FMC Corporation — Q1 2014 Form 10-Q
Business context and reporting period. FMC is a diversified chemical company with Agricultural Solutions, Health and Nutrition, and Minerals segments. This unaudited quarterly report covers the three months ended March 31, 2014, compared with Q1 2013. FMC completed the sale of its Peroxygens business on February 28, 2014; its results are reported as discontinued operations.
Financial results and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Revenue | $941.8 million | $910.7 million; up 3% |
| Gross margin | $328.5 million; 34.9% of revenue | $353.6 million; 38.8% |
| Income from continuing operations | $120.5 million | $138.2 million |
| Net income attributable to FMC stockholders | $65.6 million; diluted EPS $0.49 | $130.9 million; diluted EPS $0.94 |
| Adjusted after-tax earnings from continuing operations attributable to FMC stockholders (non-GAAP) | $126.9 million | $149.0 million; down 15% |
| Cash from continuing operating activities | $(85.3) million | $(26.1) million |
| Capital expenditures | $75.3 million | $38.9 million |
| Cash and total debt at March 31, 2014 | $92.5 million cash; $1,812.5 million debt | Cash was $123.2 million and debt $1,851.9 million at December 31, 2013 |
Continuing operating cash outflow reflected working-capital movements, including lower customer advances and payments of accounts payable, as well as pension contributions and interest and tax payments. The Peroxygens sale generated $199.1 million in proceeds. Cash ended the quarter at $92.5 million, down $30.7 million from year-end.
Current liabilities were $1,726.7 million and current assets $2,752.5 million at March 31. Short-term debt was $623.7 million, including $605.9 million of commercial paper; long-term debt, excluding current maturities, was $1,154.0 million. The revolving credit facility had $821.0 million available, reflecting commercial-paper borrowings. FMC was in compliance with its debt covenants.
Segment revenue and operating profit were: Agricultural Solutions, $466.9 million and $120.1 million; Health and Nutrition, $226.2 million and $50.9 million; Minerals, $248.7 million and $36.8 million. Compared with Q1 2013, Agricultural Solutions revenue and profit declined 6% and 26%; Health and Nutrition rose 18% and 17%; Minerals rose 11% and 27%.
Material changes and unusual items
- Consolidated revenue increased, but gross margin fell by $25.1 million. Management attributed weaker margin performance principally to unfavorable currency movements and sales mix in Agricultural Solutions.
- Agricultural Solutions faced delayed North American season starts after an extended winter, weather-affected Brazilian sugarcane plantings, and timing-related weakness in EMEA. Health and Nutrition growth included about 15% from acquisitions; Minerals benefited from lithium volumes and soda ash pricing.
- FMC recorded a $50.1 million net loss from discontinued operations, versus a $3.2 million loss a year earlier. The Peroxygens sale and related tax and currency-translation effects were key factors. The filing’s Note 10 reports a $40.0 million after-tax loss for Peroxygens operations in Q1 2014, while its narrative describes an additional sale-related loss of $39.0 million net of tax.
- Q1 included $6.7 million of restructuring and other charges, $3.0 million of business-separation costs, and $3.1 million of acquisition-related charges. A Health and Nutrition restructuring included $4.9 million of severance charges.
Outlook, risks, and contingencies
- Management expected 2014 Agricultural Solutions revenue and segment operating-profit growth in the mid-teens, Health and Nutrition revenue growth in the mid- to high-teens and profit growth in the mid-teens, and Minerals revenue growth in the mid- to high-single digits and profit growth in the high-teens. These are segment forecasts; the filing does not provide a consolidated earnings or revenue forecast.
- On March 10, FMC announced a planned separation into a company comprising Agricultural Solutions and Health and Nutrition and a separate Minerals company. It expected a tax-free distribution to shareholders and completion in the first half of 2015, subject to final board approval and customary conditions.
- Environmental reserves were $221.0 million before recoveries; the recorded net environmental reserve was $202.4 million. Estimated reasonably possible environmental losses, net of expected recoveries, exceeded accrued amounts by approximately $170 million. Management cautioned that actual losses could be higher and that unreserved obligations could materially affect a quarter or year, though it did not expect a material adverse effect on liquidity or financial condition.
- Environmental matters included Pocatello Tribal litigation and the Middleport cleanup dispute. The Middleport reserve was $40.8 million; FMC sought EPA review of the state-selected remedy. Other contingencies included European and Canadian antitrust actions relating to Peroxygens and asbestos claims; the filing says potential exposure could not be reasonably estimated for certain matters.
- FMC projected approximately $40 million of net environmental remediation spending, $10 million for environmental-control capital projects, and $30 million of environmental compliance costs in 2014. It expected approximately $50 million of voluntary U.S. pension contributions for the year and noted that market changes could require higher future contributions.
- Management identified currency, commodity, interest-rate, regulatory, environmental, pension, and separation-related risks. It said no material changes had occurred to the risk factors in the 2013 Form 10-K.
Important facts for investors to verify
- Whether Agricultural Solutions’ seasonal and currency-related pressures reversed, and whether the company achieved its segment growth outlook.
- The final accounting, tax treatment, and cash proceeds associated with the Peroxygens divestiture, including the differing loss descriptions in the filing.
- Progress, costs, approvals, and expected structure of the proposed separation, including whether the first-half 2015 target remained achievable.
- Updates to environmental reserves and reasonably possible exposures, particularly Pocatello and Middleport, and any developments in antitrust or asbestos matters.
- Operating cash flow and working-capital trends, capital spending, pension funding, and liquidity available after ongoing obligations.