FMC Corporation — 2022 Form 10-K Summary
Business context and reporting period. FMC is a global agricultural sciences company selling insecticides, herbicides, fungicides, biologicals and other plant-health products. It reports one operating segment. This Form 10-K covers the fiscal year ended December 31, 2022; fourth-quarter figures are also summarized below. Unless otherwise noted, amounts are in U.S. dollars.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $5,802.3 million | $5,045.2 million |
| Gross margin | $2,326.8 million; 40% of revenue | $2,161.3 million; 43% of revenue |
| Income from continuing operations | $838.7 million | $805.3 million |
| Net income attributable to FMC stockholders | $736.5 million; diluted EPS $5.81 | $739.6 million; diluted EPS $5.73 |
| Adjusted EBITDA (non-GAAP) | $1,406.8 million | $1,313.8 million |
| Adjusted after-tax earnings from continuing operations (non-GAAP) | $938.4 million | $886.7 million |
| Cash from operating activities, continuing operations | $660.0 million | $898.6 million |
| Free cash flow (non-GAAP) | $514.2 million | $713.3 million |
| Cash and cash equivalents at year-end | $572.0 million | $516.8 million |
| Total debt at year-end | $3,274.0 million | $3,172.5 million |
Revenue rose 15% reported and 18% excluding foreign currency effects. Higher volume and pricing drove growth, while currency reduced revenue growth by approximately 3 percentage points. Interest expense was $151.8 million, up from $131.1 million, and the effective tax rate was 14.8%, versus 10.3%.
Fourth-quarter 2022 revenue was $1,622.0 million, compared with $1,413.6 million in fourth-quarter 2021. Net income attributable to FMC stockholders was $273.9 million versus $190.7 million; diluted EPS was $2.17 versus $1.50.
Material changes versus the prior period
- North America revenue increased 29% and Latin America increased 28%; EMEA was flat and Asia decreased 1%. FMC attributed regional results to volume, pricing, currency, weather and the discontinuation of Russian sales.
- Gross margin increased in dollars but declined as a share of revenue, from 43% to 40%, as inflationary input costs and unfavorable currency effects outweighed some of the benefit from higher sales.
- Operating cash flow from continuing operations fell by $238.6 million. The company cited higher receivables and inventory, among other working-capital movements. Free cash flow declined by $199.1 million.
- Net income attributable to FMC stockholders edged down despite higher continuing-operations income, principally reflecting increased discontinued-operations losses, higher expenses and taxes.
- FMC changed U.S. inventory accounting from LIFO to FIFO and revised the accounting method for a pension-plan asset class. Prior periods were retrospectively adjusted; management said income-statement impacts were not material overall.
Liquidity, capital allocation and outlook
Year-end debt included $540.8 million of short-term debt and current maturities. FMC had $1,469.5 million of remaining borrowing capacity under its revolving credit facility, whose capacity was increased to $2 billion and maturity extended to 2027. The company reported compliance with debt covenants; its leverage ratio was 2.34 against a 3.50 maximum. Cash was primarily held by foreign subsidiaries ($551.1 million).
FMC paid $267.5 million in dividends and repurchased approximately $100 million of shares in 2022; approximately $900 million remained under its $1 billion repurchase authorization at year-end.
Management’s 2023 outlook: Revenue of approximately $6.08–$6.22 billion; adjusted EBITDA of $1.48–$1.56 billion; and adjusted diluted EPS of $7.20–$8.00. FMC expected mid-single-digit pricing, volume growth from launches and market access, and a moderate foreign-exchange headwind. It expected input-cost inflation to decelerate and potentially become a year-over-year tailwind in the second half. The company forecast free cash flow of approximately $530–$720 million. These are non-GAAP forecasts; FMC did not provide corresponding U.S. GAAP guidance.
Management commentary, risks and unusual items
- Inflation in raw materials, labor, freight, logistics and other costs pressured margins. Management said pricing, savings initiatives and alternate sourcing partly mitigated the pressure.
- FMC recorded $76.8 million of charges related to its decision to exit Russia, primarily noncash asset write-offs. It also recorded a $50.5 million gain on a land disposition, which reduced reported restructuring and other charges.
- FMC acquired BioPhero, a pheromone research and production company, for approximately $193 million. Management stated an ambition for pheromone products to generate approximately $1 billion of revenue at above-company-average EBITDA margin by 2030; commercialization, registration and scaling remain uncertain.
- Environmental reserves, net of recoveries, were $529.2 million at year-end. Estimated reasonably possible environmental losses exceeded accrued amounts by approximately $200 million; actual costs and timing remain uncertain.
- FMC disclosed approximately $91 million of reasonably possible Brazilian tax, product-liability and labor losses above amounts accrued. It also had 10,561 pending asbestos claims; potential losses beyond the established reserve could not be reasonably estimated.
- Patent protection is a key risk to the diamide franchise, which generated approximately $2.1 billion of 2022 sales. Chlorantraniliprole composition-of-matter patents expired in some countries in August 2022. Two Chinese patents relating to an intermediate and a manufacturing process were ruled invalid by a review board; FMC appealed, and the patents were unenforceable in China pending appeal.
- Other significant risks include weather and seasonality, regulatory approvals and product re-registration, competition from generics and new technologies, foreign exchange, supply-chain disruption, commodity costs, geopolitical events, cybersecurity, and long-term environmental obligations.
Most important facts for investors to verify
- Whether pricing and volume growth can offset inflation and currency effects while restoring gross margin.
- Cash conversion and working-capital trends, particularly collection timing and receivables exposure in Brazil, and progress toward the 2023 free-cash-flow outlook.
- Debt servicing and refinancing needs, including the $1.2 billion scheduled 2024 maturity and exposure to variable interest rates.
- Environmental and other contingent liabilities, especially the uncertain Portland Harbor allocation and the disclosed reasonably possible losses above reserves.
- Durability of diamide sales after patent expirations, outcomes of patent challenges and enforcement actions, and delivery against the new-product pipeline.
- Progress integrating and commercializing BioPhero technology, and whether its long-term revenue and margin ambition is achieved.