FMC Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. FMC is an agricultural sciences company operating as one reportable segment. Interim financial statements were reviewed by KPMG, not audited.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $1,344.3 million | $1,350.8 million | Down $6.5 million; essentially flat |
| Gross margin | $581.3 million | $572.7 million | Up $8.6 million |
| Gross margin percentage | Approximately 43% | Approximately 42% | Up about 1 percentage point |
| Income from continuing operations | $207.4 million | $226.8 million | Down $19.4 million |
| Net income attributable to FMC stockholders | $196.0 million | $207.4 million | Down $11.4 million |
| Diluted EPS attributable to FMC stockholders | $1.55 | $1.64 | Down $0.09 |
| Adjusted EBITDA (non-GAAP) | $361.7 million | $354.8 million | Up $6.9 million |
| Adjusted earnings from continuing operations (non-GAAP) | $223.1 million | $238.7 million | Down $15.6 million |
| Interest expense, net | $51.4 million | $29.9 million | Up $21.5 million |
| Operating cash flow, continuing operations | $(851.3) million | $(597.8) million | Cash outflow increased |
| Free cash flow (non-GAAP) | $(915.2) million | $(663.7) million | Cash outflow increased |
Q1 working-capital movements were significant, including outflows from customer advance payments ($665.9 million), inventory ($257.9 million) and receivables ($288.8 million). FMC attributed cash-flow seasonality in part to advance payments received in Q4 and receivable collection timing.
At March 31, 2023, cash was $494.4 million, total debt was $4.213 billion, and total equity was $3.495 billion. Short-term debt and current maturities totaled $1.879 billion, versus $540.8 million at year-end 2022, including $1.206 billion of commercial paper. Available capacity under the revolving credit facility was $626.9 million. FMC reported compliance with debt covenants; leverage was 3.08 against a maximum of 3.50, and interest coverage was 7.86 against a minimum of 3.50.
Material changes and management commentary
- Revenue was essentially flat, but organic revenue increased about 4% excluding foreign exchange. Pricing contributed approximately 7%; foreign exchange was an approximately 4% headwind and volume an approximately 3% headwind.
- Regional revenue increased approximately 28% in North America, while declining approximately 12% in Latin America, 4% in EMEA and 22% in Asia. Management cited strong North American demand and new-product sales; drought-related missed applications in parts of Latin America; Russian-operation exit and registration losses in EMEA; and channel inventory reduction and delayed growing seasons in Asia.
- Gross margin improved as pricing and lower cost of sales more than offset lower revenue. Adjusted EBITDA rose 2%, with pricing benefits offset in part by foreign exchange, lower volume and raw-material costs.
- Net income declined principally as higher interest expense offset operating progress. Management attributed the increase in interest expense mainly to higher domestic interest rates.
- R&D expense increased 9% to $78.4 million, reflecting pipeline investment, inflation and labor costs. SG&A declined 1% to $185.9 million.
- Other charges included a $6.9 million Pakistani rupee remeasurement charge. Restructuring and other charges totaled $12.5 million, including $2.3 million of environmental charges.
Outlook, risks and contingencies
- 2023 outlook: Revenue of approximately $6.08–$6.22 billion; adjusted EBITDA of $1.50–$1.56 billion; and adjusted diluted EPS of $7.34–$7.94. These are non-GAAP measures; FMC did not provide corresponding GAAP forecasts.
- Management expects new launches and market-access initiatives to support volume growth, mid-single-digit full-year pricing, and foreign exchange to remain a moderate revenue headwind. Input-cost inflation is expected to decelerate and potentially become a year-over-year tailwind in the second half.
- FMC expects 2023 operating cash flow of approximately $800–$920 million and non-GAAP free cash flow of approximately $530–$720 million. The outlook assumes slower working-capital growth but includes higher cash interest and taxes. Capital expenditures and contract-manufacturer spending are projected at $140–$180 million.
- Environmental reserves, net of recoveries, were $522.5 million. Estimated reasonably possible environmental losses exceeded recorded accruals by approximately $200 million; actual costs could be higher. Management believes these obligations are unlikely to materially affect liquidity or financial condition because they may be paid over many years.
- Other exposures include customer/vendor financing guarantees of $130.6 million and retained legal and environmental liabilities from discontinued operations. FMC reported no significant contingency updates from its 2022 Form 10-K.
- Market risks include currency and interest-rate movements. The debt portfolio was 52% variable-rate; a one-percentage-point rate increase was estimated to increase gross interest expense by $5.5 million for the quarter. FMC uses derivatives to manage exposures.
Important facts for investors to verify
- Whether seasonal collections, customer prepayments and inventory movements convert into the forecast operating and free cash flow.
- Commercial-paper refinancing, near-term debt maturities, revolving-facility availability and continued covenant compliance.
- Delivery of revenue, adjusted EBITDA and adjusted EPS guidance, including assumptions for pricing, volume, foreign exchange and input costs.
- Developments in environmental and discontinued-operation liabilities, including the estimated $200 million excess of reasonably possible losses over accrued amounts.
- The effect of higher interest rates and currency movements on earnings, cash flow and debt servicing.
- Non-GAAP results and outlook should be considered alongside GAAP results; FMC states that certain components needed to forecast comparable GAAP measures are not predictable.