FMC Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. FMC is an agricultural sciences company operating in one segment. Financial figures are in U.S. dollars; amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,452.3 | $1,242.0 | $2,803.1 | $2,437.6 |
| Gross margin | $591.0 | $531.8 | $1,163.7 | $1,044.2 |
| Gross margin percentage | ~41% | ~43% | ~42% | ~43% |
| Net income attributable to FMC stockholders | $134.2 | $202.9 | $341.6 | $385.5 |
| Diluted EPS attributable to FMC stockholders | $1.06 | $1.56 | $2.69 | $2.97 |
| Adjusted EBITDA (non-GAAP) | $359.5 | $347.4 | $714.3 | $654.3 |
| Adjusted after-tax earnings from continuing operations (non-GAAP) | $245.1 | $235.2 | $483.8 | $435.2 |
- Q2 revenue rose 17% reported and 21% excluding foreign exchange; six-month revenue increased 15% reported and 19% excluding foreign exchange. Growth reflected higher volumes and pricing, partly offset by currency headwinds.
- Q2 gross margin increased 11% in dollars, but margin percentage fell about two points as inflation and currency impacts weighed on costs. SG&A rose 21% in Q2 and 14% for the six-month period; R&D rose 21% and 8%, respectively.
- Q2 stockholder net income declined about 34%. FMC cited the Russia exit charge, higher SG&A and taxes; higher gross margin partly offset these items. Adjusted EBITDA increased 3% in Q2 and 9% for the first half.
- For the six months, operating cash flow from continuing operations was negative $401.9, versus negative $39.4 in 2021; free cash flow (non-GAAP) was negative $498.3 versus negative $150.4. Management attributed the cash use principally to working-capital requirements, including receivables, inventory and the seasonal use of customer advance payments.
Balance sheet and liquidity
- At June 30, cash and cash equivalents were $591.5, total debt was $3,886.8, and total equity was $3,127.3. Total debt increased from $3,172.5 at December 31, 2021, largely reflecting higher commercial paper borrowings.
- Short-term debt and current maturities were $1,155.1, including $964.4 of commercial paper; long-term debt, less current portion, was $2,731.7. Available capacity under the revolving credit facility was $875.6. FMC reported compliance with debt covenants; leverage was 2.87 against a 3.50 maximum.
- Current assets were $5,517.4 and current liabilities were $3,985.7. Trade receivables were $2,885.1 and inventories were $1,590.4. Customer advances declined from $630.7 at year-end to $1.8 at June 30, reflecting seasonal revenue recognition.
- FMC amended its revolving credit facility, increasing capacity from $1.5 billion to $2.0 billion and extending maturity to 2027; its term loan and revolver also transitioned from LIBOR-based benchmarks to Term SOFR.
Material changes, outlook and risks
- FMC recorded $76.1 of charges in Q2 to exit Russia following its decision to cease operations amid the Russia-Ukraine war and related sanctions. The charge was primarily noncash asset write-offs and included about $7 million of cash that was stranded and inaccessible; it also contributed to the higher effective tax rate.
- On July 19, 2022, after quarter-end, FMC paid approximately $200 million to acquire BioPhero, a pheromone research and production company. Management expects pheromones and related products to contribute approximately $1 billion in revenue at above-company-average EBITDA margin by 2030; commercial scale-up, registration and commercialization remain uncertain.
- FMC raised full-year 2022 revenue guidance to approximately $5.50–$5.70 billion; narrowed adjusted EBITDA guidance to $1.36–$1.44 billion and adjusted diluted EPS guidance to $7.00–$7.70. It also narrowed free cash flow guidance to $565–$685 million and forecast $790–$870 million of operating cash flow excluding transaction-related cash flows. These are non-GAAP outlook measures; FMC did not provide comparable GAAP forecasts.
- Management cited pricing and volume growth as expected earnings drivers, with foreign exchange—particularly in EMEA and Asia—and sustained cost inflation as offsets. Supply-chain and critical-material availability, COVID-related disruption and working-capital needs remain uncertainties.
- Environmental reserves were $474.5 net of expected recoveries. Estimated reasonably possible environmental losses exceeded accrued amounts by approximately $160 million; actual future losses could be higher, though FMC said such obligations are not likely to materially harm liquidity or financial condition and may be paid over many years.
- FMC authorized a $1 billion share-repurchase program; none was used under the publicly announced program in the first half. Management planned $200 million of repurchases by year-end. First-half dividends paid were $133.7 million.
Important facts for investors to verify
- Whether the full-year revenue, adjusted EBITDA, adjusted EPS and free-cash-flow guidance is achieved, and how the non-GAAP measures reconcile to GAAP results.
- Whether pricing and volume gains continue to offset inflation, currency headwinds and other supply-chain costs, particularly in EMEA and Asia.
- Whether working capital converts into cash as seasonal receivables, inventory and advance-payment balances unwind; first-half continuing operating cash flow was sharply negative.
- The commercial progress, regulatory path and investment returns for BioPhero, including assumptions behind the 2030 revenue and margin expectations.
- Potential additional costs from the Russia exit, environmental obligations and other retained discontinued-operation liabilities.
- Changes in commercial paper borrowings, interest costs, facility availability and leverage as debt and seasonal funding needs evolve.