Overview: Third Point Partners' positions in 2Q14 (Part 5 of 8)
Third Point Partners and FMC
Dan Loeb’s Third Point Partners added new positions in Ally Financial (ALLY-B), Rackspace Hosting (RAX), IAC/InterActiveCorp (IAC), and FMC Corp. (FMC) last quarter. Notable exits included Verizon Communications (VZ), Cabot Oil & Gas (or COG), and International Paper (or IP).
Third Point Partners initiated a new position in FMC Corp. (FMC) last quarter. It accounts for 1.4% of the fund’s total second quarter portfolio. We reported that JANA Partners also initiated a position in FMC in 2Q14.
FMC is a diversified chemical company that serves agricultural, consumer, and industrial markets globally. It operates in three distinct business segments:
- The FMC Agricultural Solutions segment sells insecticides, herbicides, and fungicides. The segment represents ~55% of the 2013 consolidated revenues. It operates in the agrochemicals industry. It develops, manufactures, and sells a portfolio of crop protection, professional pest control, and lawn and garden products.
- The FMC Health and Nutrition segment focuses on food, pharmaceutical ingredients, nutraceuticals, personal care, and similar markets. The food ingredients are used to enhance texture, color, structure, and physical stability. The pharmaceutical additives are used for binding, encapsulation, and disintegrant applications. The segment represents 20% of the 2013 consolidated revenues. It’s sales are to customers in non-cyclical end markets.
- The FMC Minerals segment manufactures a wide range of inorganic materials including soda ash and lithium. Soda ash is utilized in markets like glass and detergents. Lithium is utilized in energy storage, specialty polymers, and pharmaceutical synthesis. The segment represents 25% of the 2013 consolidated revenues. It participates in the alkali chemical and lithium product markets. FMC said the underlying market demand for lithium remains strong. It’s driven by growth in energy storage from electric vehicle adoption and other applications.
FMC to separate into two independent public companies
In March, FMC announced plans to separate into two independent public companies. “New FMC” will be comprised of FMC’s Agricultural Solutions and Health and Nutrition segments. “FMC Minerals” will be comprised of FMC’s current Minerals segment. The separation will take the form of a tax-free distribution of shares to existing FMC shareholders. FMC expects that the separation will be complete in early 2015. Each company is expected to be listed on the NYSE.
The company realigned its reporting segments last year as part of its Vision 2015 corporate strategy. It said separating into two independent companies is the strategy’s natural progression.
FMC sees revenue growth across all segments
FMC reported a revenue of $987.8 million in the second quarter—a 13% increase from the same period in 2013. It posted a net income of $109.1 million—or $0.81 per diluted share—that was below analysts’ estimates. On a regional basis, sales in North America increased 11%, sales in Asia increased 20%, sales in Latin American increased 7%, and sales in Europe, Middle East and Africa (or EMEA) increased 18%.
The Agricultural Solutions segment saw a 20% revenue gain. It was driven by increased demand for FMC’s Authority brand pre-emergent herbicides in North American soybeans and increased herbicide sales in Europe.
Revenue grew 9% in Health and Nutrition. It was driven by strong demand in health markets and contributions from Omega-3 products. It was partially offset by weaker-than-expected demand for nutrition products in Asia.
In the Minerals segment, revenue in the second quarter in Alkali Chemicals was flat year-over-year (or YoY). Higher pricing was offset by lower sales volume. This was driven by shipment timing and lower freight costs—due to a different geographic sales mix. FMC said lithium continued to benefit from higher production rates compared to 2013. This resulted in higher sales and improved profitability.
Positive outlook for the second half
In terms of outlook, FMC said in its earnings release that for “the second half of 2014, it expects that Latin America will once again drive most of the year-over-year growth in Agricultural Solutions. It is launching new products and expanding its market access positions outside of Brazil. In Health and Nutrition, it’s seeing rising demand for functional ingredients in all of its end markets. In Minerals, operational improvements along with higher soda ash pricing is expected to result in strong earnings growth for the full year.”
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