FMC Corporation FMC is poised to gain from strong demand for its herbicides and insecticides, strong operational execution, pricing initiatives and its efforts to expand product portfolio and boost market position.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Factors Aiding FMC
In October, FMC raised its revenue and earnings guidance for 2019. For the full year, FMC now sees revenues to be between $4.58 billion and $4.62 billion (up from $4.5 billion and $4.6 billion), indicating a rise of 7% at the midpoint versus recast 2018.
The company also raised its adjusted earnings per share forecast to the range of $5.80-$5.90 from its earlier view of $5.68-$5.88. The revised guidance reflects an increase of 12% at the midpoint compared with recast 2018.
For fourth-quarter 2019, revenues are projected in the band of $1.17-$1.21 billion, indicating 8% growth at the midpoint compared with recast fourth-quarter 2018. Adjusted earnings are forecast to be in the range of $1.46-$1.56 per share, calling for a 3% growth at the midpoint compared with recast fourth-quarter 2018 figure.
FMC is benefiting from strong operating performance and price increase actions, which is driving its earnings as witnessed in the third quarter. Its adjusted earnings per share of 94 cents for the quarter trounced the Zacks Consensus Estimate of 80 cents. The company saw higher prices across all geographies in the quarter and expects to continue to benefit from its pricing actions in the fourth quarter.
The company is also witnessing strong demand for its industry leading products, which is driving its revenues. Continued growth of Rynaxypyr and Cyazypyr insect controls is contributing to strong sales growth. In Latin America, a major market, the company is witnessing higher demand for cotton and sugarcane applications in Brazil, the biggest country it terms of revenues for FMC. Demand for soybean application is also healthy in Argentina. FMC is also seeing higher demand for herbicides and insecticides in the EMEA region. In Asia, demand for Rynaxypyr and Cyazypyr is also strong in India.
Moreover, the company remains committed to expand its market position and strengthen portfolio. It is focused on investing in technologies and products as well as new launches to enhance value to the farmers. Product introductions are expected to support its results in this year. The company expects new products to contribute to volume growth in the fourth quarter. It expects contribution of new products to overall sales growth to be around $20 million in the quarter.
FMC also remains committed to return value to shareholders leveraging healthy cash flows. The company expects to repurchase $400 million of shares in 2019, including $300 million already purchased this year. It expects to generate free cash flow of $375-$475 million in 2019.
A Few Concerns
FMC faces challenges from higher raw material costs, partly due to supply disruptions in China. It witnessed an unfavorable impact of around $39 million from raw material cost inflation on EBITDA in the third quarter. The company also sees roughly $40 million in raw material cost headwind in the fourth quarter. Moreover, it expects a $185 million headwind from higher costs (including raw materials) on its EBITDA for full-year 2019.
The company is also exposed to headwind from unfavorable currency translation. Currency had an unfavorable impact of 2% on its sales in the third quarter. FMC sees unfavorable currency impact on EBITDA of $53 million for full-year 2019.
Stocks to Consider
Some better-ranked stocks worth considering in the basic materials space include Kirkland Lake Gold Ltd. KL, Agnico Eagle Mines Limited AEM and Franco-Nevada Corporation FNV.
Kirkland Lake Gold has projected earnings growth rate of 97.1% for the current year and sports a Zacks Rank #1 (Strong Buy). The company’s shares have surged around 92% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.
Agnico Eagle has a projected earnings growth rate of 168.6% for the current year and carries a Zacks Rank #2 (Buy). The company’s shares have rallied roughly 69% in a year’s time.
Franco-Nevada has estimated earnings growth rate of 46.2% for the current year and carries a Zacks Rank #2. The company’s shares have shot up roughly 41% in a year’s time.
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