FMC CORP quarterly report, Q1 FY2011

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FMC Corporation — Q1 2011 Form 10-Q

Reporting period: Three months ended March 31, 2011. Financial statements are unaudited interim statements reviewed by the independent accountant. FMC is a diversified chemical company with Agricultural Products, Specialty Chemicals and Industrial Chemicals segments.

Financial performance

  • Revenue: $795.0 million, up 5% from $756.5 million a year earlier.
  • Profit: Income from continuing operations was $105.4 million versus $86.1 million. Net income attributable to FMC stockholders was $94.0 million versus $77.4 million; diluted EPS was $1.30 versus $1.06. Discontinued operations reduced earnings by $8.0 million after tax.
  • Operating performance: Segment operating profit rose to $185.6 million from $168.3 million. Adjusted after-tax earnings from continuing operations, a non-GAAP measure, were $107.6 million versus $100.1 million.
  • Segments: Agricultural Products revenue was $343.6 million (+13%) and operating profit $100.5 million (+8%); Specialty Chemicals revenue was $210.1 million (+4%) and operating profit $44.9 million (+10%); Industrial Chemicals revenue was $242.5 million (-3%) and operating profit $40.3 million (+17%).
  • Cash flow: Continuing-operations operating cash use was $50.7 million, compared with $1.4 million in Q1 2010. Investing activities used $32.5 million; financing activities provided $16.0 million. Cash declined $75.5 million to $86.0 million.
  • Liquidity and debt: Cash was $86.0 million. Long-term debt was $653.6 million, including $119.7 million current; short-term debt was $9.4 million. The filing reports $431.0 million available under the domestic credit agreement and $309.9 million under the European facility. FMC was in covenant compliance, with leverage of 1.2 versus a 3.5 maximum and interest coverage of 14.9 versus a 3.5 minimum.
  • Balance sheet and other metrics: Total assets were $3.416 billion and total equity $1.317 billion at March 31, 2011. The effective tax rate was 27.8%, compared with 32.1% in Q1 2010. Capital expenditures were $30.4 million.

Material changes versus Q1 2010

  • Higher segment operating profit across all three businesses and substantially lower restructuring and other charges ($4.5 million versus $16.7 million) contributed to increased stockholder earnings.
  • Agricultural Products growth reflected stronger demand in North America, Latin America and Asia; Specialty Chemicals benefited from BioPolymer sales and lithium cost reductions. Industrial Chemicals profit improved despite lower revenue, aided by pricing and product mix, while exiting phosphate and sulfur-derivative businesses reduced sales.
  • Operating cash use worsened from $1.4 million to $50.7 million. Receivables used $113.9 million of cash, partly offset by higher accrued customer rebates; the company also made an $18.0 million voluntary U.S. pension contribution.
  • Corporate expenses increased to $16.8 million from $12.1 million, primarily due to incentive compensation and consulting. Other expense increased to $7.3 million from $2.9 million, primarily due to higher LIFO inventory reserves.
  • Cash fell from $161.5 million at year-end 2010, while reported long-term debt increased. FMC borrowed $40.0 million under its domestic credit agreement.

Outlook, risks and unusual items

  • Management outlook: For 2011, FMC expected Agricultural Products revenue and operating profit growth of approximately 10%; 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 management expectations, not guarantees.
  • Projected 2011 capital expenditures were approximately 15% above 2010, primarily for BioPolymer, lithium and soda ash capacity. FMC expected about $35.0 million of net environmental remediation spending, $6.6 million for environmental-control capital projects and $23.9 million of environmental compliance costs.
  • FMC expected to contribute approximately $55.0 million to its U.S. defined-benefit pension plan in 2011. Management cautioned that continued interest-rate volatility or negative equity returns could increase future funding needs.
  • Environmental exposure: Environmental reserves, net of recoveries, were $228.1 million. Management estimated reasonably possible environmental losses could exceed accrued amounts by approximately $110 million; potential obligations could affect future quarterly or annual results, although management did not expect a material adverse effect on liquidity or financial condition.
  • Regulatory and legal matters: European bifenthrin sales were suspended for agricultural use during 2011 amid regulatory review; FMC stated the absence of those sales was not expected to materially affect results. Carbofuran remained subject to U.S. regulatory proceedings and Brazilian review. Canadian hydrogen-peroxide antitrust class actions remained unresolved, and FMC said loss exposure could not be reasonably estimated. The European Commission hydrogen-peroxide fine remained under appeal, secured by a $43.0 million letter of credit.
  • FMC recorded an $8.0 million after-tax discontinued-operations charge, primarily for environmental matters and legal reserves, including Middleport-related costs. The company won summary judgment in the Middleport lawsuit on March 29, 2011; plaintiffs appealed on April 28.
  • The board authorized an additional $250 million share-repurchase program in February, bringing remaining authorization to $304.8 million. FMC reported no purchases under the public program during the quarter; employee-related share acquisitions were separate.
  • Management stated that disclosure controls were effective and that there were no material changes in internal control over financial reporting during the quarter.

Most important facts for investors to verify

  • Whether the strong segment profit trends and full-year guidance are sustained, particularly given input-cost, pricing and market risks.
  • Working-capital conversion: receivables growth and seasonal customer rebates drove substantial operating cash use; monitor cash flow and liquidity through the year.
  • Environmental reserve adequacy and developments at Middleport and other remediation sites, including the estimated $110 million potential excess over accrued reserves.
  • Outcomes of pesticide re-registration and the Canadian antitrust cases, and any related effect on sales, reserves or cash needs.
  • Debt definitions and maturities: the filing presents $653.6 million of long-term debt, $129.1 million maturing within one year and $9.4 million of short-term debt; confirm the intended debt measure when comparing leverage.
  • Execution of planned investment and pension contributions, and use of the $304.8 million remaining repurchase authorization.