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FMC Corp. (FMC) Poised on Strategic Actions Amid Headwinds

On May 12, we issued an updated research report on chemical company FMC Corp. FMC.

FMC Corp. swung to a profit in first-quarter 2016. Adjusted earnings topped the Zacks Consensus Estimate. Revenues rose by double digits year over year on strong gains in the Agricultural Solutions division, but missed expectations.

FMC Corp. raised its earnings guidance for 2016 and now sees adjusted earnings in the band of $2.55 to $2.85 per share (up from the prior view of $2.50 to $2.80 per share) for the year, representing a 9% year-over-year rise at the mid-point of the forecast range.

FMC Corp. should gain from strategic investments, Cheminova A/S acquisition and new product launches. The company remains committed to expand its market position and strengthen its portfolio. Acquisitions and development agreements are also adding strength to the company’s agricultural business.

In its lithium business, the company is seeing strong demand across specialty end markets. A significant long-term driver for the lithium business is the expected rapid adoption of lithium-ion batteries in electric vehicles.

The company is also reducing corporate costs through reduced discretionary spending, global procurement initiatives and layoffs. FMC Corp. has also restructured its operations in Brazil to align it with market conditions and rationalize product offerings. Moreover, the sale of the alkali chemicals business has enabled FMC Corp. to de-lever its balance sheet to an extent which is best fit for the company.

The company is also making a good progress with the integration of the acquired operations of Cheminova A/S. The buyout reinforces FMC Corp.'s core agriculture business and expands its access in major agricultural end markets. The company expects to deliver $60 million to $70 million of Cheminova-related cost savings in 2016 and a full run rate savings of $140 million to $160 million by mid-2017.

However, FMC Corp. faces challenging agriculture market fundamentals. Conditions in Brazil still remain weak, evident from a decline in volumes due to lower demand. Reduced acreage is affecting demand for crop protection products in the country. The company also expects agricultural market conditions to remain challenging in North America in 2016 due to elevated channel inventory levels and expected lower farm incomes.

The global crop protection market continues to face several woes, which has resulted in a difficult operating environment. Demand for crop protection products remains weak owing to high channel inventories, poor planting conditions, reduced pest attacks and soft farm commodity prices. FMC Corp. expects the global crop protection chemical market to decline by a mid to high single-digit clip in 2016 due to weak conditions in North America and Brazil.

FMC Corp. is also exposed to significant currency headwinds, stemming from a strong greenback. In particular, a slump in the value of the Brazilian real has created significant headwinds, 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.

FMC Corp. is a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked companies in the chemical space include Akzo Nobel N.V. AKZOY, Sinopec Shanghai Petrochemical Co. Ltd. SHI and Koninklijke DSM N.V. RDSMY, all sporting a Zacks Rank #1 (Strong Buy).

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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
FMC CORP (FMC): Free Stock Analysis Report
SHANGHAI PETROC (SHI): Free Stock Analysis Report
KONINKLIJKE DSM (RDSMY): Free Stock Analysis Report
AKZO NOBEL NV (AKZOY): Free Stock Analysis Report
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