Shares of specialty chemical company American Vanguard Corp. (AVD) dropped as much as around 6% in the trading session after it announced that revenues for the first quarter of 2014 are expected to be down roughly 33% from the last-year quarter. The fall is anticipated due to unfavorable weather conditions in the Midwestern U.S. that has resulted in elevated channel inventories.
American Vanguard’s net earnings for the first quarter are expected to range within break even to a few cents per share. Its shares eventually closed at $20.14 on Apr 11, losing around 1.7%.
Persistent wet weather conditions during the 2013 crop planting season has resulted in reduced application of many crop protection inputs that are used at the time of planting, such as AMVAC’s granular soil insecticides. This surplus inventory in the distribution channel has been drawn down as purchases are made in the 2014 spring planting season.
These surplus inventories coupled with planting delays caused by the harsh winter weather in 2014 has slowed new order activity for the company’s soil insecticides. American Vanguard expects some of the purchases to be made in Apr and May 2014 that will be reflected in the second-quarter results, which otherwise would have ordinarily been included in first-quarter results.
Though purchasing patterns of corn products have been disrupted due to the sluggish procurement pattern which disproportionately affected the overall performance of American Vanguard and its peers, it is a temporary market condition and the demand for corn products is expected to continue to grow once the conditions normalize. In the meantime, the company is in constant contact with the channel partners and is tracing market needs to meet the expectation throughout the new planting season.
American Vanguard makes specialty chemical products for agricultural and commercial applications. The company develops and markets an array of chemicals, including insecticides, fungicides and herbicides, for crop, human and animal health protection. American Vanguard has the largest assortment of corn soil insecticides coupled with the most advanced dispensing equipment.
American Vanguard currently carries a Zacks Rank #5 (Strong Sell).
Other companies in the specialty chemical industry worth considering include Globe Specialty Metals, Inc. (GSM), Novozymes A/S (NVZMY) and Rockwood Holdings, Inc. (ROC), with all of them carrying a Zacks Rank #2 (Buy).