are producing today in, take into account the adverse conditions. From a profitability standpoint per region, Mark, you want say a couple of words?

Mark A. Douglas -- President and Chief Operating Officer

Yes, Mike, if you think back 5, 7 years ago, we used to talk about the disparity of our profitability across the regions. I can tell you today that with the portfolio we have and the way it's balanced around the world, profitability for FMC across the regions is pretty balanced. So that growth rate around the world as we see it, it really flows through to the bottom line. So don't think of any one region of having a very high margin or comparatively lower margin. They're pretty much balanced around the world.

Operator

Your next question comes from the line of Chris Kapsch from Loop Capital Markets. Please go ahead.

Chris Kapsch -- Loop Capital Markets -- Analyst

Good morning. I had a follow-up on the pricing discussion. I'm just wondering if the strong pricing and pricing outlook, is there any way you could parse it out by how much of that is just sort of related to the FX paradigm as opposed to the cost issues that you and the industry is incurring? And then, also is there any instances where your procurement, flexibility and agility has translated into some share gains for particular product lines whereas maybe your competitors might have been seeing a little bit more dislocation in terms of their sourcing active ingredients or intermediates?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Yes. Let me -- the first question was?

Mark A. Douglas -- President and Chief Operating Officer

Pricing. FX versus raw materials.

Pierre R. Brondeau -- Chairman and Chief Executive Officer

Yes. So FX versus raw materials, there is only one place in the world where the selling methodologies is accepted from the supply side and the customer side where there is a link of FX to pricing, that's Brazil. Brazil is a place for -- as far as we can remember, there was almost indexation of pricing to currency. Everywhere else in the world, it is a negotiation. So the way we look at it from a commercial standpoint, we just consider, and we're outside of Brazil cost and when there is cost, we are facing whether it's a raw material or an FX cost.

We do what we can in the places where we can afford to do it, increase price to decrease our headwind in terms of cost, not differentiating FX from raw material or other costs. From a procurement standpoint and then the second part of your question, I think what we're doing and I'm not trying to compare ourselves to what our competitors are doing because internally they don't exactly know what they do, but still we have uncovered in 2018 that supply disruption in China or issues are not things which cannot be dealt with.

There is multiple sources of products in this world, which are available if you do have a very active supply chain organization and procurement organization. And yes, we've been very, very highly focused, not only at fixing long-term problem by diversifying away from China supply but also by creating throughout procurement organization and supply chain. The number of partnership, which are almost standby partnership, ready to jump in as soon as we have issues.

Operator

And your final question today comes from the line of Aleksey Yefremov from Nomura. Please go ahead.

Aleksey Yefremov -- Nomura -- Analyst

Thank you. Good morning. In the case you're tolling partners plant in China doesn't restart in the timing you expect, what are the consequences? How can you describe the ongoing LOE to costs? And also could you potentially be limited on availability of active ingredients?

Pierre R. Brondeau -- Chairman and Chief Executive Officer

So I want to be very careful on what I say because in no case, should we substitute our sales to the Chinese authorities. But we have no reason to believe today that the plant will not restart. It is a question of when. Every signal we have is that the plant will restart. And when we do a forecast with a $30 million headwind cost, it is a very conservative forecast. Indication we have is that right now it is the worst case scenario. But once again, I want to be careful. We believe the plan we have outlined for you guys from a financial standpoint is very achievable, and we have no reason to believe it will not restart. We have a lot of indication, but that's about as far as I can go.

Michael J. Wherley -- Director of Investor Relations

That's all the time that 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

Ladies and gentlemen, that does conclude the FMC Corporation Conference Call. Thank you for your participation. You may now disconnect.

Duration: 61 minutes

Call participants:

Michael J. 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

Chris Parkinson -- Credit Suisse -- Analyst

Mark Connelly -- Stephens -- Analyst

Don Carson -- Susquehanna -- Analyst

Steve Byrne -- Bank of America -- Analyst

Joel Jackson -- BMO Capital Markets -- Analyst

Daniel Jester -- Citi -- Analyst

Kevin McCarthy -- Vertical Research -- Analyst

Mike Harrison -- Seaport Global Securities -- Analyst

Mike Sison -- KeyBanc -- Analyst

Chris Kapsch -- Loop Capital Markets -- Analyst

Aleksey Yefremov -- Nomura -- Analyst

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