Syngenta (SYT) 1H16 Earnings Fall Y/Y; ChemChina Holds Key

Syngenta AG SYT reported weak first-half 2016 results. Management cited unfavorable currency translations, unstable performance in emerging markets and low crop prices as the main reasons behind the dismal half-yearly results.

For first-half 2016, Syngenta's diluted earnings per share, excluding restructuring and impairment charges, came in at $12.69 (or $2.5 per ADR), down 14% from $14.70 in the year-ago comparable period.

Revenues

In first-half 2016, the company's total sales were $7,094 million, down 7% year over year. Sales from Europe, Africa, and the Middle East stood at $2,692 million, down 7% year over year. North American revenues were $2,115 million, down 5% year over year. Sales from Latin American declined 11% year over year to $1,041 million. Sale in the Asia Pacific was $910 million, down 11% year over year. However, Syngenta's Lawn & Garden sales inched up 3% year over year to $336 million.  

Margins

At the end of the first half of 2016, earnings before interest, tax, depreciation and amortization (EBITDA) margin was 24.9%, down 130 basis points year over year. Operating margin was 19% compared with 20.5% at the end of the first half of 2015.

Cash Flow

Syngenta's free cash flow came in at $337 million as against $109 million a year ago. Business working capital, as a percentage of sales, was 47% compared with 43% at the end of the first half of 2015. Capital expenditure (fixed inclusive of intangibles) was $221 million at the end of the period.

Outlook

Syngenta believes that its successful buyout by ChemChina would mitigate issues associated with difficult market conditions and make it more competent to operate amid all headwinds. In a phase where the industry is consolidating, ChemChina's buyout offer would likely offer Syngenta a buffer at time of low grain prices or during scarcity of credit among Latin American farmers. Moreover, the takeover is expected to reinforce Syngenta's investments in innovation and hence, solidify its product portfolio. Other than this, Syngenta intends to improve margins on the back of its strategic accelerating operational leverage AOL program and reduction of raw input expenses.

Share Price Impact

As of Jul 21, 2016, the closing stock price of Syngenta was $78.58 per share or 387.8 francs . The price is 20% lower than ChemChina's bid value of 464 francs. Though the company has reported weak half-yearly results, it might not lose favor with investors' as the ChemChina deal is expected to strengthen its business near term.

SYNGENTA AG-ADR Price, Consensus and EPS Surprise

SYNGENTA AG-ADR Price, Consensus and EPS Surprise | SYNGENTA AG-ADR Quote

Stocks to Consider

Syngenta currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry are Bunge Limited BG, The Andersons, Inc. ANDE and First Majestic Silver Corp. AG. Bunge Limited currently sports a Zacks Rank #1 (Strong Buy), while both Andersons, Inc. and First Majestic hold a Zacks Rank #2 (Buy).

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