Why FMC’s guidance is a warning to all farm stocks, even the invincible deer
FMC shares fell on Monday after the agricultural sciences company significantly cut its guidance.
FMC (ticker: FMC) shares took a big hit, but anyone invested in the farming sector should take note.
The company said in a release Monday that in late May it had experienced “abrupt and unprecedented reductions in channel inventory” of customers in North America, Latin America and EMEA, or Europe, the Middle East and Africa.
“We experienced unanticipated and unprecedented volume reductions in three of our four operating regions as our channel partners rapidly reduced inventory levels,” CEO Mark Douglas said in the press release.
FMC sells to retailers and retailers sell to farmers. Retailers̵[ads1]7; buying behavior and farmers’ buying behavior do not always match one for one.
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FMC now expects second-quarter revenue to be between $1 billion and $1.03 billion. The company previously expected second-quarter revenue of between $1.42 billion and $1.48 billion. Fiscal year revenue is now expected to be between $5.2 billion and $5.4 billion. That’s down from a previous outlook of $6.08 billion to $6.22 billion.
“The magnitude of today’s announcement is stunning,” Fermium Research analyst Frank Mitsch wrote in a report. He rates the stock Hold and cut his price target to $105 from $125.
Shares of FMC fell nearly 15% mid-day to $88.97. The
S&P 500
was flat and the
Dow Jones Industrial Average
rose 0.3 percent. The FMC share has now fallen around 29% in 2023.
Shares in Corteva
,
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a maker of seeds and chemicals for farmers, was also pulled down, by more than 5%. “FMC is far more dependent on distributors than Corteva, so [I] Think more of an FMC problem,” Mitsch said 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 price target of $72 on the stock.
Seeds and crop chemicals are purchased each 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 shares down just 0.2%. Shares of Deere companies CNH Industrial ( CNHI ) and AGCO ( AGCO ) both rose on Monday.
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However, the lack of a reaction should not make investors complacent. The farmer’s health will be a question of future income conferences. Maize prices have fallen by around 25% in the past six months. Soybean prices have fallen around 10% over the same period. Lower commodity prices mean less cash for farmers. FMC seems to have taken the first hit from that dynamic.
FMC also said in its press release that it has implemented “significant cost-cutting measures” that have reduced previous operating cost estimates in the second half of the year by between $60 million and $70 million.
It’s usually a good idea to cut costs when things slow down. However, that is not enough for investors. They prefer strong demand.
FMC is scheduled to report its results for the second quarter on August 2 after the markets close.
Write to Angela Palumbo at angela.palumbo@dowjones.com
