FMC (FMC) - 2024 Q2 - Quarterly Report

Part I - Financial Information This section provides a comprehensive overview of the company's financial performance and position for the reporting period Financial Statements This section presents the unaudited consolidated financial statements, including income, balance sheets, and cash flows, highlighting a significant net income increase due to a tax benefit and the classification of the GSS business as held for sale Consolidated Statements of Income (Loss) Consolidated Statements of Income (Loss) (in Millions, Except Per Share Data) | (in Millions, Except Per Share Data) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,038.4 | $1,014.5 | $1,956.4 | $2,358.8 | | Gross margin | $398.1 | $432.8 | $737.8 | $1,014.1 | | Income (loss) from continuing operations | $298.0 | $53.9 | $307.4 | $261.3 | | Net income (loss) | $295.2 | $32.4 | $292.1 | $228.3 | | Diluted EPS | $2.35 | $0.24 | $2.33 | $1.80 | Consolidated Balance Sheets Consolidated Balance Sheets (in Millions) | (in Millions) | June 30, 2024 (unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $5,210.2 | $5,129.1 | | Total assets | $12,130.7 | $11,926.2 | | Total current liabilities | $3,523.1 | $3,384.6 | | Total liabilities | $7,750.0 | $7,492.8 | | Total equity | $4,580.7 | $4,433.4 | - Cash and cash equivalents increased to $471.5 million from $302.4 million at year-end 2023, while inventories decreased from $1,724.6 million to $1,435.0 million[15] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in Millions) | (in Millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Cash provided (required) by operating activities | $130.4 | $(746.7) | | Cash provided (required) by investing activities | $(39.6) | $(78.5) | | Cash provided (required) by financing activities | $84.7 | $1,194.6 | | Increase (decrease) in cash and cash equivalents | $169.1 | $369.5 | - Cash from operating activities of continuing operations improved significantly to $149.3 million in H1 2024 from a use of $(719.8) million in H1 2023, mainly due to better working capital management, especially inventory reduction[17] Notes to Consolidated Financial Statements - The Global Specialty Solutions (GSS) business was classified as held for sale, with a definitive agreement signed on July 11, 2024, to sell the business for $350 million[33] - The company initiated a global restructuring plan, "Project Focus," incurring $117.5 million in charges in the first six months of 2024, including a $53.3 million asset write-off from terminating a third-party manufacturing contract[89][90] - A net tax benefit of approximately $300 million was recorded in Q2 2024, resulting from a step-up in the tax basis of certain intellectual property transferred to the company's Swiss subsidiary as part of establishing a new global technology center[151] - As of June 30, 2024, the company was in compliance with its debt covenants, with a leverage ratio of 5.35 (below the maximum of 6.50) and an interest coverage ratio of 3.13 (above the minimum of 2.50)[107] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 2024 revenue growth driven by volume recovery, the "Project Focus" restructuring, updated full-year outlook, and a significant tax benefit, alongside liquidity and capital resource management Overview - Q2 2024 revenue increased 2% YoY to $1,038.4 million, with demand improving and sales volume increasing, particularly in the United States and Brazil[205] - The company initiated a global restructuring plan, "Project Focus," to right-size its cost base and optimize its structure[205] - A definitive agreement was signed to sell the Global Specialty Solutions (GSS) business for $350 million[205] - The full-year 2024 outlook was updated, with revenue now expected to be $4.30 billion to $4.50 billion and adjusted EBITDA between $880 million and $940 million[206] Results of Operations Revenue Change (YoY) | Revenue Change (YoY) | Q2 2024 | H1 2024 | | :--- | :--- | :--- | | Total Revenue Change (GAAP) | 2% | (17)% | | Foreign Currency Impact | (2)% | (1)% | | Organic Revenue Change (Non-GAAP) | 4% | (16)% | - Q2 revenue growth was driven by a 14% volume increase, partially offset by a 10% decrease from unfavorable pricing actions and a 2% foreign currency headwind[216] - Gross margin percentage fell to approximately 38% in Q2 2024 from 43% in Q2 2023, primarily due to product mix and lower prices[225] - SG&A and R&D expenses decreased by 20% and 13% respectively in Q2 2024 YoY, due to cost reduction measures from the Project Focus initiative[227][229] - A net tax benefit of approximately $300 million was recorded in Q2 2024 due to corporate structure changes related to establishing a global technology and innovation center in Switzerland[246][247] Liquidity and Capital Resources - Cash from continuing operations was $149.3 million for H1 2024, a significant improvement from a $(719.8) million use of cash in H1 2023, mainly due to better working capital management, especially inventory reduction[269] - The company expects 2024 free cash flow (Non-GAAP) to be in the range of $400 million to $500 million, a significant increase year-over-year[290] - Total debt increased to $4,179.1 million at June 30, 2024, from $3,957.6 million at year-end 2023[263] - Share repurchases under the publicly announced program are suspended until September 30, 2025, per a credit agreement amendment, with $825 million remaining authorized[302] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from commodity prices, interest rates, and foreign currency fluctuations, with its debt portfolio primarily fixed-rate and significant foreign currency exposures - The company's debt portfolio at June 30, 2024, is composed of 75% fixed-rate and 25% variable-rate debt[318] - Based on the variable-rate debt portfolio, a one percentage point increase in interest rates would have increased gross interest expense by $5.4 million for the six months ended June 30, 2024[319] Net FX Position (in Millions) | (in Millions) | Net Position | Impact of 10% USD Strengthening | Impact of 10% USD Weakening | | :--- | :--- | :--- | :--- | | Net FX Position at June 30, 2024 | $13.3 | $102.9 | $(102.9) | Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[322] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[323] Part II - Other Information This section covers various non-financial disclosures, including legal proceedings, risk factors, equity security transactions, and exhibits Legal Proceedings This section refers readers to Notes 11 and 18 of the financial statements and Item 5 of the report for updates on legal proceedings previously disclosed in the 2023 Form 10-K - For updates on legal proceedings, the report refers to Notes 11 (Environmental Obligations) and 18 (Guarantees, Commitments, and Contingencies) in the financial statements[332] Risk Factors This section directs readers to the detailed risk factors discussed in the company's 2023 Annual Report on Form 10-K and other SEC filings, without introducing new risk factors - The report directs readers to the Risk Factors section of the 2023 Form 10-K for a comprehensive discussion of business and financial risks[333] Issuer Purchases of Equity Securities The company suspended share repurchases under its $1 billion program until September 2025 due to a credit agreement amendment, with $825 million remaining authorized - No shares were repurchased under the publicly announced program in Q2 2024[336][339] - A credit agreement amendment restricts the company from making share repurchases (except for those related to equity compensation plans) until September 30, 2025[339] - As of June 30, 2024, $825 million remained available under the board-authorized repurchase program[339] Other Information During the second quarter of 2024, no directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading plans during the three months ended June 30, 2024[340] Exhibits This section lists the exhibits filed with the 10-Q report, including CEO and CFO certifications, an awareness letter from the auditor (KPMG LLP), and new employment and separation agreements related to the CEO transition - Filed exhibits include CEO and CFO certifications, an awareness letter from KPMG LLP, and agreements related to the CEO transition, such as an offer letter for Pierre R. Brondeau and a separation agreement for Mark A. Douglas[342]