FMC
stock was falling Monday after the agricultural sciences company cut its guidance significantly.
FMC
(ticker: FMC) shares were taking a sharp hit, but anyone invested in the farming sector should take notice.
The company said in a release Monday that at the end of May it had experienced “abrupt and unprecedented reductions in channel inventory” by customers in North America, Latin America, and EMEA, or Europe, the Middle East and Africa.
“We experienced unforeseen and unprecedented volume declines in three out of our four operating regions, as our channel partners rapidly reduced inventory levels,” Chief Executive Mark Douglas said in the news release.
FMC sells to dealers and dealers sell to farmers. Dealer buying behavior and farmer buying behavior don’t always match up one for one.
FMC now anticipates second-quarter revenue to be between $1 billion and $1.03 billion. The company previously expected second-quarter revenue of between $1.42 billion to $1.48 billion. Fiscal-year revenue is now expected to be between $5.2 billion and $5.4 billion. That’s down from the prior outlook of $6.08 billion to $6.22 billion.
“The order of magnitude of today’s announcement is breathtaking,” wrote Fermium Research analyst Frank Mitsch in a report. He rates shares Hold and cut his price target to $105 from $125.
Shares of FMC were down almost 15% in midday trading at $88.97. The
S&P 500
was flat and the
Dow Jones Industrial Average
rose 0.3%. FMC stock has now fallen about 29% in 2023.
Shares of
Corteva,
a maker of seeds and chemicals for farmers, were being dragged down as well, off more than 5%. “FMC is far more reliant on distributors than Corteva, so [I] think more of an FMC issue,” Mitsch told Barron’s. “[I’d] be disappointed/surprised if we see a similar guide-down from Corteva.”
He rates Corteva (CTVA) shares Buy and has a $72 price target on the stock.
Seeds and crop chemicals are purchased every season by farmers. They buy tractors and heavy equipment every few years. Demand is less volatile from planting season to planting season. That’s why
Deere
(DE) stock isn’t reacting as much in Monday trading, with the shares down just 0.2%. Shares of
Deere
peers
CNH Industrial
(CNHI) and
AGCO
(
AGCO
) were both rising Monday.
The lack of a reaction shouldn’t make investors complacent though. The health of the farmer will become a question on coming earnings conference calls. Corn prices have declined by about 25% over the past six months. Soybean prices have fallen about 10% over the same span. Lower commodity prices means less cash for farmers. FMC seems to have taken the first hit from that dynamic.
FMC also said in its news release that it has implemented “significant cost mitigation actions” which have reduced prior operating expense estimates in the second half of the year by between $60 million to $70 million.
It’s typically a good idea to cut costs when things slow down. It isn’t enough for investors though. They prefer strong demand.
FMC is scheduled to report its second-quarter earnings on Aug. 2 after the markets close.
Write to Angela Palumbo at [email protected]
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