FMC Corporation — Q1 2019 Form 10-Q
Business context and period. The filing covers the three months ended March 31, 2019, compared with Q1 2018; balance-sheet comparisons are with December 31, 2018. FMC is now a single-segment agricultural sciences company following the March 1, 2019 pro rata distribution of its Livent shares. FMC Lithium results are presented as discontinued operations.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $1,192.1 million | $1,107.9 million |
| Gross margin | $544.7 million; 45.7% of revenue | $502.5 million; 45.4% of revenue |
| Continuing-operations income | $207.6 million | $230.2 million |
| Net income attributable to FMC stockholders | $215.7 million; diluted EPS $1.62 | $267.2 million; diluted EPS $1.96 |
| Adjusted EBITDA (non-GAAP) | $343.4 million | $329.5 million |
| Operating cash flow, continuing operations | $(282.9) million | $(67.4) million |
| Cash and cash equivalents | $109.5 million | $134.4 million at Dec. 31, 2018 |
| Total debt | $3,138.8 million | $2,692.7 million at Dec. 31, 2018 |
Revenue increased 8%, with reported growth reflecting higher volume and pricing, partly offset by unfavorable foreign currency. FMC reported gross margin of approximately 46%; excluding transaction-related charges, gross margin percentage was approximately 46%, versus 48% a year earlier. Adjusted after-tax earnings from continuing operations attributable to FMC stockholders were $229.3 million, up from $214.9 million.
Operating cash use reflected seasonal working-capital needs, notably receivables, inventory, and lower customer advances. Investing cash use in continuing operations was $33.4 million, including $19.1 million of capital expenditures and $12.6 million for the ERP system. Financing activities provided $287.6 million, including increased short-term borrowing and $100 million of program share repurchases. Cash dividends paid were $53.2 million.
Material changes and drivers
- Revenue grew 8%; Latin America rose about 30%, EMEA 3%, North America 7%, and Asia Pacific 1%. Insecticide revenue rose to $703.4 million; herbicide and fungicide revenue declined.
- Adjusted EBITDA increased 4%, driven by demand, volume, and pricing, partly offset by raw-material costs and currency effects. R&D expense increased 10% to $71.2 million, reflecting continued product-development investment.
- GAAP net income declined 19%, primarily because Q1 2018 included an $85 million gain on sale of a European herbicide portfolio. Q1 2019 discontinued operations included a roughly $21 million after-tax gain on the sale of a Newark property parcel; results also reflected the Livent separation and retained-liability adjustments.
- Short-term debt and current maturities increased to $993.8 million from $547.7 million at year-end, mainly from commercial paper borrowings used for seasonal working capital and share purchases. FMC reported $493.5 million outstanding under its commercial paper program.
Outlook, risks and unusual items
- Management forecast 2019 revenue of approximately $4.5–$4.6 billion and Adjusted EBITDA of $1.18–$1.22 billion. It did not provide a GAAP earnings outlook, citing unpredictability of certain components.
- A late-March explosion led authorities to temporarily close an industrial park in China containing a contract manufacturer’s plant. FMC said its supply network and alternate sourcing options were expected to support supply; the park’s reopening date was unknown.
- Environmental reserves were $515.0 million net of recoveries. Estimated reasonably possible environmental losses exceeded accruals by approximately $190 million. Management said these potential obligations could be material to a future period, though it did not expect them to materially affect liquidity or financial condition because payments may extend over many years. Planned 2019 net remediation spending was approximately $75–$80 million.
- At March 31, FMC had $814.3 million of available capacity under its revolving credit facility, including commercial-paper capacity, and was in compliance with debt covenants. Leverage was 2.7 against a maximum of 4.5; interest coverage was 9.3 against a minimum of 3.5.
- FMC adopted lease accounting guidance in January 2019, recording $185.3 million of right-of-use assets and $215.9 million of lease liabilities at adoption. The adoption materially affected the balance sheet but not the income or cash-flow statements.
- Other notable items: FMC planned up to $500 million of 2019 share repurchases; about $900 million remained under authorization at quarter-end. The filing reports no material off-balance-sheet arrangements. Interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether seasonal receivable collections and other working-capital movements convert into stronger operating cash flow later in 2019.
- Progress against the revenue and Adjusted EBITDA outlook, including the effects of pricing, foreign exchange, raw-material costs, and regional demand.
- Supply continuity and any operational or cost effects from the temporary China industrial-park closure.
- Environmental remediation estimates, settlement developments at Middleport, New York, and whether actual costs exceed recorded reserves or planned spending.
- Debt and liquidity trends as commercial-paper borrowing, dividends, and planned repurchases continue.
- Reported GAAP results versus non-GAAP measures, including the effects of discontinued operations, separation costs, and unusual gains or charges.