FMC Corporation — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. The filing also reports unaudited fourth-quarter results. FMC operated Agricultural Solutions and Lithium (Livent); after Livent’s October 2018 IPO, FMC retained approximately 84% and planned to distribute its remaining shares on March 1, 2019. Until separation, Livent remained consolidated.
Financial performance
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $4,727.8 million | $2,878.6 million |
| Gross margin | $2,086.9 million; 44.1% of revenue | $1,101.3 million; 38.3% |
| Income from continuing operations | $654.9 million | Loss of $83.3 million |
| Net income attributable to FMC stockholders | $502.1 million; diluted EPS $3.69 | $535.8 million; diluted EPS $3.99 |
| Adjusted after-tax earnings from continuing operations attributable to FMC stockholders (non-GAAP) | $854.7 million | $368.3 million |
| Cash from continuing operating activities | $446.0 million | $314.5 million |
| Cash and cash equivalents at year-end | $161.7 million | $283.0 million |
| Total debt at year-end | $2,726.7 million | $3,185.6 million |
Reported revenue increased 64%, largely reflecting a full year of the DuPont Crop Protection Business, acquired November 1, 2017. Agricultural Solutions revenue rose 69% as reported; on a pro forma basis, segment revenue grew 11% and EBITDA grew 15%. Lithium revenue increased 27% and segment EBITDA increased from $141.9 million to $195.7 million. Adjusted gross margin, excluding transaction-related charges, was approximately 46% of revenue versus 39% in 2017.
Fourth-quarter revenue was $1,219.2 million versus $979.6 million in Q4 2017. Net income attributable to FMC stockholders was $32.4 million versus $530.1 million; the prior-year quarter included a substantial gain on the Health and Nutrition divestiture. Q4 2018 continuing-operations income attributable to stockholders was $171.6 million, while discontinued operations recorded a $139.2 million loss.
Capital expenditures were $156.6 million, up from $85.7 million. Current assets were $4,030.2 million and current liabilities $2,993.4 million. FMC reported $1,245.8 million of remaining availability under its revolving credit facility and compliance with debt covenants. Debt repayments during 2018 included approximately $550 million of cumulative reduction; the company also used $200 million for share repurchases.
Material changes and unusual items
- The DuPont acquisition expanded Agricultural Solutions and drove most of the year-over-year reported growth. Integration, purchase-accounting inventory amortization and separation costs contributed to $192.1 million of transaction-related charges in 2018.
- FMC reported a $106.3 million charge in Q4 for an increased Middleport, New York environmental reserve amid settlement discussions. Total environmental reserves, net of recoveries, were $527.9 million at year-end, and estimated reasonably possible environmental losses exceeded accrued amounts by approximately $190 million.
- Discontinued operations recorded a $143.4 million loss in 2018, compared with $621.7 million of income in 2017. The prior-year result included an approximately $727 million after-tax gain from selling FMC Health and Nutrition, partly offset by an Omega-3 impairment and Tax Act effects.
- FMC’s 2018 effective tax rate on continuing operations was 11.9%, versus 146.1% in 2017, when the Tax Cuts and Jobs Act caused a provisional tax expense of approximately $315.9 million.
- Year-end current debt maturities and short-term debt totaled $547.7 million, compared with $192.6 million a year earlier, despite lower total debt.
Outlook, management commentary and risks
Management expected the global crop-protection market in 2019 to be flat to up low-single digits. Excluding FMC Lithium, FMC forecast 2019 revenue of approximately $4.45–$4.55 billion, adjusted EBITDA of $1.165–$1.205 billion and adjusted diluted EPS of $5.55–$5.75. These are non-GAAP forecasts; FMC did not provide a GAAP outlook, citing components it could not reasonably forecast. The 2018 comparison was to be recast excluding Lithium and was not yet finalized when the filing was prepared.
Management cited demand for diamide insecticides, pre-emergent herbicides, Brazilian sales expansion and new products as growth drivers; the company planned to begin launching a pipeline of six active ingredients, including bixafen in North America in Q1 2019. It expected continued acquisition integration and SAP implementation costs, with most DuPont integration costs expected to be completed by Q1 2020. FMC also expected approximately $75–$80 million in 2019 net environmental remediation spending and intended to repurchase up to $500 million of shares in 2019.
Key risks include crop-protection regulation and product re-registration, generic competition and industry consolidation, weather and seasonal demand, currency and political exposure (including Argentina), commodity and raw-material costs, and supply disruption, particularly involving China. Other material risks include successful integration and systems implementation, execution and tax treatment of the Livent separation, environmental and litigation liabilities, and variable-rate debt exposure. FMC identified approximately $77 million of reasonably possible Brazilian tax and product-related losses above recorded reserves; the amount and timing of environmental and other contingent exposures remain uncertain.
Important facts for investors to verify
- Whether the Livent distribution closed as planned and how separation changed FMC’s reported segments, debt, cash flows and outlook.
- How much Agricultural Solutions’ pro forma growth and margin improvement persisted after acquisition-related and integration costs.
- The final Middleport settlement terms, resulting cash payments and any further changes to environmental reserves; also monitor other disclosed unreserved contingencies.
- 2019 results against the non-GAAP outlook, including the finalized 2018 ex-Lithium recast and the reconciliation of adjusted measures to GAAP.
- Working-capital conversion and collections, particularly receivables in Brazil, alongside debt maturities, interest costs and planned share repurchases.