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Good morning, and welcome to the Third Quarter 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.
I'd now like to turn the conference over to Mr. Michael Wherley, Director of Investor Relations for FMC Corporation. You may begin.
Thank you, and good morning, everyone. Welcome to FMC Corporation's third 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 third quarter performance and provide the outlook for 2018 and the fourth quarter. Andrew will provide an overview of select financial results. All three will then address your questions.
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.
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 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. Q3 was another strong quarter for both businesses at the revenue and earnings level. It also was a quarter for executing on our commitments. The Ag Solutions business performed very well in a seasonally weak Q3, driving 5% pro forma sales growth, which was about 300 basis points higher than our forecast, despite an estimated 4% to 5% headwind from foreign currencies.
Revenue synergy continued to boost results and demand in Brazil was very strong in the quarter. As a reminder, we do not have precise data from DuPont in 2017 to calculate exact year-over-year impact from FX, pricing, or volume, but we base our FX estimates on what we saw in our legacy businesses.
In Q3, we successfully transferred to FMC delayed sites and country from the DuPont acquisition. As discussed on our last earnings calls, these transfers did result in a shift of revenue into Q4 that was in line with our expectation, but they will not result in any missed sale for the full year. There remain one more delayed transfer, a small formulation site in India, that will occur in the second half of 2019. We expect no impact on business results.
On business integration is on schedule and we have begun the systematic rollout of the new SAP S/4HANA system starting with our corporate finance function. The complete rollout will be implemented by the end of 2019.
On the technology front, we are on track to launch our first new active ingredient from the legacy FMC R&D pipeline in North America in the first quarter of 2019. This fungicide will be branded Lucento, and is based on the active ingredient Bixafen.
Our Lithium segment performed strongly in Q3, and we successfully completed the IPO of approximately 15% of Livent Corporation on schedule last month to begin the separation of that business. Last night, we announced our intent to spin-off the remaining 85% to FMC shareholders in the form of a dividend of Livent's shares on March 1, 2019. The spin will complete the full separation and is expected to be tax-free to FMC shareholders.
FMC Lithium will remain a reporting segment of FMC in the fourth quarter of this year, but will be reported as discontinued operations when we report first quarter results next year, assuming the spin is completed in March.
We have significantly reduced debt this year, having paid down nearly $600 million of debt through October. Andrew will expand on this topic later on the call and describe the rationale for an announcement to buy back $200 million of FMC stocks by year-end. Our five-year strategic plan is complete and being implemented. We will share it with you at our Investor Day on December 3.
We are proud that we have been able to make significant progress on all our major initiatives that we set out to accomplish at the beginning of this year, including the DuPont integration, our SAP S/4HANA implementation and the completion of the Livent IPO, while delivering strong quarterly results.
Turning now to slide 3 and our third quarter results. FMC reported third quarter revenue of just over $1 billion, which was 60% higher than Q3 2017. Adjusted EPS was $0.98 in the quarter, which was $0.06 above the midpoint of our guidance and up 40% versus the same period a year ago. The guidance beat was due to the strong performance of Ag Solutions, a $0.07 beat, plus $0.01 from Lithium and $0.03 from the lower tax rate, offset somewhat by a $0.05 headwind from higher-than-expected corporate cost and other costs. Andrew will address the higher corporate cost in his section.
Moving to slide 4 and Ag Solutions. Revenue of $924 million in the quarter increased 67% year-over-year on a reported basis and increased 5% on a pro-forma basis. This was driven by 17% growth of our acquired insecticide portfolio and 8% growth in our selective herbicides. We continue to capitalize on cross-selling opportunities and our global sales force delivered another impressive performance in its third full quarter with a combined portfolio.
On a pro forma basis, we delivered strong top-line growth in both Latin America and North America, which more than offset lower sale in Asia and EMEA. Third quarter segment EBITDA was $216 million, increased 57% versus the earnings from the year-ago quarter and was $11 million above the midpoint of our guidance. Segment EBITDA margin was 23%, which was in line with expectations.
As previously discussed, Q3 is the lowest margin quarter for many reasons. First, it is our lowest revenue quarter, yet SAR spend is flat; second, product mix shift to a higher percentage of FMC legacy products; and third, geographic mix shift to a lower contribution from our highest margin region. These elements were expected and will be seen each Q3 in the future.
Turning now to slide 5. Q3 revenue growth was strong on a pro forma basis but it was mixed across the regions. North America revenue increased 32% and Latin America revenue grew 9%. Revenue in Asia dropped 4% and in Europe revenue contracted 17%. North America and EMEA are in the low season in Q3. And therefore, the relatively small absolute dollar increase or decrease creates a disproportionate percentage swing.
In North America, the key driver was volume growth from Rynaxypyr and Cyazypyr insect control. We saw continued overall expansion of the diamide portfolio. Of note was the late season growth in California on tree nuts, combined with growth in our herbicide portfolio.
In EMEA, our business contracted 17% in a seasonally light quarter, which only represents about 15% of annual sales of the region. The decline was due in large part to lower herbicide application on all seed rate because of dry weather.
In addition, we saw orders move into Q4 on the back of a distribution change we are making in Belgium and Holland. This change is a timing move and will not result in any lost sales. We are consequently expecting strong double-digit growth in the fourth quarter in EMEA.
In Latin America, our business grew 9% on a pro forma basis despite a strong FX headwind. This performance was primarily due to strong demand in Brazil, which grew 17% on the strength of our acquired products due to our expanded market access.
We have taken advantage of increased exposure to crops in the South and more broadly to existing distributors. We are cross-selling our new portfolio with an emphasis on crops such as coffee and citrus. In addition, we expect that cotton acreage will increase 25% this coming season, driving stronger sales over insecticides and herbicides portfolio which started in Q3. We also successfully implemented significant price increases across the board in Brazil.
In Asia, revenue declined 4%. However, excluding a proactive restructuring of our India business, we grew revenue 2% despite significant headwinds from foreign currency. We had strong sales of our acquired insecticide portfolio in rice and soybean in India, and in rice and fruit and vegetables in Japan and Korea.
Moving now to Lithium on slide 6. Lithium delivered a strong third quarter with revenue up 19% compared to Q3 last year and segment EBITDA of $49 million, 21% higher than a year ago. As a reminder, we will continue to include FMC Lithium in our segment results for the fourth quarter because FMC still owns approximately 85% of Livent Corporation, but we will limit our comments as Livent is reporting its quarterly earnings separately. When we issue fourth quarter results, you will see 15% of Livent's earnings deducted in the non-controlling interest line of our income statement, and this is reflected in our guidance.
Turning to slide 7, which highlights the impact of the Livent's IPO on our EPS guidance. Excluding the adjustment for Livent, the midpoint of our guidance would still be at $6.05, exactly where it was a quarter ago. However, we now must account for the full stand-alone cost of Livent, which are a $0.03 headwind, as well as the approximately 15% minority interest deduction for Livent post IPO, which is a $0.04 headwind. Incorporating those factors, we expect adjusted earnings per share for full-year 2018 to be between $5.93 and $6.03 per share or $5.98 at the midpoint, which represents an increase of 121% versus 2017 EPS.
Turning to slide 3 (sic) [slide 8], which summarizes our outlook for the full year and for the fourth quarter. We expect 2018 Ag Solution revenue will be in the range of $4.2 billion to $4.26 billion. On the pro forma basis, this equates to a nearly 10% year-over-year increase at the midpoint. We also expect Ag Solutions EBITDA will be in the range of $1.195 billion to $1.215 billion, which is a raise of $5 million at the midpoint relative to prior guidance.
Our expectation for the overall crop protection market has slightly improved from what we say in August. On a U.S. dollar basis, we now expect the global crop protection chemical market to be up low-single-digit in 2018. The two regional outlooks that have improved are North America, which we expect will be up low-single-digit due to more pronounced strength in herbicide; and Latin America, which we expect will be up high-single-digit with a change in forecast primarily due to recent FX-driven price increases.
We still expect the market in Asia to be flat to up low-single-digit, while our European forecast is slightly more conservative. We expect it to be up low-single-digit on a U.S. dollar basis and down low-single-digit in local currencies.
FMC is growing considerably ahead of the market in 2018. Increased market access in many parts of the world is one of the largest factor. First, this includes new and enhanced distribution and crop access in Brazil, particularly in the South; second, full utilization of our new super distributor model in India, resulting in more coverage; and third, full direct market access in Europe with growth in Eastern Europe and improved access in France and Benelux countries.
Another growth driver is the launch of new formulations developed by the regions to respond to local customer needs. In 2018, we launched 30 formulated products, which we expect will contribute 1% point of the overall growth rate. For FMC, fourth quarter Ag Solution revenue is expected to be in the range of $1.015 billion to $1.075 billion. This revenue forecast will present a pro-forma growth rate of 12% at the midpoint for the quarter and implies 9% pro-forma growth for the second half of 2018.
Segment EBITDA is forecasted to be in the range of $280 million to $300 million in Q4. This outlook includes an estimated $3 million to $4 million headwind for the quarter from the recent trade tariffs. We are confident in our Q4 forecast largely due to visibility in Brazil, with 85% of expected revenue in that country already booked as orders. This is a much higher level heading into the period than in previous years. We are also confident we will manage the FX headwind in Brazil with pricing and hedges.
Moving over to Livent. I am just going to repeat the guidance that Livent issued last night. We expect full-year segment revenue to be in the range of $440 million to $450 million, a year-over-year increase of 28% at the midpoint. Livent decreased its full-year EBITDA forecast by $5 million at the midpoint to a range of $193 million to $197 million to account for $5 million of stand-alone costs.
Q4 guidance for Livent revenue is in the range of $117 million to $127 million, representing a year-over-year increase of 8% at the midpoint, and EBITDA guidance is between $43 million and $47 million due to about $4 million of stand-alone costs. We now expect adjusted earnings per share in the fourth quarter to be between $1.33 and $1.43.
I will now turn the call over to Andrew.
Thanks, Pierre. I'll start this morning with a few specific income statement items then move to the balance sheet and cash flow. I'll also provide an update on the use of proceeds from the Livent IPO.
Corporate expense was $29.7 million, $7.6 million above the quarterly pace of expense implied by our guidance at our last earnings call. This increase in expense was driven primarily by foreign exchange impacts on inter-company fund movements. We are currently operating in a dual IT system environment, which makes it more challenging to address currency imbalances on inter-company fund movements.
While a large portion of the impact in the quarter was non-recurring, the system challenges are likely to cause some volatility in our corporate expenses on the order of plus or minus $1 million to $2 million per quarter. This variability will go away as we exit the DuPont TSA in late 2019.
We estimate foreign exchange was a 4% to 5% top-line headwind in the third quarter for our Ag Solutions segment. Importantly, in Brazil, we estimate that we offset 100% of the impact of FX on earnings in Q3 through significant price increases complemented by our hedging activities. For the Lithium segment, FX had virtually no impact on revenue and with a modest tailwind to earnings in the quarter.
We lowered our guidance for adjusted effective tax rate for the full year to a range of 16% to 17%, a reduction of 50 basis points at the midpoint of the range, driven by our updated forecast and the mix of earnings across various jurisdictions. The 14.6% adjusted effective tax rate for the third quarter brings our year-to-date provision for taxes in line with this updated guidance.
Moving on to the balance sheet and cash flow on slide 9, FMC generated adjusted cash from operations of $550 million in the nine months ended September 30, 2018, up nearly 80% compared to the prior-year period, driven by higher EBITDA. We also continue to benefit from lower working capital build for the DuPont acquisition than initially expected. Looking to the full year, we are raising our guidance for adjusted cash from operations to a range of $700 million to $750 million.
Using strong cash flows from Q3, we paid down $300 million of term loan debt, ending the quarter with $2.75 billion in gross debt. This is down nearly $450 million from the beginning of the year. We completed the Livent IPO in October and FMC received net proceeds of about $320 million from the sale of 20 million shares of Livent. On October 31, we used $150 million of those proceeds to further pay down term loan debt, consistent with our commitment to reduce leverage in line with the impending loss of Livent EBITDA early next year. This increases our cumulative debt reduction this year to nearly $600 million.
With debt-to-EBITDA, excluding Lithium, now below 2.5 times and consistent with our targeted solid investment-grade credit profile, we will use the remainder of the Livent IPO proceeds and other excess cash on hand to begin repurchasing FMC shares. We are launching a program to purchase $200 million of FMC shares via open market purchases by the end of this year under our existing share repurchase authorization.
This initial $200 million share repurchase marks an inflection point and FMC transformation, as we move past de-leveraging from debt-funded acquisitions to generating substantial free cash flow going forward. You can expect the cash generation and its deployment are key topics we will cover at our upcoming Investor Day on December 3.
With that, I'll turn the call back to Pierre.
Thank you, Andrew. I could not be more pleased with where we are today. We are preparing FMC for a long period of growth, while delivering exceptional results in the short-term. We are delivering on every front, the 10% global revenue growth rate for Ag business in 2018 on a pro forma basis, much above the market, with a strong EBITDA margin close to 29%.
We are flawlessly integrating the DuPont business and realizing early sales and cost synergies. We successfully completed the IPO of Livent in challenging market condition. Our SAP implementation is on track. Our cash flow is strengthening. We are paying down debt quickly and returning $200 million to our shareholders through a stock buyback.
More importantly, we have a strategic plan firmly in place which leverages our core competencies, the strength of our current portfolio and our unique ability to develop short- to long-term technology. As I said before, our team is delivering on every front. I cannot wait to discuss the future of the company on December 3 with all of you.
I will now turn the call back to Michael Wherley.
Thank you, Pierre. As Livent has just had its own conference call, we'll keep this Q&A session focused on our Ag business, other than to answer to any potential questions you might have on the Livent separation plan.
Operator, you can now begin the Q&A.
And your first question comes from the line of Christopher Parkinson with Credit Suisse. Please go ahead.
Great. Thank you. Given your new ever-evolving portfolio on a geographic and product basis, how should we think about your long-term outlooks given your newly found independence? I'm sure you guys don't want to front-run yourselves on the Analyst Day, but just how should we perceive your own thought process regarding acquired R&D platform from DuPont? And maybe just a quick comment on the strategy regarding the FMC of old, if you want to call it that, in acquiring mid- to late-stage molecules. So, just any comment on that would be greatly appreciated. Thank you.
Thanks, Chris. I appreciate the question. But as you can guess, really discussing technology in depth would require a lot of time, which we intend to do at Investor Day. We'll have our Chief Marketing Officer and Chief Technology Officer going deep into our technology capability.
What I would say is we do have, with the combination of FMC and DuPont, the DuPont business we acquired, developed a capability which is quite unique. We do have now coming from DuPont a very strong discovery organization and ability to bring new molecules, new active ingredients, new mode of actions towards development stage. FMC is bringing a formulations technology which DuPont didn't have before, enhancing the value of those active ingredients which are being developed by DuPont.
Third of all, FMC and DuPont have complementary capabilities in terms of technology development and field testing in each of the region of the world, allowing us testing, data gathering, but also the fast development of formulation for local requirements. So we will describe all of these, but technology and blend of short-term, mid-term, long-term technology will be a very key driver of FMC growth in the future.
And just a quick follow-up. Just given the role for the TSA, the eventual refined corporate cost structure as well as your, let's say, greater geographically balanced portfolio with better Asian exposure, which to my understanding is better payable terms. Can you just give us any sense on just how you're thinking about your future cash flow generation versus history, especially given your relatively low maintenance CapEx requirements? Just any broad color there would be appreciated. Thank you.
Yes, Chris. Broad color and as Andrew said in his comment, we want to make cash deployment a very critical topic on Investor Day. You will start to see in 2019 a significant increase in the cash generated by the company and the real step-up will be in 2020. The reason for which 2019 will be a little bit less than the following years is because we'll still have SAP implementation cost and some integration cost. Then you have a real jump into 2020 all the way to 2023.
If you look at the cash we will be generating, including the structural saving which will take place with the S/4HANA implementation, if you look at the capital spend, and we'll detail that, if we look at the cash before R&D because we want to make sure we fully fund R&D for growth, you're going to get to a place where we're going to have to change the way we are returning cash to shareholders. So we'll have very significant non-allocated cash for the next few years, which we intend to return, in most part, to shareholders through dividend and stock buyback.
And we'll be discussing with you this unallocated part of cash, which you will see for the size of our company is a pretty significant number, how we are deciding to do that through the regular payment of dividends and what we will do through repetitive stock buyback.
That's great color. Thank you.
Next we will go to the line of Don Carson with Susquehanna Financial. One moment.
Please move to the next question if he is not available.
One moment, please.
Operator, please move to the next question.
Yes. One moment. My computer is froze. One moment.
Hello. Can you hear me?
We can hear you.
Oh, thanks. Sorry about that. Yeah. Question on South America. There was a lot – you kind of round-tripped on the reais. You went from BRL 3.68 to BRL 4.10 back to BRL 3.68. How did that affect your ability to raise local currency pricing? And if you raised them at that BRL 4.10 peak, should you be able to hang on to those increased reais pricing and, hence, expand margins as you get into the fourth quarter?
Yes, Don. That's a regular situation you always face when you connect your pricing to currency. I think it's an important point you're making. As we said before, on the way up when the – sorry, when the currency goes down and we are increasing price, we have a lag. We're always behind by a few percentage points. When then the currency strengthen, the same thing is happening, then we become ahead of the game because we hold the price as long as we can to the previous currency.
So, needless to say that while the currency was going up quite fast all the way to BRL 4 in Brazil, the fact that we're able to take to zero impact the currency on EBITDA in the third quarter made us feeling pretty strong about our ability to move price up. And now the job you have is, as the currency strengthen, is to try to hold on to your older price as long as you can, but you will have to bring it back closer to currency as it goes.
And can you talk about...
But you'll face a lag negative at the beginning on the currency weakening and positive when the currency is strengthening.
And can you talk about your sales position in Brazil? How collection's been going and where are receivables by historical standards as a percentage of sales?
Yeah, Don. It's Mark. Receivables are in very good shape and especially in Brazil. I think you know that we spent a lot of time and effort over the last couple of years really getting the quality of our business back in shape after 2015. So we feel very strong about where we are.
Collections have been very good. Past dues are down at the lowest level they've been for the last three to four years. We're obviously in the season now, so we'll see how things go. But for us, we're very confident about where our receivable levels are, and more importantly so, about where our past dues are heading.
Thank you. And our next question goes to the line of Daniel Jester from Citi. Please go ahead.
Yeah. Hi. Good morning, everyone. So I think in your prepared remarks you said that you might have a couple cents of headwinds from tariffs from China. Can you just comment about, if those tariffs are sustained in 2019, just color on the order of magnitude of what that could be? And is there anything that you could do in your own supply chain to mitigate some of those costs?
I think the currency impact, if we project out our sales to 2019, to give you an order of magnitude, if tariffs stay around 10%, we believe it's going to be around a $10 million negative impact on EBITDA. If the tariffs move to a 25% range, it would be in the $30 million to $35 million impact on EBITDA. That would be if we are not successful at getting any exception. As you know, we are fighting for exemption to some of the critical raw materials of product. I cannot anticipate on how successful we will be in doing that, but the two numbers I gave to you would be the max impact.
Okay. Thank you. That's very helpful. And you commented on your higher market growth view for North America. I think previously you thought the North America to be down a little bit this year and now it looks like it's going to be up. Can you just dive into that? Is there something specific that's driving that change? And can you give us any broad sense as to where do you think the market could go into next year with some of the anticipated shifts in acreage that we might see between corn and soybeans? Thank you.
Yeah, Dan. It's Mark. North America was stronger than we thought. We continued to do very well with the diamide acquisition, especially in California. I think we noted that on one of the slides. We saw it in other niche crops as well towards the end of the season. Now, of course, as Pierre said in his prepared remarks, it's a bit of a slow time in North America, so you don't need much movement to get significant percentages.
I think we also saw good business with our selective herbicides based on two key molecules. We've launched some new products this year, and they've done very well going through the third quarter. So, think of the herbicide and the insecticide portfolio as doing better than we thought.
Obviously, we're watching very carefully as we roll into the next season for the U.S., given where corn and soy projections are. Frankly, I think it's too early to tell where growers will go with this. We're watching it very closely. I think you do know that we have much more of an exposure to soy in the U.S. market than we do corn. Obviously, that's offset by a greater exposure in Brazil. And we know that Brazil are right in their planting season now which is going very well. We expect them to have roughly about a 3% increase in acreage for soy.
So, for us, it's been a much of watch and see really. We're making sure that our supply chains are well-positioned to take any advantage of movements in the U.S. and, in particular, in Brazil. But right now, as I said, a bit too early to figure that one out.
And one additional comment around Europe and North America, we like to repeat that. So, third quarter is a low season, so don't forget that dollars change creates significant movement in percentage, when actually it is not that big of a change. So there is a bit of the fact we're occurring at a time that Europe is only 15% of the U.S. sales. So, not as big as the percentage might indicate it. There are no...
Thank you.
And the next question will come from Steve Byrne from Bank of America.
Yes. Thank you. I understand there's been reports recently of some corn rootworm resistance developed to the Herculex proteins, and just wanted to know whether or not that created an opportunity for you. Does your insecticide platform include some products that would control below-ground insects as a seed treatment?
Yeah, Steve. We're not in the seed treatment side, but we're very much in the in-furrow application of insecticides, especially for corn rootworm. We have also seen instances of increased infestation. We're well-positioned to take advantage of that as we go through the next season, not only with our branded product Capture LFR, which is a liquid fertilizer-ready in-furrow application, but with our new foam-applied technologies that we're introducing into the marketplace, which are much more sustainable in nature. And we'll talk more about that on Investor Day. But, yes, you're right, we are seeing instances and we're well-prepared for that with our portfolio as it stands today.
And the recent EPA-labeled revision on dicamba has a lot of the professional applicators upset about the additional certification requirements that many of them think they're not going to be able to achieve. Is that a net benefit to your selective herbicide platform?
Well, yeah. I mean, obviously, we don't participate in the dicamba market directly, but we do have a market-leading position in pre-emergent herbicides for soy with our Authority brand. Obviously, if we can continue to grow that franchise, if there are issues with dicamba, we will certainly take that opportunity. However, I do have to say, a lot of the new technologies of the companies that are promoting those are also promoting the use of pre-emergent herbicides as well, of which as I said we're the market leader. So we will take advantage of that.
Okay. Thank you.
Thank you. Our next question will come from Mike Sison, KeyBanc.
Hey. Good morning, guys. This is Curt Siegmeyer in for Mike. I was just curious in terms of the benefits that you've seen from DuPont largely from cross-selling and some of the distribution benefits that you've talked about, what inning would you characterize us in in terms of those benefits and how should we think of that in terms of contribution to potential pipeline growth in 2019?
I think today we are growing – if you think about this year, the overall company will be growing about 9% in the business and that will due to the DuPont portfolio growing in the high-teens and maybe low-20% range, which is very fast. So, what is important for us, and we're spending a lot of time studying that, is to try to understand how much of this is very short-term synergies versus what is more sustainable synergy. We do not believe we're going to be growing the portfolio side despite
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And one moment. We may have lost the main feed.
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The line went dead.
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Can you hear us?
Oh, there you are. Yes, we can hear you now.
Hey, guys. Can you hear me?
Yes.
Okay. Thanks for that. I lost a little bit of the last part, but I'll...
Okay. Let me give you the bottom line, okay? What we'll be discussing
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And we are unable to hear. Mr. Wherley? Ladies and gentlemen, please wait one moment please. You may begin.
Can you hear us?
Yes.
Okay. Thank you. Can we just resume with that last question from KeyBanc? Sorry about that. We have an interruption
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And you may begin.
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And you may...
Can you hear us, operator?
Yes. I can hear you now.
Okay. Let's go back in the Q&A and start with the next question. I believe it's Mark Connelly at Stephens.
Hi. How are you? This is actually Joan Tong for Mark Connelly. You guys called out Rynaxypyr and Cyazypyr are one of the key drivers for the strong North America results despite weak seasonality. Can you just tell us what additional growth opportunity these products have, which geographic regions offer the best potential, or maybe perhaps talk about how deeply penetrated are these product there in the market? Hello?
One moment, please.
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I hear you.
Can you hear us?
We can hear you now.
Well, if it goes blank again then we're just going to have to end the call. But let's try and answer this question. Mark, go ahead.
Sure. Thanks. So, yeah, as I was saying that over 50% of the growth of the diamide products are coming from Asia. So we see growth both in Asia, in Europe, North America, and in selected parts of Brazil and Latin America.
When we get to Investor Day on December the 3rd, we'll be digging into more details around why we see these products continuing to grow, what is it that makes them special in terms of their performance versus other competitive chemistries. But we do see Cyazypyr in particular, which was a later launched product, as having very good growth opportunities especially on niche crops. So, rather than going through all the details today, we'll certainly address that at the Investor Day on December the 3rd.
Okay. Thank you. And then just one follow-up. So, thanks for the color on the impact of the Chinese tariffs earlier. Just maybe one follow-up on China as well. So we are seeing Chinese chemical producers are facing rising environmental compliance cost. Just wondering how much of your business are being sourced in China? And also maybe longer-term, are you thinking about maybe perhaps the evolution of how you change like, how you source your raw material going forward? Would that be a more of a significant shift towards India and other part of the world? Thank you so much.
Regarding China, I mean, from a business and size of the country itself, China is one of the top 10 country in the world, but this not where the issue is for us. One of the challenges I would say we have is the supply of active ingredients and raw material for FMC as well as for most of the other Ag chemical company comes from China.
So there is always two issues we are facing. One is, is the cost; and more constraint on supply there is from China, the higher the risk of the cost going up. And the other one is because of environmental reason, shutdowns, which would prevent the supply of active ingredients or raw material.
So the second one is always something we're watching because if the issue happen, there is not much we can do. We've been dealing quite well with that. We are well-structured with multiple qualified suppliers for most of our products. So we have to use the flexibility of the supply chain, but is something so far we have been able to manage and expect to be able to manage without shorter paying customers in the foreseeable future.
The price is something which we'll have to address. Now I have to say the cost of raw material impact in 2018 is not very significant. Just because of the way accounting work, the increase of cost is pushed into the products which then are going into inventory, and you're impacted on the cost when you sell the product. So we are currently expecting raw material pricing not to be a very significant issue in 2018, but certainly something we're going to have to watch in 2019 and, for which, we're going to have to define a very well-thought through pricing strategy.
Thank you. Our next question will come from Mike Harrison, Seaport Global Securities. Please go ahead.
Hi. Good morning.
Hi, Mike.
Good morning, Mike.
You didn't realize that separating Livent would lead to some potential technical difficulties on the call. I was wondering if you could talk a little bit in a little more detail about your ability to manage through the FX impact. And in particular around the hedges, I'm just wondering if there was sort of an unusual contribution from the hedges in Q4. And as we go forward through the season, maybe they get shorter-term or they get more expensive, they become less effective somehow.
I'm going to ask Andrew to address the hedging process and what we've done. Now, let's put things within context. Most of the work which was done to limit the impact of currencies on our business was done through pricing. That was the biggest driver. That's where most of the work was accomplished. Now, hedging was a very interesting complementary strategy we had to protect us further.
Andrew, maybe?
Yeah. Thanks, Pierre. Mike, I think, thinking about Brazil specifically, I would not say there was an extraordinary benefit from hedging in the quarter. We did supplement our hedging approach with some additional layers of hedging in advance of orders being...
(57:25-58:30)
That does conclude the FMC Corporation third quarter 2018 earnings release call. Thank you for your participation. You may now disconnect.