FMC Corporation — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. Unless noted, financial amounts are in millions of U.S. dollars. FMC is a single-segment agricultural sciences company selling crop-protection products, including insecticides, herbicides and fungicides.
Business context and reporting period
- FMC completed the distribution of its remaining Livent shares on March 1, 2019 and reports FMC Lithium as a discontinued operation; the company states it has no remaining exposure to lithium markets.
- FMC reported about 8% revenue growth and said it outperformed a crop-protection market it estimated was flat. Growth was led by diamide insecticides Rynaxypyr and Cyazypyr, which generated approximately $1.6 billion in combined sales.
- Regional sales increased 3% in North America, 19% in Latin America, 4% in EMEA and 3% in Asia. Foreign exchange was a headwind in each region.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $4,609.8 | $4,285.3 |
| Gross margin | $2,083.6; approximately 45% of revenue | $1,879.8; approximately 44% of revenue |
| Income from continuing operations | $543.5 | $537.6 |
| Net income attributable to FMC stockholders | $477.4 | $502.1 |
| Diluted EPS | $3.62 | $3.69 |
| Adjusted EBITDA (non-GAAP) | $1,220.5 | $1,108.9 |
| Cash from continuing operating activities | $555.6 | $362.7 |
| Free cash flow (non-GAAP) | $301.8 | $129.9 |
| Cash and cash equivalents at year-end | $339.1 | $134.4 |
| Total debt at year-end | $3,258.8 | $2,692.7 |
Revenue rose approximately 8%; gross margin increased about 11%, while gross margin excluding transaction-related charges was approximately 45%, roughly flat year over year. Adjusted EBITDA rose about 10%, and adjusted after-tax earnings from continuing operations attributable to FMC stockholders increased 13% to $803.7 million. These are non-GAAP measures and should be considered alongside GAAP results.
GAAP net income attributable to FMC stockholders fell about 5%, reflecting higher restructuring and environmental charges, taxes and interest expense, partly offset by improved operating performance. Discontinued operations produced a $63.3 million loss in 2019 versus a $26.1 million loss in 2018. Reported diluted EPS includes discontinued operations; diluted EPS from continuing operations was $4.10 versus $3.91.
FMC had $3,031.1 million of long-term debt excluding current maturities, and reported compliance with debt covenants. Its $1.5 billion revolving facility had $1,283 million of borrowing capacity available at year-end. The balance sheet reported current assets of $4,074.8 million and current liabilities of $2,723.9 million.
Material changes versus the prior comparable period
- Revenue increased $324.5 million. Management attributed the increase primarily to higher volumes and pricing, partly offset by unfavorable foreign exchange. Latin America was the strongest region.
- Net income attributable to stockholders declined $24.7 million. Restructuring and other charges rose to $171.0 million from $61.2 million, including a $72.8 million environmental charge related to the Pocatello Tribal Litigation and costs associated with exiting carbofuran formulations.
- Interest expense, net increased to $158.5 million from $133.1 million, driven by the 2019 senior-note issuance and higher average foreign debt balances.
- Operating cash flow from continuing operations improved by $192.9 million; free cash flow increased to $301.8 million. Cash flow remained affected by working-capital timing, environmental and integration spending, and customer collections.
- FMC issued $1.5 billion of senior notes in September 2019, with maturities in 2026, 2029 and 2049, and used proceeds partly to refinance or repay existing debt. Total debt increased year over year.
- Comparability with 2017 is substantially affected by the November 2017 DuPont Crop Protection acquisition. The 2019 and 2018 results include a full year of that business; FMC also retrospectively presented Lithium as discontinued operations.
Outlook, risks and unusual items
- 2020 outlook: FMC forecast revenue of approximately $4.8–$4.95 billion, adjusted EBITDA of $1.30–$1.34 billion, adjusted diluted EPS of $6.45–$6.70, and free cash flow of approximately $425–$525 million. It expected low-single-digit growth in the global crop-protection market. These forecasts are non-GAAP where stated; FMC did not provide comparable GAAP forecasts because certain components were not predictable.
- Management planned $400–$500 million of share repurchases in 2020. It expected $135–$185 million of capital expenditures and contract-manufacturer spending, plus $175–$225 million of legacy and transformation spending. The latter includes SAP implementation, acquisition integration and legacy environmental costs.
- Environmental reserves, net of recoveries, totaled $585.8 million at year-end. Estimated reasonably possible environmental losses exceeded accrued amounts by approximately $150 million. The Pocatello reserve included $72.8 million recorded after an adverse court decision; FMC obtained a stay and said it intended to seek Supreme Court review. The filing estimated $103 million of aggregate undiscounted exposure for that matter.
- FMC disclosed approximately $90 million of reasonably possible Brazilian tax, product-liability and labor losses above accrued amounts. It also reported approximately 10,400 pending asbestos claims, with future exposure not reasonably estimable beyond the established reserve.
- Key business risks include weather and crop-market conditions, currency movements, raw-material costs, regulatory approvals, reliance on suppliers and contract manufacturing (including China), environmental liabilities, and competition. Composition-of-matter patents for Rynaxypyr begin expiring in some countries in late 2022; Cyazypyr patents begin expiring in the mid-2020s. FMC cited other patents, data rights, brands and manufacturing complexity as protections, but their effectiveness is not assured.
- The filing also identified possible COVID-19-related disruptions to suppliers, manufacturing, shipping and sales activity. FMC reported that an explosion at a Chinese industrial park affected a contract manufacturer; it was pursuing alternate sourcing and had received some material by the fourth quarter.
Important facts for investors to verify
- Whether 2020 revenue, adjusted EBITDA, adjusted EPS and free-cash-flow guidance was achieved, and how non-GAAP performance reconciles to GAAP outcomes.
- Cash conversion and working-capital trends, particularly Brazil receivables and the timing of collections and customer rebates.
- The outcome and cash consequences of the Pocatello appeal, Middleport remediation obligations and other environmental contingencies.
- Debt, interest costs, covenant headroom and the company’s ability to fund planned capital spending, dividends and share repurchases while maintaining its leverage objectives.
- Sales growth, pricing, competition and protection of the diamide franchise as key patents approach expiration.
- Supply-chain resilience, including the Chinese contract-manufacturing disruption and any effects of COVID-19 or other interruptions.