On Dec 17, we initiated our coverage on chemical company FMC Corporation (FMC) with a Neutral rating. While the company is seeing healthy momentum in its agricultural business, it is exposed to currency headwinds, raw material cost pressures and softness in its minerals business.
Why Neutral?
FMC Corp’s adjusted earnings for third-quarter 2013, reported on Oct 28, missed the Zacks Consensus Estimate. Profit slid 80% year over year on hefty charges. Revenues rose at a double-digit clip year over year on strength in the company’s core Agricultural Solutions segment, but missed expectations.
FMC Corp., a Zacks Rank #3 (Hold) stock, is a major diversified chemical company that serves agricultural, industrial, environmental and consumer markets across the globe. It is a leading maker of lithium-based materials for primary and rechargeable batteries used in laptops, cellular phones and electric cars.
FMC Corp. is well placed to meet or exceed its targets for “Vision 2015, a road map for future. Recent acquisitions and development agreements are adding strength to its agricultural business. The company expects to deliver a 13% revenue growth and 12% earnings per share growth in 2013 and anticipates business fundamentals to improve in 2014.
Moreover, expanding portfolio and the new Thailand facility (expected to come on stream in end-2014) are expected to drive earnings in the company's health and nutrition franchise. FMC Corp. is progressing with the construction of the Thailand facility, which will support the growing functional ingredients market in Asia.
However, FMC Corp. is exposed to significant currency headwind. Unfavorable swings in exchange rates affected its results in the third quarter. While the company has taken up effective pricing strategy to offset the impact, its results remain susceptible to currency translation effects.
FMC Corp. is also seeing increasing costs for certain raw materials. The most significant cost pressure has been witnessed for seaweed-based raw materials. Moreover, the company’s Minerals unit remains somewhat weak with continued double-digit decline in profits. Lower average export soda ash prices and higher costs are hurting the segment’s profitability.
Other Stocks to Consider
Other companies in the chemical space worth considering are Asahi Kasei Corp. (AHKSY), Johnson Matthey plc (JMPLY) and Methanex Corp. (MEOH). While Asahi Kasei and Johnson Matthey hold a Zacks Rank #1 (Strong Buy), Methanex retains a Zacks Rank #2 (Buy).
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