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What Makes FMC Corporation (FMC) a Strong Sell Stock?

Zacks Equity Research

On Aug 13, Zacks Investment Research downgraded chemical maker FMC Corporation (FMC) to a Zacks Rank #5 (Strong Sell).  

Why the Downgrade?

FMC Corp. saw its profit slip in second-quarter 2014, reported on Jul 30, as it took higher charges in the quarter. Consolidated profit, as reported, fell roughly 8% year over year to $109.1 million or 81 cents per share in the reported quarter. Adjusted earnings also fell short of the Zacks Consensus Estimate. FMC Corp. backed its adjusted earnings forecast for 2014 which it downwardly revised in Jun 2014.

FMC Corp. faced a few challenges in the second quarter. Bad weather conditions in North America sustained into the quarter and reduced application of the company's pre-emergent products.

Drought conditions in Brazil also prompted sugarcane farmers to cut their use of crop protection products. Moreover, farmers significantly reduced their replanting rates, which led to lower use of herbicides and insecticides in the sugarcane segment. These challenges may sustain into the third quarter.

FMC Corp. has witnessed downward estimate revisions following its second-quarter earnings announcement. The Zacks Consensus Estimate for 2014 has decreased 0.9% to $4.20 per share over the last 30 days. For 2015, the Zacks Consensus Estimate also fell 2.9% to $5.08 per share.
FMC Corp. is exposed to significant currency headwind. Unfavorable currency movements reduced its earnings by 5 cents and 10 cents per share in the second quarter and first-half 2014, respectively.

While the company has taken up effective pricing strategy to offset the impact, its results remain susceptible to currency translation effects. Unfavorable currency swings and higher business spending may impact its margins in the second half.
FMC Corp. is also seeing higher costs for certain raw materials. The most significant cost pressure has been witnessed for seaweed-based raw materials.
FMC Corp.’s Minerals division is also a more cyclical business. This has triggered the company’s decision to separate the unit (expected to complete in first-half 2015). However, costs related to the separation are expected to weigh on the company’s bottom-line in the next few quarters.

Other Stocks to Consider

Other chemical stocks worth considering include Celanese Corporation (CE), LyondellBasell Industries NV (LYB) and Johnson Matthey plc (JMPLY). All of them carry a Zacks Rank #2 (Buy).

Read the Full Research Report on CE
Read the Full Research Report on FMC
Read the Full Research Report on LYB
Read the Full Research Report on JMPLY

Zacks Investment Research