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Why Did FMC’s Agricultural Solutions Revenue Fall in 2Q16?

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Agricultural Solutions segment’s revenue

In 2Q16, the Agricultural Solutions segment reported revenue of $552 million, representing 68.1% of FMC’s (FMC) total revenue. Agricultural Solutions is FMC’s largest revenue generator.

On a year-over-year basis, the segment’s revenue fell by 19.2%. In 2Q16, the segment posted operating income of $100.7 million, compared to $117.3 million in 2Q15. This implied a fall of 14.1% in operating income on a year-over-year (or YoY) basis.

In terms of margins, FMC’s Agricultural Solutions segment recorded an operating margin of 18.2% in 2Q16, compared to 17.2% in 2Q15. This implied that its operating margin rose by 100 basis points YoY.

The segment’s margins improved due to its elimination of sales of low-margin products and its cost savings from the Cheminova integration that FMC acquired in April 2015.

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Other highlights of the Agricultural Solutions segment

  • The North American region witnessed a rise of 5% in revenue due to inventory reductions in its sales channel.
  • Bad weather conditions in Europe impacted the region’s revenue by -19% YoY.
  • In Latin America, higher inventory levels in Brazil, low sales volume, and the negative impact of foreign currency translation impacted revenue by -43% YoY.
  • In Asia, poor weather conditions and the stronger dollar impacted revenue by -22%.

Agricultural Solutions segment outlook

  • FMC expects the segment’s 3Q16 operating income to be in the range of $80 million–$90 million.
  • FMC expects the segment’s operating margin to be in the range of 17%–18% in 2016.
  • For 2016, FMC expects the segment’s revenue to be in the range of $2.2 billion–$2.4 billion.
  • FMC expects the segment’s operating income to be in the range of $380 million–$420 million.
  • The company expects the segment to achieve the cost savings target of $60 million–$70 million in 2016.

As of August 8, 2016, the VanEck Vectors Agribusiness ETF (MOO) held 1.6% of its total holdings in FMC. The top holdings of the ETF include Monsanto (MON), PotashCorp (POT), and Mosaic Company (MOS) with weights of 8.1%, 4.1%, and 2.7%, respectively.

In the next article, we’ll look into the performance of FMC’s Health and Nutrition segment in 2Q16.

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