On Dec 4, we issued an updated research report on chemical company FMC Corp. FMC.
FMC Corp. swung to a loss in third-quarter 2015, hurt by restructuring and acquisition-related charges and currency headwinds. But its adjusted earnings beat the Zacks Consensus Estimate. Revenues rose modestly year over year, but missed expectations. The company backed its adjusted earnings forecast of $2.35-$2.45 per share for 2015.
FMC Corp., in its third-quarter call, said that it does not see any improvement in market condition in 2016. It also expects global market demand for crop protection chemicals to be lower next year.
While FMC Corp. should gain from strategic investments, Cheminova A/S acquisition and new product launches, it faces operational challenges in Argentina, unfavorable currency impact and headwinds in the crop protection market in Brazil.
FMC Corp. faces challenging agriculture market fundamentals. Conditions in Brazil are particularly weak, evident from a decline in volumes due to lower demand. Reduced acreage is affecting demand for crop protection products in the country.
FMC Corp., in Oct 2015, stated that it will cut corporate costs through layoffs, reduced discretionary spending and global procurement initiatives that are expected to be mostly complete by end-2015. The company plans to eliminate 800 to 850 jobs. FMC Corp. also said that it will reorganize its operations in Brazil to align it with near-term market conditions. The portfolio rationalization will reduce revenues in Brazil by $250 million year over year in 2015.
FMC Corp. is also exposed to currency headwinds. Unfavorable currency translation reduced company’s adjusted operating profit by more than $110 million in the third quarter. While the company has taken up effective pricing strategy to offset the currency impact, its results remains susceptible to unfavorable translation impact moving ahead given the strengthening of the U.S. dollar versus a number of currencies.
Especially, a slump in the value of the Brazilian real has created significant headwinds in the second half of 2015, hurting earnings in the company's Agricultural Solutions segment. The company’s health and nutrition business is also susceptible to currency headwinds due to its significant euro exposure.
Moreover, FMC Corp. is witnessing certain operational challenges in Argentina that are unfavorably affecting its cost structure. Rising operating costs in Argentina are expected to be a headwind to its earnings this year. A slowdown in the Chinese economy (affecting buyer’s behavior) is also contributing to lower demand for some of its products.
FMC Corp. is a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Better-ranked companies in the chemical industry include Innospec Inc. IOSP, Celanese Corporation CE and The Dow Chemical Company DOW. While Innospec and Celanese hold a Zacks Rank #1 (Strong Buy), Dow retains a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment