FMC Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Comparative figures are for Q1 2012 unless stated otherwise. Interim financial statements are unaudited and were reviewed by KPMG.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $990.2 million | $940.7 million | +5% |
| Gross margin | $369.7 million | $347.3 million | +$22.4 million |
| Gross margin rate | About 37% | About 37% | Broadly unchanged |
| Income from continuing operations | $140.2 million | $132.0 million | +6% |
| Net income attributable to FMC stockholders | $130.9 million | $119.1 million | +10% |
| Diluted EPS | $0.94 | $0.85 | +$0.09 |
| Operating cash flow, continuing operations | $(31.9) million | $24.4 million | Declined $56.3 million |
| Capital expenditures | $47.6 million | $38.8 million | +$8.8 million |
Adjusted after-tax earnings from continuing operations, a non-GAAP measure, were $151.5 million versus $135.4 million. The filing cautions that this measure is not a substitute for GAAP results. The effective tax rate was 25.2%, compared with 25.3%.
Segment results
- Agricultural Products: Revenue of $495.2 million, up 9%; operating profit of $163.3 million, up 25%. Growth reflected strong North American early-season demand, new products and favorable mix and pricing. Latin American revenue fell 19%.
- Specialty Chemicals: Revenue of $236.0 million, up 9%; operating profit of $45.5 million, up 6%. BioPolymer grew 17%, while Lithium revenue fell 14% amid production constraints and labor disruptions at Chilean ports.
- Industrial Chemicals: Revenue of $259.6 million, down 5%; operating profit of $32.9 million, down 37%. Lower soda ash export pricing and reduced Peroxygens volumes weighed on results; the Zeolites phase-out also reduced revenue.
Liquidity, debt and capital allocation
Cash and cash equivalents were $82.6 million at March 31, 2013, including $78.1 million held by foreign subsidiaries. Total debt was $1,277.1 million, up from $965.1 million at year-end 2012, primarily reflecting increased committed-credit-facility borrowings for working capital. The company had $971.7 million of available funds under its credit facility and was in compliance with its financial covenants. Reported leverage was 1.7 against a maximum of 3.5; interest coverage was 17.5 against a minimum of 3.5.
Operating cash flow was negative, with significant working-capital cash uses including a $133.0 million reduction in customer advances and $101.7 million use from receivables, partly offset by a $120.1 million increase in accrued customer rebates. Financing activities provided $105.3 million, including $325.0 million of net borrowings under committed facilities. FMC spent $109.9 million on share repurchases and paid $18.7 million in dividends during the quarter. In April, the board authorized a new share-repurchase program of up to $500 million.
Outlook, changes and risks
- Management outlook: For 2013, Agricultural Products revenue growth was expected in the high teens and segment operating-profit growth in the mid-to-high teens. Specialty Chemicals revenue growth was expected to be about 10%, with operating-profit growth in the mid-to-high single digits. Industrial Chemicals revenue growth was expected in the mid-single digits, but operating profit was expected to decline in the mid-single digits. These are segment forecasts, not consolidated guidance.
- Investment and pensions: 2013 capital expenditures and contract-manufacturer spending were projected to be about 30% above 2012 levels, primarily to expand BioPolymer, Lithium and soda ash capacity. FMC expected approximately $40 million of net environmental remediation spending, about $10 million for environmental-control capital projects, and about $30 million in environmental-compliance costs. It also expected approximately $40 million of voluntary U.S. pension contributions in 2013.
- Organizational changes: In April, FMC announced a revised segment structure effective in Q2, including a standalone Health and Nutrition business, combined lithium and alkali operations under FMC Minerals, and a standalone FMC Peroxygens segment. The company had begun exploring a divestiture of all or significant portions of Peroxygens.
- Environmental exposure: Environmental reserves were $230.8 million excluding recoveries; the reported net environmental reserve was $209.8 million. Estimated reasonably possible environmental losses, net of expected recoveries, exceeded accrued amounts by approximately $160 million. FMC said such obligations could materially affect a quarter’s or year’s results, though it did not expect a material adverse effect on liquidity or financial condition because payments may extend over many years.
- Legal and regulatory matters: FMC could not reasonably estimate potential exposure in European and Canadian hydrogen-peroxide antitrust cases or asbestos claims beyond established reserves. The Pocatello tribal-site proceedings resumed. FMC also described pesticide registration reviews, including ongoing EU registrations for bifenthrin; it expected no material 2013 impact from the cited EU and Brazilian reviews.
- Other unusual items: Restructuring and other charges rose to $9.9 million from $1.7 million, primarily due to Lithium restructuring. Non-operating pension and postretirement charges increased to $12.7 million from $9.1 million. FMC acquired an additional 6.25% of FMC Wyoming for $80.0 million, raising ownership to 93.75%.
Most important facts for investors to verify
- Whether Agricultural Products sustains its strong growth and whether Latin American demand recovers.
- Whether Lithium production constraints and labor-related disruptions ease, and whether Industrial Chemicals pricing and profitability improve as forecast.
- Whether working-capital swings convert back into operating cash flow while debt remains elevated.
- Actual environmental remediation costs and developments in the Pocatello, antitrust and asbestos matters, including potential losses above recorded reserves.
- Progress on planned capacity spending, the segment reorganization and any Peroxygens divestiture; also, the pace of share repurchases under the new authorization.