FMC Corporation — Q3 2015 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2015, compared with the same 2014 periods. FMC operates Agricultural Solutions, Health and Nutrition, and Lithium. In April 2015, FMC acquired Cheminova and sold its Alkali Chemicals division; the latter is reported as a discontinued operation.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $830.7 million | $819.1 million | $2,377.2 million | $2,370.9 million |
| Gross margin | $220.3 million | $283.5 million | $776.8 million | $892.6 million |
| Income from continuing operations | $5.4 million | $53.7 million | $2.4 million | $248.7 million |
| Net income (loss) attributable to FMC stockholders | $(2.4) million | $56.3 million | $693.1 million | $231.0 million |
| Diluted EPS attributable to FMC stockholders | $(0.02) | $0.42 | $5.18 | $1.72 |
| Operating cash flow, continuing operations | Not presented for quarter | Not presented for quarter | $(246.8) million | $132.4 million |
- Q3 revenue increased about 1%; reported gross margin fell to 26.5% of revenue from 34.6%. Management said gross margin excluding acquisition-related charges was about $249 million, or 30% of revenue, versus 35% a year earlier.
- Q3 Agricultural Solutions revenue was $577.6 million and segment operating profit was $59.4 million, down from $116.7 million. Health and Nutrition revenue was $195.9 million and operating profit $47.0 million; Lithium revenue was $57.2 million and operating profit $1.8 million.
- Nine-month net income included a $702.1 million after-tax gain on the Alkali Chemicals sale. Continuing-operations results were pressured by lower Agricultural Solutions profit and acquisition-related charges.
- Continuing-operations operating cash flow was negative despite a $315.5 million cash inflow from receivables; cash uses included taxes, payments for the Cheminova purchase-price hedges, lower accounts payable, and reduced customer advances. Capital expenditures were $87.4 million. Investing cash flow for continuing operations was $(1,281.7) million, including the acquisition.
- At September 30, cash was $173.7 million, total debt $2,169.7 million, and total equity $2,154.6 million. Total debt was $1,678.6 million at December 31, 2014. FMC reported $1,419.4 million of available capacity under its credit facility and compliance with debt covenants.
Material changes versus the prior comparable period
- Q3 FMC stockholder results shifted from $56.3 million income to a $2.4 million loss; management attributed the decline principally to weaker Agricultural Solutions performance, especially in Brazil.
- In Agricultural Solutions pro forma combined results, Q3 revenue fell 32% and operating profit fell 48% year over year. Management attributed the declines to currency and lower volumes, partly offset by pricing, mix, and lower costs.
- FMC’s nine-month continuing-operations cash flow moved from $132.4 million provided to $246.8 million required. The company cited acquisition-hedge payments and working-capital and tax items among the drivers.
- Cheminova added assets, goodwill, and debt; goodwill was $733.5 million at September 30, versus $352.5 million at year-end. FMC used part of the Alkali sale proceeds to repay borrowings.
Outlook, management commentary, risks, and unusual items
- 2015 segment outlook: Agricultural Solutions revenue of approximately $2.3 billion and operating profit of $370–$390 million; pro forma combined revenue of approximately $2.7 billion and operating profit of $390–$410 million. Health and Nutrition revenue of approximately $800 million and operating profit of $193–$195 million. Lithium revenue of approximately $240 million and operating profit of $16–$18 million. These are segment-level forecasts, not consolidated guidance.
- Management expected Agricultural Solutions currency headwinds to persist through year-end, with Cheminova integration savings, price increases, and portfolio rationalization expected to offset much of the Latin American pressure. Management planned to substantially complete Brazil restructuring by year-end, including workforce reductions and the Consagro sale.
- Notable items included $274.0 million of nine-month Cheminova-related charges, including a $172.1 million hedge loss and $48.1 million of acquired-inventory fair-value amortization; $55.5 million of Cheminova restructuring charges; and a $40.1 million impairment on Consagro, which was held for sale. The Belchim stake sale produced a $26.6 million gain. The Alkali Chemicals sale generated $1,198.5 million of after-tax cash proceeds.
- Key risks include sharp currency moves and weak market conditions in Brazil, customer credit and collection risk, integration and synergy execution, foreign exchange and interest-rate exposure, environmental obligations, and regulatory, litigation, and manufacturing risks. FMC estimated reasonably possible environmental losses in excess of accrued amounts by approximately $210 million, net of expected recoveries; actual losses could be higher. The company stated these potential obligations were not likely to materially adversely affect liquidity or financial condition, but could materially affect a quarter or year’s results.
- FMC reported an EPA administrative complaint concerning pesticide advertising and labeling, with a proposed penalty exceeding $100,000; it disputed the allegations and did not expect a material final penalty. It could not reasonably estimate potential exposure in a separate European competition proceeding.
Important facts for investors to verify
- Whether Brazil sales, volumes, collections, and currency conditions improve, and whether the stated Agricultural Solutions outlook is achieved.
- Whether Cheminova integration savings and planned synergies materialize, and how final purchase-price allocation changes affect goodwill, amortization, or earnings.
- How much of reported earnings reflects the Alkali disposal and other nonrecurring items versus ongoing operations; compare GAAP results with management’s adjusted measure.
- Cash conversion and working-capital trends, including receivables, customer advances, rebates, tax payments, and acquisition-related cash uses.
- Debt levels, floating-rate exposure, available credit, covenant headroom, and the potential cash impact of environmental and legal contingencies.