FMC Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. FMC is an agricultural sciences company operating in one segment, selling crop-protection products and plant-health solutions globally. Interim financial statements are unaudited and were reviewed by KPMG.
Financial performance
Amounts in millions, except per-share data. Comparisons are with the corresponding 2020 period.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,242.0 | $1,155.3 | $2,437.6 | $2,405.3 |
| Gross margin | $531.8 | $522.7 | $1,044.2 | $1,084.2 |
| Gross margin percentage | ~43% | ~45% | ~43% | ~45% |
| Income from continuing operations | $217.8 | $195.8 | $409.1 | $409.5 |
| Net income attributable to FMC stockholders | $202.9 | $184.4 | $385.5 | $390.6 |
| Diluted EPS attributable to FMC stockholders | $1.56 | $1.41 | $2.97 | $2.99 |
| Adjusted EBITDA (non-GAAP) | $347.4 | $340.5 | $654.3 | $697.4 |
| Adjusted earnings from continuing operations (non-GAAP) | $235.2 | $224.0 | $435.2 | $463.6 |
- Revenue drivers: Q2 revenue rose 8% reported and 4% excluding currency, mainly on volume growth. Six-month revenue rose 1% reported but fell 1% excluding currency, as lower volumes offset favorable currency.
- Regional Q2 revenue: North America decreased about 7%; Latin America increased 15%; EMEA increased 3%; Asia increased 20%. Asia growth was broad-based; North America was affected by the shift of diamide partner sales to other regions.
- Profitability: Q2 gross margin increased $9.1 million, but margin rate declined about two percentage points, principally from higher raw-material and logistics costs. Six-month gross margin fell $40.0 million. Q2 adjusted EBITDA increased 2%; six-month adjusted EBITDA declined 6% as input, packaging and logistics costs and pricing pressure offset volume growth.
- Cash flow: Six-month operating cash flow from continuing operations was negative $39.4 million, versus negative $48.4 million. Free cash flow, a non-GAAP measure, was negative $150.4 million versus negative $167.0 million. Working-capital movements included higher receivables and inventory and the seasonal reduction in customer advance payments.
- Liquidity and debt: Cash was $728.5 million at June 30, 2021, including $705.8 million held by foreign subsidiaries. Total debt was $3,816.6 million, up from $3,267.8 million at year-end 2020; short-term debt and current maturities were $1,185.8 million. FMC had $598.0 million available under its revolving facility and was compliant with debt covenants. Leverage was 3.17 against a 3.75 maximum; interest coverage was 8.55 against a 3.5 minimum.
Material changes and capital allocation
- Q2 stockholder net income increased 10%, supported by higher gross margin and lower SG&A, including the absence of prior-year transaction costs. Six-month stockholder net income declined modestly as gross margin and R&D costs offset lower SG&A and restructuring charges.
- Interest expense declined to $32.6 million for Q2 and $65.0 million for the half-year, versus $40.7 million and $81.5 million, respectively, primarily due to lower LIBOR rates and lower foreign debt balances; higher average commercial-paper borrowings partly offset the benefit.
- The company amended its revolving-credit and term-loan agreements in May. The revolving facility is $1.5 billion, with a May 2026 termination date and an option to increase commitments subject to conditions.
- FMC paid $124.3 million in dividends and repurchased $100 million of shares under its public program in the first half. Approximately $450 million remained authorized at June 30.
Outlook, commentary and risks
- FMC maintained its 2021 revenue outlook of approximately $4.9–$5.1 billion. It forecast adjusted EBITDA of $1.29–$1.35 billion and adjusted diluted EPS of $6.54–$6.94; EPS guidance was reduced by $0.31 at the midpoint from the prior forecast. Management cited volume growth, higher pricing and currency benefits as growth drivers, while noting rising input and logistics costs.
- Management raised its 2021 global crop-protection market growth view to mid-single digits, particularly reflecting stronger expected growth in Latin America. Full-year free cash flow guidance was approximately $480–$570 million; cash from operating activities excluding transaction-related cash flows was expected at approximately $700–$860 million.
- Management said COVID-19 had become a reduced operational risk to date, with facilities operating, but noted uncertainty around the pandemic, supply chains and economic effects. Raw-material and logistics inflation, foreign exchange, seasonal working capital, and customer collections remain relevant risks.
- Environmental reserves were $502.2 million net of recoveries. Estimated reasonably possible environmental losses exceeded accrued amounts by approximately $170 million; actual losses could be higher, though management did not expect these obligations to materially impair liquidity or financial condition because payments may extend over many years.
- FMC paid $32.2 million in the first half related to Pocatello Tribal Litigation. The company reported a $42.7 million discounted liability for the matter at June 30 and expected further annual permit-fee payments of $1.5 million. Discontinued operations produced a $22.7 million loss for the first half, mainly from retained environmental and legal liabilities.
- The filing provides no GAAP guidance for adjusted EBITDA, adjusted EPS or free cash flow because certain components cannot be forecast reliably. FMC’s estimates are forward-looking and subject to the risks described in its filings.
Important facts for investors to verify
- Whether volume, pricing and foreign-exchange benefits can offset raw-material, packaging and logistics inflation and restore gross-margin rates.
- Whether the working-capital build and seasonal collections convert into operating cash flow consistent with management’s full-year cash-flow outlook.
- Debt maturities, commercial-paper reliance, available revolving capacity and covenant headroom as leverage limits tighten.
- Environmental reserve estimates and potential additional exposure, especially at Pocatello and discontinued sites.
- The assumptions and exclusions underlying non-GAAP guidance, including adjusted EPS, adjusted EBITDA and free cash flow.