FMC Corporation — Q3 2020 Form 10-Q
Business context and reporting period. FMC is an agricultural sciences company selling insecticides, herbicides and fungicides. This unaudited quarterly report covers the three and nine months ended September 30, 2020; comparisons are with the corresponding 2019 periods. FMC reported one operating segment. The interim financial statements received an independent accountant’s review, not an audit.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1,084.6 million | $1,014.3 million | $3,489.9 million | $3,412.5 million |
| Gross margin | $466.4 million; 43% | $432.4 million; 43% | $1,550.6 million; 44% | $1,527.6 million; 45% |
| Income from continuing operations | $130.5 million | $110.8 million | $540.0 million | $512.8 million |
| Net income attributable to FMC stockholders | $111.4 million | $90.4 million | $502.0 million | $480.6 million |
| Diluted EPS attributable to FMC stockholders | $0.85 | $0.69 | $3.84 | $3.63 |
| Adjusted EBITDA (non-GAAP) | $262.9 million | $219.3 million | $960.3 million | $900.5 million |
| Adjusted after-tax earnings from continuing operations (non-GAAP) | $160.1 million | $124.2 million | $623.7 million | $573.7 million |
Q3 discontinued operations reduced net income by $18.4 million; the nine-month loss was $36.7 million. Q3 revenue rose about 7% year over year, driven by volume and pricing, while foreign currency reduced reported growth by about 8 percentage points. Excluding currency, revenue increased about 15%. Nine-month revenue increased about 2%, or about 9% excluding currency. Q3 Adjusted EBITDA increased about 20%; nine-month Adjusted EBITDA increased about 7%.
Cash flow, debt and liquidity
- Cash from operating activities of continuing operations for the first nine months was $313.5 million, versus $65.8 million in 2019. Free cash flow, a non-GAAP measure, was $147.8 million versus negative $80.7 million.
- Cash and cash equivalents were $297.1 million at September 30, 2020, down from $339.1 million at year-end 2019; $257.0 million was held by foreign subsidiaries.
- Total debt was $3,222.4 million, compared with $3,258.8 million at December 31, 2019. Revolving credit facility availability was $1,284.8 million; there were no commercial paper borrowings.
- FMC amended its revolving credit and term loan covenants in April 2020. Actual leverage was 2.8x against a 4.25x maximum at quarter-end; interest coverage was 7.9x against a 3.5x minimum. FMC reported compliance with all covenants.
- Operating cash flow benefited from collection timing and other working-capital movements, but included a $487.4 million outflow from reduced customer advance payments. Nine-month dividends paid were $171.3 million.
Material changes and management commentary
- Q3 regional revenue increased approximately 8% in North America, 1% in Latin America, 10% in EMEA and 16% in Asia. Stronger volumes, including in India and Brazil, supported results; currency was a significant reported headwind in several regions.
- Gross margin dollars rose with revenue, while the Q3 margin percentage remained approximately flat. Nine-month margin percentage declined slightly, from approximately 45% to 44%.
- SG&A declined 4% and R&D declined 8% for the first nine months. Management attributed cost reductions to pandemic-related savings measures; it said projects were phased rather than cancelled and reiterated its commitment to R&D.
- FMC said its facilities remained operational and it had avoided significant plant closures. It reported logistics challenges and higher related costs, as well as pockets of pandemic-related demand weakness, particularly in some cotton and fruit and vegetable markets. Management warned that disruption to logistics, demand and farm-worker availability could continue.
- Management expected the global crop protection market to be flat to slightly down in 2020, in U.S. dollars, with regional differences: Europe down low-single digits, Asia up low-single digits, Latin America down low- to mid-single digits and North America up low-single digits.
Outlook, risks and unusual items
- Updated 2020 guidance: revenue of approximately $4.72–$4.78 billion; Adjusted EBITDA of $1.295–$1.315 billion; and adjusted diluted EPS of $6.45–$6.57. FMC raised and narrowed its Adjusted EBITDA and EPS outlook. These are non-GAAP forecasts; the filing says comparable GAAP guidance was not provided because certain components could not be forecast.
- 2020 free cash flow guidance was approximately $475–$525 million. Management also expected $750–$850 million of operating cash flow excluding transaction-related cash flows. It cited working-capital improvement and lower transformation spending as future cash-conversion drivers.
- COVID-19 effects and foreign currency remained key uncertainties. Other stated exposures include regional market and weather conditions, customer collections, input and logistics costs, interest and currency movements, and environmental obligations.
- Environmental reserves, net of expected recoveries, were $559.6 million at September 30, 2020; reasonably possible environmental losses exceeded accrued amounts by approximately $160 million. FMC increased its Middleport reserve by $6.6 million following a proposed remedy. The Pocatello Tribal litigation remained subject to Supreme Court review, with no reserve change reported.
- FMC completed the DuPont Crop Protection integration except for remaining ERP and restructuring work. It expected $15–$20 million in remaining expenses for defined in-flight initiatives and approximately $5–$10 million in remaining DuPont-related restructuring charges.
- On October 2, 2020, FMC closed its approximately $65 million Fluindapyr asset acquisition; it expected to expense the purchase price in Q4 2020 as in-process research and development. A Livent IPO-related settlement was reached after quarter-end; FMC stated it would have no financial impact to FMC because Livent agreed to defend and indemnify it.
- FMC resumed share repurchases in October and planned $50 million of repurchases by year-end, subject to the disclosed credit-agreement restriction if leverage exceeds 3.5x through June 30, 2021.
Important facts for investors to verify
- How much of reported sales and earnings growth is durable volume or pricing improvement versus currency movements, favorable regional conditions and cost controls.
- Whether management’s revenue, Adjusted EBITDA, adjusted EPS and free cash flow guidance was achieved; these measures are non-GAAP and the filing provides no corresponding GAAP outlook.
- Whether working capital—particularly customer advances, rebates, inventory and receivables—supports cash generation, and how much cash is accessible outside foreign subsidiaries.
- Debt covenant headroom, the step-down in maximum leverage limits, and the effect of planned dividends and repurchases on liquidity.
- Potential environmental and legal cash costs, including the approximately $160 million of reasonably possible environmental losses above reserves and the status of the Pocatello and Middleport matters.
- The Q4 Fluindapyr charge and remaining ERP, integration and restructuring costs, along with the effects of ongoing COVID-19 disruption.