FMC Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited interim financial statements, reviewed by KPMG. FMC is a global agricultural sciences company operating in one business segment, including crop protection and plant health products.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change or context |
|---|---|---|---|
| Revenue | $1,350.8 million | $1,195.6 million | Up 13% reported and 16% excluding currency; volume and pricing each contributed about 8%. |
| Gross margin | $572.7 million; about 42% | $512.4 million; about 43% | Dollar margin up 12%, but percentage margin declined amid higher input, packaging, logistics and labor costs. |
| Income from continuing operations | $226.8 million | $191.3 million | Higher gross margin partially offset by higher expenses and taxes. |
| Net income attributable to FMC stockholders | $207.4 million | $182.6 million | Up about 14%; includes discontinued-operations losses of $15.2 million and $8.1 million, respectively. |
| Diluted EPS | $1.64 | $1.40 | Continuing-operations diluted EPS was $1.76 versus $1.46. |
| Adjusted EBITDA (non-GAAP) | $354.8 million | $306.9 million | Up about 16%. |
| Operating cash flow from continuing operations | $(597.8) million | $(294.1) million | Seasonal working-capital outflows, including customer advances, receivables and inventory, drove cash use. |
| Free cash flow (non-GAAP) | $(663.7) million | $(354.1) million | Down $309.6 million year over year. |
Balance sheet and liquidity
- Cash was $365.1 million at March 31, 2022, down from $516.8 million at year-end 2021; $325.7 million was held by foreign subsidiaries.
- Total debt was $3.77 billion, up from $3.17 billion at year-end. Short-term debt and current maturities were $1.04 billion, including $840.6 million of commercial paper.
- Remaining borrowing capacity under the revolving credit facility was $499.8 million. FMC reported compliance with debt covenants: leverage of 3.07 versus a maximum of 3.50, and interest coverage of 10.21 versus a minimum of 3.50.
- Q1 investing cash outflow was $55.9 million; financing cash inflow was $515.5 million, principally reflecting increased short-term borrowing. Dividends paid were $66.8 million.
Material changes and management commentary
- Revenue growth was strongest in Latin America and North America, up about 31% and 30%, respectively. EMEA was flat as reported, while Asia increased about 2%.
- Higher pricing and volume supported results, but inflation and foreign-exchange movements weighed on profitability. Adjusted EBITDA benefited from pricing and volume, partially offset by higher costs and currency effects.
- Working capital was a substantial cash-flow headwind: customer advance payments declined $590.7 million, receivables used $317.5 million and inventory used $192.1 million. Management attributed the advance-payment change largely to strong North American prepayments received in Q4 2021 and recognized as shipments occurred.
- FMC ceased its Russia operations and business in mid-April 2022 following Russia’s invasion of Ukraine. Russia represented about 1.5% of revenue; a Q2 charge could be as high as the approximately $70 million net asset value, subject to assessment of stranded assets.
- Environmental reserves, net of expected recoveries, totaled $492.8 million. Reasonably possible environmental losses were estimated to exceed accruals by approximately $160 million; FMC said potential obligations could be material to future results, though it did not expect them to materially harm liquidity or financial condition because payment may occur over many years.
Outlook, risks and unusual items
- For 2022, FMC forecast revenue of approximately $5.25–$5.55 billion, adjusted EBITDA of $1.32–$1.48 billion, and adjusted diluted EPS of $6.70–$8.00. These are non-GAAP outlook measures; the filing provides no U.S. GAAP forecast because certain components are not predictable.
- Full-year free cash flow guidance was approximately $515–$735 million; operating cash flow excluding transaction-related cash flows was forecast at $750–$910 million.
- Management expected the global crop protection market to grow at a low-to-mid single-digit rate in U.S. dollars. It cited elevated crop prices and low stock-to-use ratios as supportive, while identifying supply volatility, inflation and the Ukraine war as risks; EMEA was expected to decline at a low-single-digit rate.
- FMC planned $500–$600 million of share repurchases by year-end under its new $1 billion authorization. No shares were repurchased under the publicly announced program in Q1. The company expected to continue quarterly dividends.
- Q1 restructuring and other charges were $9.1 million, including $8.4 million of fixed-asset and other charges related to manufacturing-site closures. Discontinued operations recorded a $15.2 million loss, including $12.7 million of legal reserves and expenses, net of recoveries.
- Other risks include COVID-related and broader supply-chain disruption, raw-material availability and costs, foreign-exchange and interest-rate exposure, customer credit and collection timing, environmental contingencies, and volatility in interim tax rates. The effective tax rate from continuing operations rose to 15.7% from 14.4%.
Important facts for investors to verify
- Whether pricing continues to offset inflation and supply-chain costs, and whether gross margin percentage stabilizes or recovers.
- How much Q1 seasonal working-capital cash use reverses, and whether full-year free cash flow reaches management’s $515–$735 million range.
- Commercial-paper and short-term borrowing levels, available facility capacity, and covenant headroom as seasonal funding needs evolve.
- The final Q2 charge and remaining recoverable value of Russia-related assets.
- Environmental and discontinued-operations liabilities, including the approximately $160 million estimate of possible environmental losses above recorded accruals.
- Execution of the 2022 revenue, adjusted EBITDA, adjusted EPS and repurchase outlook; these are management forecasts, not guarantees.