Will FMC Corp (FMC) Beat On Q2 Earnings Amid Headwinds?

FMC Corp. (NYSE:FMC) will release its second-quarter 2016 results after the bell on Aug 2.

The chemical maker swung to a profit in first-quarter 2016. Adjusted earnings topped the Zacks Consensus Estimate (an 11.54% positive surprise). Revenues rose by double digits year over year on strong gains in the Agricultural Solutions division, but missed expectations.

Let’s see how things are shaping up for this announcement.

Factors to Consider

FMC Corp., in May, raised its earnings guidance for 2016. The company expects adjusted earnings in the band of $2.55 to $2.85 per share (up from the prior view of $2.50 to $2.80 per share) for the year, representing a 9% year-over-year rise at the mid-point of the forecast range.

The company expects second-quarter earnings for its Agricultural Solutions division in the band of $90 million to $110 million. For the Health and Nutrition segment, earnings for the quarter are expected to be between $49 million and $53 million. Moreover, FMC Corp. expects earnings for its Lithium unit in the range of $10 million to $14 million for the second quarter.

FMC Corp. should gain from strategic investments, Cheminova A/S acquisition and new product launches. The company remains committed to expand its market position and strengthen its portfolio. Acquisitions and development agreements are also adding strength to the company’s agricultural business.

In its lithium business, the company is seeing strong demand across specialty end markets. The company is also reducing corporate costs through reduced discretionary spending, global procurement initiatives and layoffs. FMC Corp. has also restructured its operations in Brazil to align it with market conditions and rationalize product offerings. Moreover, the sale of the alkali chemicals business has enabled FMC Corp. to de-lever its balance sheet to an extent which is best fit for the company.

The company is also making a good progress with the integration of the acquired operations of Cheminova A/S. The buyout reinforces FMC Corp.'s core agriculture business and expands its access in major agricultural end markets. The company expects to deliver $60 million to $70 million of Cheminova-related cost savings in 2016.

However, FMC Corp. faces challenging agriculture market fundamentals. Conditions in Brazil still remain weak, evident from a decline in volumes due to lower demand. The company expects agricultural market conditions to remain challenging in North America in 2016 due to elevated channel inventory levels and expected lower farm incomes.

The global crop protection market continues to face several woes, which has resulted in a difficult operating environment. FMC Corp. expects the global crop protection chemical market to decline by a mid to high single-digit clip in 2016 due to weak conditions in North America and Brazil.

FMC Corp. is also exposed to significant currency headwinds, stemming from a strong greenback. In particular, a slump in the value of the Brazilian real has created significant headwinds, hurting earnings in the company's Agricultural Solutions segment. The company’s health and nutrition business is also susceptible to currency headwinds due to its significant euro exposure.

Earnings Whispers

Our proven model does not conclusively show that FMC Corp. is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP for FMC Corp. is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 67 cents.

Zacks Rank: FMC Corp.’s Zacks Rank #2, when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

Trinseo SA (NYSE:TSE) has an Earnings ESP of +6.06% and a Zacks Rank #1.

U.S. Silica Holdings, Inc. (NYSE:SLCA) has an Earnings ESP of +8.70% and a Zacks Rank #2.

International Flavors & Fragrances Inc. (NYSE:IFF) has an Earnings ESP of +0.71% and a Zacks Rank #2.