FMC Corp. FMC will release its second-quarter 2015 results after the closing bell on Aug 5.
Last quarter, the chemical maker delivered an 8.82% negative earnings surprise. A hefty charge related to the acquisition of crop protection products maker – Cheminova A/S – coupled with currency headwinds and double-digit declines in sales and earnings in the company’s core agriculture franchise dented the bottom line in the quarter.
Let’s see how things are shaping up for this announcement.
Factors to Consider
FMC Corp., in its first-quarter 2015 earnings call, said that it expects earnings in its Agricultural Solutions segment to rise by high single-digit to low double-digit percent in 2015 driven by contributions from Cheminova acquisition and market share gains. The company, however, sees an uncertain macroeconomic backdrop in light of expected currency movements as well as agricultural commodity and oil prices. It expects crop protection markets to be down by mid single-digit clip this year.
For the Health and Nutrition unit , earnings are forecast to be up by mid single-digit on sustained demand for pharmaceutical products, improvement in operational efficiency and restructuring programs.
FMC Corp. expects earnings for the Lithium unit will be in the band of $15 million to $25 million in 2015. The company sees higher demand for lithium hydroxide this year. A significant long-term driver for the lithium business is the expected rapid adoption of lithium-ion batteries in electric vehicles made by companies like Tesla TSLA. However, operational challenges in Argentina are expected to continue to weigh on earnings for this segment.
The $1.8 billion buyout of Denmark-based Auriga Industries’ fully-owned unit – Cheminova – is expected to bolster FMC Corp.'s core agriculture business and reinforce its access in major agricultural end markets. Moreover, the sale of its alkali chemicals business allows FMC Corp. to de-lever its balance sheet and focus on high-growth markets.
However, FMC Corp. is still faced with challenging agriculture market fundamentals. Agricultural commodity prices remain under pressure. Reduced acreage and inventory destocking by customers are also affecting demand for crop protection products in Brazil.
FMC Corp. is also exposed to currency headwinds. While the company has taken up effective pricing strategy to offset the impact, its results in the June quarter remain susceptible to unfavorable currency translation given the strengthening of the U.S. dollar versus a number of currencies including euro.
Moreover, FMC Corp. is witnessing certain operational challenges in Argentina that are unfavorably affecting its cost structure. FMC Corp. is also seeing weak demand for its health and nutrition products in some beverage applications in China. A slowdown in the Chinese economy (affecting buyer’s behavior) is contributing to lower demand for some of its products.
Earnings Whispers
Our proven model does not conclusively show that FMC Corp. is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: The ESP for FMC Corp. is currently 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 72 cents.
Zacks Rank #4 (Sell): FMC Corp.’s Zacks Rank #4, when combined with a 0.00% ESP makes surprise prediction difficult. Moreover, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stock to Consider
Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Albemarle Corporation ALB has an earnings ESP of +2.44% and holds a Zacks Rank #2 (Buy).
Axalta Coating Systems Ltd. AXTA has an earnings ESP of +3.33% and carries a Zacks Rank #3 (Hold).
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