Oct 30, 2014
Executives
Alisha Bellezza - Director of Investor Relations Pierre R. Brondeau - Chairman, Chief Executive Officer, President and Chairman of Executive Committee Paul W.
Graves - Chief Financial Officer and Executive Vice President Michael P. Smith - Vice President and Global Business Director of Health & Nutrition Mark A.
Douglas - President of Agricultural Solutions
Analysts
Michael J. Sison - KeyBanc Capital Markets Inc., Research Division Dmitry Silversteyn - Longbow Research LLC Michael J.
Harrison - First Analysis Securities Corporation, Research Division Kevin W. McCarthy - BofA Merrill Lynch, Research Division Frank J.
Mitsch - Wells Fargo Securities, LLC, Research Division Sandy H. Klugman - Vertical Research Partners, LLC
Operator
Good morning, and welcome to the Third Quarter 2014 Earnings Release Conference Call for FMC Corporation. [Operator Instructions] I will now turn the conference over to Ms.
Alisha Bellezza, Director, Investor Relations for FMC Corporation. Ms.
Bellezza, you may begin.
Alisha Bellezza
Thank you, Shannon. Good morning, everyone, and welcome to FMC Corporation's Third Quarter Earnings Call.
With me today are Pierre Brondeau, President, Chief Executive Officer and Chairman, who will review our quarter performance, business segment results and provide an update on our 2014 outlook; and Paul Graves, Executive Vice President and Chief Financial Officer, who will present select financial results. Following his comments, Pierre will then be joined by Mark Douglas, President, FMC Agricultural Solutions; Ed Flynn, President, FMC Minerals; and Mike Smith, Vice President and Global Business Director, FMC Health and Nutrition, to address your questions.
Today's discussions 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 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 that we may refer to during today's call, are provided on our website. Our 2014 outlook statement, which provides guidance for the full year and the fourth quarter of 2014, can also be found on our website.
I will now turn the call over to Pierre.
Pierre R. Brondeau
Thank you, Alisha, and good morning, everyone. Before I begin, let me start by providing some comments on the market dynamics that are affecting our businesses today.
Starting with Ag Solutions. 2014 has been an unusual year, with weather having a particular impact on our results.
As you recall, the prolonged cold winter in North America impacted planting decisions and ultimately, sales at -- of our plant insecticides in the first half. Additionally, the first half of the year was characterized by dry conditions in Brazil.
This also negatively impacted our sales to sugarcane growers. Unfortunately, Brazil is still experiencing drought conditions.
Not only has the dry weather in São Paulo state reduced demand in sugarcane, we have also seen it in the Mato Grosso region. There, it has led some growers to delay soybean planting into October as they wait for more favorable weather.
Europe has had a good season with favorable growing conditions for the major crops, such as wheat and oilseed rape, and good demand for certain crop protection product, especially fungicides. Asia is a more complex region with multiple markets and crops, each with its own dynamics.
For example, India is currently experiencing drought conditions. And in Thailand, the removal of rice subsidies is affecting a major rice-growing region.
China is itself a fragmented market, but it is expected to continue to increase the use of crop protection products in the near term. Overall, we expect Asia to continue to demonstrate growth for industry in the next few years.
North America quickly shifted from extreme cold to very favorable growing conditions, with lower-than-normal pest pressures in the growing areas creating fewer opportunities for full year applications. Today, these favorable conditions are leading to potential record yields in both soybean and corn, creating downward pressure on commodity prices.
We see some consequences of these lower prices in the near term. First, in Brazil, we expect more soybean acres to be planted, given the more attractive economics relative to other crops.
Planted acreage in cotton is likely to be stable, given the government programs to reimburse growers for low prices. However, it is clear that growers are making their final planting decisions and the related crop-protection buying selections later than usual this year.
In North America, the pattern of increased purchasing at the end of the year, which growers typically do in anticipation of their next season needs, may be more muted in the second half of 2014. As growers plan for the 2015 planting season, corn and cotton acreage are both likely to be reduced in favor of soybeans, although final planting decisions will likely be taken later than usual.
In Health and Nutrition, our diverse business and its end markets are showing similar growth patterns as in previous years. The pharmaceutical end markets remain robust, with our Avicel product line continuing to maintain its leading position.
Demand for our texturant products serving nutrition markets is also strong, with the exception of certain beverage applications in China. We have started to see the slowdown in overall economic growth in China impact consumer behavior, which when combined with tighter inventory management by certain customers, is leading to lower demand for some of our product.
We expect demand in these applications to remain relatively weak for the remainder of 2014. However, we are seeing stronger demand for food ingredients in North America, which is providing a favorable product mix.
In omega-3 markets, the number of FDA approvals for omega-3-based product reinforces our confidence in increased omega-3 pharmaceutical-grade demand in the coming years. The lithium market has been following a consistent growth trend in the recent years.
Demand in industrial polymer and pharmaceutical end markets is growing steadily, while demand in energy applications is growing more quickly, led by increased electric vehicle penetration. For our business, Argentina remains the biggest challenge to operations.
The challenges of operating in a high-inflationary environment are not new, but we are now starting to see the impact of import restrictions on their operations. For example, it was difficult to import certain critical engineering components into Argentina.
This resulted in increased operational costs in the third quarter. Despite these challenges and market dynamics, FMC had a record third quarter in 2014.
We generated $1 billion in revenue, an increase of 6% over the same quarter last year. Adjusted operating profit increased to $184 million, a 13% increase compared to last year.
And adjusted EPS was $0.95, an increase of 16% over last year, despite volatile conditions in the quarter. Let me now turn to segment results.
Third quarter sales in Agricultural Solutions were $549 million, a 4% increase over the third quarter of 2013. Segment earnings were $117 million, up 2% over last year.
Within Agricultural Solutions, the year-over-year growth in revenue was driven by Latin American business. The 9% growth in that region demonstrates the strength of our business model within a highly competitive marketplace and with challenging external conditions.
Increased weed resistance in Argentina resulted in higher sales of our Authority herbicides. And in Mexico, a focus in fruits and vegetables resulted in sales increase for our recently introduced Marceda [ph] insecticide and Rovral fungicide products.
We expect demand in both of these countries to continue to be strong into the fourth quarter. In Brazil, as I mentioned earlier, the drought conditions reduced demand for our sugarcane product, as growers cut back on all inputs and continued to replant at a lower rate than typical.
Offsetting this, we saw solid demand for our cotton and soybean products. Margins in Latin America improved versus the second quarter and versus last year, as we benefited from a mix of higher-value product.
This benefit was partially offset by increased spending on logistics, currency hedging, and research and development costs in the region. In North America, additional demand for cotton products was offset by weaker-than-normal pest pressures in the Midwest that reduced demand for the full year insecticide versus the previous year.
As we look toward the fourth quarter, Latin America will be the largest contributor to our results. We expect to continue gaining market share in Brazilian soybean as we expand our market presence with a broadening portfolio.
We also expect to benefit from the strength in cotton as the planting season gets underway in November. We expect growing demand for our soybean pre-emergent herbicide in North America, following an increase in market share in the 2014 season and supported by expectations of increased soybean acres and expansion of weed resistance in 2015.
We expect these factors to offset an otherwise weak overall market and lead to fourth quarter segment earnings to be flat to up single-digits percent over the previous year, which was particularly strong for us. Now turning to Health and Nutrition.
Segment revenues of $203 million increased 7%, and operating profit of $44 million was 6% higher than last year. In the quarter, demand in the pharmaceutical end markets that we serve was solid.
There was particularly strong demand for our tablet excipients in Asia and Europe, especially for the global pharma customers who produce generic prescription products. We also saw increased demand for alginates used in pharmaceutical applications.
Overall, Nutrition profitability benefited from changes to the mix of food ingredients sold. In North America, higher volume of texture and stability solution offset weaker-than-expected demand for similar products in China.
For the remainder of the year, increased demand in health markets, particularly in Europe and Asia, along with higher demand for nutritional markets in North America, is expected to offset continued weakness in demand for beverage applications in China. We expect omega-3 sales to be lower as certain customers shift orders into the first half of 2015.
As a result, we expect fourth quarter segment earnings to be flat to the previous year. Let me now review Minerals.
Revenue of $264 million increased 11%, and operating profit of $39 million increased 42% versus the same period last year. Both Minerals businesses performed as expected, as our Manufacturing Excellence initiatives continue to deliver volume and efficiency gains.
Higher soda ash pricing and improved operations in both Alkali and Lithium resulted in a significant increase in profitability over the third quarter of 2013. In Alkali Chemicals, revenue of $197 million increased by 9% over the previous year quarter.
Higher realized pricing and additional manufacturing volumes generated higher sales and profitability and offset the headwinds of higher energy costs. With regard to manufacturing operations.
We are now operating at or above record production levels despite encountering higher-than-average level of insolubles materials. We will move the longwall in the fourth quarter again this year, but we expect the higher year-over-year pricing and improved production will contribute to stronger Alkali profitability versus the fourth quarter of 2013.
In Lithium, sales of $67 million were 19% higher than the previous year. Improved operations produced additional volumes and allowed for higher sales in the quarter.
As I mentioned earlier, conditions in Argentina remained a headwind to profitability and had a negative impact on our cost structure. This headwind is expected to remain in the fourth quarter.
Nevertheless, we still expect that improved operations in Lithium will deliver low-teens profitability for the full year. In Minerals, our Lithium operations will achieve 12 consecutive months of improved operation in Argentina in the fourth quarter, and we expect near-record production in Alkali operation.
This strong performance is expected to be partially offset by the current challenges of operating in Argentina. Segment earnings are expected to grow mid-single-digits percent year-over-year.
I will now turn the call over to Paul to cover financial highlights.
Paul W. Graves
Thanks, Pierre. Let me start with cash flow.
For the year-to-date, net cash provided by operating activities was $235 million compared to $381 million at the same point last year. The biggest factor driving this lower performance is the Agricultural Solutions business, where we've seen different quarterly patterns of sales and collections all year.
This was especially the case in the third quarter this year, where growers in Brazil elected to retain possession of their harvested crops rather than sell at the lower prices. And they were aggressively managing the payments to their own suppliers accordingly.
We expect to generate approximately $350 million of cash from operations for the full year, slightly below last year, again, due to different patterns of business in Agricultural Solutions. The outcome of the full year will largely be driven by our receivables collection performance in Brazil, as well as the pattern of ordering, including prepayments we receive and rebates we pay in North America.
We are in very close and frequent dialogue with all of our customers, and we manage our exposure to each one very carefully. Despite the increased accounts receivable balance, we do not believe that there's been any meaningful deterioration of credit quality of our customer base.
Currency movements had very little impact on our revenue or earnings in the quarter. Although we continue to see some swings in exchange rates, movements in individual currencies largely offset each other or our exposures were hedged.
However, we did see currency movements impact our tax rate in the quarter. Our underlying tax rate remains in the 25% to 26% range.
However, the revaluation of certain monetary assets in Brazil and Norway created a buck [ph] credit of $5 million to our tax charge, leading to a reported rate closer to 22.5%. This did not impact our cash tax liability.
We continue to expect that our underlying tax rate will remain in the 25% to 26% range for adjusted earnings for the full year, excluding the impact from these discrete items. Starting in this quarter, we will provide additional disclosures to our adjusted tax rate in our 10-Q, showing these discrete items separately.
We funded approximately $53 million in capital additions during the quarter, which was primarily associated with the ongoing construction of the Thailand MCC facility and the gas pipeline in Argentina. We anticipate full year capital additions will be between $240 million and $270 million.
This is lower than we previously forecast due to a combination of timing, with some projects being deferred until 2015 or later, and increased discipline around our capital spending in the current environment. In the quarter, we incurred approximately $15 million of legal and professional fees associated with the acquisition of Cheminova and the divestiture of Alkali.
We also took out a series of forward currency contracts to hedge our exposure to Danish kroner as a result of the Cheminova acquisition. Finally, let me note that just after the quarter closed, we completed the acquisition of the remaining 6.25% interest in FMC Wyoming.
We made total payments of approximately $95 million to acquire this interest. Also after the quarter closed, in connection with the acquisition of Cheminova, we entered into a commitment for a term loan up to $2 billion and extended our $1.5 billion revolving credit facility out to October 2019.
With that, I will now turn the call back to Pierre to summarize and to give an update on both the Cheminova acquisition and the Alkali Chemicals sale process.
Pierre R. Brondeau
For the fourth quarter, we expect to deliver adjusted earnings of $0.95 to $1.05 per diluted share. For the full year, we expect adjusted earnings to be between $3.85 and $3.95 per diluted share.
The challenging environment in the agricultural markets we are seeing today does not diminish our excitement about the mid- and long-term prospects for our business. Agricultural Solutions, with its focus on innovation and technology and its ongoing investment in market access initiative, continues to outperform the crop protection industry.
The acquisition of Cheminova further strengthened our business, providing greater balance to our portfolio, a broader geographic reach and increased scale in areas such as research and development. We remain on track to close the acquisition in the early part of 2015.
As we previously said, we are targeting delivering synergies of approximately $100 million to $130 million by the third year, and we expect that the majority of the actions needed to deliver these synergies will be completed in the first 2 years. With regard to Alkali Chemicals, as you can see, the business continues to perform well.
We are on track to launch the sale process in the coming days, and based upon feedback so far, we expect a lot of interest. It remains our intention to announce the results of the sale process in the first half of 2015.
Now I will turn the call over to the operator for questions.
Operator
[Operator Instructions] Your first question comes from the line of Mike Sison with KeyBanc.
Michael J. Sison - KeyBanc Capital Markets Inc., Research Division
Pierre, when you think about 2015 for the Ag Solution -- your base Ag Solution business, given the puts and takes with where commodity prices are, can you maybe give us some help on what type of profitability you think this business can produce in this type of an environment?
Pierre R. Brondeau
Yes. Let me maybe take that opportunity to give you at least the FMC view of the market going into 2015 and what we are seeing, then I will tell you the -- what kind of growth rate we could expect when we talk about profitability.
So first, let me talk with our biggest region, Latin America, and mostly Brazil. If we look at Brazil from an overall acreage and crop protection chemicals, I would say, for us, it's a market which will be overall flat to flat to slightly up.
We see soybean flat to slightly up, the same for corn and the same for sugarcane, and maybe the place where we see the biggest challenge could be cotton getting into next year. So overall, that would be for us the region which will be the fastest growing, even if it's a bit sluggish compared to some other year.
North America, as an overall region, whether it's acreage or crop protection chemical, we see a market overall which is down single digit. We see soybean being quite good with the shift from corn into soybean.
And soybean acreage and crop protection chemicals being up in the low- to mid-single-digit percent. Corn being down in acreage and down to flattish for the crop chemical market.
Cotton, as in Brazil, we see cotton being a down market next year. So overall, a slightly down single-digit market for North America.
Europe, we also see a flattish type of a market, maybe oilseed rape will be flat to up. It's a very important -- to start the year.
It's a very important crop over there, but overall, a flattish market. Where we see Asia, up in the single digit.
It's a fragmented region. It's always a more difficult region to forecast.
But we could see Asia providing growth. So if you look at the overall market, acreage and crop protection chemicals, following the acreage, 2 regions will bring a flat to low single-digit growth, that would be Brazil, Latin America and Asia; and 2 regions will be flat to down single digit, that would be North America and Europe.
That results in -- would be in 2015 being a flattish market for -- flattish market, very low single digit overall worldwide. Now if I look at FMC and how can we perform in a market like this, I strongly believe that we will continue to outperform like we've done in previous years.
And I would say, like we have done this year, I think if you look quarter-to-quarter, the performance of our business is still very far from our expectation. But if you forget about our expectation and put the performance of our business against other crop chemical competitors, we are doing quite well.
So if I look into next year, 2015, what kind of growth could we expect? I think there is 4 very significant drivers for us of growth above market.
First, we still believe that our business model, speed of product development, formulation technology, decentralized model and very flexible model, will allow us to keep on growing above the market like we've done in the previous year. We're also going to see the start of the revenue synergies with the Cheminova acquisition, I would say most likely in the second half of the year, and Latin America, Brazil will be the first place where we will see those synergies.
I believe our new product, new technology and low market share, we will continue, as we have done this year, to gain market share in soybean and -- soybeans and corn. And last, very importantly, even if it is not at the level of what we've seen in the past, we still believe that Brazil and Latin America will be the fastest-growing region.
And remember, this is where we have more than half of our business. So you put those 4 factors together in an overall market worldwide, which will be flat to up low single digit, I think we could outperform the market somewhere between 300 basis points to 500 basis points.
That would be the forecast that we'll do. From a margin, I think this year, we've seen a dilution of margin, mostly due to the first half of the year, where you remember we had sales of a third-party product beyond what we were expecting.
But today, we are looking at margin for the fourth quarter, which will be very much in line with what we had in previous quarter. For the third quarter, we are very slightly under last year performance, but it's mostly a balance, North America and Brazil, which is not the same as we had in previous year.
Remember, North America is our highest-margin region. So nothing here which is fundamental problem with the business.
So we should be able to see the margin growing at the same speed as our top line, plus cost synergies we will be generating from the acquisition of Cheminova.
Michael J. Sison - KeyBanc Capital Markets Inc., Research Division
Great. And then just one quick one on Cheminova.
You've talked about improving that business from high single digits to high teens with the synergies over the next several years. How do you feel about the starting point, the high single digits, given that we're -- given the environment?
Is that really the place to start? Or have you rethought of the starting base for Cheminova as you enter '15 and '16?
Pierre R. Brondeau
No, I mean, as -- all of the information we have at this stage -- and remember, it's not closed, so we are still competing with Cheminova. But all of the information we have from the due diligence process, everything is telling us that the expectation to start in the high single digit is here.
They have been maintaining and they are very highly focused on protecting their margin. And then we do have, as I've outlined before, multiple actions we are expecting to take place to bring their margin to the high single digits.
Just to repeat myself, I think the first situation, the first opportunity we have are on cost synergies. Just on cost, not talking about revenue synergies, we're going to able to see the margin growing from the high single digit to the mid-double digit, around the 15%, and that is just by acting on the cost synergies.
Then there is pricing for right technology. I think they do have some very interesting technology, which blended with ours, is going to allow us to put on the market some very interesting product, which will allow us to have new technology.
And the mix is always favorable to us, and then revenue synergies in the right applications. So we've got all of those numbers outlined.
And I believe we're going to get, in the next 2 to 3 years, we're going to bring the high single digit to the 17%, 18%, 19% range.
Operator
Your next question comes from the line of Dmitry Silversteyn from Longbow Research.
Dmitry Silversteyn - Longbow Research LLC
But switching the gears a little bit to Health and Nutrition. Can you talk a little bit about what's going on with the omega-3 FDA approvals and sort of why the change in timing?
Also, can you provide a little bit more detail on the Chinese beverage market that seems to be causing you a little bit of a headwind, both on top line and margin? And just talk about sort of the outlook for the business for the fourth quarter in terms of fundamentals, probably more so than any specific guidance, which you already provided.
Pierre R. Brondeau
Let me give you an overview, and then I'll ask Mike to give some more color. First, omega-3, it is not completely surprising what we are facing.
As you know, we bought a new business, a new technology, and we're going to have to grow that business. So we know and we knew from the beginning that we're going to have a dependence at the beginning on some large pharmaceutical customers who are placing orders, which are the bulk part of our -- the biggest parts of our business.
Those customers are themselves new players or companies growing in omega-3. So we have a new product we are selling to customers.
We are pushing in the market a new product. All of this is working well.
But we know until we have more pharmaceutical customers and we have developed the right nutraceutical product, which will give a broader base to our business, it is going to be lumpy. We -- right now, we rely on too few customers, which are very large, to have a regular demand.
So we had a couple of them. The biggest one, which are -- their market penetration is a bit slower than what they were expecting.
They are bringing new product to the market. So they have asked us to take the order in the first quarter, if we wouldn't mind.
It was in the fourth quarter. And of course, being a partner as we are, we agreed to move those orders to the first quarter.
So this one is -- I have to say, this one around omega-3 is not a surprise, is not concerning. It's going to take a good year for us to have the new nutraceutical product, have our customers establish their market.
We knew it from day 1. It's always the uncertainty when you penetrate a new market with a new technology.
I think the one where we are having a closer eye is the situation -- the MCC situation in China. The second quarter was slower than expected.
The third quarter was slower than expected. I think there is some impact of the economy and the growth of the economy in China, which is maybe seeing less penetration in term of growth rate of those high-end beverage in China than we were expecting, which has led some of the very large suppliers to control their stock and their inventory.
Now if it is -- if the slowdown versus what we're expecting is mostly the result of our customers controlling their inventory better because the growth rate is in the, call it, high single digit, low double digit instead of the 20%, then it's not a big problem. If it is because there is a more intrinsic slowdown of the penetration of those products in the beverage industry, then it is a more serious question.
And that's what we are trying to sort through. It's 2 quarters of slower growth.
And even this quarter, I think, Mike, there was no growth for the MCC business. So we have to understand what are the very key drivers behind that performance.
As I say one -- in one case, inventory correction, I'm less worried. More fundamental demand, then I would be a bit more concerned around what we need to do next to still continue to grow in this market.
Mike, do you want to give some more colors?
Michael P. Smith
I think the one thing that I would add to Pierre's comments is that starting the end of last year and into the beginning of this year, there have been some significant increases in dairy protein, and that has also reduced some of the demand for dairy protein beverages. So that, combined with some of the lower growth in consumer demand in China for dairy protein beverages, and also a significant slowdown in peanuts-based beverages, has really caused a reduction in the demand.
And also, as Pierre mentioned, as those significant customers had continued to grow last year and produced a lot of product into the beginning of this year, we have seen a few of our very large customers start to reduce their inventory throughout a very extensive retail system throughout China during the last few quarters, and we expect that to continue into the fourth quarter. And of course, as Pierre mentioned, really, we're really focusing on the underlying demand for some of these important segments and trying to determine more specifically when, and to the extent that demand in China will regain its growth pattern.
Pierre R. Brondeau
So in summary, omega, not a big problem, expected, new market, new technology. MCC, we really want to stay very close to the action to understand the fundamental reasons for the slowdown.
Dmitry Silversteyn - Longbow Research LLC
Okay, that's helpful. And as a follow-up, can I ask a quick question about the Minerals business and the guidance for 2014 -- 2015 fourth quarter -- I'm sorry, 2014 fourth quarter?
The flattish guidance on the EBIT line, is that largely the function of the Argentinian issues with Lithium? Or -- because I mean, the longwall move falls basically in the same quarter, so that shouldn't be incrementally different unless you expect to experience higher costs in moving the longwall versus last year.
So is this -- is the Lithium problems, in terms of Argentinian extra costs, severe enough to kind of offset the growth that you would expect with Alkali, which you had a pretty good 9 months year-to-date?
Pierre R. Brondeau
Yes. So let me give to you a little bit the dynamic, and, Ed, please jump in.
But I think if you look at overall Minerals, it is going to be a quarter which will be flat year-on-year. And if you exclude the shutdown of the plant we have, it will be about the same profitability sequentially from the third quarter.
So we believe, year-on-year, we're going to be up mid-single digits versus a year ago, and we are very strong here in the second quarter. But the second quarter, I must say, was -- the business has been operating very, very well.
It was almost flawless operation, pricing was good. Plant operation was good in both businesses.
But it was a fairly easy comp, if you look from a year ago when we had multiple issues. So the 30-plus-percent growth in earnings for the business in Q3 is not completely representative of what we're expecting as being a regular growth in earnings for that business.
I think the business continues to operate well. We believe it's going to be operating the same way in the fourth quarter as it did in the third quarter, but I think we're going to be against a much stronger quarter last year.
But there is no fundamental change around pricing, operation of the plant. We have the turnaround in the middle, but there is no fundamental changes going into Q4 from Q3, it's about the same performance.
The comp was easier in Q3 than it is in Q4. And if you look at our numbers last year, Q3 was by far the weakest quarter we had in Minerals.
Operator
Your next question comes from the line of Mike Harrison from First Analysis.
Michael J. Harrison - First Analysis Securities Corporation, Research Division
Paul, I wanted to ask you a little -- to dive a little bit deeper on the cash conversion. If I look at kind of where this year is probably going to shake out, it looks like you're guiding to 8% or 9% cash from operations as a percent of sales.
If I look at where your EBITDA margin is going to shake out, probably 21% or 22%. Does the receivables issue and maybe other working capital stuff explain that gap fully?
Or can you maybe walk us through why there's such a big gap between the cash conversion and the EBITDA margin?
Paul W. Graves
The biggest factor is, by a distance, working capital, and it's largely driven by -- if you look back historically, we've grown our receivables in the major market in Brazil, double digit each year, in line with how the sales in some -- in that market has grown. And what we've seen this year, that's being compounded a little by slower collection rates.
You can take a glance at that balance sheet and see how the accounts receivables have expanded, certainly, in advance and greater than the revenue has. So that, by far, is the single biggest factor that drives that delta between the EBITDA number and the cash conversion number.
Michael J. Harrison - First Analysis Securities Corporation, Research Division
Great. And then on the Ag side, you noted in North America that pest pressure was lower than expected.
And I was just hoping to understand whether that means there's a lot of inventory built up in the channel, either at farms or maybe at distributors' warehouses, that could negatively impact next year's sales. Is that how it works?
Or do you guys end up buying the products back when they go unused, so you have a better sense of where the inventory levels are? And then maybe address the same issue, whether that's taking place in South America.
Mark A. Douglas
Yes, Mike, it's Mark here. I'll take that one.
From a North America perspective, I would say it's a mixed bag in terms of what we see for channel inventories. Given the conditions we saw earlier in the year, given the extreme cold and what happened with soil insecticides for the corn space, I would say we're going into next year with elevated channel inventories in that space.
So that's something that we're watching very carefully. I would say on the opposite end of the spectrum, we had a very good year with our pre-herbicides on soy, our Authority brands.
I would say we're going into next year with normal or even low inventories in certain parts of the country in the channel, so that bodes well for 2015 on our soy herbicides business. Looking down in Brazil, clearly, what we saw going through the third quarter was grower intentions changing in terms of timing, given what they saw with commodity prices and certainly, the weather aspects in Mato Grosso and in São Paulo state.
I would say, going into the season now, channel inventories are high. Obviously, we're waiting for the rains to come.
They're supposed to come in the next week or so. Once that happens, things will start to free up, but it's definitely delayed.
And I would say, yes, channel inventories are elevated in Brazil. Not necessarily so in Argentina, by the way, probably the opposite there, where we're seeing good need for our pre-herbicides once again.
Problem is -- there is getting the import materials through the borders.
Operator
You're next question comes from the line of Kevin McCarthy from Bank of America.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
I guess a two-part question on soda ash. First, I think you indicated you paid $95 million for the 6.25% interest in your Wyoming operations that you didn't already own.
I was wondering how you arrived at that value. And then the second part, since the last earnings call, I think you quantified the expected dilution from the future divestiture of the business at $0.55.
And if I look at the new EPS range for 2014, it's roughly 14% of that range, a fairly large number there. And so I'm wondering how committed you are to divesting the business and whether the changing market conditions are something that you're watching in that context.
Paul W. Graves
Let me take a stab at those questions. I think, first of all, in terms of the purchase of the FMC Wyoming stake, we had a long-term relationship with the holder of that stake, Sumitomo, and various contractual rights and commitments on both parties' side, which shaped, in some regard, the way we structured the buyout and the valuation of that buyout.
It was a negotiated deal, as you can imagine. Removing a 6.25% minority holder so that we could actually have full control and pursue what we needed to with regard to ownership of that asset was valuable to us.
There was a bunch of, without getting into the details, payments that were historical dividend catch-up, and there were some payments that were to take them out. But it was a base valuation that we negotiated with the other side rather than anything mechanical I can necessarily share with you.
In terms of 2015 and the dilution impact we've talked about, our assumption and our method has always been to assume -- to forecast 2015 as broadly being in line with 2014. We don't have anything particularly large and major that we can point to today that would suggest 2015 is going to be significantly different based on contracted prices or anything else.
And so it remains our best estimate as to the likely performance for 2015. And I think we remain committed to a sale of that business.
We think it's going to be a very attractive business to a number of buyers. We think it's a business that certainly doesn't form a long-term part of FMC into the future as we close on Cheminova.
And we think it's the prudent thing to do with regard to our balance sheet. We've talked many times about the importance of having a strong and flexible balance sheet as we operate in the Ag business.
As Pierre pointed out, over half of our Ag business is in Latin America, and they have very different working capital terms down there. We think a strong balance sheet is really important to our business, and so we remain very committed to selling it.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
Okay, that's clear enough. The second question, if I may, on the Ag business.
What percentage of your herbicide sales would you say are sold to address glyphosate-resistant weeds?
Mark A. Douglas
Yes, good question, Kevin. I would say, with the pre-herbicides for us, Sulfentrazone is our big molecule both in Argentina, growing in Brazil and in North America.
It's probably in the 65% to 70% range in terms of selective herbicides. So it's a big market for us, a big molecule, continue to see that weed resistance grow in North America.
As I said, we're starting to see it in Brazil now. We're ideally placed to see that suite of products grow.
And we're adding to both the pre- and the post-herbicides as we continue our innovation development.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
Just to be clear, Mark, if I look at that 65% to 70% that is selective herbicides, would all of those address glyphosate-resistant weeds or just a subset? What would the next cut on it be?
Mark A. Douglas
Yes. I'd have to get -- I'll get with Alisha and come back to you on that exact cut, Kevin.
It is the majority, but the exact percentage, I don't have right now in front of me.
Operator
Your next question comes from the line of Frank Mitsch from Wells Fargo.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
A couple of clarifications here. In terms of -- Paul, you mentioned that the expectation on soda ash 2015 was essentially flat with '14.
I know we're coming up on contract time for the 2015 contract in a month or so here. So is the general thinking that soda ash pricing 2015 might be flat then?
Pierre R. Brondeau
We are looking -- it's still very early in the process. We close those contracts throughout November, December.
But I would say, today, there is not, looking at the growth, a lot of room. So it is a low single-digit potential increase in pricing.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
All right, terrific. And then, Pierre, on the movement of the longwall, that's about a $4 million impact, is that correct?
Pierre R. Brondeau
That's correct.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
All right, great. And then I was struck by the comment talking about Ag, and thank you so much for the detailed look at 2015, that you're expecting sugarcane in Brazil to essentially be flat in 2015.
And obviously, you suffered through the drought here in 2014. I know commodity pricing is running against you.
But why would do think that, that would just be flat for you guys and not potentially higher?
Mark A. Douglas
Yes, Frank, it's Mark. You're right, we've suffered through a couple of years of pretty major declines in terms of that industry's profitability and then hence, the inputs.
I think we're just taking a prudent course of action here. We've been hit not only by commodity prices in terms of the world sugar price, but also ethanol caps in Brazil, they've impacted the industry.
And not to forget that perhaps even bigger than that is the weather impacts, and predicting weather, as you know, is not easy. So I think we're just taking a cautious approach to sugarcane.
We've had 2 years of very, very difficult conditions, and we're forecasting that to roll into early part of next year. Of course, that could change, but I think this is just the best course of action.
Pierre R. Brondeau
And one additional thing, Frank. You are correct, I mean, the sugarcane situation in Brazil is complicated because on one side, there is low production, which is due to the drought situation, but there is also because of the cap on oil pricing and -- which creates a limitation on the ethanol pricing.
There is, actually despite the low production, it's one of the product -- we are following very closely what is called the stock-to-use, which is a very important ratio in terms of understanding how much inventory is building up. And today, if you look in Brazil, sugarcane is one of the place where there is the highest stock-to-use ratio.
So despite the low production, because of the issue on the ethanol side, there is a very high stock-to-use. Now as Mark said, so we are taking the approach that in the short term, because there was not a change in regime, the government is the same, same president, same government, we are not forecasting a change in term of freeing the pricing at the pump.
If such an action would take, it could definitely change that picture, but we cannot anticipate that. So assuming price of ethanol keep the same limitation, because of the size of the stock-to-use, right now, we are forecasting a flattish market in Brazil.
Operator
And your last question comes from the line of Sandy Klugman from Vertical Research.
Sandy H. Klugman - Vertical Research Partners, LLC
So a two-part question on Ag. Soy has obviously become a bigger part of your portfolio.
This should position you well in the acreage outlook going forward. But I was hoping you could comment on how the margins for soy sales compare to other key end markets, such as fruits and vegetables, cotton and sugarcane.
And then the other question is, just in North America, we're getting closer to the commercialization of dicamba-tolerant and 2,4-D-tolerant traits. How do you expect this to impact demand for your Authority product line going forward?
Mark A. Douglas
Yes, Sandy, let me take the first one. On the soy complex for us, free herbicides are very important, but we also have a mix of both fungicides down in Brazil, as well as insecticides.
I would say, when you look at our overall EBIT margins, soy is right at the average of all of our product range. So it doesn't skew it up or down.
It puts us basically in our 20% range. So it's a key contributor to the portfolio, but it's not just any one product, there is a whole suite there.
To answer your second question on the new traits that are coming through, yes, obviously, we're watching this very closely in terms of the EPA authorization and what a lot of people are looking at in terms of how that will impact the soy market. Like a lot of genetics, when they come in, you do see a decrease in terms of chemistry.
But then depending on how resistance builds, the chemistry comes back. So yes, I think there will be an impact.
But I think one thing that's very important for people to remember is, we still have market share to gain in many parts of the world. So for us, the soy complex is something we're still focused on with new technology we're bringing to market.
So despite genetics coming in with different traits, we believe it's still a very attractive space to us as we develop new alternatives.
Pierre R. Brondeau
All right. So just to conclude, let me give a few words to conclude the call.
We understand that the performance of the company is not at the level of our expectation because we're operating under difficult market conditions in our core segment. Nevertheless, within the context of the market we have today, we believe we continue, especially in our Ag business, and to some extent, in our Health and Nutrition business, to perform above competition.
From a transformation standpoint, we feel now we are at the right place. The Alkali business is generating a lot of interest, so we should have a pretty smooth and competitive process.
Cheminova, we have no concern. We are still feeling very strong that it was the appropriate move for us in our journey to building a very strong Ag, Health and Nutrition company.
The company next year will be larger, simpler, more focused. We do expect to continue to deliver strong results with a highly predictable Health and Nutrition business.
And definitely, as I said before, we are definitely expecting, for all the reasons I've been stating, to outperform the Ag market. So we are in the process of a transformation.
We know that first quarter, we'll see a lot of movement. We do expect to have much more clarity as soon as the acquisition is closed and the sale of the Alkali business is done.
And that should lead us to a very solid year for 2015, within the context, once again, of the markets we're operating in. But I certainly expect a strong year, above market condition for our company.
As soon as we have clarity, which mean we have signed on Alkali and we have closed on Cheminova, we will bring investors and analysts together with us and give you a full picture. We will go through our regular Vision 2020 exercise.
We will do it a bit differently this year, I think, because of all the moving parts. We'll give you a much more granular view on '15, '16 and '17, and then a strategic direction for 2020.
But I think it will be important for us to state the shorter term, '15, '16 and '17 in a much more precise way because of all the moving parts. So thank you very much for your attention, and we'll be in touch.
Thanks.
Operator
Thank you. This concludes the FMC Corporation Third Quarter 2014 Earnings Release Conference Call.