FMC Corporation — Second-Quarter 2013 Form 10-Q
Business and period. FMC is a global diversified chemicals company serving agricultural, food and health, minerals, and industrial markets. This unaudited filing covers the quarter and six months ended June 30, 2013, compared with the same 2012 periods. Segment information was recast following an organizational realignment; FMC reported four segments in this filing.
Financial performance
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Revenue | $959.4m | $905.2m | $1,949.6m | $1,845.9m |
| Gross margin | $342.9m | $337.8m | $712.6m | $685.1m |
| Income from continuing operations | $119.3m | $118.4m | $259.5m | $250.4m |
| Net income attributable to FMC stockholders | $118.0m | $104.9m | $248.9m | $224.0m |
| Diluted EPS | $0.86 | $0.76 | $1.81 | $1.61 |
| Operating cash flow from continuing operations | — | — | $245.3m | $267.9m |
Q2 revenue rose 6%; management attributed growth mainly to Agricultural Solutions and Health and Nutrition. Gross margin was 36% of sales versus 38% a year earlier, reflecting unfavorable Agricultural Solutions geographic mix and lower Alkali pricing. Q2 stockholder net income benefited from stronger Agricultural Solutions results, a $13.9m insurance recovery in discontinued operations, and a lower tax rate; Minerals earnings weakened. First-half net income rose about 11%, while operating cash flow declined about 8%.
At June 30, cash was $77.4m; current assets were $2,182.7m and current liabilities $1,268.9m. Total debt was $1,070.6m, up from $965.1m at year-end 2012, primarily reflecting short-term commercial paper and working-capital needs. Short-term debt was $286.4m, including $264.0m of commercial paper; long-term debt, net of current maturities, was $762.4m. The company reported $1,163m available under its revolving facility, including the effect of commercial paper borrowings, and compliance with debt covenants. First-half capital expenditures were $96.5m. Dividends paid were $37.1m and share repurchases were $109.9m.
Segments and changes
| Segment | Q2 revenue, year-over-year | Q2 operating profit, year-over-year |
|---|---|---|
| Agricultural Solutions | $442.6m, +12% | $124.7m, +11% |
| Health and Nutrition | $189.9m, +9% | $44.3m, approximately flat |
| Minerals | $244.4m, -2% | $35.4m, -21% |
| Peroxygens | $83.6m, -5% | $4.0m, -49% |
Agricultural Solutions growth reflected increased sales in Latin America, North America, and Asia, partly offset by weaker EMEA results. Health and Nutrition sales benefited from volume, acquisitions, and pricing, but higher raw-material and manufacturing-improvement costs restrained profit. Minerals faced lower Alkali pricing and Lithium volume disruptions, including production constraints and Chilean port and transport issues. Peroxygens was affected by lower volumes, the prior zeolites phase-out, and higher manufacturing costs.
Outlook, risks and unusual items
- Management outlook for 2013: Agricultural Solutions revenue growth in the high teens and operating-profit growth in the mid-to-high teens; Health and Nutrition revenue growth around the mid-teens and operating-profit growth in the low teens; Minerals revenue growth in the low single digits but operating profit expected to decline nearly 20%. No full-company earnings guidance is stated in the provided filing text.
- Strategic actions after quarter-end: FMC acquired Epax, a fish-based omega-3 supplier, in July for approximately $345m. In July, the company also concluded that sale of Peroxygens was probable, expected by year-end; it planned to classify the segment as held for sale and discontinued operations beginning in its September 2013 filing. At June 30, Peroxygens had reported net assets of $299.1m.
- Capital allocation: The board authorized a new $500m share-repurchase program in April. A subsequent accelerated repurchase agreement contemplated approximately $250m of purchases; final shares, timing, and cost depend on market prices and customary adjustments.
- Environmental exposure: Environmental reserves were $219.1m excluding recoveries; recorded net environmental reserves were $198.4m. Estimated reasonably possible environmental losses exceeded accruals by approximately $160m. Management said unreserved obligations could materially affect results in a quarter or year, although it did not expect them to materially harm liquidity or financial condition because payments may extend over many years. Updates include the Pocatello litigation and Middleport cleanup dispute.
- Other contingencies and operating risks: FMC disclosed European and Canadian hydrogen-peroxide antitrust actions and asbestos claims for which it could not reasonably estimate potential exposure beyond established reserves. It cautioned that adverse outcomes in contingencies could materially affect a reporting period, financial position, or liquidity. Agricultural product registrations, weather, commodity prices, foreign exchange, and pension funding are also relevant risks.
- Other notable items: Q2 restructuring and other charges were $6.5m; first-half charges were $16.4m, primarily related to Lithium restructuring and environmental matters. The Q2 effective tax rate fell to 23.5% from 27.7%, largely because a greater share of income came from lower-tax foreign operations. First-half pension contributions were $27m; approximately $40m of voluntary contributions were expected for 2013.
Key facts for investors to verify
- Whether Agricultural Solutions and Health and Nutrition deliver their stated growth outlook, and whether Minerals’ expected profit decline is realized.
- Progress, sale price, timing, and accounting treatment of the Peroxygens divestiture, as well as the integration and financing of the Epax acquisition.
- Debt and liquidity after the Epax purchase, commercial-paper borrowing, and planned accelerated share repurchase.
- Changes in environmental reserves and reasonably possible exposures, especially Middleport and Pocatello, and developments in antitrust and asbestos matters.
- Cash conversion and working-capital trends, including customer advances, rebates, capital spending, and pension contributions.