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FMC cuts profits hopes, again, hurt by weak real

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FMC Corp delivered another blow to the farm inputs sector as it cut its forecast for full-year profits for a second time, blaming an "extraordinary operating environment" in Brazil prompted by weakness in the real.

The lithium-to-food ingredients group, of which agrichemicals represents by far its biggest earner, reduced to $2.35-2.45 per share, from $3.00-3.30 per share, its forecast for earnings in 2015.

The group, which had in May guided investors to earnings of $3.10-$3.40 per share, said that the latest downgrade reflected "the rapid devaluation of the Brazilian real", which has made imported inputs less affordable for farmers, and reduced the value in dollar terms of takings in the South American country.

A drop of more than 25% in the real over the July-to-September quarter "has created significant headwinds that will continue to impact" agrichemical profits for the rest of 2015, Philadelphia-based FMC said.

The agrichemicals division itself had achieved earnings of $59m in the quarter, well below the $105m-125m that FMC had targeted.

For the October-to-December period, the group forecast earnings for the division of $110-130m, well below the figure of about $210m implied by previous guidance.

'Aggressive actions'

FMC said it had attempted to recoup part of the losses to the weak real though raising prices but, with many farmers proving able to hold-off purchases, had offset only about 40% of the currency setback.

"Customer-held inventory levels remain elevated, limiting FMC's ability to increase prices quickly enough to fully offset the impact of these currency moves," the group said.

The "extraordinary operating environment in Brazil" was prompting the company to take "aggressive actions", said Pierre Brondeau, the FMC chairman and chief executive.

These include an increase to $140m-160m, from $90m, in target for cost savings from a programme introduced after the takeover of Cheminova, the crop protection business of Auriga Industries.

A target for job cuts was raised to 800-850 staff, including a halving of staff in Brazil as the company "resizes" its operations in the country "to realign the business with near-term market conditions".

This shift will expand on the move that FMC had already planned to sells its Consagro generic sprays business, and focus in Brazil on higher margin proprietary products rather than commodity agrichemicals.

Sector troubles

The announcement represents a further setback for a farm inputs sector smarting from the dent from lower crop prices to farmers' willingness to spend on the likes of sprays and fertilizers, as well as machinery.

US groups have been particularly hard hit by the strength of the dollar too.

Last week, seeds giant Monsanto unveiled below-forecast results and forecast profits in its new financial year falling below Wall Street expectations, while agrichemicals group Patform Specialty Products cut its earnings outlook for a second time.

In the fertilizer sector, PotashCorp cautioned of potential "storms" in the sector spurred by production capacity increases, while Mosaic last month unveiled the mothballing of a mine, sending its shares to a six-year low.

Meanwhile, in the farm machinery sector, data overnight from the Association of Equipment Manufacturers showed US sales of combines down 19.9% last month, with tractor volumes falling by 11.7%, led by a 48% slump in volumes of the large tractors used by crop farmers.

Investor reaction

FMC Corp shares tumbled 7% to $35.02 in early deals in New York, before recovering some ground to stand at $36.01 in late trading, a decline of 4.1%.

Jefferies nudged lower by $1 to $46 its target price for the shares, on which the broker kept a "buy" rating.

But Nomura lowered its target price by $14 to $36, with a "neutral" rating.

By Agrimoney.com

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