On the one hand, investors knew growth would slow for FMC Corporation (FMC 0.47%) in 2019. After all, last year the business enjoyed contributions from $1.2 billion in newly integrated assets acquired from Dupont (now DowDuPont). Since they didn't contribute in 2017, the year-over-year comparisons to 2018 appeared astronomically high for the typically moderate-growth business.
On the other hand, perhaps investors weren't expecting the relatively low growth projections in management's freshly minted full-year 2019 guidance. FMC Corporation said rising raw materials expenses and currency impacts will result in flat year-over-year adjusted EBITDA growth in the first quarter of 2019, although rising selling prices should help offset the headwinds in the second half of the year.
What should investors make of full-year 2018 operating results and expectations for 2019, especially given all the moving parts and financial adjustments?
By the numbers
After FMC Corporation completes the spinoff of its 84% stake in Livent Corporation, formerly its lithium production segment, the business will be all-in on agricultural technology. That event is on track to occur on March 1. Contributions from lithium through that date will be counted as discontinued operations for the remainder of 2019. After that divestment wraps up, investors can also look forward to more telling year-over-year comparisons, especially now that the massive injection of agricultural technology assets will be included in both comparison periods.
As the simple table below shows, the integration had a significant impact on operations in 2018.
Metric |
2018 |
2017 |
Change (YOY) |
---|---|---|---|
Revenue, agricultural solutions |
$4.28 billion |
$2.53 billion |
69% |
EBITDA, agricultural solutions |
$1.22 billion |
$576 million |
111% |
The integration also had a big impact on operating cash flow, although it's difficult to tease out exactly how much. FMC Corporation reported full-year 2018 operating cash flow of $446 million from continuing operations, a 42% increase over 2017. However, in this comparison continuing operations includes both lithium and agricultural solutions, while discontinued operations refers to the former health and nutrition business. Some of the year-over-year increase was no doubt aided by the lithium segment, but the great majority of the growth was probably generated from the new agricultural solutions assets.
Management expects to continue leveraging the value from its newly expanded agricultural portfolio in the year ahead with new product launches, by entering new markets, and announcing selling price increases from the company's new market power. Investors may be a little disappointed by the slow pace of growth, however.
Check out the latest FMC Corporation earnings call transcript.
Looking ahead
Investors need to remain sharp when viewing FMC Corporation's full-year 2019 guidance. The business will compare operations in the year ahead to "recast" results from full-year 2018. That just means the results will be adjusted (non-GAAP) to exclude lithium operations with the aim of providing more accurate year-over-year comparisons.
While FMC Corporation provided year-over-year growth comparisons between initial full-year 2019 guidance and recast full-year 2018 results, it has yet to finalize recast adjusted earnings per share (EPS) for 2018. It will provide final recast results through SEC filings in March. Nonetheless, here's what the business expects in the year ahead:
Metric |
Full-Year 2019, Guidance |
Full-Year 2018, Actual |
Change (YOY) From Recast 2018 Results |
---|---|---|---|
Agricultural solutions, revenue |
$4.5 billion |
$4.28 billion |
5% |
Adjusted EBITDA, total |
$1.185 billion |
$1.109 billion |
7% |
Adjusted EPS |
$5.65 |
Recast not finalized |
8% (translating to a recast estimate of roughly $5.23) |
Management stated that first-quarter 2019 revenue is expected to grow 8% compared to the year-ago period, although rising input costs will result in flat adjusted EBITDA in the comparison period. Adjusted EPS is expected to growth 3% in the year-over-year comparison.
FMC Corporation expects to return to growth as the year progresses and selling-price increases kick in. Wall Street and investors will be closely watching for that prediction to come true, especially in light of a slowing global economy and various headwinds in the world's major breadbaskets, including the United States, South America, and India. If those headwinds prove more stubborn than expected, then the business could be forced to lower its full-year 2019 guidance.
A big year ahead, for better or for worse
When FMC Corporation swooped in to acquire a large chunk of the agricultural technology portfolio of DowDuPont, it saw an opportunity to expand its global presence and add a blockbuster insecticide lineup to its portfolio. The financial benefit was undeniable, as even a quick glance at 2018 operating results demonstrates. That said, 2019 operating results may just remind investors that pesticides are still tied to volatile commodity markets and the whims of Mother Nature.
Whether the year-over-year comparisons appease or disappoint Wall Street this year, the long-term trajectory of the business will be determined by its ability to bring new products to market (FMC also acquired from DuPont a robust research and development pipeline) and adapt to changing demands of customers. Prudent investors might pay closer attention to those developments in 2019.