FMC Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. FMC is a global agricultural sciences company operating as one business segment. Interim financial statements are unaudited and were reviewed by the independent auditor.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,194.0 million | $1,084.6 million | $3,631.6 million | $3,489.9 million |
| Gross margin | $512.8 million; 43% | $466.4 million; 43% | $1,557.0 million; 43% | $1,550.6 million; 44% |
| Net income attributable to FMC stockholders | $157.9 million | $111.4 million | $543.4 million | $502.0 million |
| Diluted EPS attributable to FMC stockholders | $1.22 | $0.85 | $4.19 | $3.84 |
| Adjusted EBITDA (non-GAAP) | $293.2 million | $262.9 million | $947.5 million | $960.3 million |
| Operating cash flow, continuing operations | Not presented for the quarter | $298.2 million | $313.5 million | |
| Free cash flow (non-GAAP) | Not presented for the quarter | $149.8 million | $147.8 million |
- Q3 revenue rose 10% year over year, including approximately 9% organic growth and 1% favorable currency impact. Growth was led by Asia (+20%), EMEA (+12%) and Latin America (+11%); North America declined 6%, largely due to a shift of diamide partner sales to other regions.
- Q3 adjusted EBITDA increased 12%, supported by volume growth and favorable currency, partly offset by higher selling, R&D, raw-material, packaging and logistics costs. Nine-month adjusted EBITDA declined about 1% as cost increases and spending outweighed volume growth.
- Nine-month operating cash flow fell $15.3 million. Working-capital pressures included a $371.2 million inventory increase and a $170.8 million increase in receivables, partly offset by higher accrued rebates and accounts payable. FMC said inventory was built to support demand and mitigate supply-chain volatility.
Balance sheet and liquidity
- At September 30, cash was $341.0 million, compared with $568.9 million at year-end 2020. Total debt was $3,393.7 million, up from $3,267.8 million; net debt was approximately $3.05 billion.
- Current assets were $4,728.2 million and current liabilities $3,427.6 million. Short-term debt and current maturities totaled $762.0 million, versus $338.3 million at year-end.
- Available borrowing capacity under the revolving credit facility was $994.3 million. FMC reported compliance with debt covenants; leverage was 3.05 against a 3.75 maximum, and interest coverage was 8.90 against a 3.50 minimum.
- Nine-month capital expenditures were $76.4 million. FMC paid $186.2 million in dividends and repurchased $300 million of shares during the period.
Material changes, outlook and commentary
- Revenue growth reflected stronger volumes across most regions. Q3 gross margin dollars increased, while the nine-month gross margin rate slipped to approximately 43% from 44%, primarily due to higher raw-material, packaging and logistics costs.
- FMC maintained its 2021 revenue outlook of $4.9–$5.1 billion and adjusted EBITDA outlook of $1.29–$1.35 billion. Adjusted diluted EPS guidance was $6.59–$6.99, representing approximately 10% midpoint growth. The company continued to expect global crop-protection-market growth in the mid-single digits.
- Full-year free cash flow guidance remained $480–$570 million; cash from operating activities, excluding transaction-related cash flows, was expected at $700–$860 million. FMC planned total 2021 share repurchases of $350–$450 million.
- Management cited robust demand and higher pricing as growth drivers, with significant cost increases as an offset. It said COVID-19 was expected to pose less risk to ongoing operations, while noting continuing uncertainty and potential supply-chain disruptions and critical-material shortages.
Risks, contingencies and unusual items
- FMC recorded $23.8 million of charges for reserves on historical Indian indirect-tax matters. The estimated reasonably possible loss may exceed the accrued amount by up to approximately $10 million.
- Environmental reserves, net of expected recoveries, totaled $486.3 million. Estimated reasonably possible environmental losses exceeded amounts accrued by approximately $170 million; actual losses could be higher. Management said such obligations may be paid over many years and were not likely to materially affect liquidity or financial condition.
- FMC paid $32.2 million in 2021 relating to the Pocatello Tribal Litigation; $42.7 million remained recognized as a discounted liability at September 30. The judgment also requires future annual payments of $1.5 million.
- A $17.7 million domestic tax-reserve release contributed to the low Q3 effective tax rate of 4.9% (11.4% for the nine-month period). FMC cautioned that interim tax rates can be volatile.
- Discontinued operations produced losses of $9.7 million in Q3 and $32.4 million for the nine months, partly offset by an approximately $13 million after-tax gain on sale of land at a discontinued California site.
- FMC noted foreign-exchange, interest-rate, commodity, customer-credit, environmental, legal, tax, and pandemic-related risks. Its debt agreements include leverage and interest-coverage covenants.
Investor verification points
- Track whether pricing and productivity can offset accelerating input, packaging and logistics costs, and whether margin rates recover.
- Monitor working-capital conversion, especially inventory, receivables and seasonal customer advances, against management’s cash-flow outlook.
- Verify progress against revenue, adjusted EBITDA, adjusted EPS and free-cash-flow guidance; these are non-GAAP forecasts, and FMC did not provide corresponding GAAP forecasts.
- Assess the range and timing of environmental obligations, the Pocatello payments, and the resolution of Indian indirect-tax matters.
- Monitor debt maturities, short-term borrowings, covenant headroom, and planned dividends and share repurchases.