FMC Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. FMC is an agricultural sciences company operating as a single business segment. Interim financial statements were reviewed by KPMG, not audited.
Financial performance
- Revenue: $1.196 billion, down 4% reported and 5% excluding favorable foreign-exchange effects. Lower volumes and unfavorable pricing drove the decline.
- Gross profit and margin: Gross margin was $512.4 million, down $49.1 million, or 9%; margin was approximately 43%, versus 45%. Lower volume, raw-material and logistics costs, and unfavorable currency contributed.
- Expenses: SG&A was $174.5 million, down 8%, partly reflecting lower transaction-related costs. R&D was $74.0 million, up 10%, as some previously paused projects resumed.
- Profit and EPS: Net income attributable to FMC stockholders was $182.6 million, down 11%; diluted EPS was $1.40 versus $1.58. Continuing-operations income attributable to stockholders was $190.7 million. Adjusted after-tax earnings from continuing operations, a non-GAAP measure, were $200.0 million versus $239.6 million.
- Adjusted EBITDA: $306.9 million, down 14% from $356.9 million. FMC cited higher input and logistics costs, regional volume headwinds, lower prices, and currency effects.
- Cash flow: Operating cash flow from continuing operations was negative $294.1 million, compared with negative $308.9 million. Free cash flow, a non-GAAP measure, was negative $354.1 million versus negative $371.5 million. Seasonal working-capital movements, including lower customer advances and inventory build, were significant.
- Liquidity and debt: Cash was $416.7 million, down from $568.9 million at year-end. Total debt was $3.606 billion, up from $3.268 billion; short-term debt and current maturities totaled $974.4 million. Remaining revolving-credit capacity was $797.3 million. FMC reported compliance with debt covenants; four-quarter leverage was 3.47 against a 4.0 maximum.
- Other balance-sheet items: Trade receivables were $2.533 billion and inventories were $1.255 billion. Environmental liabilities, continuing and discontinued, were $421.9 million long-term; the separate environmental reserve disclosure reports $528.0 million net in total, including current amounts.
Material changes and business drivers
- Regional revenue declined in North America (8%), Latin America (22%), and EMEA (4%); Asia increased 18%. Latin America faced a strong prior-year comparison, lower Brazilian cotton acreage, and planned channel-inventory reductions. EMEA was affected by Brexit-related customer purchases pulled into Q4 2020 and discontinued registrations. Asia growth included strong sales across several markets.
- By product, insecticide revenue was $687.0 million versus $720.4 million; herbicides were $361.7 million versus $367.2 million; fungicides were $90.5 million versus $83.3 million; and plant health was $50.2 million versus $46.4 million.
- Interest expense declined to $32.4 million from $40.8 million, reflecting lower LIBOR rates and foreign debt balances, partly offset by higher average commercial-paper borrowings.
- FMC agreed with UPL to expand access to Rynaxypyr active and increase manufacturing capacity, including toll manufacturing in India.
Outlook, risks, and unusual items
- 2021 outlook: Revenue of approximately $4.9–$5.1 billion; adjusted EBITDA of $1.32–$1.42 billion; and adjusted diluted EPS of $6.70–$7.40. These are non-GAAP outlook measures; FMC did not provide corresponding GAAP forecasts because certain components are not predictable.
- Cash outlook: Free cash flow guidance was approximately $530–$620 million. FMC expected $790–$950 million of operating cash flow excluding transaction-related cash flows, and planned $400–$500 million of share repurchases by year-end.
- Management expected the global crop-protection market to grow at a low-single-digit rate in 2021, with mid-single-digit growth in EMEA. It cited better crop commodity prices and improved stock-to-use ratios. COVID-19 was expected to pose less risk to ongoing operations, though its duration and economic effects remained uncertain; FMC also noted a prior COVID-related disruption at a third-party U.S. toll manufacturer.
- Environmental exposure is material: reasonably possible environmental losses, net of expected recoveries, exceeded recorded accruals by approximately $170 million. FMC stated actual future losses could be higher, though it did not expect these obligations to materially affect liquidity or financial condition because payments may extend over many years.
- Following denial of its review petition in the Pocatello Tribal Litigation, FMC paid $21.4 million in Q1 and a further $9.3 million in April 2021. The filing reported a March 31 discounted liability of $53.5 million for the matter and projected approximately $42 million of 2021 Pocatello environmental spending.
- FMC paid $62.3 million in dividends and repurchased approximately $75 million of shares during Q1. A $62.0 million dividend was paid in April. Share repurchases are discretionary and may be suspended or terminated.
Important facts for investors to verify
- Whether seasonal collections, customer-advance timing, and inventory build convert into stronger operating cash flow during the remainder of 2021.
- Whether revenue, adjusted EBITDA, adjusted EPS, and free-cash-flow guidance are achieved, and how reported GAAP results compare with those non-GAAP measures.
- Debt maturities, commercial-paper levels, available credit capacity, and covenant headroom as leverage limits tighten in future quarters.
- Environmental reserve assumptions, the additional $170 million reasonably possible exposure, and future Pocatello and other remediation payments.
- Whether regional demand, raw-material and logistics costs, currency movements, and COVID-related supply disruptions develop as management expects.