Aug. 6, 2015
Pricing in local currencies increased in the quarter compared to the same period a year ago; however, price increases only partially offset the unfavorable impact of foreign currency movements and lower volumes. Excluding the impact of foreign exchange, second quarter 2015 pro forma revenue declined 14 % versus the prior-year quarter and pro forma segment earnings increased 5 %, as ongoing cost reduction initiatives across the business helped offset the negative impact of lower volumes.
During the quarter, FMC Agricultural Solutions commenced certain actions triggered by the acquisition of Cheminova, including rationalizing some product lines ahead of the 2015/2016 season and initiating a sale process for its Consagro subsidiary in Brazil. In addition, the business continued to reduce sales of low-margin third party products, a process started in the first quarter 2015. These decisions reduced second quarter segment earnings by approximately $15 million. However, these portfolio actions will strengthen the market position of FMC Agricultural Solutions and position it to deliver continued strong performance in 2016 and beyond.
Commenting on FMC Agricultural Solutions’ quarterly results, FMC president, CEO and chairman Brondeau stated: "We saw continued difficult market conditions for FMC Agricultural Solutions through the second quarter. Multiple factors weighed on demand for crop protection products, including high channel inventories, poor planting conditions, low pest pressures and soft agricultural commodity prices. Through the first six months of 2015, on a U.S. dollar basis, the global crop protection market declined compared to the same period of 2014, driven mainly by the significant decline in Brazil, which we estimate is down approximately 25 percent through June 2015. In addition, FMC took several important integration steps over the past three months to align how the new FMC Agricultural Solutions will access the market in key regions. These actions create short-term headwinds for the FMC Agricultural Solutions segment, but will more than repay themselves heading into the 2015/2016 season.”
FMC closed the acquisition of Cheminova on April 21, 2015. As of June 30, 2015, the integration of FMC Agricultural Solutions and Cheminova is ahead of plan. Over 60 percent of the targeted headcount reductions have been achieved and a significant number of commercial programs and other cost reduction initiatives have been launched.
Pierre Brondeau, FMC president, CEO and chairman said: "In April, FMC closed on both the acquisition of Cheminova and the sale of Alkali Chemicals, completing the transformation of FMC's portfolio to one focused on agriculture, health and nutrition. In the two months following the close of the Cheminova acquisition, we moved rapidly to begin integrating Cheminova and FMC Agricultural Solutions. The integration is progressing well and gaining momentum. The results achieved during the first 100 days following the close reinforce our confidence in FMC Agricultural Solutions' ability to deliver the targeted synergies of $120 million ahead of 2017.
"The work to date has focused largely on combining the commercial organizations across the regions, streamlining the business and removing overlapping corporate functions," Brondeau said. "Cost savings arising from these actions are coming in faster than originally anticipated and we are pleased to see a number of recently launched commercial initiatives already gaining traction. As a result, we expect to achieve synergies of $30 million to $40 million in 2015, up from our prior guidance of $25 million to $30 million. The benefits of these actions will provide a tailwind to earnings over the second half of 2015 and serve as a catalyst for future earnings growth."
As a result of targeted growth programs, ongoing cost savings initiatives and the expected acceleration of the cost and revenue synergies, FMC Agricultural Solutions is expected to deliver strong performance in the second half 2015. Over the next six months, the company expects segment earnings of between $315 million to $340 million, an increase of approximately 40% compared to the pro forma segment earnings for the second half of 2014.
The 2015/2016 season in the Southern Hemisphere typically starts late in the third quarter. Given the difficult market conditions currently experienced in Brazil, there is higher than normal uncertainty as to when growers will make purchasing decisions. Consequently, third quarter guidance for the Agricultural Solutions segment is a wider range than in prior years, without impacting second half guidance. For the third quarter, the company expects segment earnings to be in the range of $105 million to $125 million.
FMC expects full-year segment revenue to be within the range of $2.5 billion to $2.7 billion. Full-year segment earnings are expected to be in the range of $510 million to $550 million. Despite unfavorable foreign currency impacts and continued difficult market conditions, progress to date on the integration reinforces the strategic and operational benefits of the Cheminova acquisition and increases the company's confidence in FMC Agricultural Solutions' ability to deliver strong earnings growth during the second half of 2015.”
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