FMC Corporation — Q1 2020 Form 10-Q
Business context and reporting period. FMC is an agricultural sciences company operating in one business segment, selling insecticides, herbicides, fungicides and related products. This unaudited quarterly report covers the three months ended March 31, 2020, compared with Q1 2019; the interim financial statements were reviewed by KPMG.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $1,250.0 million | $1,192.1 million; up 5% reported and 9% excluding currency |
| Gross margin | $561.5 million; 44.9% of revenue | $544.7 million; approximately 45.7% |
| Continuing-operations income | $213.7 million; diluted EPS $1.64 | $207.6 million; diluted EPS $1.55 |
| Net income attributable to FMC stockholders | $206.2 million; diluted EPS $1.58 | $215.7 million; diluted EPS $1.62 |
| Adjusted EBITDA (non-GAAP) | $356.9 million | $343.4 million; up approximately 4% |
| Operating cash flow, continuing operations | $(308.9) million | $(282.9) million |
| Free cash flow (non-GAAP) | $(371.5) million | $(301.4) million |
Gross margin dollars increased, mainly on volume and pricing, but margin percentage declined, in part due to foreign-exchange pressure. Reported net income declined largely because Q1 2019 included a gain on the sale of a parcel at a discontinued site; continuing-operations income improved. Adjusted after-tax earnings from continuing operations were $239.6 million, versus $229.3 million.
Revenue growth reflected approximately 7% contribution from volume and 2% from pricing, partly offset by approximately 4% adverse currency effects. By region, revenue rose about 3% in North America, 26% in Latin America and 1% in EMEA, and fell 3% in Asia. Insecticide revenue was $720.4 million, herbicides $367.2 million and fungicides $83.3 million.
Cash and equivalents were $436.2 million at March 31, up from $339.1 million at year-end. Total debt was $3,782.0 million, versus $3,258.8 million; the increase primarily reflected a $500 million revolving-credit draw. Revolver availability was $784.9 million, with no commercial-paper borrowings. Actual leverage was 3.2x against the then-applicable 4.0x maximum; interest coverage was 7.5x against a 3.5x minimum. FMC reported covenant compliance at quarter-end. Current liabilities were $2,456.5 million and current assets $4,472.0 million.
Operating cash outflow reflected seasonal working-capital needs, including receivables, customer prepayments and payables. Investing cash outflow from continuing operations was $43.2 million, including $15.5 million of capital expenditures and $18.6 million invested in the ERP system. Financing activities provided $474.8 million, primarily through borrowing. Dividends paid were $57.0 million; there were no repurchases under the public program.
Material changes, outlook and commentary
- COVID-19: FMC said its facilities remained operational as agriculture was generally treated as essential, and that it mitigated Q1 effects. It warned of potential further disruption to supply chains, logistics, demand and the food chain, with impacts and duration uncertain. It widened guidance to reflect greater downside risk and implemented temporary cost controls.
- 2020 outlook: Revenue of approximately $4.65–$4.85 billion; adjusted EBITDA of $1.23–$1.34 billion; adjusted diluted EPS of $6.05–$6.70. FMC expected flat global crop-protection market growth in U.S. dollars. These are non-GAAP forecasts; the filing does not provide corresponding GAAP guidance.
- Cash outlook: Free cash flow (non-GAAP) was forecast at $425–$525 million, with cash from continuing operating activities excluding transaction-related cash flows forecast at $700–$900 million. FMC planned to defer discretionary capital investment, manage working capital closely and suspend share repurchases. It expected capital expenditures and contract-manufacturer spending of $100–$150 million and legacy/transformation spending of $175–$225 million.
- Debt amendments after quarter-end: On April 22, FMC amended its revolving-credit and term-loan agreements, increasing the maximum leverage covenant to 4.25x through December 2020, then 4.0x for Q1 2021 and 3.5x thereafter. The amendments also restrict stock purchases if leverage exceeds 3.5x through June 30, 2021.
- Other subsequent event: In May, FMC entered a binding offer to acquire Isagro’s Fluindapyr assets for approximately $60 million; closing was expected by the end of Q3 2020.
- Unusual items and exposures: Restructuring and other charges were $13.4 million, including $6.4 million of environmental charges; transaction-related charges were $13.0 million. Net environmental reserves were $576.1 million, and reasonably possible environmental losses net of recoveries exceeded accrued amounts by approximately $150 million. FMC petitioned the U.S. Supreme Court in the Pocatello Tribal litigation; it reported no reserve change from the petition.
Key investor verification points
- Track COVID-19 impacts on customer demand, supplier availability, logistics and the assumptions underlying widened annual guidance.
- Assess seasonal working-capital movements and whether forecast operating cash flow and free cash flow convert to cash as expected.
- Monitor debt, leverage-covenant headroom, revolver capacity and the effect of the April 22 amendments, including the stock-purchase restriction.
- Review environmental remediation estimates, the approximately $150 million reasonably possible exposure above accruals, and developments in the Pocatello litigation.
- Verify progress, costs and timing for the ERP implementation and DuPont Crop Protection integration, along with the proposed Fluindapyr acquisition.
- Distinguish GAAP results from adjusted EBITDA, adjusted earnings and free cash flow; these non-GAAP measures are not substitutes for GAAP measures.