16:24 PM | June 23, 2014 | Vincent Valk
FMC announced today it is cutting its second-quarter and full-year earnings guidances, to 95 cts–$1.05/share and $4.10–4.30/share, respectively. The decreases are about 9.1% for the second-quarter guidance and about 5.6% for the full-year guidance. The cuts are due to persistent weakness in the company’s agricultural solutions segment, which is now expected to increase revenue and earnings increases by “mid-single digits,” the company says.
The ag weakness is mostly due to cold weather in North America and drought conditions in Brazil. The cold weather in North America hurt first-quarter results, but FMC said at that time that it expected a the second quarter bounce back to make up the difference. However, the cold weather persisted into the second quarter, and the subsequent improvement in sales did not match management’s expectations. Sales of soybean preemergent herbicides rose as expected, FMC says, but sales of other products, particularly corn insecticides, continued to lag.
In Brazil, FMC’s ag segment was hit by a drought in São Paulo state, which cut into sales to sugarcane customers. The drought has unexpectedly continued into the second quarter, leading growers to use less of crop protection products. FMC does not expect conditions to improve in sugarcane farming for the year. Sugarcane is 11% of the segment’s sales, according to Laurence Alexander, an analyst with Jefferies (New York).
FMC still expects results for the health and nutrition and minerals segments to be in line with expectations, however. Growth in health and nutrition is expected to be driven by higher volumes for texture and stability and natural color and binder products, the company says. For minerals, higher volumes in lithium and soda ash, along with higher prices in soda ash, are expected to drive growth. The minerals business will be spun off into a separate entity sometime around the end of 2014.
Wall Street analysts have generally cut earnings and price targets for FMC and notes that investors were watching the company after the weather-driven weak results in the first quarter. “The weakness in what is viewed as their core growth franchise will likely increase near-term volatility, at least until there is better visibility on the bridge to 2015 earnings,” Alexander says.