Lower Insect Pressure, High Inventory in Brazil Hit FMC
FMC Agricultural Solutions reported sharply lower revenue and earnings in the first quarter, as it was hurt by weakened demand due to lower insect pressures and higher-than-normal channel inventories in Brazil, volatile exchange rates and the decision to exit a distribution channel in Brazil responsible for third-party product sales negatively impacted results.
The segment posted revenue of $392.4 million, a decrease of 16% versus the prior-year quarter. First-quarter segment earnings were $81.8 million, a 32% decrease from the prior-year quarter.
FMC said global crop protection markets are expected to be down by mid-single digit percent in 2015. The macroeconomic environment remains uncertain, mainly in light of current expectations of currency movements, interest rates, agricultural commodity prices and oil prices, it said. FMC expects that earnings contributions from the Cheminova acquisition, including early synergy gains, the continued spread of weed resistance in North America and Latin America, and market share gains are expected to increase full-year segment earnings by high-single-digit to low-double-digit percent in 2015.
Pierre Brondeau, president, CEO and chairman, stated: “The first three months of 2015 were characterized by extremely volatile foreign exchange movements, a high degree of uncertainty in global agricultural markets and crop specific headwinds in the Brazil crop protection markets. In the quarter, currency movements reduced our revenues by approximately 4% and reduced our consolidated adjusted earnings per share by 11 cents.
“On February 3, 2015, we signed an agreement to sell Alkali Chemicals for $1.64 billion, resulting in discontinued operations treatment of Alkali Chemicals for the first quarter. The sale was completed on April 1, 2015. We also closed the Cheminova acquisition on April 21, 2015; however, this timing meant that Cheminova’s strong first quarter performance was not included in our first quarter earnings.
“The closing of these two transactions completes the key steps to transform our portfolio into one focused on agriculture, health and nutrition. Looking forward into 2016 and beyond, we expect to see stronger average annual rates of growth in revenues, adjusted operating earnings and adjusted earnings per share than we delivered between 2009 and 2014, with stronger cash generation. Underlying market growth, expanded market access, new technology introductions, operational excellence and near-term synergies from the Cheminova acquisition, plus stronger free cash flow and lower capital intensity, all will contribute to this financial performance between 2016 and 2020. We are excited about the prospects for the transformed FMC portfolio in the coming years.
FMC closed its acquisition of Cheminova on Apr. 21, 2015, and has commenced the process of integrating Cheminova’s operations into FMC. This process is expected to result in synergies of up to $120 million in the first three years, the majority of which will be achieved from various cost-related actions. By eliminating duplicated costs, integrating procurement and supply chain activities, and aggressively targeting cross-selling opportunities, the bulk of these synergies will be in place by mid-2016, the company said.