AVD's Inventory to Affect Q4 Results


Specialty chemicals company American Vanguard Corp.’s (AVD) elevated channel inventories is expected to affect its fourth-quarter and full-year 2013 performance. The inventories escalated mainly due to persistent wet weather last year in the midwestern United States. However, despite the unfavorable news, the positive impact of the overall market movement resulted in a share price rise of 1.2%.

American Vanguard now estimates net sales for fourth-quarter 2013 to be 30% lesser than the prior-year quarter. The company also expects break-even net earnings, plus or minus a few cents per share. The guidance is in line with the Zacks Consensus Estimate of break-even results during the quarter.

For the full-year 2013, the company forecasts net sales increase of 5% compared with full-year 2012, while net income is expected to remain flat or go down by 15%.

Due to adverse weather conditions for a long period, the corn and cotton markets deteriorated during the 2013 planting season. However, due to strong growth in the previous two years, the company’s distributors and retailers had stocked inventory expecting another robust season. Thus, unused products and surplus inventory remained in the distribution channel due to the shortened planting period and lower planted acres. American Vanguard, however, considers this to be a temporary phase and expects continued growth for its corn products in future.

American Vanguard registered a profit of $8.9 million in the third quarter of 2013 (reported on Oct 31), up around 10% from $8.1 million recorded a year ago. Earnings per share rose 11% to 31 cents a share from 28 cents the prior year.

Revenues increased 8% year over year to $97.2 million in the reported quarter on solid demand for American Vanguard’s granular soil insecticides. Demand for these insecticides in combination with genetically modified trait seed, are currently rising, driven by growing insect resistance.

The company currently carries a Zacks Rank #3 (Hold).

Better-ranked companies in the specialty chemicals space include Ferro Corporation (FOE), Ecolab Inc. (ECL) and HB Fuller Co. (FUL). All these hold a Zacks Rank #2 (Buy).

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