FMC Corporation (NYSE:FMC) experienced a significant decline in volumes during the third quarter of 2023, primarily in Latin America, due to industrywide destocking events and adverse weather conditions. Despite the reduction in sales, the company's newer products and the Diamides franchise performed well. Looking ahead, FMC expects a high teens percentage volume decline in Q4 and a decline in EBITDA margin. The company is in discussions with its bank group to amend their covenant to provide additional headroom as they adjust their cost structure and debt levels.
Key takeaways from the call:
- FMC reported an EBITDA of $175 million, down by 33% compared to the prior year.
- The company generated free cash flow of $32 million in Q3, down from $360 million in the prior year.
- Full-year free cash flow guidance was reduced to negative $750 million.
- Investing activities were slightly lower than the prior year period, while legacy spending increased by $14 million due to timing of expenses.
- The company returned $73 million to shareholders in the quarter via dividends and had no share repurchases in Q3.
- The Diamides franchise will be a focus of growth strategy, with plans to be discussed further at their Investor Day.
FMC's President and CEO, Mark Douglas, noted that the company underestimated the extent of the destocking and expects the market to grow at a more historical rate after the inventory reset. The company announced a restructuring of its Brazilian operations and a review of its total cost base to reflect market conditions, protect margins, and position for future success.
Despite the challenging market conditions, FMC's application of crop protection products remained steady, and sales of newer and differentiated products, particularly the Diamides franchise, performed well. The Diamides make up more than 80% of the entire Diamides class in the insecticides market, which was valued at over $20 billion in 2022. The company expects continued growth in the Diamides market, driven by innovation and strategic levers.
On the financial front, FMC's year-to-date cash flow through September 30th was negative $790 million, $651 million lower than the prior year period, primarily due to lower cash from operations. The company reduced its free cash flow guidance for 2023 to negative $750 million at the midpoint, down from breakeven in previous guidance. This reduction is a result of lower than expected second-half EBITDA and the impact of reduced volume on working capital.
Looking ahead, FMC expects Q1 2024 to be challenging due to ongoing inventory resets but anticipates improvement in the second half of the year. The company projects revenue and EBITDA growth for next year, driven by new products and cost-saving measures. In terms of pricing, FMC stated that recent price adjustments in Latin America were not broad-based and that they will consider price increases in response to inflationary pressures.
Regarding inventory and working capital, FMC expects a robust working capital release in 2024 and 2025. They anticipate a 6 to 12 month lag in clearing through inventory and converting it to receivables and cash collection. The company expects a drop in inventory in Q4 and Q1 as they have slowed down production.
In terms of its growth strategy, FMC is focused on expanding the Diamides franchise, changing formulations, expanding their geographic base, and strengthening their branding to maintain market share. The company is also working with potential competitors on licensing and commercial arrangements. The company will provide more information on their longer-term financial policy at their Investor Day.
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