FMC Earnings: Price Increases More Than Offset Lower Volumes and Cost Inflation

We maintain our $140 per share fair value estimate for FMC FMC after updating our model to reflect the company’s first-quarter results. Our narrow moat rating is also unchanged.

FMC shares were down nearly 8% on the day (May 2) as the market reacted negatively to FMC’s slowdown in key growth markets including Latin America and India. However, we think FMC is less likely to be affected by the slowdown. Accordingly, we view the selloff as a good opportunity for investors to pick up shares of the undervalued company, with the stock trading nearly 20% below our fair value estimate and in 4-star territory.

Adjusted EBITDA was up 2% year on year during the first quarter as price increases and a mix shift to a greater proportion of premium products were offset by lower volumes, higher costs, and foreign exchange losses. During the quarter, 15% of revenue came from products launched in the last five years. The results exemplify our long-term view on FMC that its strong product pipeline will translate to commercial success, leading to an increased proportion of premium products over time.

This should drive more steady profit growth even when bad weather conditions lead to lower sales volumes in a given region. Lower volumes were largely due to unfavorable weather in Latin America and Asia, which delayed farmer plantings and the use of crop protection products. We expect much of the volume declines will be made up in the second quarter, as plantings were delayed, particularly in Asia.

Additionally, as commodity chemicals raw materials costs decline throughout the year, FMC should be able to hold on to much of its higher pricing, due to its patented and differentiated portfolio, leading to further profit growth. We forecast adjusted EBITDA will grow 8% in 2023 versus 2022, driven largely by higher growth in the second half of the year.