FMC Corp. to Gain from Strategic Actions, Acquisitions - Analyst Blog
On Dec 2, we issued an updated research report on FMC Corp. ( FMC ). While the chemical company's strategic investments, acquisitions and new product launches should drive results in its core agricultural business, it is exposed to certain operational challenges and currency headwinds.
FMC Corp.'s profit for third-quarter 2014, reported on Oct 29, climbed on gains across all businesses. Adjusted earnings, however, narrowly missed the Zacks Consensus Estimate. Revenues rose amid a difficult operating environment, but missed expectations.
FMC Corp. expects growth in its agricultural business to be supported by sustained market penetration in Latin America and new product introductions. Moreover, higher demand in health markets and expanding portfolio are expected to drive results in the company's health and nutrition franchise.
FMC Corp. maintains a strategy of growth through acquisitions and strategic collaborations. The acquisition of Omega-3 fatty acid maker Epax has bolstered its health and nutrition business and expanded its presence in the high-growth nutraceutical market. Moreover, the recently announced acquisition of crop protection products maker - Cheminova A/S - for $1.8 billion is a strategic fit for FMC Corp. The buyout is expected to bolster the company's agriculture business and reinforce its access in major agricultural end-use markets.
FMC Corp.'s new state-of-the-art microcrystalline cellulose (MCC) manufacturing plant in Thailand will also support the growing functional ingredients market in Asia. The facility, which is expected to go on stream in 2015, will help FMC Corp. address the increasing demand for innovative food and beverage products in the continent.
However, FMC Corp. is faced with certain challenges. The company is seeing weak demand for its health and nutrition products in some beverage applications in China, which is expected to continue through the balance of 2014. A slowdown in the Chinese economy (affecting buyer's behavior) coupled with tight inventory management by a few of the company's customers are contributing to lower demand for some of its products.
FMC Corp. is also witnessing certain operational challenges in Argentina including import restrictions that are unfavorably affecting its cost structure. Drought conditions in Brazil are also hurting demand for its products to sugarcane farmers.
Moreover, FMC Corp. is exposed to currency headwind. While the company has taken up effective pricing strategy to offset the impact, its results remain susceptible to currency translation effects.
Other Stocks to Consider
Other companies in the chemical space that are worth considering include Innospec Inc. ( IOSP ), Valhi, Inc. ( VHI ) and Kronos Worldwide, Inc. ( KRO ) with all retaining a Zacks Rank #1 (Strong Buy).