FMC Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. FMC is a global agricultural sciences company operating in one segment. Interim financial statements are unaudited and were reviewed by KPMG.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,377.2m | $1,194.0m | $4,180.3m | $3,631.6m |
| Gross margin | $477.5m; 35% | $511.5m; 43% | $1,641.2m; 39% | $1,553.2m; 43% |
| Net income attributable to FMC stockholders | $121.0m | $159.7m | $462.6m | $548.9m |
| Diluted EPS attributable to FMC stockholders | $0.95 | $1.24 | $3.65 | $4.23 |
| Adjusted EBITDA | $261.0m | $291.9m | $975.3m | $943.7m |
| Adjusted after-tax earnings from continuing operations | $155.6m | $183.9m | $639.4m | $617.1m |
Revenue rose 15% in both periods year over year; excluding unfavorable currency effects of about 4%, organic revenue growth was 19%. Volume and pricing each contributed approximately 12% and 7%, respectively. Q3 growth was led by Latin America and North America; EMEA and Asia revenue declined in reported dollars.
Q3 gross margin fell $34.0m as inflation and currency headwinds outweighed volume and pricing gains. Nine-month gross margin increased $88.0m, but margin percentage declined. Q3 stockholder net income decreased 24%, reflecting lower gross margin and a higher tax provision. Nine-month net income fell as higher restructuring and other charges, SG&A, and taxes more than offset gross-margin growth.
Cash flow, debt and liquidity
- Cash from continuing operations was $15.7m for the first nine months, versus $298.2m in 2021. Management cited seasonal working-capital needs, including receivables, inventory and customer-payment timing.
- Free cash flow, a non-GAAP measure, was negative $138.8m versus positive $149.8m. Cash used in investing was $294.2m, including the BioPhero acquisition; financing provided $197.7m, primarily reflecting higher commercial-paper borrowing.
- Cash was $363.8m at September 30, 2022, down from $516.8m at year-end 2021. Total debt was $3.56bn, up from $3.17bn; short-term debt and current maturities rose to $826.3m.
- Commercial paper outstanding was $660.3m. Available borrowing capacity under the revolving facility was $1.18bn. FMC reported compliance with debt covenants; leverage was 2.84 against a 3.50 maximum and interest coverage was 9.35 against a 3.50 minimum.
Outlook, material developments and risks
- FMC raised 2022 revenue guidance to $5.6bn–$5.8bn and narrowed adjusted EBITDA guidance to $1.37bn–$1.43bn and adjusted diluted EPS guidance to $7.10–$7.60. These are non-GAAP forecasts; the company did not provide comparable GAAP guidance.
- Full-year free cash flow guidance was lowered to $440m–$560m. Cash from continuing operations, excluding transaction-related cash flows, was forecast at $650m–$710m. Management cited higher expected Q4 sales not collected in-year, targeted inventory levels and inflationary working-capital needs.
- FMC ceased Russian operations and recorded a $76.1m charge for the first nine months, primarily noncash asset write-offs; about $7m of cash was stranded. Russia-related supply-chain and cost effects remain a concern.
- FMC acquired BioPhero for approximately $190m in July. Management expects pheromone products to contribute approximately $1bn of revenue at above-company-average EBITDA margin by 2030; commercialization, registration and scale-up remain uncertain.
- Accounting methods changed retrospectively in Q3: U.S. inventory valuation moved from LIFO to FIFO, and pension accounting for a defined-benefit plan asset class moved to a fair-value approach. The inventory change increased reported September inventory by $116.2m; combined changes increased reported nine-month 2022 net income by $4.4m.
- Environmental reserves, net of expected recoveries, were $456.7m. Reasonably possible environmental losses exceeded recorded accruals by approximately $160m; FMC said actual losses could be higher, though payment may extend over many years.
- Patent risk increased for chlorantraniliprole (Rynaxypyr): its composition-of-matter patent expired in certain countries in August 2022, and two challenged Chinese patents were ruled invalid by the review board. Appeals are pending; the patents remain valid but unenforceable in China during appeal.
- Other pressures include higher raw-material, energy, logistics, packaging and labor costs, foreign-exchange exposure, volatile interim tax rates, legacy environmental and legal liabilities, and ongoing COVID-related uncertainty. FMC said no goodwill or indefinite-lived intangible impairment was identified in its annual 2022 test.
Key facts for investors to verify
- Whether pricing and volume continue to offset input-cost inflation and currency effects, and whether gross margins recover.
- Working-capital conversion, especially receivables, inventory and seasonal customer prepayments, against the lowered free-cash-flow outlook.
- Debt, commercial-paper usage, interest expense and available credit as short-term borrowing rises.
- Progress toward BioPhero commercialization and the assumptions underlying its long-term revenue and margin potential.
- Developments in Chinese patent appeals and post-expiry competition for chlorantraniliprole.
- Environmental liability estimates and the potential timing and amount of costs beyond recorded reserves.