FMC Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparisons are with Q1 2011 unless otherwise noted. FMC is a global diversified chemicals company with Agricultural Products, Specialty Chemicals and Industrial Chemicals segments. Interim financial statements are unaudited and were reviewed by KPMG.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue | $940.7 million | $795.0 million | Up 18% |
| Gross margin | $347.3 million; approximately 37% of revenue | $288.1 million | Up $59.2 million; margin up approximately 1 basis point per management |
| Income from continuing operations | $132.0 million | $105.4 million | Up 25% |
| Net income attributable to FMC stockholders | $119.1 million | $94.0 million | Up 27% |
| Diluted EPS | $1.71 | $1.30 | Up 32% |
| Adjusted after-tax earnings from continuing operations attributable to FMC stockholders (non-GAAP) | $135.4 million | $107.6 million | Up 26% |
| Cash from continuing operating activities | $24.4 million | Use of $50.7 million | Improved $75.1 million |
Revenue growth reflected higher volumes and prices. Segment operating profit was $222.2 million, versus $185.6 million. Agricultural Products revenue rose 32% and operating profit 29%; Specialty Chemicals revenue rose 3% while operating profit declined 1%; Industrial Chemicals revenue rose 12% and operating profit 19%. The effective tax rate declined to 25.3% from 27.8%, mainly due to a greater share of earnings from lower-tax foreign operations.
Cash, debt and liquidity
- Cash and cash equivalents were $70.8 million at March 31, down from $158.9 million at year-end. Total debt was $946.5 million, up from $825.6 million, primarily reflecting increased credit-facility borrowings for working capital.
- Operating cash flow benefited from earnings but remained affected by working-capital needs: receivables used $117.3 million, inventories $36.3 million and accounts payable $80.8 million; accrued rebates provided $77.9 million.
- Investing activities used $67.9 million, including $38.8 million of capital expenditures and $21.2 million of acquisition-related payments. Financing activities used $33.0 million, including $144.9 million of share repurchases, partly offset by $131.0 million of credit-facility borrowings.
- Available funds under the committed credit facility were $1,294.2 million. FMC reported compliance with all financial covenants; leverage was 1.5 against a maximum of 3.5, and interest coverage was 16.6 against a minimum of 3.5.
- Management expects 2012 capital expenditures to be approximately 30% above 2011 levels, approximately $40 million of net environmental remediation spending, and approximately $30 million of environmental compliance costs. It expects total 2012 voluntary U.S. pension contributions of approximately $65 million.
Material changes and notable items
- Growth was broad-based across regions, with Latin America sales up 38% and North America up 14% company-wide. Agricultural Products’ results included about $16 million of revenue from 2011 acquisitions.
- SG&A and R&D increased with growth initiatives and product innovation spending. Reported earnings also included $3.4 million of acquisition-related inventory fair-value step-up charges, $9.1 million of non-operating pension and postretirement charges, and $1.7 million of restructuring and other charges.
- FMC repurchased 1,536,270 shares under its public program for $144.9 million. At quarter-end, $244.8 million remained available under the additional $250 million authorization. A two-for-one stock split was declared on April 24, 2012, payable May 24 to holders of record May 11.
- FMC recorded a $7.4 million after-tax loss from discontinued operations, mainly reflecting environmental and legal reserves for previously discontinued businesses.
Outlook, risks and contingencies
- Management forecast 2012 Agricultural Products revenue and operating-profit growth of approximately 10–15%; Specialty Chemicals revenue and operating-profit growth of approximately 5%; and Industrial Chemicals revenue growth of approximately 10% and operating-profit growth of approximately 20%. These are segment forecasts, not consolidated guidance.
- Risks to outlook include agricultural seasonality and weather, input and energy costs, capacity-expansion costs and supply constraints in lithium, foreign exchange, and the timing of demand and customer collections. Management noted that Brazilian agricultural receivables generally have longer payment terms.
- FMC reported $247.5 million of gross environmental reserves and $77.4 million of associated recoveries; net environmental reserves were $226.0 million. Reasonably possible environmental losses could exceed accrued amounts by approximately $110 million. Management said such obligations could be paid over 20 years or longer and were not expected to materially harm liquidity or financial condition, but future-period results could be affected.
- Hydrogen-peroxide competition claims in Germany and Canada, asbestos claims, and environmental litigation remain among the contingencies. FMC said it could not reasonably estimate potential exposure for certain matters; it intends to defend them. The filing cautions that adverse outcomes could materially affect a reporting period or, in some cases, financial position or liquidity.
- FMC was not selling bifenthrin for agricultural use in the EU during 2012 while seeking regulatory reconsideration; management said the absence of sales was not expected to have a material effect. The company also disclosed risks affecting its approximately $9 million Venezuelan investment, but did not believe it was impaired at quarter-end.
- Management cautioned that interim results are not necessarily indicative of full-year results. Forward-looking statements are subject to risks and actual results may differ.
Most important facts for investors to verify
- Whether Q1 revenue and profit growth—especially in Agricultural Products and Industrial Chemicals—persist through the year, and whether segment forecasts are achieved.
- Whether working-capital demands, seasonal receivables and inventory builds convert earnings into cash, and how cash and debt change over subsequent quarters.
- Actual capital spending, pension contributions, environmental costs and share repurchases versus management’s plans.
- Developments in environmental reserves and recoveries, including the estimated $110 million of reasonably possible loss above accruals, and the outcomes of material litigation.
- Regulatory decisions on bifenthrin and any changes in lithium supply, expansion costs or Venezuelan investment recoverability.