It's been over two years since FMC Corporation (FMC +2.69%) announced a $1.6 billion acquisition of certain crop protection assets from the old DuPont, but the move keeps paying dividends -- for both the business and its shareholders. One of the key benefits of the transformative deal was the addition of a blockbuster insecticide portfolio with a heavy international presence, which provided ample insulation against historic weakness in the American Corn Belt in the first half of 2019.
FMC Corp. managed to use its bolstered global footprint to offset weakness caused by historic flooding in the American Great Plains, which delayed and prevented the planting of a record number of acres in 2019. In fact, the first half of the year went so well that management decided to increase full-year 2019 guidance for adjusted diluted earnings per share (EPS). Here's what investors need to know about the latest operating results.
Image source: Getty Images.
By the numbers
The agricultural technology leader didn't go into much detail about the circumstances surrounding the American planting season this year, but fertilizer and retail giant Nutrien did a few days ago on its Q2 2019 earnings conference call.
Nutrien said that devastating floods and unusually wet weather prevented the planting of 10 million acres of corn and soybeans this year. The effects of that should linger for the remainder of the year, although farmers lucky enough to have survived financially are expected to do everything in their power to maximize yields. That mindset could help to offset some, but definitely not all, of the weakness from the missing acres.
FMC Corp. was fortunate enough to be able to lean on strength in Brazil and India, where farmers are attempting to take advantage of the hardships in the United States, if only for one harvest. It grew revenue, gross margin, and operating income, while decreasing selling, general, and administrative (SG&A) expenses in the first half of 2019 compared to the prior-year period.
|
Metric |
First Half 2019 |
First Half 2018 |
Change |
|---|---|---|---|
|
Revenue |
$2.39 billion |
$2.26 billion |
6% |
|
Gross margin |
45.6% |
43.9% |
170 basis points |
|
SG&A |
$380 million |
$392 million |
(3%) |
|
R&D expenses |
$144 million |
$140 million |
2% |
|
Income from continuing operations before taxes |
$402 million |
$330 million |
22% |
|
Net income attributable to shareholders |
$390 million |
$397 million |
(2%) |
|
Adjusted EBITDA |
$681 million |
$649 million |
5% |
Data source: FMC press release.
The company told investors it benefited from increased pricing in all regions in Q2. Overall, the business enjoyed a 4% year-over-year increase in quarterly revenue, owing to a 5% contribution increase from volume and a 3% increase from pricing, offset by a 4% headwind from currency exchange rates.
FMC Corp. still managed to turn in a solid first half of operations. The blemish that stands out the most was the cash flow statement: The business consumed $217 million in operating activities and $63 million in investing activities. It tapped short-term debt facilities for $549 million in the first six months of 2019, although it reported net cash flow from financing activities of only $239 million after accounting for $200 million in share repurchases and $106 million in dividend payments.
Perhaps that's to be expected given that the dust is still settling from the company's recent spinoff of Livent Corporation and integration of the assets from the old DuPont, but investors will want to keep an eye on the cash flow statement, especially as global economic headwinds begin to pick up.
That didn't deter management from increasing full-year 2019 guidance, however. While expectations for revenue and adjusted EBITDA haven't changed from Q1 2019 -- when both were increased -- FMC Corp. now expects to deliver adjusted diluted EPS of $5.78 at the midpoint. That marks an increase of only 1% from the previous midpoint of $5.72 per share, but an increase is an increase.
The business remains on track
Investors have been on quite a ride with FMC Corp. in recent years. Since 2017 the business has divested its health and nutrition business, gobbled up $1.6 billion of crop protection assets from the old DuPont, and completed the spinoff of its lithium segment. Those transformative moves look better and better with each passing quarter. In Q2 they helped the business withstand historic weakness in the American Corn Belt, which will persist for the remainder of the year.
After a solid first-half performance, investors with a long-term mindset can't have too many complaints about the direction of the company.
