FMC Corporation — Q2 2023 Form 10-Q Summary
Business context and reporting period
FMC is a global agricultural sciences company operating as one reportable segment, selling crop-protection chemicals and plant-health products. This unaudited quarterly report covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods. The interim financial statements were reviewed by KPMG, not audited.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $1,014.5 million | $1,452.3 million | $2,358.8 million | $2,803.1 million |
| Gross margin | $432.8 million; 43% | $591.0 million; 41% | $1,014.1 million; 43% | $1,163.7 million; 42% |
| Income from continuing operations | $53.9 million | $142.0 million | $261.3 million | $368.8 million |
| Net income attributable to FMC stockholders | $30.5 million | $134.2 million | $226.5 million | $341.6 million |
| Diluted EPS attributable to FMC stockholders | $0.24 | $1.06 | $1.80 | $2.69 |
| Adjusted EBITDA (non-GAAP) | $187.6 million | $359.5 million | $549.3 million | $714.3 million |
Q2 revenue fell 30% year over year, driven primarily by a 31% volume decline; pricing contributed approximately 3% and foreign currency reduced revenue approximately 2%. First-half revenue declined 16%, with volume down 18%, pricing up approximately 5%, and foreign currency reducing revenue approximately 3%. Q2 gross margin dollars fell 27%, although the margin percentage improved as pricing and lower input costs partly offset reduced volumes.
Q2 net income also reflected net interest expense of $64.5 million, up $29.2 million year over year. First-half net cash used in continuing operating activities was $719.8 million, versus $401.9 million used in 2022; non-GAAP free cash flow was negative $822.0 million, versus negative $498.3 million. Working-capital movements included the use of $677.1 million as customer advances were recognized as revenue, $423.3 million for inventory, and $197.3 million for accounts payable. First-half investing cash outflow was $78.5 million; financing cash inflow was $1,194.6 million.
At June 30, cash and cash equivalents were $941.5 million, total debt was $4,682.5 million, and short-term debt plus current maturities totaled $1,660.5 million. The company issued $1.5 billion of senior notes in May and repaid its $800 million term loan. Available capacity under the revolving credit facility was $755.4 million. FMC reported compliance with debt covenants; leverage was 3.55 against a maximum of 4.00, and interest coverage was 5.84 against a minimum of 3.50. First-half dividends paid were $145.4 million; $75.0 million of shares were repurchased under the public program.
Material changes versus the prior comparable period
- Management attributed the sharp volume decline to growers and distributors abruptly reducing purchases as they managed inventory after carrying-cost increases and improved supply availability. Management said end-user consumption and demand remained steady.
- Revenue declined across all regions in Q2: North America 25%, Latin America 38%, EMEA 26%, and Asia 29%. Latin America was also affected by drought in Brazil and Argentina; adverse weather contributed to declines in EMEA and Asia.
- Higher interest rates and, to a lesser extent, higher debt balances increased first-half interest expense by $50.7 million.
- Q2 2022 included a $76.1 million charge related to exiting Russia, which did not recur in 2023. In contrast, Q2 2023 discontinued operations included an $11.7 million environmental settlement charge; the agreement removes future remediation obligations at that site.
Outlook, risks, and unusual items
FMC forecast 2023 revenue of approximately $5.20–$5.40 billion, adjusted EBITDA of $1.30–$1.40 billion, and adjusted diluted EPS of $5.86–$6.80. Management expected channel inventory management to continue, with new product launches partly offsetting volume pressure; cost tailwinds, improved product mix, and targeted SG&A and R&D savings were expected to help offset lower volumes. The company forecast 2023 cash from operating activities of $40–$370 million and non-GAAP free cash flow of negative $175 million to positive $175 million. FMC did not provide GAAP reconciliations for these forecasts because certain components were not predictable.
Management identified inflation in labor, raw materials, freight, logistics, and other inputs as a cost headwind, though input-cost inflation was decelerating. Other notable exposures include environmental obligations: net reserves were $532.0 million, and reasonably possible losses above accrued amounts were estimated at approximately $200 million, net of expected recoveries. FMC said these additional obligations could materially affect a quarter or year, but were not likely to materially affect liquidity or financial condition because they may be paid over many years. The filing also reports customer and vendor-financing guarantees totaling $123.2 million. FMC cited foreign-exchange, interest-rate, commodity, credit, and agricultural-market risks and cautioned that forward-looking statements are subject to uncertainty.
FMC expected 2023 environmental remediation spending of approximately $85–$105 million, including continuing and discontinued sites. It did not plan further share repurchases in 2023, with a possible reassessment in 2024 as leverage returns to targeted levels; it expected to continue quarterly dividends. The supply-chain finance program had $281.6 million of confirmed obligations outstanding at June 30.
Important facts for investors to verify
- Whether channel destocking eases, and whether sales volumes, regional demand, and customer inventory levels recover as management assumes.
- Whether the 2023 revenue, adjusted EBITDA, adjusted EPS, operating-cash-flow, and free-cash-flow outlooks are achieved; assess the non-GAAP definitions and absence of GAAP guidance.
- How working capital, especially customer advances, inventories, receivables, and payables, affects cash generation in the second half.
- Debt and interest-cost trajectory, refinancing needs, covenant headroom, and progress toward management’s leverage targets.
- Environmental reserve assumptions, the estimated additional reasonably possible exposure, and timing of remediation payments and recoveries.
- Effects of foreign exchange, weather and drought, inflation, and customer credit or collection conditions on results and liquidity.