FMC Corporation — Q1 2016 Form 10-Q
Period: Three months ended March 31, 2016; unaudited interim results. FMC is a diversified chemical company operating in Agricultural Solutions, Health and Nutrition, and Lithium. Comparisons are with Q1 2015 unless stated otherwise. Amounts are in millions except per-share data.
Financial performance
- Revenue: $798.8, up 21% from $659.4. Growth primarily reflected the Cheminova acquisition, completed in April 2015.
- Profit: Gross margin was $281.4, or approximately 35% of revenue, versus $250.7, or approximately 38%. Continuing-operations income attributable to FMC stockholders was $54.4 ($0.41 diluted per share), compared with a $62.4 loss ($0.47 loss per share). Net income attributable to stockholders was $48.3 ($0.36 diluted per share), versus a $46.8 loss ($0.35 loss per share); discontinued operations reduced Q1 2016 net income by $6.1.
- Adjusted earnings: Management’s non-GAAP adjusted after-tax earnings from continuing operations were $78.4, broadly flat with $77.7. This measure excludes specified special charges, discontinued operations, and tax adjustments.
- Cash flow: Continuing-operations operating cash flow was $107.2, compared with cash use of $304.9 in Q1 2015. The prior-year period included $273.8 of Cheminova purchase-price hedge payments. Capital expenditures were $41.8.
- Debt and liquidity: Total debt was $2,100.4 at quarter-end, down from $2,148.9 at December 31, 2015; cash was $64.3, down from $78.6. Available funds under the credit facility were $1,410.7. FMC reported compliance with debt covenants; trailing-four-quarter leverage was 4.0 against a 4.5 maximum, and interest coverage was 6.7 against a 3.5 minimum.
- Other metrics: Total assets were $6,390.4 and equity was $2,003.3. The quarterly dividend was $0.165 per share. The company reported 133.8 million common shares outstanding at March 31.
Segment results and changes
- Agricultural Solutions: Revenue was $546.1 versus $392.4 and segment operating profit was $82.0 versus $81.8. On a pro forma combined basis including Cheminova in both periods, revenue fell approximately 22% and operating profit fell approximately 23%, driven by lower volumes and unfavorable currency. Management cited channel inventory, product rationalization, and regional weather conditions.
- Health and Nutrition: Revenue was $192.4, down approximately 9%, and operating profit was $47.3, down approximately 7%. The comparison was affected by Omega-3 pharmaceutical API sales in Q1 2015 that did not recur.
- Lithium: Revenue increased approximately 8% to $60.3; operating profit rose to $14.9 from $5.5. Management cited specialty-product volumes, pricing, and lower operating costs.
- The reported GAAP earnings improvement was substantially affected by lower acquisition-related charges: $7.4 in Q1 2016 versus $190.7 in Q1 2015, including the prior-year Cheminova hedge loss. The 2015 comparison also included $194.0 of revenue from the Alkali business, sold April 1, 2015, which is presented as discontinued operations.
Outlook, commentary, and risks
- FMC maintained 2016 Agricultural Solutions outlook: revenue of approximately $2.3–$2.5 billion and segment earnings of $380–$420 million. Health and Nutrition outlook was revenue of approximately $775–$825 million and segment earnings of $198–$208 million.
- Lithium 2016 segment earnings outlook was raised by $10 million to $43–$53 million, reflecting an improved forecast.
- Management expected 2016 capital expenditures and contract-manufacturer spending to be below 2015 levels, and projected approximately $50–$55 million of net environmental remediation spending. It also expected approximately $35 million of voluntary U.S. pension contributions during 2016.
- Environmental reserves, net of recorded recoveries, were $349.0. Estimated reasonably possible environmental losses exceeded accrued amounts by approximately $230 million; actual losses could be higher, and unreserved obligations could materially affect future period results. Management said such liabilities were not likely to materially affect liquidity or financial condition because they may be paid over many years.
- Q1 included $6.6 of continuing-operations environmental charges and $4.2 related to Argentine currency devaluation. FMC said it believed the devaluation actions had ended and did not expect further remeasurement charges in restructuring and other charges.
- Key exposures include foreign-exchange, commodity-price, and interest-rate movements; customer credit and collections; environmental obligations; and the ability to comply with debt covenants as the maximum leverage threshold steps down. FMC reported no material changes to contractual commitments and no material off-balance-sheet arrangements.
Important facts for investors to verify
- How much reported Agricultural Solutions growth and consolidated revenue reflects Cheminova acquisition effects versus underlying demand; assess the pro forma volume declines and regional inventory conditions.
- Whether segment earnings and cash conversion meet the company’s 2016 outlook, given seasonal customer advances and working-capital timing.
- The assumptions and potential range of environmental liabilities, including the approximately $230 million excess of reasonably possible losses over accrued amounts.
- Debt-covenant headroom as leverage limits tighten, alongside planned pension contributions, environmental spending, and dividends.
- The sustainability of Lithium’s improved outlook and Health and Nutrition’s performance after the prior-year Omega-3 sales comparison normalizes.