- FMC Corp. has completed the separation of its lithium segment by fully spinning-off Livent Corp., which is the final step in its transformation into an agricultural sciences company.
- We are revising our outlook on FMC Corp. to positive from stable and are affirming all of our ratings on the company, including the 'BBB-' issuer credit rating.
- The positive outlook reflects the potential that we will raise our rating on the company in the next one to two years if it continues to improve its EBITDA and, in turn, its credit measures to levels that we consider appropriate for a higher rating.
NEW YORK (S&P Global Ratings) March 1, 2019—S&P Global Ratings today took the rating actions listed above. The positive outlook reflects the continued strength in the company's agricultural segment as it generated EBITDA of about $1.2 billion in 2018, which is about 15% higher than we initially estimated when the asset swap with DuPont was completed. The strength in FMC's performance was spread across its geographically diverse portfolio as the company was able to grow at a faster pace than the overall market while capturing new sales synergies, which led it to post 13% organic growth in 2018. FMC has completed the spin-off of Livent (its lithium segment), which is the final step in its transformation into a pure-play agricultural sciences company. The company's improved operating performance and cash flows--along with the $364 million of proceeds it received from the Livent IPO--allowed FMC to reduce its book debt by about $460 million in 2018. We would expect the company's EBITDA to decline modestly in 2019 because the lost lithium earnings will be partially offset by organic growth in the agricultural solutions segment. Despite this, we expect FMC to maintain credit measures that we consider appropriate for the current rating, including a weighted-average funds from operations (FFO)-to-debt ratio in the 20%-30% range. The positive outlook on FMC reflects the potential that we will raise our rating on the company in the next one to two years if it continues to improve its EBITDA and, in turn, its credit measures to levels that we consider appropriate for a higher rating. Since the close of the asset swap with DuPont, management has remained focused on integrating the acquired DuPont assets and prioritizing free cash flow to reduce debt. Following the completion of the Livent separation, we believe management's focus will turn to its upcoming SAP implementation. Going forward, we believe the company will prioritize its free cash flow generation to fund its growth plans and will return cash to shareholders in the form of an increased dividend payout and regular share repurchases under the $1 billion share repurchase program announced in December. We believe FMC's agriculture segment will continue to recover in 2019 and expect that the company will generate solid EBITDA margins in the mid-20% area given its improved market position and the essential nature of many of its products to farmers. We would expect FMC to maintain financial policies and credit measures that we consider appropriate for the current rating, including FFO to debt in the 20%-30% range. We could raise our ratings on FMC in the next one to two years if it experiences a larger-than-expected pickup in demand due to a sustained improvement in the agriculture market. We could also consider an upgrade if the company's EBITDA improves because of its ongoing restructuring initiatives and the realization of its targeted synergies. In this upside scenario, we would expect FMC's EBITDA margins to improve by 150 basis points from the assumptions in our base case while its revenue increases by 5% compared with our forecast. Specifically, we could consider an upgrade if the company is consistently able to maintain weighted-average FFO to debt of about 30% after factoring in a potential downturn in the agriculture end market. Before considering an upgrade, we would need to gain clarity regarding the company's future plans for its free cash flow usage, including the potential for additional large scale share repurchase programs beyond the existing $1 billion authorization. We could revise our outlook on FMC to stable in the next two years if there is prolonged weakness in the company's agriculture businesses or it encounters unexpected difficulties arising from the integration of DuPont's chemicals or the SAP implementation. In this downside scenario, we could consider lowering our rating if the company's EBITDA margins are at least 300 basis points weaker than the assumptions in our base case and its organic revenue remains flat. We could also revise our outlook on the company to stable if, contrary to our expectations, it significantly increases its debt leverage to fund an acquisition or complete a share repurchase program in a manner that depresses its credit measures. In these downside scenarios, we would expect FMC's weighted average FFO to total adjusted debt to drop below 20% for a prolonged period. We view the potential for a downgrade over the next two years as unlikely given management's stated intent to maintain an investment-grade rating, which was evident when it partially funded the acquisition of the DuPont crop protection assets by swapping its health and nutrition segment.
