FMC Corporation — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. The interim financial statements are unaudited and were reviewed by KPMG, not audited. FMC operates in Agricultural Products, Specialty Chemicals and Industrial Chemicals.
Financial performance
Amounts in millions, except per-share data. Comparisons are with the corresponding 2010 period.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $812.2 | $776.8 | $1,607.2 | $1,533.3 |
| Gross margin | $298.8 (36.8%) | $264.6 (34.1%) | $586.9 (36.5%) | $531.6 (34.7%) |
| Income from continuing operations | $121.1 | $88.2 | $226.5 | $174.3 |
| Net income attributable to FMC stockholders | $107.2 | $65.7 | $201.2 | $143.1 |
| Diluted EPS | $1.49 | $0.90 | $2.79 | $1.95 |
| Operating cash flow from continuing operations | — | $163.0 | $199.2 | |
| Capital expenditures | — | $71.1 | $59.2 |
- Q2 revenue increased about 5% as reported; management said growth was 9% excluding approximately $31 million of prior-year revenue from exited phosphate and sulfur derivatives businesses. Q2 gross margin rose about 140 basis points.
- Six-month operating cash flow from continuing operations declined year over year. Working-capital uses included inventory growth of $63.6 million and lower accounts payable of $75.2 million; customer rebates provided $80.5 million of cash. Discontinued-operations operating cash outflow was $19.2 million versus $11.9 million in 2010.
- Cash and equivalents were $186.6 million at June 30, 2011, versus $161.5 million at year-end 2010. Total debt was $622.9 million, down from $637.9 million; debt due within one year was $137.4 million. Credit-facility borrowings were zero. Available capacity was $453.2 million on the domestic facility and $316.3 million on the European facility. FMC was in covenant compliance, with leverage of 1.1 against a 3.5 maximum and interest coverage of 14.6 against a 3.5 minimum.
- FMC stockholders’ equity was $1,360.7 million, up from $1,131.5 million at year-end. Six-month dividends paid were $19.8 million; the declared dividend was $0.15 per share.
Segment results and changes
- Agricultural Products: Q2 revenue rose 12% to $329.6 million and operating profit rose 18% to $94.3 million. Six-month revenue increased 12% to $673.2 million and operating profit increased 13% to $194.8 million. Growth reflected strong markets and sales in Asia and Latin America; Q2 North American revenue fell 10% amid timing shifts and less favorable weather.
- Specialty Chemicals: Q2 revenue increased 6% to $228.5 million and operating profit 10% to $56.0 million. Six-month revenue rose 5% to $438.6 million and operating profit 10% to $100.9 million. BioPolymer and lithium pricing and BioPolymer volumes supported results; lithium volumes were lower and supply was tight.
- Industrial Chemicals: Q2 revenue declined 5% to $254.8 million, while operating profit increased 21% to $36.2 million. Six-month revenue fell 4% to $497.3 million, while operating profit rose 19% to $76.5 million. The revenue decline primarily reflected the 2010 exit of phosphate and sulfur derivatives; higher pricing, particularly in soda ash and peroxygens, supported profit.
- Net income attributable to FMC stockholders increased 63% in Q2 and 41% for the first half. Management attributed the improvement to higher segment profits, a lower effective tax rate, and lower restructuring and discontinued-operation charges; higher LIFO adjustments partly offset gains.
Outlook, unusual items and risks
- Management forecast 2011 Agricultural Products revenue and segment operating-profit growth of approximately 10% each; Specialty Chemicals revenue growth in the mid-single digits and operating-profit growth of approximately 10%; and Industrial Chemicals revenue approximately level with operating-profit growth of approximately 30%. These are segment forecasts, not consolidated earnings guidance.
- FMC decided to phase out its sodium percarbonate business in Spain by December 2011. The plant was expected to operate through Q4, with approximately $14 million of accelerated depreciation through year-end; $5.5 million of severance charges had been recorded in Q2.
- The effective tax rate was 17.5% in Q2 and 22.6% for the first half, compared with 27.7% and 29.9%. A roughly $14.1 million reduction in unrecognized tax-benefit liabilities from audit settlements was a principal driver; this is a notable nonrecurring benefit.
- Environmental reserves were $260.7 million gross, with $83.4 million of recorded recoveries; net environmental reserves were $237.8 million. Management estimated reasonably possible environmental losses could exceed accrued amounts by approximately $110 million, net of expected recoveries, and said obligations may be paid over 20 years or longer. Front Royal reserve increased to $40.5 million as the groundwater-treatment estimate was refined.
- The European General Court upheld the European Commission’s hydrogen-peroxide antitrust fine. FMC had previously accrued the €25 million fine and provided a letter of credit for €30.5 million (about $43.9 million) including statutory interest. Potential losses in German and Canadian competition cases could not be reasonably estimated. FMC said adverse outcomes in contingencies could materially affect a single period, though it did not expect known matters to materially harm consolidated financial position, liquidity or results overall.
- Regulatory reviews remain a risk for agricultural products. FMC requested cancellation of its remaining U.S. carbofuran registrations after the Supreme Court denied its petition; it was not selling bifenthrin for agricultural use in the EU in 2011. Management said those absences were not expected to materially affect results in 2011.
- Planned 2011 capital expenditures were approximately 45% above 2010, primarily for BioPolymer, lithium and alkali capacity. The company expected $33.0 million of net environmental remediation spending, plus $6.6 million for environmental-control capital projects and $23.9 million of environmental compliance costs. It expected total 2011 U.S. pension contributions of approximately $55 million and intended to repurchase up to $100 million of stock in Q3.
- Foreign-exchange, energy-price and regulatory exposures are relevant risks. FMC reported no material changes to the risk factors in its 2010 Form 10-K. Management reported disclosure controls effective and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether segment growth and profit outlooks were achieved, particularly the Industrial Chemicals margin and profit improvement despite expected flat revenue.
- How operating cash flow develops as inventory, accounts payable and customer-rebate balances turn over in the second half.
- Updated Front Royal remediation estimates, environmental recoveries and the potential exposure above recorded reserves.
- Developments in European, Canadian and other antitrust matters, and the costs or cash requirements associated with the upheld EU fine.
- Realized effects of agricultural-product registrations and sodium percarbonate phase-out, and the timing and returns from planned capital spending and share repurchases.