FMC shares fell on Monday after the agribusiness company cut its forecast significantly.
FMC (ticker: FMC) shares took a sharp tumble, but anyone investing in the agriculture sector should take note.
The company said in a press release Monday that in late May it experienced “abrupt and unprecedented channel inventory reductions” among customers in North America, Latin America and EMEA, and Europe, the Middle East and Africa.
“We experienced unanticipated and unprecedented volume declines in three of our four operating regions as our distributors rapidly reduced inventories,” said CEO Mark Douglas in the press release.
FMC sells to dealers and dealers sell to farmers. The purchasing behavior of retailers and farmers does not always match.
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FMC now expects second quarter revenue to be between $1 billion and $1.03 billion. The company previously expected revenue to be between $1.42 billion and $1.48 billion in the second quarter. Revenue for the fiscal year is now expected to be between $5.2 billion and $5.4 billion. That’s down from the previous forecast of $6.08 billion to $6.22 billion.
“The magnitude of today’s announcement is staggering,” Frank Mitsch, an analyst at Fermium Research, wrote in a report. He rates the shares as a “hold” and lowered his price target to $105 from $125.
FMC shares fell almost 15% to $88.97 in midday trade. The S&P 500 was flat and the Dow Jones Industrial Average rose 0.3%. FMC stock is now down about 29% in 2023.
shares of corteva,
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a maker of seeds and farm chemicals, were also dragged down, down more than 5%. “So FMC is far more reliant on distributors than Corteva [I] Think more of an FMC issue,” Mitsch told Barron’s. “[I’d] Be disappointed/surprised if we see a similar guide from Corteva.”
He has a “Buy” rating on Corteva (CTVA) stock and has a $72 target price on the stock.
Seeds and crop protection products are bought from the farmers each season. Every few years they buy tractors and heavy equipment. Demand fluctuates less from planting season to planting season. Because of this, Deere (DE) stock didn’t react as much in Monday trading, losing just 0.2%. Shares in Deere rivals CNH Industrial (CNHI) and AGCO (AGCO) both rose on Monday.
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However, the lack of a reaction should not unsettle investors. The farmer’s health will be a question on upcoming yield earnings calls. Corn prices are down about 25% in the last six months. Soybean prices have fallen about 10% over the same period. Lower commodity prices mean less money for farmers. FMC appears to be the first to be affected by this dynamic.
FMC also said in its press release that it had implemented “significant cost reduction measures” that reduced previous operating cost estimates by $60 million to $70 million in the second half of the year.
It’s usually a good idea to cut costs when things slow down. However, it is not enough for investors. They prefer strong demand.
FMC is expected to release its second quarter results on August 2 after the market close.
Write to Angela Palumbo at [email protected]