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FMC (FMC) Q3 2017 Earnings Conference Call Transcript

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FMC (NYSE: FMC)
Q3 2017 Earnings Conference Call
Nov. 7, 2017 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, this is the operator. Today's FMC Corporation conference call is scheduled to begin momentarily. We request you to please refrain from pressing star 1 in order to ask a question until prompted by the operator. If you have already done so, please press the pound sign at this time. If you should experience difficulties during today's call, please press star, then 0 and then the operator will speak to you. Thank you for your patience. Your lines will again be placed in the music hold until the conference begins.

Good morning and welcome to the Q3 2017 earnings release conference call for FMC Corporation. Phone lines will be in listen-only mode throughout the conference. After the speaker's presentation, there will be a question and answer period. I will now turn the conference over to Mr. Michael Wherley, Director, Investor Relations for FMC Corporation. Mr. Wherley, you may begin.

Michael Wherley -- Director, Investor Relations

Thank you and good morning, everyone. Welcome to FMC Corporation's Q3 quarter earnings call. Joining me today are Pierre Brondeau, President, Chief Executive Officer and Chairman and Paul Graves, Executive Vice-President and Chief Financial Officer. Pierre will review FMC's Q3 performance and provide the outlook for the full year and Q4.

Paul will provide an overview of select financial results.

The slide presentation that accompanies our results along with our earnings release and 2017 outlook statement is available on our website and the prepared remarks from today's discussion will be made available after the call. Mark Douglas, President, FMC Agricultural Solutions and Tom Schneberger, Vice President and Global Business Director of 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 on 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 call, are provided on our website. With that, I will now turn the call over to Pierre.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Thank you, Michael, and good morning, everyone. Before delving into our Q3 results, I just want to state that we successfully closed a transaction with DuPont on November 1st as expected. This was a great achievement for the hundreds of FMC and DuPont employees who worked diligently in a very compressed timeframe to [Inaudible] and standard the acquired portion of the DuPont Crop Protection business for day one operations and to separate health and nutrition segment for divestiture. We're excited about this formation at FMC and we position our solutions business as a leader in crop protection.

FMC now enters its next phase as a focused growth company in both Ag Solution and Lithium. We continue to expect that we will conduct a separate listing of FMC Lithium in the second half of 2018 to create two independent public companies with each becoming pure play investment opportunity for shareholders.

As we prepare for Lithium, we will continue to expand both our lithium hydroxide and our lithium carbonate capacities to capitalize on the significant demand expected in the coming decades but first, I will review the overall Q3 performance where FMC had a very strong quarter in both Ag Solutions and Lithium. Next, I will update our full year and Q4 projections which now include two months of contribution of the DuPont Crop Protection acquisition. We will then provide commentary on select financial results. I will then finish with a few highlights of the 2017 performance of the acquired business followed by updates on our 2018 assumptions.

Turning to slide three. FMC reported Q3 revenue of 646 million dollars which was up 3% year over year. Adjusted EPS was 70 cents in the quarter, nearly 60% higher than the same period a year ago. Adjusted EPS was 8 cents above the midpoint of our guidance driven by strong operating results in each of our two segments.

We are very pleased with our Q3 results. Both of our segments posted record Q3 earnings. Ag Solutions faced challenging market conditions and many of our competitors discussed ongoing price and volume [Inaudible]. FMC was able to outperform the market due to the work we did in 2015 and 2016 to proactively reduce channel inventories.

In Lithium, we executed our phase one lithium hydroxide expansion extremely well in the market where delays have become the norm.

Let me now move on to slide four and Ag Solutions performance. Q3 segment earnings were very strong, growing by 31% year over year to 118 million dollars. We also show strong sales performance with 6% revenue growth excluding India. The growth was driven by a 12% increase in Latin America with Brazil volumes especially robust and a 9% increase in North America.

Offsetting this growth was a 4% decline in Europe and a 32% decline in Asia which was largely due to sales decline in India. We decided to take action in India to prepare for integration of the different market access channels between FMC and the acquired business which reduced overall Ag Solutions revenue by 7%. India is the only market where FMC and DuPont have significantly different channels to market. In total, Q3 global revenue of 552 million was down 1% year over year.

The 31% segment earnings growth was driven by volume gains around the world excluding India, improved performance of her Brazilian business and overall lower operating cost.

As you can see on the segment earnings grid, the negative impact of the India sales decline was far more than the positive [Inaudible] impact of the volume gains in the rest of the world. We expect the overall profitability of the Indian market to increase significantly as a result of the DuPont acquisition. Foreign currency movements in the quarter offset modestly lower prices. Year to date, the net revenue impact from price decline is 2% which is consistent with our expectations for the full year.

Moving next to slide five where we outline three main drivers of the Ag Business so far in 2017. First, we have seen significant volume growth across many markets. In Latin America, FMC volume is 20% higher year to date driven largely by Brazil where we are outperforming the overall market. We have also seen continual improvements in the fundamentals of Brazil's cotton and sugarcane market, two markets where FMC has significant shares.

We now expect the overall market in Brazil to be down high single digits for the full year 2017 due to ongoing channel inventory actions being taken by some of our competitors. However, we believe product usage is largely flat.

In Asia, excluding India, FMC volume is up 9% year to date. This growth has been driven by successful product launches in China, strong demand for rice insecticide in Indonesia and increased herbicide demand in Australia. We believe the overall Asia market will be flat for the full year 2017, slightly worse than we thought three months ago.

In North America, FMC has posted a 2% volume gain year to date which is in line with the market expectations. Our results were driven by stronger demand in the first half of pre-emergent herbicides as well as Q3 strength in post-emergent herbicides and foliar insecticide. We now expect the North American market to be roughly flat the full year due to higher demand for foliar insecticides.

In Europe, FMC volumes are down 6% year to date which is slightly lower than the overall market. Our results were largely due to the impact on FMC's business in France moving from distribution to direct market access. You will recall France is the final country to make this transition from the Technip acquisition. We continue to expect the European market to be down in the low to mid-single-digit range for the full year 2017.

Moving to the seven key factors in our year to date performance which is a significant improvement in profitability in Brazil. The primary driver as being higher sales volumes leading to 24% revenue growth. One of the main reasons FMC is outperforming the market in Brazil is a proactive management of channel inventories over the last two to three years. Our actions have reduced channel inventories of FMC products but 35% year over year and by 50% since the peak at the end of 2015.

We believe that we're operating with closer to normal channel inventory levels of FMC products today. We have also benefited from significantly lower cost base and improved product mix combined with drivers of less operating margin in Brazil, increasing nearly 400 basis points year to date.

The third factor in our year to date results is a significant top-line headwind from the volume decline in India which was primarily felt in Q3. As we stated earlier, this needed to be done so we could integrate two different channels to market after November 1st. These actions mostly impacted the lower value in use portion of our business and the low impact on earnings. I will address the outlook for Ag Solutions after covering this year's Q3 performance.

Moving now to slide 6. Lithium delivers an exceptional quarter driven by the successful ramp-up of production from the new hydroxide facilities in China. Revenue of 94 million dollars was up 28% sequentially and 35% year over year. Segment earnings increased over 50% sequentially and more than doubled year over year to 37 million dollars in the quarter.

Significantly higher volume and prices were the main contributors to the growth, driving the segment earnings margin of 39% versus 33% last quarter and 25% in the prior year period.

Regarding the ramp-up of our hydroxide operations in China, we operated at an annualized rate well in excess of the 800 metric ton nameplate capacity in the month of September. We are very pleased to have delivered this capacity expansion on time and under budget and it speaks to the engineering expertise of our Lithium business. Our debottlenecking project at our operations in Argentina also contributed to our Q3 results. The completed project has delivered a run rate of 2000 tons per year of carbonate and we'll be at the full 4000-ton run rate by the end of 2018.

We continue to move forward with the expansion in Argentina where we plan to run at least 20,000 tons of lithium carbonate capacity with an initial investment of 250 to 300 million dollars. We are progressing the engineering work and we are in discussion with local authorities to finalize these plans.

Turning to slide seven and the year to date results for Lithium. Revenue has increased by 21% compared to the same period last year and earnings are up nearly 70%. From a normal market perspective, much of the focus remains on the supply demand balance. In 2017 we've seen conditions stagnate further as demand growth continues to exceed supply additions.

Incremental supply of lithium carbonate continues to be provided from high cost to demand and resources. In lithium hydroxide, FMC was the only producer to add significant capacity in the year. As we have discussed previously, pricing for FMC lithium is significantly higher compared to last year. Year to date, the average price per LCE is more than 20% higher than the same period last year with hydroxide being the largest contributor but all major product groups showing increases.

Late in the quarter, two China hydroxide units produced at full capacity, creating the single largest driver of improved performance which is higher volumes. These two hydroxide units which were completed in less than 12 months at a capital cost of less than 20 million dollars were [Inaudible] in September at a rate of 9000 tons per year which is 12% higher than their nameplate capacities.

Just as important, the customer qualification process has gone very smoothly and the vast majority of our customers have signed up for the quality of the product we make in these two units. This means that we are now producing and selling at an annualized rate approaching 9000 tons per year, doubling your lithium hydroxide capabilities compared to the same point a year ago.

Moving to slide 8 which summarizes our outlook for the Q4 and the full year including the impact of two months of results from the acquired business. We now expect adjusted EPS to be in the range of $2.59 to $2.69 which represents year over year EPS growth of 35% to 40%. This includes guidance for Q4 adjusted earnings in the range of $0.98 to $1.08 per share. We expect full year Ag Solutions revenue to be in the range of 2.5 to 2.6 million dollars and segment earnings will be in the range of 465 to 485 million dollars.

We anticipate that legacy Ag Solution business will contribute 2.3 to 2.4 billion dollars of revenue and 425 to 445 million dollars or earnings in 2017. The earnings guidance for the legacy Ag Business will present 9% year over year growth and a 5-million-dollar increase versus [Inaudible] guidance at the midpoint. Q4 segment earnings are forecasted to be in the range of 168 to 188 million dollars.

In lithium, we're leaving a full year revenue guidance for the segment of the range of 340 to 360, a year over year increase of over 30% at the midpoint. We are raising our segment earnings guidance to a range of 124 to 128 million dollars, a year over year increase of nearly 80% at the midpoint and a 6-million-dollar increase versus prior guidance. We expect Q4 lithium segment earnings in the range of 41 to 45 million dollars which represents 17% sequential improvement at the midpoint as well as doubling of earnings year over year. I will now turn the call over to Paul.

Paul Graves -- Chief Financial Officer and Executive Vice President

Thank you, Pierre. Looking at the cash flow on slide nine, we continue to improve our cash generation performance with adjusted cash from operations 9% higher year to date compared to the same period last year. This is underpinned by improved collection in Brazil as mentioned earlier. Although the credit environment in Brazil remains weak, overall credit exposure has improved significantly in the last 12 months with accounts receivable in Brazil 13% lower than a year ago despite strong sales in Q3 of 2017 and past due receivables declining significantly.

We're not yet able to give a detailed full portfolio cash flows given the short amount of time we have owned the acquired business. However, cash flow expectations for the legacy FMC business excluding acquired business remains in line with our forecast of three months ago with adjusted cash from operations in the 400-million-dollar range.

Looking forward to the end of the year and a forecast for our year-end net debt balance. We ended the Q3 just over 1.6 billion dollars, down 233 million dollars from a year ago. Since the end of the quarter, we have fully drawn a 1.5-billion-dollar term loan to fund our acquisition of which we transferred at approximately 1.2 billion dollars to DuPont under the terms of the transaction. The remaining 300 million dollars will be held as cash to meet various obligations related to the transaction, primarily tax payable on the sale of health and nutrition.

The actual payment of many of these obligations will fall into the Q1 of two 2018. In addition, we expect to achieve significantly higher customer prepayments related to the acquired business in North America. Given this, we expected to carry a significant cash balance at the end of December 2017 with higher cash outflows relative to historical patterns in Q1 and Q2 of 2018. The net result is that we expect our gross debt at the end of the calendar year 2017 to be approximately 3.2 billion with net debt of 2.8 to 2.9 billion dollars.

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

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Thank you, Paul. I mentioned at the start of the call that I would give you a few highlights on how the acquired business is performing this year. The revenue growth from the acquired business has been robust year to date. For the full year, 2017 revenue is expected to grow about 6% which is driven by very strong performance in India as well as increased sales of insecticides.

The overall performance of the business is largely in line with our focus made in March. The seventh key driver in 2017 has been the acquired business, strong work this year to reduce channel inventories in its products in the Americas. We believe the acquired business has normalized inventory levels in both North America and Brazil. This performance positions FMC well to continue growing the business in 2018 at a pace at least as high as the 2017 growth.

We believe this provides [Inaudible] to our prior presumptions for the growth of the combined Ag Solutions business in 2018.

This brings me to slide eleven. We have updated some of the numbers and we would also like to offer comment on how we feel after owning the DuPont business for a few days. As I mentioned earlier, we have increased our 2017 earnings guidance for both our legacy Ag business and for our lithium segment. We have also lowered our estimate for incremental DNA related to the acquisition and we now have more certainty on the expected financial impact of the [Inaudible] remedies in Europe and India.

We are not changing the cost synergies range. As we have explained, these cost synergies are not the usual savings seen in the acquisition. Remember that we are getting the business from DuPont with almost no corporate or [Inaudible] structure. Cost synergies in our case are a combination of real cost decreases, certain opportunities to [Inaudible] rate plans at a lower cost and cost avoidance opportunities where we had less cost than were anticipated in the acquisition model.

Our assumptions for [Inaudible] growth in the combined Ag solutions segment has the potential to have the most [Inaudible] relative to the initial forecast when we assumed 2% to 4% revenue growth in 2018. Based on what we have seen so far regarding the acquired business, we are feeling more positive about 2018 growth in Ag solutions. We will be able to give more clarity on this topic during our February 2018 earnings call.

Moving over to lithium. We expect the positive trend we have seen year to year to continue to 2018 and we continue to expect lithium earnings to increase by 40 to 50 million dollars. In summary, we feel very good about where FMC is today. Our current Ag Solutions business delivered record Q3 earnings and we are set to deliver a strong Q4 driven by Latin America.

The integration of the acquired business is in full motion with teams already operating together. Lithium had a very strong quarter and is on track to deliver even higher earnings in the Q4 as the new hydroxide units are in full commercial operations.

I want to thank you for your attention and I will turn the call back to the operator for questions.

Operator

Thank you very much. If you'd like to ask a question at this time, please press star, then the number 1 on your telephone keypad. Please limit yourself to one question and one follow-up. If you have additional questions, you can jump back into the queue.

To [Inaudible] your question, press the pound key. We'll pause for a moment to compile the Q&A roster.

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

Chris Parkinson -- Credit Suisse -- Analyst

Thank you. As you platform further transforms toward the discovery phase and AI development, can you just comment on your initial thoughts you have on long-term strategy and how you're positioning your team for success? And any initial thoughts on product procurement, given the size of some of the new products you would now have and how that rolls through to various global agreements and [Inaudible] utilization? Thank you.

Mark Douglas -- President, FMC Agricultural Solutions

Hey Chris, it's Mark. I'll take the R&D piece and then I think Pierre is going to take the procurement piece. On the AI, obviously we have strong research capabilities with the DuPont acquisition and we've already had our first initial set of meetings. What we're going to be looking at going forward is in excess of what we have today we're looking at what crops are going to be our focus in the future.

If you look at our portfolio today, you can see we obviously now have a very strong insecticide portfolio, we have a very balanced herbicide portfolio. Where I feel we are behind the market is in the area of fungicides. So, that's going to be an area of attention where we're going to be looking for hits coming out of basic discovery to help broaden that portfolio of fungicides. In addition, the area nematicides also spring to mind, very much allied to our insecticide work but an area of focus that we will also go for.

So, I think you can see that the fungicide space is something that we really want to boost going forward.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Thanks, Mark. Regarding procurement and the size of the new Ag business, I think needless to say that when we talked about synergies and cost synergies, that is typically one of the places where we're looking at significant synergies. We're still quantifying all of that. We believe that the number one source of cuts savings will be [Inaudible] processors who are producing active ingredients.

We do have the former DuPont business and FMC, lots of [Inaudible] professors in common and we know that we have possibilities to create a significant saving here. We also have the same situation in some of the critical raw materials. So, we're quantifying all that. It will be part of numbers we will be reporting early next year but we currently have two sources of cost saving, one is [Inaudible] and one is direct raw materials.

Chris Parkinson -- Credit Suisse -- Analyst

And just a quick follow-up. I know it's obviously a little bit early but just given what you've seen for [Inaudible] this year, can you give us some quick color on what you're seeing on a regional basis in [Inaudible]. I imagine Brazil may be a slight headwind but what do you see in the intermediate to long-term on the opportunity front in Asia, any rice markets? Do you have any line of sight as it pertains to 2018 and 2019? Thanks.

Paul Graves -- Chief Financial Officer and Executive Vice President

Well, since we only had it for a few days, Chris, that's a deep question. If you look at the spread of where the products are, obviously Asia is an area of focus for us. The business itself has a superb route to market in India which is one of the fastest growing markets in the world. So, I think you can expect to see make more headways in India.

Obviously, on rice Rynaxypyr is a big product but I also feel Cyazypyr on the more niche crops of fruits and vegetable area in Asia will also be a benefit to us as well.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

On your comment about Brazil and Greece which is a very common to remember, Rynaxypyr is not Brazil story. It is much more of an Asia, Europe or North America story as the market is fairly small for us in Brazil. The other point I would like to add which is not a direct answer but I want to use the point two of question to talk about what we understand the team has done and we went through the numbers as quickly as we could, the team, when they were separated from DuPont and operating as a stand-alone organization, Rynaxypyr and other product needed a tremendous job in removing excess inventory from the channel. So, think about a situation where not only this business in 2017 grew at 6% but at the same time was capable of bringing its level of inventory in the channel almost to normalized level which is giving us very strong expectation going into 2018.

Chris Parkinson -- Credit Suisse -- Analyst

Thank you.

Operator

Thank you. Your next question comes from the line of Frank Mitsch with Wells Fargo Securities. Please go ahead.

Frank Mitsch -- Wells Fargo -- Analyst

Good morning, gentlemen, and congrats on the closing of the transaction. Regarding the assumptions on 2018, it looks like your EBITDA is coming in somewhere around 1.2 billion or something on that order of magnitude. I was wondering if you could do a bit of a walk on where free cash flow may come in based on the range of guidance that you're offering on the EBIT side for 2018.

Paul Graves -- Chief Financial Officer and Executive Vice President

Sure, Frank. Let me just give you a bit of color around what we're watching out. Clearly, when we [Inaudible] EBITDA down to free cash flow, the two big areas that I tend to keep my eye out for are, number one, clearly working capital movements. In our business historically it has been a Brazil issue.

As Pierre just mentioned, the acquired business really is not a large Brazilian business. So, we do not see a big headwind from what [Inaudible] rebuilding receivables in Brazil. As you'd recall, the terms of the transaction were that we did not receive any receivables from this business. So, they will certainly be a rebuild and I would expect that almost all the sales that you see happen in the last two months of this year will run through because [Inaudible] Latin America run through an increased receivables balance.

Offsetting that though we continue to make very, very positive progress in Brazil with the legacy Ag business. You've seen some of the data we put down here. We continue to reduce the capital tied up in that business and I expect that trend to continue through 2018.

When we look at the rest of the business, clearly the single biggest factor that we will then be looking to add will be capital spending. The business we acquired from DuPont is a little more capital intensive than our business but it is still not hugely capital intensive. Their lithium business, we've made statements about 250 to 2000 million dollars of investment in Argentina alone. Most of that will take a couple of years to spend.

So, again, while we'd expect capital spending to be high in 2018, I certainly would not expect it to be a huge swing on that data. So, I expect that we will have a pretty strongly cash generative year next year. It is a little early to put specific numbers on it but I certainly don't see anything that doesn't encourage me that we would expect to see significant cash generation in 2018 across the business.

Frank Mitsch -- Wells Fargo -- Analyst

Okay, that's helpful. And with respect to Argentina and that 20,000-ton expansion costing 250 to 300 million, I don't believe you've made a final investment decision on that, have you? And if not, when would you anticipate going down that path?

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Yeah. I think, Frank, we are very close to making a final decision. Hopefully, we're just a few weeks away from this, potentially bringing that to our board at the December board meeting for approval. So, we are getting very close to making that decision.

Frank Mitsch -- Wells Fargo -- Analyst

Thank you so much.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

And I'd say also as long as we talk about that 20,000, we are studying the market, 20,000 I would say is the minimum and we're looking at building company potentially be on that all the way up to 40. So, it's work progress but just a few weeks away from it.

Frank Mitsch -- Wells Fargo -- Analyst

Alright. I mean, the basic point is that if you do decide to go ahead and do this, this project will be well underway prior to the IPO in the back half of next year.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Absolutely.

Frank Mitsch -- Wells Fargo -- Analyst

All right. Thank you.

Operator

Thank you. Your next question comes from the line of Robert Koort from Goldman Sachs. Please go ahead.

Robert Koort -- Goldman Sachs -- Analyst

Thanks very much. I had a couple of quick lithium questions. First, I was wondering do you guys make today more money selling carbonate or converting that and selling it is hydroxide?

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Hi, Bob, it's Tom. We make more money today selling our hydroxide.

Robert Koort -- Goldman Sachs -- Analyst

Gotcha. And the expansions, you mentioned there hasn't been a lot of industry incremental expansion. Obviously, there's a lot of incremental enthusiasm for the high nickel batteries and hydroxide. What do you see from the industry in 2018 and are you sensing any anxiety on the part of the battery supply chain about the availability of hydroxide to feed some of this demand enthusiasm?

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Yeah, it's a good question. What we're seeing is it's very significant in China and then we're seeing it around the world with [Inaudible] is the ramp-up of the higher nickel [Inaudible] material capacity. So, it is definitely exonerating and we're already having discussions around 2019-2020 volumes and contractor discussion are getting longer, not shorter.

Robert Koort -- Goldman Sachs -- Analyst

And have you picked, Tom, where you're going to put those next modular hydroxide plants? I think you mentioned there's a couple more in the queue but haven't quite defined where those would go.

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Yes. So, again, similar to the carbonate comment that Pierre made, the 12,000 to get up to 30,000 total is a minimum and we're ready to progress more than that if need be and the next units are going to go up both of the existing sites we're operating today to get the benefits of the infrastructure there.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Both means China and North Carolina.

Robert Koort -- Goldman Sachs -- Analyst

Yup. Thanks, Pierre.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

One each.

Operator

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

Ian Benning -- Bank of America -- Analyst

Hi, thanks. This is Ian Benning, on for Steve. In the Ag business, year over year growth was influenced by cost and other was a large contributor. Can you talk a little bit about what that cost other line was and what the expectation is for 2018?

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Yeah. Let me talk a little bit about the margin improvement in general in the Ag business. First, let's talk about cost. We are operating with just a lower operations cost across the company in may Latin American [Inaudible] but you remember Brazil two years ago was over billion dollars with a very large organization.

We shrunk that organization and tightened up the structure in order to focus on more technical and higher margin products. So, we have lower operating cost from the structure standpoint. We also have a lower operating cost in the Latin America and Brazil because we are now, with the work we've done operating with a much cleaner balance sheets, so we do have less financing cost, less hedging cost so we have a much, much cleaner balance sheet which is lowering our balance sheet expenses. So, that's one part of the improvements of the margin in the Ag business.

The second one especially this quarter is a geographical mix. As we explained, we have to rerealign, we are realigning the channel to market in India because DuPont's coming with a very robust system in business and channel to market. So, we have low margin sales in India while we had a very strong quarter in North America which is the highest margin. So, we are benefiting from a good geographical mix.

And finally, you'll remember over the last two years all the way to the end of 2016 we have been decreasing our sales of non-differentiated generic products or third-party distribution and that also is contributing to a stronger increase in our margin. So, those are the three key drivers [Inaudible].

Ian Benning -- Bank of America -- Analyst

Thanks. That helps. And as a follow-up, you mentioned earlier that year to date prices down 2% but the outlook for volume growth next year looks quite favorable due to destocking. How do you think about price mix in the industry as we move into 2018 and are there particular areas or products that you're experiencing intensifying price mix pressure?

Pierre Brondeau -- Chief Executive Officer, President and Chairman

I think the price pressure has been mostly in Latin America and Brazil and it's linked to two things. First of all, one is the competitive nature of the business where competitors may be starting to see the need to decrease the level of inventory in the channel which is always creating price pressure. And also the fact that Brazil is a place where the price is indexed on currency. So, that's the main areas to look.

What we're expecting this year is to have a 2% price decrease. That is mostly coming from Latin America and Brazil. So, most likely to remain next year because we believe our competitors are going to need good capital like we need to clean up the situation. So, those are the main drivers but we don't expect more pressure than that in the market going into 2018.

Ian Benning -- Bank of America -- Analyst

Thank you very much.

Operator

Thank you. The next question comes from the line of Dmitry Silversteyn from Longbow Research. Please go ahead.

Dmitry Silversteyn -- Longbow Research -- Analyst

All right, good morning. Thanks for taking my question. I was just wondering with all the conversions that you're doing to lithium hydroxide, can you update us on how much lithium carbonate capacity and lithium chloride capacity you have left to serve other non-battery markets and where you are in sort of your drive to convert more and more of your carbonate to hydroxide? I'm obviously asking prior to this 20,000 expansion that you're looking to add.

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Yeah. So, again this is Tom. Thanks, Dmitry. We expect to come in between 18,000 and 19,000 tons of LCE production this year.

We will be over 20,000 next year and up to 22,000 run rate by the end of next year. That's before any expansions. We may get a little bit more than that. Overall, in terms of the strategy, you have to realize we're trying to stay long carbonate.

Some years will be a little bit longer than others. We don't yet see a year where we're going to be short carbonate but we don't have as much offer to the market as some do. In 2019 also we will have the Nemaska volume beginning to come to us for conversion as well and then we'll have the expansion start coming in as well.

Dmitry Silversteyn -- Longbow Research -- Analyst

And then just a follow-up on the NAM battery market through butyllithium and the stuff that goes into greases and more industrial applications, are you seeing strong pricing there as well? I mean, is that market becoming short just as the battery market seems to be a little bit shorter of demand right now? And what does the pricing in those markets look like compared to the battery grade stuff? I'm just looking in terms of year over year increases, not on absolute levels obviously.

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Yeah. So, lithium is a pretty segmented market, especially outside of the energy storage. You need to look at case by case. In general, prices will go up.

We expect prices go up next year across the board. You do have some regional markets and then you have some different dynamics between the regions, [Inaudible] is that way to some extent but across the board, we expect the price increases.

Dmitry Silversteyn -- Longbow Research -- Analyst

Thank you.

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Welcome.

Operator

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

Don Carson -- Susquehanna -- Analyst

Thank you. Pierre, I just want to get your updated view on the overall market as I know you've said in the past, [Inaudible] 2017 would be the third year of decline albeit less of a decline and that you saw growth in the overall market for 2018. Is that still your view? And then when will you have a better idea on the synergies side in terms of specifically on the cost you need to bring in? I'm thinking specifically on the distribution side because it seems in the past you've just used industry average percentages to come up with your forecasted cost savings.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Yes. Let me talk about the synergy aspect first. We want to be a very clear and I think that's what you're implying in your question. Synergies here, I'm not sure, regular type of synergies where you're measuring your headcount decrease and consequently you're monitoring how much cost you are removing from your operation.

We're going to have two types of what we call maybe [Inaudible] cost synergies. One is the real cost synergies. We talked about procurement is one driver. We believe there are synergistic opportunities here.

And there are opportunities in plant preparation and supply channel. Those are real cost synergies. The rest is just we are trying to define what is the operating cost we need for this business versus the model we have when we made the acquisition. Now, understand that there business which is coming at us.

I know there is a tendency to push very large synergy numbers because we sometimes believe DuPont being a large corporation, they come with a large corporate cost but remember none of that is coming to us. We're getting no corporate costs. We're getting almost no back office people, no back office structure. So, we're only getting the manufacturing, the research, the sales, the marketing, supply chain people and that's it.

From this, we are being very careful to operate the business with the TSA we have with DuPont. We believe by the time we get to January we will have defined our operating cost to run the business. That's what we're going to be looking at. So, by the time we get to the February earnings call, we should be able to give you a very good sense for the bucket of real synergies and what is the operating cost of the business with those two businesses together.

So, I guidance in 2018 should be pretty firm when we give it to our Q4 numbers.

Regarding the Ag market, the way we are looking at it today, we would say globally flat, maybe low single digits but that's about it. We believe and we sense a stabilized situation. We definitely do not see a decline but more a flat to low single-digit picture getting into 2018.

Don Carson -- Susquehanna -- Analyst

Thank you.

Operator

Thank you. And your next question comes from the line of Joel Jackson from BMO Capital Markets. Please go ahead.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi, thanks. Good morning. When you talk about the four-year 50 million dollars of lithium [Inaudible] growth for 2018, can you maybe at least generally talk about how that might divide into buckets in terms of price, volume, and margin. You talked about the volume of hydroxide but maybe a little bit on how it may split across the different buckets.

Thanks.

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Hey, Joe. This is Tom. Thanks for the question. I would expect it to be a little bit more than half on price and a little bit less than half on volume.

We're still early in the price discussion. So, we may be able to get a little bit more than that but it's hard to relate that to you right now.

Joel Jackson -- BMO Capital Markets -- Analyst

Okay, thank you for that. Also back on our Crop Protection, we talked about channel inventories as it required [Inaudible] so much just abnormal [Inaudible] level. Can you maybe give a little bit more color on in what regions do you think that the acquired business channeled inventories are tight or normalized and maybe which ones are a little bit higher than normal? Thanks.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Yes. What we see and what we've studied, I mean, clearly there's used to be a place where there was a very high level of focus where they have normalized their inventory level. That would be Brazil, Latin America, and North America. China too.

What is normalized depends upon the market. Anything around 25% is a number where you would consider you have normalized channels. So, those are the three places – China, Brazil, to some extent Latin America and North America – where the biggest work has been done.

Joel Jackson -- BMO Capital Markets -- Analyst

Thank you.

Operator

Thank you. Your next question comes from the line of Aleksey Yefremov from Nomura/Instinet. Please go ahead.

Aleksey Yefremov -- Nomura -- Analyst

Good morning. Thank you. I wanted to go back to Argentine expansion. I think, Pierre, you mentioned you're within a few weeks of making a final decision there.

Does this also mean that you are within a few weeks of getting the government approval for the project as well?

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Yes. Well, when we say few weeks, it's about everything which is required to build the expansion, to get approval, to separate the business within a few months. So, yes, includes all approval, internal and external.

Aleksey Yefremov -- Nomura -- Analyst

Great. Thank you. And a follow-up on lithium pricing question. Does your 2018 lithium forecast at this point carry the risk of pricing being higher or lower? In other words, you still have a lot of negotiations to conclude for the next year in terms of price.

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Yeah, this is Tom. I'd say that it's a muted risk. We've got defined pricing and most of the volume's already under contract. So, there's still some discussion as to the actual 2018 price within a defined range but that I don't think we carry a lot of risks there.

Aleksey Yefremov -- Nomura -- Analyst

Thank you.

Operator

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

Mike Sison -- Keybanc -- Analyst

Hey guys, nice quarter.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Thank you.

Mike Sison -- Keybanc -- Analyst

Obviously, you have a bunch but you had a number of molecules you were developing on the legacy Ag business. How are those unfolding and they you have any impacts in 2018?

Paul Graves -- Chief Financial Officer and Executive Vice President

Yeah, Mike, the portfolio itself, the pipeline is absolutely on track to what we communicated in past quarters. One of the first molecules that come to market is Bixafen and that'll hit in the second half of 2018 in North America. So, it'll have some impact it'll be somewhat muted. Then we have the rest of the range coming through really in the 2019-2020-2021 timeframe but everything is on track exactly as we said before.

So, we feel really good about that part of the pipeline. Obviously, as you know, DuPont pipeline is at a much more early stage and it comes in anywhere from mid-decade to end of next decade but we're well suited across the whole portfolio right now.

Mike Sison -- Keybanc -- Analyst

All right, OK. And then in terms of the DuPont business, as we think about next year, I think you noted the legacy business would be up mid-single digits. What about DuPont's assets next year. What type of growth do you expect to see from them on a year over year basis?

Pierre Brondeau -- Chief Executive Officer, President and Chairman

I think we need to dive into the numbers and [Inaudible] and crop to be refinalize that. The initial look we had, [Inaudible] it was a look we had especially driven by [Inaudible] here because we knew we would have to do you a sense. The business is going to grow in 2017 6%. Knowing that the 6% was driven by [Inaudible] and crop plus was done with a significant work to decrease channel inventory between the drivers and the decrease of inventory, we see absolutely no reason not to have at least the same growth rate going to 2018.

Actually, with the analysis we've done, we are looking to demonstrate that very early in the year with a solid growth in Q1. So, 2018, at least the same number, starting pretty strong in Q1.

Mike Sison -- Keybanc -- Analyst

Great. Thank you.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Thank you.

Operator

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

Daniel Jester -- Citigroup -- Analyst

Hi, good morning, everyone. Thanks for taking my question. So, just on Europe year to date volume, it's been probably the weakest region for you guys. I know that there were some weather issues there but with anything else happening in Europe, we kind of [Inaudible] 2018.

Paul Graves -- Chief Financial Officer and Executive Vice President

No, nothing really else apart from the weather impacts that we saw earlier on in the year and then obviously as we going through the rest of the year, we alluded to it in the script here from Pierre that France is the last country that we're changing the distribution channel from the Cheminova acquisition. So, what we would normally be selling and in Q3 and Q4 into that distribution channel we're not selling right now because we'll be doing that directly ourselves as we go into the season in the first part of next year. So, that has a somewhat meaningful impact but apart from the weather impacts which have been pretty severe depending on the north and the south, there's been no other fundamental issues in the business.

Daniel Jester -- Citigroup -- Analyst

Okay and then just another real [Inaudible]. If I remember last year in the US in the Q4 you had a very strong pull forward of pre-emergent herbicide sales in the US. As you see the Q4 evolve this year, are you seeing the same type of trend or [Inaudible] headwind [Inaudible]? Thanks.

Paul Graves -- Chief Financial Officer and Executive Vice President

No, we're seeing exactly the same trend. Pre-emergents are doing well. There's a lot of changes in the herbicide market in North America but our pre-emergency authority brand's a market leader and continues to do very well and orders are strong.

Pierre Brondeau -- Chief Executive Officer, President and Chairman

One comment about that question. I want to make sure you've clearly understood it. We had a very strong Q3 but we see the same trend in the Q4. I mean, it was not moving forward orders or just things are falling in place and the Q4 is as strong as we were expecting it before with significant growth driven mostly by Latin America but also healthy situation in North America despite the strong Q3.

So, there was no pull by our customers who already buy. So, it's important to see sales are fully in place in the [Inaudible] quarter.

Daniel Jester -- Citigroup -- Analyst

Great. Thank you.

Operator

Thank you. Your next question comes from the line of Brett Wong from Piper Jaffray. Please go ahead.

Brett Wong -- Piper Jaffray -- Analyst

Hey guys, thanks for taking my questions. I just wanted to follow up on an earlier one. You talked about or provided some color on your Ag and [Inaudible] the focus going forward, really talking product categories but I'm just wondering if you can provide a little color on the crop [Inaudible] that you're going to focus on.

Paul Graves -- Chief Financial Officer and Executive Vice President

Yeah, Brett, we've said in the past that obviously, we have more of a niche focus, niche crop focus when you look at our mix were we're somewhat more heavy in some of the niche crops such as cotton and sugarcane, less so in corn and all the various tree fruits and vegetables. I think with the acquired portfolio, obviously, that expands Rynaxypyr and Cyazypyr big on niche crops. Going forward, I think on the fungicides, if we can go into that space, we will focus on niche crops but also Asian soybean rust down in Latin America is a major, major issue. If we can develop products into that space, we will be happy to do so and that would give us more exposure in soy in Brazil but outside of that, it's going to very much depend on the types of products that come out with regards to the crop focus.

Operator

Thank you. Your next question now will come from the line of Laurence Alexander from Jefferies. Please go ahead.

Dennis Long -- Jefferies -- Analyst

Hey guys, it's Dennis Long from [Inaudible]. All right, you mentioned that focuses on growth going forward will be nematicides and fungicides. Is there a particular end crop that would be a focus as well to kind of go with those or [Inaudible] the most promising in terms of how they apply with those products in mind or with those part of categories in mind?

Mark Douglas -- President, FMC Agricultural Solutions

Yeah just to clarify, what I said was from an R&D perspective, from [Inaudible], we would obviously like to expand our fungicide and nematicide. That's much longer time given that it takes 10 to 12 years to bring a product to market. Our near-term focus will be continuous across the niche crops and then bringing products that are differentiated to any of the real crops whether it soy or corn. Obviously, with the acquisition, we have a much broader portfolio for cereals now.

So, we're going to be looking at potential growth opportunities there with the strong portfolio that we have.

Dennis Long -- Jefferies -- Analyst

Okay. And then with regards to Brazil, you've kind of laid out how things are going there but is there any concerns about maybe farmers [Inaudible] down to cheaper products this year kind of as this is kind of counter to what the environment [Inaudible]?

Mark Douglas -- President, FMC Agricultural Solutions

No, I don't think any more than normal. I mean, Brazil is a very competitive marketplace. We're used to operating there. You'll remember we jettisoned a lot of our generic third-party products over the last couple of years.

So, we've really been focused on more of our proprietary portfolio. Doing very well in sugarcane insecticides, specialty insecticides for the soy area doing well. Obviously cotton is strong. So, we're not yet there but it's no worse than it normally is, in my opinion.

Dennis Long -- Jefferies -- Analyst

Okay, thank you very much.

Operator

Thank you. And your last question comes from the line of Chris Cash from [Inaudible]. Please go ahead.

Chris Cash -- Analyst

Good morning. I had a follow-up for each segment. Just in Ag, following up on the discussion around synergies with the DuPont acquisition. I appreciate the opportunity really focused or the big piece of the opportunity there is more about cost avoidance, in other words, cost you don't have to layer in as you absorb that business but I'm curious about how that is juxtaposed against the TSAs that are in place.

So, what is the magnitude the TSAs? You identified cost avoidance opportunities. Are those mutually exclusive or as you figure out what costs you don't need to avoid, do you then have to save some of the costs associated with current TSAs in place? I'm just trying to understand when you'll be able to recalibrate and what the real costs are necessary to run those businesses?

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Yes. We have a TSA with DuPont which is a cost we were expecting in the 15-million-dollar range for very well-defined services and over the next 18 months, this TSA is going to be phasing out which means we don't keep the TSA all the way to the end. Once this TSA was defined, our functional teams – Finance, IT and others – defined the bare minimum structure they would need to operate that business and that's what we are putting in place and we're making good progress to almost get to these points [Inaudible]. These points will be well below the model that we are not sure that this place will be strong enough for us to be able to operate the business for the two-year period where we have a TSA in front of us.

So, that is the process, we are following a target. I would say by early into next year, we should have a really strong idea of bare minimum plus what do we need to run the business which will create the operating model going into 2018.

Chris Cash -- Analyst

Okay, that's helpful. Thanks. And then just following up on the lithium business. You're looking at the Q4 guidance for, I think, 17% sequential earnings growth.

Just curious about one, the pricing assumption that's baked into that that sequential earnings progression and then also you mentioned that in the month of September, your new hydroxide plant was running at 9000 metric tons. Is that to imply that the product you're producing is fully qualified or are you in the process of still ramping up the qualifications? And if that's the case, can you just talk about do you see that qualification progressing sequentially in the quarter and into 2018.

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Yeah. Hi, this is Tom. Starting with the second question, customer qualifications went extraordinarily well. Traditionally in these markets, there's 9 to 12, I've seen even multiple-year qualification processes.

We are qualified across our customer base. There's a few still in the process but it relies on customer processes. So, there's no concern, we're qualified for the sales that we have forecasted. And in terms of the pricing, it's relatively minor impact, Q3 to Q4, the way that the mixes go.

It's relatively minor in price, mostly volume Q3 to Q4.

Chris Cash -- Analyst

And then could you just extrapolate on that last comment into 2018 at this juncture based on the contract that [Inaudible]? Thank you.

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

I had you had indicated we expect more than half of the benefit going into 2018 to be the price when and just started those conversations, so it could be a little bit better.

Chris Cash -- Analyst

Thank you.

Operator

Thank you. I'd like to turn the call over to Michael Wherley for closing remarks.

Michael Wherley -- Director, Investor Relations

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

Operator

Thank you. This concludes the FMC Corporation Q3 2017 earnings release conference call. Thank you.

Duration: 72 minutes

Call Participants:

Michael Wherley -- Director, Investor Relations

Pierre Brondeau -- Chief Executive Officer, President and Chairman

Paul Graves -- Chief Financial Officer and Executive Vice President

Chris Parkinson -- Credit Suisse -- Analyst

Mark Douglas -- President, FMC Agricultural Solutions

Frank Mitsch -- Wells Fargo -- Analyst

Robert Koort -- Goldman Sachs -- Analyst

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Ian Benning -- Bank of America -- Analyst

Dmitry Silversteyn -- Longbow Research -- Analyst

Don Carson -- Susquehanna -- Analyst

Joel Jackson -- BMO Capital Markets -- Analyst

Aleksey Yefremov -- Nomura -- Analyst

Mike Sison -- Keybanc -- Analyst

Daniel Jester -- Citigroup -- Analyst

Brett Wong -- Piper Jaffray -- Analyst

Dennis Long -- Jefferies -- Analyst

Chris Cash -- Analyst

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