FMC Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. FMC is an agricultural sciences company selling crop-protection chemicals and plant-health products; it reports one business segment. Financial statements are unaudited interim statements reviewed by the independent accountant.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $981.9M | $1,377.2M | $3,340.7M | $4,180.3M |
| Gross margin | $381.2M; 39% | $477.5M; 35% | $1,395.3M; 42% | $1,641.2M; 39% |
| Income from continuing operations | $4.6M | $134.5M | $265.9M | $503.3M |
| Net income (loss) attributable to FMC stockholders | $(3.5)M | $121.0M | $223.0M | $462.6M |
| Adjusted EBITDA (non-GAAP) | $174.6M | $261.0M | $723.9M | $975.3M |
Q3 revenue declined 29% year over year, principally on a 26% volume decline from channel destocking, with lower Latin American pricing also contributing. Latin America was especially affected by inventory reduction in Brazil and drought in Argentina. Nine-month revenue declined 20%; lower volume was partly offset by pricing, while foreign exchange was a headwind. Higher input costs and favorable foreign currency effects helped lift gross margin percentage despite lower sales.
Q3 adjusted after-tax earnings from continuing operations attributable to FMC stockholders were $55.4M versus $155.6M. Net interest expense rose to $64.6M from $41.8M in Q3 and to $180.5M from $107.0M for the nine-month period, mainly due to higher rates.
Cash flow, debt and liquidity
- Cash from operating activities of continuing operations was a use of $618.2M for the first nine months, versus $15.7M provided a year earlier. Free cash flow, a non-GAAP measure, was negative $790.0M versus negative $138.8M. Management attributed the cash pressure largely to working-capital movements, including lower customer advances and accounts payable, as well as inventory and seasonal collection timing.
- Cash and cash equivalents were $323.8M at September 30, 2023, down from $572.0M at year-end 2022. Total debt was $4.116B, up from $3.274B; $1.093B was short-term debt and current maturities. The company issued $1.5B of senior notes in May and repaid its $800M term loan.
- Available borrowing under the revolving credit facility was $1.290B. FMC reported September 30 covenant compliance, with leverage of 3.80 against a 4.00 maximum and interest coverage of 4.96 against a 3.50 minimum.
- On November 7, 2023, after quarter-end, FMC amended its credit agreement: leverage limits were temporarily raised to 6.50, stepping down to 3.75 by Q3 2025; minimum interest coverage was reduced to 2.50 beginning Q4 2023 and is scheduled to return to 3.50 in Q3 2025. Share repurchases are restricted through September 30, 2025, except for employee equity-plan activity.
Outlook, commentary and material items
- Management’s 2023 outlook was revenue of $4.48B–$4.72B, adjusted EBITDA of $970M–$1.03B, and adjusted diluted EPS of $3.57–$4.13. It expected destocking and lower volumes, particularly in Latin America, to persist into Q4; cost tailwinds and new-product mix were expected to provide some offset.
- Management forecast 2023 free cash flow of negative $640M to negative $860M and cash from operating activities of continuing operations of negative $435M to negative $635M. These are non-GAAP and GAAP outlooks, respectively; the filing says it cannot forecast the directly comparable GAAP measure for adjusted EBITDA and adjusted EPS.
- FMC initiated restructuring in Brazil and a broader review of company costs as volume pressure persisted. It said costs related to these actions were not included in its projected restructuring spending because it had not yet committed to a program.
- Q3 restructuring and other charges were $28.2M, including an $11.9M in-process research and development asset acquisition charge and $4.9M of Argentine peso devaluation losses. Nine-month charges also included $6.9M from Pakistani rupee depreciation. The comparable 2022 nine-month period included a $76.1M charge related to exiting Russia.
- Environmental reserves, net of expected recoveries, totaled $503.6M. Estimated reasonably possible environmental losses, net of recoveries, exceeded accrued amounts by approximately $200M; actual future losses could be higher, though FMC said payment over many years was not likely to materially affect liquidity or financial condition.
- Other risks and uncertainties include prolonged inventory destocking, agricultural weather conditions, currency movements, inflation and input costs, higher interest expense, and retained environmental and legal obligations. FMC also disclosed $41.3M of discontinued-operations losses for the nine months, primarily related to retained liabilities.
Most important facts for investors to verify
- Whether channel destocking, especially in Brazil and Latin America, eases as management expected and whether the 2023 revenue and earnings outlook is achieved.
- How working-capital requirements affect cash generation, and whether the forecast negative free cash flow and operating cash use are realized.
- Debt maturities, borrowing costs, covenant headroom and compliance with the amended credit agreement; note the temporary covenant relief and share-repurchase restriction.
- The scale and timing of environmental and discontinued-operations payments, including the approximately $200M reasonably possible environmental exposure above accrued amounts.
- How much of reported and adjusted performance reflects recurring operations versus special charges, tax adjustments, currency effects and non-GAAP exclusions.