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Can FMC (FMC) Keep the Earnings Surprise Streak Alive?

Anindya Barman

FMC Corporation FMC will release its fourth-quarter 2018 results after the bell on Feb 11.

The chemical maker saw its profits jump roughly 32% year over year to $72.8 million or 54 cents per share in third-quarter 2018. Adjusted earnings of 98 cents per share for the quarter topped the Zacks Consensus Estimate of 92 cents, reflecting a positive earnings surprise of 6.5%.

Revenues surged roughly 60% year over year to $1,035.6 million, also exceeding the Zacks Consensus Estimate of $1,009.6 million. The company’s Agricultural Solutions business delivered strong results in the quarter on the back of solid demand and execution of commercial strategy, especially in Brazil.

The company beat estimates in each of the trailing four quarters, delivering an average positive surprise of 7.6%.

Shares of FMC are up around 1.7% over a year, outperforming the industry’s decline of roughly 19%.


 

Can the company surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Factors to Consider

Last month, FMC raised its earnings guidance for the fourth quarter factoring in strong performance of its Agricultural Solutions unit and lower than expected taxes. The company now expects adjusted earnings for the quarter to be in a band of $1.62-$1.67 per share compared with its earlier guidance of $1.33-$1.43 per share.  

The Agricultural Solutions segment witnessed strong demand across all regions in the fourth quarter, leading to an 18% increase in revenues for the division on an adjusted basis. Higher EBITDA for the segment also drives roughly 8 cents incremental adjusted earnings per share vis-à-vis midpoint of earlier guidance.

Moreover, a significant reduction in tax rate is forecast to contribute an additional 15-20 cents incremental adjusted earnings per share vis-à-vis the midpoint of earlier guidance.  

The company also expects revenues to rise 4-6% in 2019 versus adjusted 2018 revenues. It also expects total EBITDA growth of 5-9% versus adjusted 2018 EBITDA, despite significant headwinds from raw material costs and currency.  Moreover, FMC expects adjusted earnings per share for 2019 to be in the range of $5.55-$5.75, barring any impact from share repurchases.    

The Zacks Consensus Estimate for revenues for FMC for the fourth quarter stands at $1,173 million, reflecting an estimated year over year growth of 19.7%.

Net sales for Agricultural Solutions for the fourth quarter is expected rise around 20.6% year over year as the Zacks Consensus Estimate is pegged at $1,044 million. Results in this business, in the third quarter, were driven by DuPont’s Crop Protection asset buyout as well as strong demand. The same is expected to continue in the December quarter.
 
Moreover, the Zacks Consensus Estimate for net sales for the Lithium business stands at $127 million, reflecting an estimated 12.4% rise on a year-over-year basis.

We expect FMC to provide an update on its progress on the separation of the Lithium business which has been now rebranded as Livent Corporation. Livent started trading on the NYSE in October 2018 after its initial public offering (IPO). FMC plans to spin off its roughly 85% stake in Livent to FMC shareholders on Mar 1, 2019, in the form of a pro-rata distribution of Livent shares.

FMC Corporation Price and Consensus

 

FMC Corporation Price and Consensus | FMC Corporation Quote

What the Zacks Model Says

Our proven model does not show that FMC is likely to beat estimates this quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for FMC is +13.95%. This is because the Most Accurate Estimate is currently pegged at $1.65 while the Zacks Consensus Estimate stands at $1.45. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: FMC currently carries a Zacks Rank #4 (Sell). Note that we caution against stocks with a Zacks Rank #4 or #5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

Franco-Nevada Corporation FNV has an Earnings ESP of +1.28% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

New Gold Inc. NGD has an Earnings ESP of +133.3% and carries a Zacks Rank #3.

Teck Resources Limited TECK has an Earnings ESP of +1.27% and carries a Zacks Rank #3.

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