Good morning, and welcome to the Q2 2018 Earnings Release Conference Call for FMC Corporation. Phone lines will be placed on listen only mode throughout the conference. After the speakers' presentation, there will be a question and answer period. And now, the conference over to our host, Mr. Michael Worley, Director of Relations for FMC Corporation.
Mr. Worley, you may begin.
Thank you, and good morning, everyone. Welcome to FMC Corporation's 2nd quarter earnings call. Joining me today are Pierre Brondeau, Chief Executive Officer and Chairman and Andrew Sandifer, Executive Vice President, Chief Financial Officer and Treasurer. Pierre will review FMC's 2nd quarter performance provide the outlook for 2018 and the Q3. Andrew will provide an overview of select financial results.
The slide presentation that accompanies our results, along with our earnings release and the 2018 outlook statement, are available on our website, and the prepared remarks from today's discussion will be made available after the call. Mark Douglas, President and Chief Operating Officer and Paul Graves, CEO, FMC Lithium, will then join to address questions. Before we begin, let me remind you that today's discussion will include forward looking statements that are subject to various risks and uncertainties concerning specific factors, including but not limited to those factors identified in our release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's information. Actual results may vary based upon these risks and uncertainties.
Today's discussion will focus on adjusted earnings for all income statement and EPS references. A reconciliation and definition of these terms as well as any 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.
Thank you, Michael, and good morning, everyone. Q2 was another strong quarter for both businesses at the revenue and earnings level. For Ag Solutions, the demand for our products, revenue synergies and costs were very much in line with expectation we laid out a quarter ago. The business integration is on schedule and the commercial teams continue to perform very well. The strong global performance through the first half of twenty eighteen combined with a high percentage of orders in hand for the rest of the year in Latin America gives us great confidence for a second half.
Beyond the immediate future, we continue to see very strong growth potential for our acquired portfolio, especially rynaxypyr and cazypyr insect control. On the technology front, the integration of our R and D organizations is progressing very well and is confirming the strength of our expanded pipeline. We remain on track to launch our 1st new active ingredient from the legacy FMC R and D pipeline, the fungicide, Big Safran, in North America later this year. The lithium business, which we recently announced will be named Livent Corporation, continues to perform strongly with demand for a differentiated performance products continuing to grow. Realized prices and delivered volume are in line with our previous expectations.
We remain on track to lease Livent in an October 2018 IPO, which will be followed by a direct spin to FMC shareholders within 6 months. Turning to Slide 3. FMC reported 2nd quarter revenue of just over $1,250,000,000 which was nearly double the revenue from Q2 20 17. Adjusted EPS was $1.78 in the quarter, which was $0.08 above the midpoint of our guidance and up 2 70% versus the same period a year ago. The guidance beat was mainly due to a stronger operational performance driven by revenue growth in Ag Solutions and the combination of higher pricing and favorable customer mix in Methion.
Moving to Slide 4 in Ag Solutions. Revenue of about 1 point $15,000,000,000 in the quarter nearly doubled year over year on a reported basis and increased 8% on a pro form a basis with 0 net impact from foreign currencies. We continue to capitalize on cross selling opportunities and our global sales force delivered another impressive performance in its 2nd full quarter with a combined portfolio. You can see in the bridge on the right side of this page that we saw top line growth on a pro form a basis in every region for the 2nd consecutive quarter. Stepping back and taking a look at the first half revenue, we delivered a very strong performance with 11% pro form a growth.
This was led by the acquired insecticides ronaxypyr and cyazypyr insect control, which grew 24% and continued to gain market share on demand across every region. 2nd quarter segment EBITDA of $344,000,000 was triple the earnings from the year ago quarter and was $14,000,000 above the midpoint of our guidance. Segment EBITDA margin was 30% on strong mix and our continued focus on cost control. This performance was achieved despite the broader challenges faced by the chemical industry. The Chinese government has been shutting down facilities and industrial parts as part of their environmental strategy.
These shutdowns have limited the supply of certain active ingredients and intermediates, causing shortages of material and in certain cases, raising raw material costs. FMC has been able to mitigate and manage the impact on our ability to supply our customers, thanks to a global diversified supply network. We are very pleased with the margin performance in today's environment and believe this will grow in future years as the portfolio continues to shift to higher margin product. Turning now to Slide 5. Q2 revenue growth was strong on a pro form a basis in every region.
North America revenue increased 8%, Europe revenue grew 3%, Latin America revenue grew 21%, and Asia revenue increased 6%. In North America, we performed well compared to the broader crop protection market, which we estimate was down low to mid single digit. We saw very strong volume growth for insecticide, mostly driven by ronaxypyr and cyazypyr insect control. We are also seeing strong demand for our latest Authority branded herbicide, Authority Supreme, as the market for pre emergent herbicides continues to grow due to increasing weed resistance. In Europe, despite difficult growing condition, our business grew 3%, which was ahead of the crop protection market that we believe was down low single digit on a U.
S. Dollar basis. The market conditions were aligned with the strength of our portfolio. The insecticide and herbicides market performed better than the fungicide market, which was weak. Consequently, we have seen strong growth over enaxypyr and cyazypyr insect control.
In Latin America, our business grew 21% on a pro form a basis, which is a very positive indicator of underlying demand for our product even in a seasonally lighter quarter. This strong performance is primarily due to a low channel inventories in Brazil and a crop exposure across the region. The Brazilian crop protection market is healthy. FMC sales in Brazil grew an impressive 35% in Q2, driven by strong demand for our legacy FMC herbicides and insecticides. Mexico also delivered a strong performance, driven by expansion of niche crop applications.
In Asia, we saw strong pro form a growth in nearly all countries. In India, we have made significant change in our market access model as we highlighted on the last call. This change to the super distributor model is going extremely well and delivered mid teens revenue growth on a pro form a basis, led by strong demand for Onaxapyr and selazapyr insect control. In China, our legacy rice herbicides drove a double digit sales increase. On a pro form a basis, as we continue to gain traction in a market that is trending toward higher value crop protection product.
Growth in these 2 major markets, along with a host of smaller ones in the region, was more than enough to offset the impact we felt from significantly weaker demand in Australia due to the severe drought. Moving now to lithium on Slide 6. Lithium delivered another strong quarter with revenue up 46% compared to Q2 last year and segment EBITDA of $51,000,000 85 percent higher than a year ago. We continue to see very strong customer demand for FMC's performance product. Higher realized prices remain the primary driver on a year over year growth with hydroxide, carbonate and lithium metal pressures, each up at least 20%.
Volumes were also higher in all major products as increased production in Argentina, increased hydroxide production and higher demand in Burey all contributed to the year over year growth. Our Q2 EBITDA margin of 48% was higher than our full year margin forecast of 45% at the midpoint due mainly to favorable customer mix in the first half of the year. Turning to Slide 7, which summarizes our outlook for the full year and for the 3rd and 4th quarters. We still expect adjusted earnings per share for full year 2018 to be between $5.90 $6.20 per share. At the midpoint of the range, this represents an increase of 123% versus 2017 EPS.
3rd quarter 2018 adjusted EPS is expected to be between $0.87 $0.97 and Q4 2018 adjusted EPS is expected to be between $1.41 and $1.61 We expect 2018 Ag Solutions revenue will be in the range of $4,100,000,000 to $4,300,000,000 On a pro form a basis, this equates to a 9% year over year increase at the midpoint. We also expect Ag Solutions EBITDA will be in the range of $1,017,000,000 Our expectations for the overall crop protection market remain unchanged from what we said in May. We continue to expect the global crop protection chemical market on a U. S. Data basis to be flat to up low single digit in 2018.
We expect North America to be down mid single digits Europe to be up low to mid single digit Latin America to be up mid to high single digit and Asia to be flat to up low single digits. For FMC, 3rd quarter Ag Solutions revenue is expected to be in the range of $870,000,000 to $930,000,000 and 4th quarter segment revenue is expected to be in the range of $980,000,000 to $1,100,000,000 These revenue forecasts represent pro form a growth rate of low single digit in Q3 and low double digit in Q4. The Q3 is a low season for the majority of the market, and it will be the lowest sales quarter for FMC from now on. In 2018, this is magnified by internal events, which are moving sales into Q4. In any major integration process, there often are delayed closings of countries and sites due to legal entity registration and permit transfers under local laws.
Since the close of a transaction with DuPont, we have known and planned for delayed closings. DuPont is operating certain countries and sites on our behalf under a direction, and we are receiving the economic benefit. The majority of these delayed countries and sites, along with the related permits, licenses and registration, are being transferred to FMC in Q3, thus creating a temporary sales blackout period in Q3. These sales will occur in Q4. FMC's outperformance versus the crop protection market in the first half of twenty eighteen will continue as we expect 2nd half Ag Solution revenues to grow 7% on a pro form a basis.
We have very high confidence in our forecast as our visibility into Latin America, which represents roughly 40% of expected revenue for the period, has increased versus previous seasons. In particular, in Brazil, we have over 70% of our orders in hand to reach a full year target, which is meaningfully above what we have seen in past years. Segment EBITDA is forecasted to be in the range of 195 $1,000,000 to $215,000,000 in Q3 and in the range of $275,000,000 $315,000,000 in Q4. Our guidance implies nearly 60% of 2018 Ag Solutions EBITDA occurred in the first half of the year. This is a reversal of the ratio in previous years when 40% of segment earnings were generated in the first half.
The shift is driven by the acquired business, which is much more heavily weighted on the first half. Moving over to lithium. We expect full year segment revenue to be in a range of $430,000,000 to 460,000,000 dollars a year over year increase of 28% at the midpoint. We are increasing our full year EBITDA forecast by $2,000,000 to a range of 195 dollars to $205,000,000 which represents a year over year increase of 41% at the midpoint. Our Q3 guidance for the segment is for revenue to be in the range of 105 to $115,000,000 and EBITDA to be between $45,000,000 $49,000,000 each representing a year over year increase of 17% at the midpoint.
I will now turn the call over to Andrew.
Thanks, Pierre. Let me start this morning with the income statement, specifically taxes and the impacts of foreign exchange. We've lowered our guidance for adjusted effective tax rate for the full year to a range of 16% to 18%, a reduction of 50 basis points at the midpoint of the range, driven by our updated forecast of the mix of earnings across various jurisdictions. The 16.5% adjusted effective tax rate for the 2nd quarter brings our year to date provision for taxes in line with this updated guidance. Foreign exchange impacts on revenue were a net 0 in the second quarter for our Ag Solutions segment, with euro strength offsetting weakness in key Latin American currencies, aided by ongoing price increases.
For the lithium business, FX was a modest tailwind in the quarter. Looking to the remainder of the year, we will as always be watching the Brazil real closely. We manage our currency exposures throughout the year and this year is no different. With the combination of price increases and our hedging activities, we expect to completely offset any FX headwinds in the Ag Solutions business in the second half and the full year. Moving on to the balance sheet and cash flow.
Net debt at June 30 was $2,750,000,000 down more than $150,000,000 from the beginning of this year, reflecting solid cash generation and the pay down of $100,000,000 of outstanding term loan debt in the quarter. Turning to Slide 8, FMC generated adjusted cash from operations of $287,000,000 in the first half of twenty eighteen, up 34% compared to the prior year period, driven by higher EBITDA. We also benefited from lower working capital build for the DuPont acquisition than was previously expected. Looking to the full year, we are increasing our guidance for adjusted cash from operations by $100,000,000 to a range of $650,000,000 to $750,000,000 This increase is driven by our updated forecast for the working capital build for the acquired DuPont business, supported by our continued expectation for strong EBITDA. With that, I'll turn the call back to Pierre.
Thank you, Andrew. First, a comment on the lithium separation. We remain on track to IPO live in this October. We made a confidential filing with the SEC in June and we will file a public version of the S-one in late August. Securities laws require us to reduce the commentary we provide on the lithium business now that we are within 30 days of its public filing.
Therefore, we will not be able to undertake substantial Q and A on the lithium business today. We feel very good about the direction FMC is headed as we move to becoming a standalone agricultural sciences company. The business delivered another strong quarter, and we have high confidence on our second half estimate. Our full year pro form a revenue growth will be significantly above the market growth rate in 2018, and our disciplined approach to cost will help drive an EBITDA margin approaching 30% for the full year. The integration of the acquired business is progressing very well and is on track for the end of 2019, which will drive significant margin improvement from 2020 beyond.
Growth synergies are being realized faster than we would have expected 9 months ago as our new portfolio is gaining wider adoption with the strategic customers. We expect to outperform the crop production market for the foreseeable future. Before moving to Q and A, I would like to remind you we are hosting an Investor Day in New York on December 3, and we hope to see many of you there. I will now turn the call back to Michael Rolish.
Thank you, Pierre. As we are in a quiet period for the lithium business, we're happy to answer questions on the first half performance of that business, but we are very limited in what we can say about the future, so we may choose not to answer some forward looking
Your first question comes from the line of Steve Byrne from Bank of America.
Thank you and good morning. This is Ian Bennett on for Steve. In the agricultural outlook for 3Q, could you help describe the moving pieces in the lower margin of legacy business or currency and maybe some of the trucking issues in Brazil or perhaps compare the margin structure in 3Q to what it would have been pro form a for 3Q of 2017?
That's a lot of questions at the same time. Yes, Q3, as we explained, first of all, Q3 has and will be in the future the lowest season. So if you think about it, the margin, the EBITDA margin for the business is very much the result that your SG and A and your R and D cost go against a gross margin, which is lower because the revenue is lower. So the math just makes you end up with an EBITDA margin, which is lower. So it's purely the fact that your below the line cost doesn't move as the spending is about the same every quarter, while your revenues are lower.
Historically, Q3 has always been a low quarter because Europe is non existing and Asia and North America are fairly low, while Brazil mostly start in September. It is magnified with the new portfolio, which is much more of an Asia, North America, Europe portfolio, making the first half even stronger and Q3 even weaker. So for the future, I think we have to expect Q3 to be the month with the lowest revenue, consequently with the lowest EBITDA and consequently with the lowest EBITDA margin. From a currency standpoint, if you look at each half and the full year, we are pretty much not pretty much, we are going to offset any headwind we will be seeing from currencies and mostly the real by a combination of our hedging strategy and a price increase. Now if you look at the 2 quarters, I would say we might be slightly lagging in Q3.
So you might have a slight negative impact of FX in Q3, and you will have more of a positive impact when we are really in the full season in Brazil in Q4. Last question, I think last point of your question was around the truck and trucking strike. And maybe I'll let Mark add a couple of sentence. There is no direct impact of the trading strike on the crop chemical industry. There could be some side effect to the agricultural industry.
Maybe Mark, you want to comment on that?
Yes. I think the way we're structured in terms of our logistics contracts for Brazil, we are not seeing and not expecting any issues when it comes to supply of trucks to move our materials. And let's be honest, a lot of our materials are extremely concentrated. So we tend to ship a lot less volumes, unlike some of the other ag inputs such as fertilizers, which are extremely bulky. I think the other impact you might see if this doesn't get resolved, it's not necessarily for this year, but certainly into Q1 when the harvest starts is how the grains get moved to the ports.
And I think you've heard a number of the grain traders talking about that already. So those may be the 2 impacts right at the front end of the season in terms of fertilizers and right at the back end in terms of grains. But as far as FMC is concerned, we don't see any issues in terms delivery.
Now let me finish to answer your broad question around Q3, something I want to be to make very clear. Q3 is always a difficult quarter to predict. We do have today, you could see and I'm not forecasting, it's hypothetical, but you could easily see $40,000,000 or $50,000,000 in Latin America or specifically in Brazil shifting from Q4 to Q3. We have a very strong cotton season ahead of us, and customers might decide to secure supply earlier, and that could create a shift in the buying pattern. If that happen, we will rebalance the growth rate of Q3 and Q4 to a level which are much more in the same range.
Finally, I hope I was clear in my explanation around what we are facing, pure integration process. We knew about it, but there is a few countries like Indonesia, Philippines, Vietnam or a site in Brazil where there is a delayed transfer to the company renew a body that creates a blackout in sales. Those sales are not lost. The orders are taken, but the sales we delivered and accounted for in Q4. So that comes and creates more noise and create a lower Q3 than we should have.
That's very helpful. And just as a follow-up, on the lithium business, how has spot prices declining in China affected contract negotiations in the first half of the year?
So most of the contract negotiation for us for any business we have on the contract is done in the back end of the year. So we have very little contract negotiation in the first half of the year. So today, as we said, for hydroxide, carbonate and even metal price are up over 20% year on year. We participate very little in the lithium carbonate spot market, but I can tell you for our sales between Q1 and Q2 sequentially pricing are also up for hydroxide and carbonate. So we are seeing sequential up pricing as well as very strong year on year pricing.
Your next question comes from the line of Dan Jester with Citi.
Good morning, everyone. So I wanted to ask you about the comment you made in your prepared remarks about your order book for Brazil and how it's much stronger today than maybe it's been in the past. Is this something specific that you're doing to build an order book differently this year? Or is this something that's more market driven
It is the fact that we have been very, very, very It is the fact that we have been very, very careful in supplying the market. So there is a very low inventory in the channel of the FMC product. Consequently, our customers who have a pretty good visibility on their demand are placing orders and firm orders at an early stage. So I would say we are in a much more normalized situation in Brazil. And because we keep on being very careful even today in a high demand period in not supplying product when they are not absolutely required to keep a low level of inventory in the channel, we are getting very strong demand.
Now I say 70% and I'm not saying that jokingly. I said 70% because we wrote a remark a few days ago, but the number is already above 70%. So I think it's been a long time since we had such a high amount of orders in hand before this. Mark, maybe you want to give more color?
No, I do believe that the last few years of working down those channel inventories have served us very well, and we're in a very advantageous position. I also do believe that our crop focus in Brazil is going to serve us very well as we go through the rest of this year. Cotton increased significantly over the last season in terms of acreage and prices were good. So the cotton growers are once again looking at a pretty significant increase in acreage going forward. So we're eyeing that market, not only with the acquired portfolio, but with our legacy portfolio.
So we expect significant growth there. And then overall, with what is happening around the world on soy, obviously, the growers in Brazil are feeling very bullish about their acreage. So we expect to see acres increase in Brazil as well for soy. So for us, it's a combination of a lot of hard work over the last 2 to 3 years to get ourselves in good shape and then an advantageous market position right now.
And then actually that touches exactly what I asked on my follow-up question, Mark, is with what's going on with soy, I think the conventional wisdom is that Brazil is going to sell a bit more to China and the U. S. Will need to find new suppliers to sell their soybeans. Is FMC agnostic between a planted soybean acre in Brazil versus a planted soybean acre in the U. S?
I just wonder if long term U. S. Plants less soybeans, what kind of impact that could have on SMC's business given how important soybeans are for you? Thanks.
Yes. I mean, good follow-up question. I mean, just over 20% of our portfolio is exposed to soy around the world. There's one country you're forgetting in that mix, which is Argentina, which is a big country for us. We have a significant pre emergent herbicide business down in Argentina.
And obviously, the acquired insecticide portfolio is important to us down there as well. Yes, we are pretty agnostic. I mean, we're growing in all three regions. Soybeans will be provided around the world from one of those 3 or all 3. So for us it's we really don't mind.
We want to grow in all 3 and we'll grow with our technologies.
Your next question is from Bob Koort with Goldman Sachs.
Good morning, everyone. This is Chris Evans on for Bob. We're clearly seeing the benefits of the combined portfolio given the pro a growth rates you showed in the first half. You got into a strong 2H top line expectation as well, but maybe at a decelerated rate versus the first half. Could you give some context here?
And then maybe secondly, can you opine on the growth drivers for ag as you move beyond 20 18? What contribution do you think is possible from new formulations and the acquired DowDuPont product pipeline that you received?
I'll take the first part and Mark will take the second part on the new technology. I think, yes, we had a very strong first half and that was driven by the demand our insecticide. We believe ronaxypyr salesypyr are still the benchmark molecule in the insecticide markets and they grew 24%. So we believe that the quality of the portfolio plus the customer synergies are creating a very significant market share gain. We actually the overall portfolio of FMC in the first half grew also a healthy 17%.
So we believe we're in very strong position. Now when you move in H2, and I think the right way to look at this business in H1, H2, there is we foresee a deceleration versus H1. It is mostly business is much more of an H1 business and that business is growing faster than the legacy FMC business. So if you look at the Latin America and Brazil, the growth will be driven a lot by the herbicide and insecticide from FMC portfolio and to some extent, the acquired business, but less. That is why we do have an 11% growth rate in the first half and we would expect to be more in the 7% range in the second half of the year.
Yes. With regards to the portfolio, we've talked numerous times about the strength of the two combined portfolios coming together. We launched our first product, as Pierre said, in the script, Avixaphene, fungicide targeted at North America later this year, so for the 'nineteen season. We pretty much have launches coming every year after that, certainly through the mid part of the decade and actually we expect some more products to come that will be hitting later in the decade. We've had a metric for some time that we think of in terms of products introduced over the last 5 years.
That's kind of a metric that we had in the legacy FMC in terms of how efficient we are in turning over the portfolio. We're going to be revamping that metric and we'll talk more about that at the Investor Day in early December. But you can expect a healthy increase in formulations that are coming to market, not just new active ingredients. I talked on the prior calls about the number of registrations we have coming for the acquired portfolio. We have similar numbers for the legacy FMC portfolio in terms of both herbicides and new fungicide mixtures.
So it's a very robust portfolio going forward starting in 2019.
Thanks. And maybe I was hoping you could comment on the impact of the Argentine peso on FMC Lithium in the quarter. I was surprised the large devaluation didn't result in a bigger impact, and it doesn't seem to be, let's say, factored into your guidance.
Yes. The Argentine peso was a tailwind in the second quarter. I think, Paul, that you want to
Yes.
It was you have to understand that our exposure to the peso is doesn't seem it's not as large as people seem to believe. It was less than $1,000,000 tailwind to the EBITDA in the quarter. It is factored in for the rest of the year. Clearly, you have to bear in mind that one of the drivers of the depreciation of the peso is cost inflation. And so we do have an offsetting cost in peso terms.
By the time you've walked through all those, we're not seeing a huge tailwind or headwind for peso devaluation year to date.
Thank you. Then your next question will come from the line of Joel Jackson from BMO Capital. Please go ahead.
I just want to reconcile something you're talking about, expecting a bit of the sales blackout on some of the DuPont sales moving from Q3 to Q4. It looks like you have a $900,000,000 revenue guide for Q3 for ag and $1,000,000,000 for Q4 give or take. How much revenue is roughly swinging from Q3 to Q4 because if Q3 is the lowest quarter of the year for ag, it seems like Q4 on a normalized basis would be very similar to Q3?
Yes. If you look at the right now at the numbers for revenue in Q3, we have about $200,000,000 differential in the 2 quarters from the sales. Yes, dollars 140,000,000 differential between the two quarters in Q3 and Q4. So that is a bigger differential than we've seen in the past. And it's a if you remove the impact of the block out sales, we are not talking about $100,000,000 of block out sales.
We are talking about tens of 1,000,000 of dollars. So I think every $10,000,000 is about 1%. So if you have a few tens of 1,000,000, you can bring another 2% or 3% more in a quarter. So that's the kind of shift we are talking about.
Thank you very much.
Our next question comes from the line of Aleksey Yefremov from Nomura Instinet. Please go ahead.
Just to confirm, the sales blackout is purely an accounting issue and the sales are actually being made and booked by DuPont at this time?
No, it's more of a sale recognition. It's just when we have the orders we do have the product. The only question is if we can so we have the firm order. We have the product. It's only a matter of being entitled to register the sale, ship the product and do have revenue recognition.
So it's already as soon as we get the registration, all the legal entity transferred or the permit, then we do ship and do the revenue recognition. It's purely a revenue recognition legal issue for us to be able to account for those sales.
So you're waiting for government approval to ship the product. Is there any risk that this slips further into next year and you don't get that approval in Q4?
No, absolutely not. Because when you do delayed sites, you do transfer the site only when everything is secured and ready to go. So it is not a full quarter for us. I think it's going to depend on the place, but sometimes it's a couple of weeks, sometimes it's a month. It's mostly impacting the part of July or a part of August.
But it is not something there is no questions around those delay transfers.
Thank you. Your next question comes from the line of Chris Cash from Loop Capital. Please go ahead.
Yes. Good morning. My question is about this sort of more pronounced or acute seasonality that you're referring to with the new portfolio. Just wondering if what emerged new information emerged last quarter is about the enthusiasm around both the cross selling opportunities with the DuPont business as well as a strong pipeline of the new registrations. I'm just wondering if there's anything about this that this as we now have 2.5 quarters of the DuPont business having closed, anything about this more pronounced seasonality that's inconsistent with those views about cross selling opportunities in the new registration pipeline associated with the new chemistries?
No. We feel actually the same, if not stronger. Just to look at the number, we have a if you look at the total forecast in sales, at the end of Q1, we were expecting for the full year to see a growth rate for the company for the full year in the 7% to 8% range. We are forecasting today for the full year 9% range. So a level of confidence around growth synergies has enormously increased versus where we were at the end of last year and increased to some extent versus where we were at the end of the Q1.
So there is no change. It's only a situation where Q3 is a quarter where the acquired business is a very low percentage of the overall portfolio and there is less demand for this business. So it's a historical low quarter for DuPont and it was for us. That's all there is. But there is no if anything, we are increasing the forecast in terms of growth and speed at which we are creating synergies versus what we said in the at the end of the Q1.
Okay. Thanks for that. And if I had a follow-up on the lithium business and just about the market and the industry more generally, there's disconnect between spot prices in China and obviously you and other sort of incumbent players are seeing obviously strong both year over year and sequential pricing trends tied to the contract that you guys are have both inked and are rolling over. So the question is about the spot price. One possible explanation or plausible explanation is just that in China, you have a surplus of either low grade spodumene or DSO that's generally low quality that the conversion industry over there is constrained and therefore there's kind of a surplus of that sort of material in inventory over there, which is sort of creating the sort of short term phenomenon of the destocking.
Do you sort of view it
that way? Do you feel that's a plausible explanation? And the other thing that might be contributing, of course, is this longer term shift towards high nickel cathode chemistries that's favoring hydroxide, therefore, maybe spurring some destock on the carbonate side in China. Any thoughts on if those are plausible explanations and the disconnect? Thanks.
Yes. This is Paul. I think your second explanation there really goes to the heart of it. What we've seen in Q2 particularly, bear in mind that the new Chinese rebates and incentive structures really kicked in, in June. And what we saw early in the year, in the first half of the year, one of the underlying trends that we've seen is a more rapid move towards hydroxide based cathode technologies than we had expected.
And what we're seeing is as the new rebates and incentives kick in, a retooling going on amongst the cathode manufacturers to be able to meet those energy density and other requirements of the new incentive programs. To do that, we've seen plants closing down while they retool. We've seen certainly a drawdown of their own inventory of carbonate as they finish production of cathodes that are using carbonate. And we've seen an increased focus on their part as where they will secure the hydroxide from. And there is a significant disconnect between the availability of carbonate and the availability of qualified usable hydroxide in China and elsewhere in the world.
I'll keep making the point until I maybe go blue in the face that this Chinese spot market for carbonate is not a really very useful market. Even if it is a market to look at, it carries very little informational content for the overall state of the market or what customers are looking for with their own contracting strategies. So while I recognize that people pick up on that data, it's leading everybody down the wrong path as to what the true fundamentals of the market are, I'm afraid.
Thank you. And your next question comes from the line of Mark Connelly from Stephens Inc. Please go ahead.
Thank you. Pierre, do you think that your raw materials and sourcing are going to have to shift towards India if China keeps up the pressure on producers? And where else would you be increasing your sourcing? And second question, before the DuPont deal, you'd been expanding some of your
Yes, I mean, when we look at our manufacturing strategy, we've been looking and starting to diversify their manufacturing from different locations. India is a location, but I can tell you also that we have moved some of the manufacturing for some intermediates, for example, toward Europe with some partners and towards some of our plants in Europe and other locations. So yes, it is over time, there is a strategy to keep on investing in China where we do have a strong partnership and players. But certainly, diversification will take place. We'll produce more in India.
But you have also to look at Europe and North America as potential place where we will be generating most generating some of our product which are critical. I think also one critical aspect of what we do and that's why we got out of the tough situation in the first half of the year. What the organization in ag has done for years is always, always make sure that your key molecule or intermediate, you have multiplied suppliers who are qualified and registered. I think it's very important you cannot be depending, even in China, solely on one. So you always have to have 2 or 3 or 4 capable suppliers to be able to manage potential shutdown.
On the question of the R and D, your point is a good one, Mark, that we did have strong collaborations in the past as legacy FMC and obviously now we're very heavily into basic research. That basic research actually helps when it comes to collaborations because what it means is you have technology that you can actually, in the broadest sense, trade for new technologies. I'll give you an example. FMC, we're very interested in expanding our fungicide portfolio. That may mean that in the future, we're willing to trade technologies that we're developing in terms of herbicides or insecticides to get access to new fungicides.
Our ability to do that is vastly enhanced with the capabilities that we acquired last year. So for us, it's a game that we know very well. We've played it very successfully over the last 5 years and we will continue to keep that tool in our toolbox as we look to continue to broaden that portfolio of technologies.
Thank you. Your next question comes from the line of Mike Harrison from Seaport Global Securities. Please go ahead.
Hi, good morning. Good morning, Mike. I was wondering if you could comment a little bit on the Brazilian real and your exposure in Latin America. The last time we saw the real under pressure like this, you ended up seeing a lot of challenges in your business. Can you just talk a little bit, Pierre, about how the business has changed since the last time FX was an issue in Brazil and comment in a little more detail on what steps you're taking to mitigate this impact in the second half?
I think you mentioned price increases and hedging activities. Thanks.
Absolutely. I think we learned a lot from 2015 and we'll do all we can not to get back to a situation equivalent. I think we are very close to what is going on in Brazil and we are looking at it from 2 different angle and I'll ask Andrew to talk about the hedging. I think first, on the pricing, we do have a very tight connection between the currency and the price list. And as long as there is not very, very abrupt change over a few weeks of significant amount, I think now we are structured from the way we negotiate price and establish the price list to be very much in line with the currencies.
And also remember, only half of our business in Brazil is darodiluminate. So we've moved from a less vulnerable business with a tighter control of the pricing. And I have to say, since the beginning of the year, we've been doing very well in connecting our pricing. Plus Andrew, could you talk about the change of approach we had to hedging and how do we do that to limit potential issues of downside?
Sure. Thanks. Speak to 2 things. I think since 2015, I think we've become much more systematic and routine in the way we approach hedging the BRL. It's been our practice since 2015 to hedge a significant portion of the anticipated BRL denominated sales once we have a confirmed order from the customer.
Now it can be some time between confirming the order with the customer and actually invoicing the sale. So that protects us from BRL movements between that time of confirming the order and fixing the order with the customer and actually invoicing the sale. This year, as we saw higher volatility and anticipated some continued volatility in the currency in Brazil, we also chose to do some additional hedging, hedging a portion of our sale anticipated sales in advance of confirming orders, where we felt confident on the demand to take some of the risk in terms of their ability to move price sheet fast enough against rapid movements in the currency off the table. So it's really a combination of regular systematic as we confirm orders, taking that risk off the table and then some additional work we did this year to prepare for potential volatility in the currency through the year.
All right. And then wanted to ask also about the Asia Ag Business. You mentioned the strength in the rice markets in India and China. Is that related to market dynamics or just some new application wins since the combination with DuPont?
Can you
just talk a little bit about how you're positioned for growth in the rice market in Asia going forward?
Yes, sure. 3 very big markets, India, China and Southeast Asia. I think taking India first, we made a significant step this year in changing the legacy FMC go to market model by adopting the acquired super distributor model. That is affording us opportunities where we were selling some very key products from the legacy FMC portfolio into that new channel. And also I would say, having a broader access channel in rice with the acquired portfolio, I.
E. Continuing to take market share with insecticides in India. In China, slightly different story. We introduced a very, very good rice herbicide in 2017 that is continuing to gain traction in China. That combination with sales synergies with the acquired portfolio is helping drive both pieces of the portfolio.
So hence, a very strong first half in China for us. And then laterally in Southeast Asia, obviously the acquired portfolio complements very well the legacy FMC Rice portfolio. And we have a very good market access in places like Indonesia, Thailand and the Philippines. And now with the acquired assets, we get more access to key countries such as Vietnam. So overall, for us, it's a lot of sales synergies and a very good strong portfolio in terms of herbicides as well as insecticides.
Thank you. Your last question comes from the line of Kevin McCarthy from Vertical Research Partners. Please go ahead.
Yes, good morning. Mark, it sounds like channel inventory levels of crop protection chemicals are quite low in Brazil. I was wondering if you could comment on the levels that you're seeing in your other key markets, at least in terms of outliers, including both your perception of industry inventories and FMC's own inventory levels?
Yes. Thanks, Kevin. I think in general, I would say, from an FMC perspective, we're feeling very good about our channel inventories around the world. Obviously, we've focused for the last few years on Brazil, absolutely no issues for FMC in Brazil. I think North America, we've talked about where we've legacy insecticide inventories in terms of corn root worm applications.
That certainly still holds true, although we are seeing more pressure on corn root worm than we have in the last few years. So we'll see how this season develops. Market in general is probably going to be spotty depending on different companies portfolios. I would say the biggest area that I see going forward is Europe. Given the extremely dry conditions in Europe, I would expect to end this season with higher than normal channel inventories of fungicides, just given the market conditions.
India and China, China has elevated inventory levels mainly because of both weather and market conditions there. The rest of the world pretty much okay. I would expect sorry one more Australia. I would think Australia will end up with very high channel inventories given the severe drought that we're seeing this season.
That's helpful. And then perhaps for Paul, I was wondering if you could comment on the sequential pattern of earnings in lithium as per your EBITDA guide. Is the decrement that you expect there a function of volume, price or other factors if I compare your stated guide for 3Q versus 2Q? Not sure if you can answer that or what you can tell us that might be helpful to discern that.
Yes. I think it is one factor you have to bear in mind in this business. And as we mentioned in Q1, we'll mention it again today, and it will be a feature of this business really for a while, which is the timing of which you ship to really for a while, which is the timing of which you ship to different customers in different regions in the hydroxide business can meaningfully move the margin revenue in any given quarter. Most of the contracts are annual contracts, but we don't necessarily ship everything to every customer on an equal basis through the year. So we certainly, and I think we've talked about this, saw a richer mix of customers in the first half than we expect in the second half.
So you look at our full year guidance, strip out what you saw in the first half, you'll see the impact of essentially equalizing throughout the 1st year. I just encourage people not to assume that the first half margin is replicable across the entire year and instead look at our full year guidance. Just bear in mind that almost all of our contracting is done on an annual basis and both volumes and price are pretty much predetermined by the time we start the year. So it is simply a question of timing as to when we ship to which customer that drives some of these movements.
That is all the time that we have for the call today. As always, I am available following the call to address any questions you may have. Thank you and have a good day.
Thank you. That's all the time we have for today. This concludes the FMC Corporation's Q2 2018 earnings release conference call. Thank you.