Chemical maker FMC Corporation (FMC) saw its profit slip in second-quarter 2014 as it took higher charges in the quarter. Consolidated profit, as reported, fell roughly 8% year over year to $109.1 million or 81 cents per share in the reported quarter from $118 million or 86 cents per share a year ago.
Adjusted earnings from continuing operations for the quarter were $1.01 per share, missing the Zacks Consensus Estimate by a penny. Adjusted earnings exclude charges (totaling $26.6 million) including costs associated with restructuring, business separation and acquisitions. The company registered charges of $9.9 million a year ago.
Revenues rose roughly 13% year over year to $987.8 million in the reported quarter on healthy gains across agriculture and health and nutrition businesses and topped the Zacks Consensus Estimate of $956 million. After being hit by harsh winter weather in the first quarter, the Pennsylvania-based company’s core Agricultural Solutions division delivered a healthy performance in the reported quarter.
Segment Review
Revenues from the Agricultural Solutions division went up 20% year over year to $531.2 million in the quarter. Segment profit rose 5% to $130.7 million. The results were driven by higher demand of Authority pre-emergent herbicides in North America and increased sales of herbicide in Europe, which offset lower sales of Capture LFR insecticides and continued weak demand from Brazilian sugarcane farmers. Unfavorable currency swings and higher business spending impacted margins for the division.
Health and Nutrition segment’s sales rose 9% to $207.1 million in the quarter. Segment profit moved up 11% to $49.1 million. Sales were boosted by strong demand in health markets and contributions of omega-3 products.
Revenues from the Minerals unit were up 2% to $249.6 million. Profit climbed 21% year over year to $42.8 million. Alkali Chemicals revenues were flat year over year as improved pricing was offset by lower volumes. Export soda ash prices rose sequentially in the reported quarter while increased energy costs were offset by the company’s manufacturing cost improvement actions. Lithium sales and profitability improved on higher production rates.
Balance Sheet
Cash and cash equivalents at the end of the quarter were $114.4 million, up around 48% year over year. Long-term debt jumped roughly 51% year over year to $1,153.7 million.
Outlook
FMC Corp. backed its adjusted earnings forecast of $4.10 to $4.30 per share for 2014 which it updated last month, representing an 8% year-over-year rise at midpoint of the range.
FMC Corp. expects results in its Agricultural Solutions segment in the back half of 2014 to be driven by strength in Latin America. New products and market access investments are also expected to boost results in this segment. The company expects full-year segment revenues to expand mid to high-single digits percent and earnings to increase in mid-single digits clip over 2013. The results in the second half will be driven by new product introductions and increased market share in cotton and soybeans.
For Health and Nutrition, revenues are forecast to rise low to mid-teens percent while earnings are anticipated to increase in mid-teens clip versus 2013. The growth is expected to be led by strong demand in health markets, omega-3 products and texture and stability solutions in nutrition markets. The company sees higher demand for functional ingredients across all of its end markets.
FMC Corp. expects earnings in the Minerals segment to increase in high-teens clip on the back of improved performance in Lithium operations and higher soda ash volumes and pricing compared with 2013. Pricing is expected to remain stable for Alkali Chemicals for the balance of the year.
FMC Corp., in Mar 2014, announced its plans to split itself into two independent public companies. The move will allow the company to separate its growth businesses – Agricultural Solutions and Health and Nutrition – from the Minerals division, which is a more cyclical business.
FMC Corp. has completed initial organizational designs for the separation and has commenced evaluation of legal entity structures. It remains on track to close the separation in first-half 2015, following which, each company is expected to be listed on the NYSE.
FMC Corp. is also making a good progress with its “Vision 2015" strategy, a road map for future. As part of the plan, the company has expended its market position and strengthened its portfolio. It has returned more than $1 billion of cash to shareholders since the beginning of the plan.
FMC Corp. is a Zacks Rank #4 (Sell) stock.
Other chemical stocks worth considering include LyondellBasell Industries NV (LYB), Marrone Bio Innovations, Inc. (MBII) and Celanese Corporation (CE). While both LyondellBasell and Marrone Bio Innovations hold a Zacks Rank #1 (Strong Buy), Celanese carries a Zacks Rank #2 (Buy).
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