Key Points
Analysts were expecting FMC profits to decline nearly 90% in Q3.
That was too optimistic.
Commodity prices are plummeting, and FMC needs to cut prices to remain competitive.
FMC Corporation (NYSE:FMC) stock imploded Thursday morning, collapsing 32.4% through 11:40 a.m. ET. And why?
In a word: Guidance.
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What FMC just said
FMC management revised its guidance dramatically lower this morning. Analysts polled by Yahoo! Finance had been expecting the agricultural chemicals giant to report $866.7 million in sales and $0.10 per share in profit in its upcoming Q3 report. That would already have been an 89% decline in earnings on a 60% increase in sales -- so pretty bad.
But now FMC says the news is even worse.
Revenue will actually fall somewhere between $65 million and $125 million, says management, with adjusted EBITDA (that's earnings before interest, taxes, depreciation, and amortization) of negative $510 million to $565 million. No word on GAAP earnings, but I think it's safe to assume the number is going to look pretty bad.
What happened to FMC
FMC management blames $625 million to $675 million in "commercial actions to lower the price of select products held by channel customers in key markets" for the dramatically lower sales and almost certain financial losses.
Demand for FMC's chemicals was weaker than expected, and the high prices FMC has been charging reduced demand further amid "rapid market price declines, driven in part by increased generic competition." To clear out old inventory, FMC is slashing prices.
Management hopes this will help increase sales, although, obviously, at lower prices, these greater sales won't improve revenue much (or profits much at all). With FMC stock valued north of 30 times earnings, and profits set to fall, FMC stock could be dead money for quite some time to come.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.