FMC Corp: Risk-Reward Balanced - Analyst Blog

On Jun 2, we issued an updated research report on chemical company FMC Corp. FMC. While the company's strategic initiatives should drive results in its agricultural business this year, it is faced with currency headwinds and raw material cost pressure.

    

FMC Corp. posted lower-than-expected first-quarter 2014 results on May 6 with both revenues and adjusted earnings missing Zacks Consensus Estimates. Profit slid year over year on higher charges and weak results in the company's Agricultural Solutions segment due to bad weather. The company reaffirmed its earnings forecast for the full year.

 

FMC Corp., a Zacks Rank #3 (Hold) stock, is well placed to meet or exceed its targets for “Vision 2015, a road map for future. Recent acquisitions and development agreements are adding strength to its agricultural business. The company expects a 15% year over year rise in earnings per share in 2014 (based on the midpoint of its guidance range) and anticipates business fundamentals to improve this year.

 

FMC Corp. sees above-market rate growth to continue for its agricultural business in 2014, driven by favorable market conditions, continued market share gains and new product introductions. Moreover, the Omega-3 product line and expanding portfolio are expected to drive results in the company's health and nutrition franchise.

 

In addition, the company's new state-of-the-art microcrystalline cellulose MCC manufacturing plant in Thailand will support the growing functional ingredients market in Asia. The facility, which is expected to go on stream in early 2015, will help FMC Corp. address the increasing demand for innovative food and beverage products in the continent.

 

However, FMC Corp. is exposed to significant currency headwind. Unfavorable currency movements reduced its earnings by 5 cents per share in the first quarter. While the company has taken up effective pricing strategy to offset the impact, its results remain susceptible to currency translation effects.

 

FMC Corp. is also seeing higher costs for certain raw materials. The most significant cost pressure has been witnessed for seaweed-based raw materials.

 

FMC Corp.'s Minerals division is also a more cyclical business. This has triggered the company's decision to separate the unit (expected to complete in first-half 2015). However, higher anticipated costs related to the separation are expected to weigh on the company's bottom-line in the next few quarters. 

 

Key Picks from the Sector

 

Other companies in the chemical space worth considering include Compass Minerals International Inc. CMP, Koninklijke DSM N.V. (RDSMY) and PetroLogistics LP PDH. While Compass Minerals retains a Zacks Rank #1 (Strong Buy), both Koninklijke DSM and PetroLogistics sport a Zacks Rank #2 (Buy).