FMC Corporation — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. FMC operates FMC Agricultural Solutions and FMC Lithium. Interim financial statements are unaudited and were reviewed by the independent accountant.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $1,262.3 million | $656.8 million | $2,473.0 million | $1,252.8 million |
| Gross margin | $544.1 million | $234.4 million | $1,098.8 million | $450.6 million |
| Income from continuing operations | $138.5 million | $48.7 million | $401.6 million | $93.7 million |
| Net income (loss) attributable to FMC stockholders | $129.7 million | $74.7 million | $396.9 million | $(49.5) million |
| Diluted EPS from continuing operations | $1.00 | $0.36 | $2.91 | $0.69 |
- Q2 revenue rose 92%; management attributed most of the increase to the DuPont Crop Protection acquisition, completed November 1, 2017. On a pro forma basis, Agricultural Solutions revenue increased 8% and segment EBITDA increased about 9% year over year.
- Q2 reported gross margin was 43.1% of revenue, versus 35.7% a year earlier. Management reported gross margin excluding transaction-related charges of $582.5 million, or 46%, compared with 36% in Q2 2017.
- Q2 segment EBITDA: Agricultural Solutions $343.5 million, up 202%; Lithium $51.2 million, up about $24 million. Lithium growth reflected higher prices and volumes.
- Q2 adjusted after-tax earnings from continuing operations attributable to FMC stockholders, a non-GAAP measure, were $242.0 million versus $64.8 million. Six-month amounts were $492.7 million and $123.2 million, respectively.
Cash flow, debt and liquidity
- For the first six months, cash from continuing operating activities was $228.5 million versus $205.0 million. Continuing investing activities provided $18.9 million, including $85.0 million in proceeds from the European herbicide portfolio sale, and financing activities used $155.2 million.
- Cash and equivalents were $326.4 million at June 30, 2018, up from $283.0 million at year-end; $280.0 million was held by foreign subsidiaries.
- Total debt was $3,067.4 million, down from $3,185.6 million at December 31, 2017. FMC reported covenant compliance; leverage was 2.6 against a maximum of 4.75, and interest coverage was 10.4 against a minimum of 3.5.
- Available borrowing capacity under the revolving credit facility was $1,298.0 million. Six-month capital expenditures were $53.3 million. FMC paid $44.6 million in dividends during the period, or $0.165 per share; no shares were repurchased under the public program.
Material changes, outlook and notable items
- Results are not directly comparable with 2017: the DuPont crop protection business was included from November 2017, while FMC Health and Nutrition was sold and reported as discontinued operations. The 2017 six-month loss also included a $151 million after-tax Omega-3 impairment.
- Q2 included $81.0 million of restructuring and other charges and $71.9 million of transaction-related charges. The restructuring included about $55 million tied to a change in FMC’s India market-access model and product portfolio, including write-offs of receivables and inventory. Six-month transaction-related charges were $124.1 million.
- Management’s 2018 Agricultural Solutions outlook was revenue of approximately $4.10–$4.30 billion, EBITDA of $1.17–$1.23 billion and depreciation and amortization of about $145 million. Lithium EBITDA guidance was $195–$205 million, with depreciation and amortization of about $20 million.
- FMC said it remained on track to list Lithium publicly in October 2018, with a direct spin to FMC shareholders expected within six months of the IPO. Projected 2018 capital expenditures and contract-manufacturer spending were approximately $250 million at the midpoint; the company also expected $60–$65 million of net environmental remediation spending.
- Environmental reserves, net of recorded recoveries, were $409.4 million. Estimated reasonably possible environmental losses exceeded accrued amounts by approximately $200 million; FMC cautioned actual losses could be higher. The Middleport litigation and potential NYSDEC cost-recovery proceedings remain relevant contingencies.
- FMC had not finalized its accounting for the Tax Cuts and Jobs Act; it expected to complete the measurement-period accounting in Q4 2018. The estimated $202.7 million transition tax is payable over eight years.
- Following quarter-end, FMC received Indian antitrust approval on August 1 to complete a required product divestiture, then expected to close by the end of Q3. Management also cited raw-material cost increases and unfavorable weather in certain agricultural markets, while noting its diversified supply chain had helped manage supply impacts.
Investor verification priorities
- Separate acquisition-driven growth from underlying performance; review pro forma Agricultural Solutions revenue and EBITDA and the assumptions behind those comparisons.
- Assess the recurring earnings impact of India restructuring, integration expenses, inventory fair-value amortization, and the European portfolio-sale gain.
- Track execution against segment guidance, Lithium’s planned IPO and spin, and the remaining India-required divestiture.
- Monitor cash conversion and seasonal working capital, particularly receivables, customer rebates and advance payments, alongside planned capital and environmental spending.
- Review environmental exposure, Middleport litigation developments, and finalization of the company’s tax-reform accounting.