FMC Corporation — Q3 2019 Form 10-Q
Reporting period: Quarter ended September 30, 2019; year-to-date figures cover the nine months ended that date. FMC is now a single-segment agricultural sciences company focused on crop protection, plant health, and professional pest and turf management. Livent (formerly FMC Lithium) was distributed to shareholders on March 1, 2019 and is presented as discontinued operations. Financial statements are unaudited interim statements reviewed by KPMG.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $1,014.3M | $923.6M | $3,412.5M | $3,185.9M |
| Gross margin | $432.4M | $395.2M | $1,527.6M | $1,388.1M |
| Gross margin rate | About 43% | About 43% | About 45% | About 44% |
| Income from continuing operations | $110.8M | $50.9M | $512.8M | $380.9M |
| Net income attributable to FMC stockholders | $90.4M | $72.8M | $480.6M | $469.7M |
| Diluted EPS attributable to FMC stockholders | $0.69 | $0.54 | $3.63 | $3.45 |
| Adjusted EBITDA (non-GAAP) | $219.3M | $186.5M | $900.5M | $835.6M |
- Q3 revenue rose about 10% year over year, driven by higher volume (about 8%) and pricing (about 4%), partly offset by foreign exchange (about 2%). Latin America grew about 21%; North America declined about 3%.
- For nine months, revenue increased about 7%; higher volume and pricing were partly offset by foreign exchange. Insecticides led product-category growth; herbicide revenue was lower than the prior-year period.
- Q3 Adjusted EBITDA increased about 18%, with volume and pricing gains more than offsetting higher costs, especially raw materials. Reported Q3 gross margin rate was flat year over year. Nine-month reported gross margin rate rose, while the rate excluding transaction-related charges declined.
- Q3 net income included a $21.3M loss from discontinued operations, compared with $23.9M of income in Q3 2018. Nine-month discontinued operations were a $29.8M loss versus $96.0M of income, including prior-year Livent earnings and a 2018 gain related to the Health and Nutrition divestiture.
- Cash and cash equivalents were $419.7M at September 30, 2019, up from $134.4M at December 31, 2018. Total debt was $3,586.0M, up from $2,692.7M; long-term debt, excluding current maturities, was $3,032.4M.
- Operating cash flow from continuing operations was $65.8M for nine months, down from $380.3M. Working-capital outflows included $439.1M from lower customer advance payments, $151.8M from inventory, and $119.4M from accounts payable. Investing cash use was $119.5M; financing provided $374.8M.
- FMC issued $1.5B of senior notes in September at 3.20%, 3.45%, and 4.50%, maturing in 2026, 2029, and 2049. It intended to use about $300M of remaining proceeds to redeem notes maturing in Q4 2019. The company reported covenant compliance; leverage was 3.2 versus a 4.3 maximum and interest coverage was 8.1 versus a 3.5 minimum.
Material changes, outlook, and risks
- Outlook: FMC forecast 2019 revenue of approximately $4.58B–$4.62B and Adjusted EBITDA of $1.20B–$1.22B. It did not provide a U.S. GAAP outlook because certain components were not predictable.
- Management commentary: Growth reflected strong commercial execution and demand, particularly in Latin America, alongside pricing and new product launches. Raw-material costs and currency headwinds weighed on results. Research and development spending increased as FMC continued product-development investment.
- Liquidity and spending: The $1.5B revolving facility had $1,282.8M available, including borrowing capacity under the commercial paper program. Expected 2019 capital expenditures and contract-manufacturer spending were about $150M at the midpoint. Management projected $75M–$80M of net environmental remediation spending for 2019 and planned up to $400M of 2019 share repurchases.
- Environmental exposure: Recorded net environmental reserves were $503.4M. Estimated reasonably possible environmental losses exceeded accrued amounts by approximately $190M; actual future costs could be higher. Management said such liabilities were not likely to materially affect liquidity or financial condition, in part because payments may occur over many years.
- Operating and market risks: A March explosion shut down an industrial park in China that included a contract manufacturer’s plant; FMC expected production to restart in Q4 2019 and said alternative sourcing supported supply continuity. North American herbicide demand was affected by higher channel inventories; adverse weather and challenged rice markets also affected parts of the business.
- Legal matter: FMC was named in putative securities class actions concerning Livent’s IPO. Livent agreed to defend and indemnify FMC. The cases sought unspecified damages; discovery was stayed in the proceedings described.
- Other notable items: FMC’s adoption of lease accounting added $185.3M of right-of-use assets and $215.9M of lease liabilities at transition. The September note issuance was accompanied by an $83.1M interest-rate-swap settlement loss recorded in other comprehensive income for amortization over the notes’ terms.
Most important facts for investors to verify
- Whether the Q4 revenue and Adjusted EBITDA outlook was achieved, and how much growth came from sustainable volume versus pricing, foreign exchange, and product mix.
- Whether operating cash flow recovered after the substantial year-to-date working-capital outflows, particularly lower customer advances and supplier-payment timing.
- Debt levels, note redemptions, interest expense, and headroom under leverage and interest-coverage covenants.
- Changes in environmental reserves and reasonably possible losses, and developments in the Livent IPO litigation and indemnification.
- Whether the China contract-manufacturer facility restarted as expected and whether alternative sourcing maintained product availability.