American Vanguard Corporation (AVD) Earnings

Management highlights

### Market Context - The U.S. crop protection market remains difficult, pressured by sustained high capital costs, elevated fuel and fertilizer costs from the Middle East conflict, and conservative just-in-time, often deferred purchasing behavior from distributors, retailers, and growers. - Longer-term structural shifts impacting agricultural demand include multi-year declining overall alcohol consumption and changing consumer eating habits driven by rapid uptake of GLP-1 drugs. - International markets face additional headwinds from adverse El Nino weather, broad inflationary pressure, and higher raw material prices. ### Operational Progress - The company is outperforming peers in U.S. markets despite challenging conditions: total H1 2026 revenue is flat year-over-year, while U.S. sales grew 6% overall. - Gross margins improved 100 basis points to 30% in H1 2026 on modestly lower revenue. Q2 2026 gross margins of 30% were 100 basis points lower year-over-year due to lower volumes, shipment timing, and elevated freight costs that reduced full-year margins by an estimated 2.5%. - Cost reduction initiatives are delivering progress: LA plant rationalization and headquarters relocation completed in H1 2026 will generate annualized cost savings of at least $4 million, with lower costs and reduced transformation expected starting in H2 2026. GAAP operating expenses declined $1.2 million year-over-year in Q2, with SG&A down 7% ($2.1 million). - New product development investment is prioritized: R&D spending increased 12% year-over-year in Q2, and the company added experienced industry leader Herman Castro as Senior Vice President of Marketing and Business Development in July 2026 to lead the innovation pipeline. The company targets 50 new product launches over the next five years, driving $100 million in annualized revenue by 2030. - Working capital discipline is enforced: inventories were $181 million at quarter end, a $10 million improvement year-over-year from tighter production planning. The company maintains focus on cash management to meet seasonal working capital needs.

Guidance

- Full-year 2026 guidance is maintained: the company continues to expect adjusted EBITDA of $44 million to $48 million on total net sales of $530 million to $550 million. Management confirms this full-year guidance remains achievable, as Q2 shipment delays shifted into Q3 leave the Q3 order book stronger than year-ago levels. - The company's top priority is reaching double-digit EBITDA margins as soon as possible, targeting a $600 million annualized run rate revenue by the back half of 2028 (20% above 2025 full-year levels). Management will strive to beat this target, but faster achievement depends on recovery in U.S. and global agricultural markets. - Over the next two years, improved profitability and lower net working capital are expected to generate solid free cash flow, enabling net debt reduction that will position the company well for upcoming debt refinancing.

Segment performance

For Q2 2026, total company net sales were $117 million, down from $129 million in Q2 2025. For H1 2026, total net sales were $240 million, a 2% decline from $245 million in H1 2025. - **U.S. Crop Segment**: Q2 2026 sales decreased 9% year-over-year, driven by timing shifts of cotton portfolio sales into Q3 2026, lower insecticide demand from low bug pressure and cautious grower spending. These declines were partially offset by strong herbicide sales and stable soil fumigant demand. On a H1 2026 basis, U.S. crop sales were up 5% year-over-year, supported by full-period herbicide strength and concentrated early demand for granular and cotton insecticides. This segment contributes the company's highest margin offerings. - **Specialty Business Segment**: Q2 2026 sales grew 11% year-over-year, with 10% growth for H1 2026. Growth was broad-based across multiple segments, with above-forecast demand for OHP-led biological solutions and turf products. - **International Segment**: Q2 2026 sales were down 18% year-over-year, with a 13% decline for H1 2026. Weakness stemmed from dry El Nino-related conditions in Central America that delayed and reduced product use, paused shipments due to local labor unrest, reduced Mexican herbicide sales from lower agave acres, and softened Brazilian demand for copper fungicide due to higher prices driven by raw material cost increases.

Risks & headwinds

- Sustained weakness in the global farm economy, driven by high capital costs, elevated input costs, and ongoing geopolitical conflict, has led to persistent cautious and deferred purchasing behavior from growers and channel partners, creating volatility in quarterly sales and shipment timing. - Adverse weather (including super El Nino events), inflation, and high raw material costs continue to pressure international sales volumes and margins. - Elevated freight costs have materially reduced margins, cutting 2.5% from full-year 2026 margins to date. - A prolonged trough in the agricultural market cycle could delay achievement of the company's 2028 growth and margin targets. - Structural demand shifts from changing consumer behavior (declining alcohol consumption, GLP-1-driven eating habit changes) create ongoing headwinds for agricultural product demand.

Analyst Q&A

• Q: Competitors have noted increasing pricing pressure across Latin America. What pricing trends is American Vanguard seeing in its regional portfolio? /

  A: Higher raw material costs have pushed up prices for the company's copper fungicide in Brazil, which has led to lower demand for that product. Freight cost increases across global markets are being passed through to customers via new pricing implemented in July 2026, and these price increases are currently being accepted by the market. The company is not seeing broad-based unmanageable pricing pressure across the region.

• Q: With delayed Q2 orders shifting into future quarters, how confident is management in meeting the maintained full-year 2026 guidance, and how is the order book tracking for the second half? /

  A: Management remains fully confident the 2026 guidance is achievable. Q2 shipment delays simply rolled into Q3, leaving the Q3 order book in a stronger position than it was at the same time last year. Management has positive visibility for Q3 and the remainder of 2026.

• Q: The 2028 target of $600 million annualized run rate revenue and double-digit EBITDA margins: is this target dependent on a recovery in agricultural markets, or can it be achieved through internal actions even if market conditions remain weak? /

  A: The target of $600 million annualized run rate by the back half of 2028 assumes a typical cyclical recovery in the agricultural market, which management expects to occur by 2027 to 2028 after the current prolonged downturn. If market recovery is delayed, the company will adjust its operations and continue making internal improvements to progress toward the target, controlling what it can to deliver growth regardless of external conditions.