What happened

Agriculture chemicals manufacturer FMC (FMC 0.49%) cut second-quarter and full-year guidance, blaming inventory reductions by channel partners. Investors were clearly caught off guard, sending shares down more than 10% on Monday.

So what

FMC is an agricultural sciences company that manufactures a range of crop protection products. In May, the company surprised investors by trimming its guidance. But it appears that reduction did not go far enough.

On Monday, FMC cut its second-quarter revenue forecast to between $1 billion and $1.03 billion, well-below the $1.45 billion consensus estimate. The company also cut its full-year 2023 sales guidance to a range of between $5.2 billion to $5.4 billion, from $6.08 billion to $6.22 billion.

Analysts had expected $6.11 billion in sales this year.

"Towards the end of May, we experienced unforeseen and unprecedented volume declines in three out of our four operating regions, as our channel partners rapidly reduced inventory levels," CEO Mark Douglas said in a statement. "Our full-year outlook for revenue and adjusted EBITDA has been revised to reflect these channel dynamics and their impact to volumes, as well as the benefit from improved input costs and the significant operating cost mitigation actions we have already implemented."

The announcement caused Fermium Research analyst Frank Mitsch to cut his price target on FMC to $105 per share from $125, keeping his hold rating. Mitsch in a note said such a substantial cut from a "theoretically more stable" agricultural chemical supplier like FMC is "a surprise, and not a positive one."

Now what

The announcement was a bit confusing, as Douglas said that "even as we manage through this market contraction and significant inventory reduction by our channel partners, on-the-ground consumption of our products remains strong and at similar levels to last year."

It is great that consumption is stable, but the reduction in inventory would suggest that FMC's resellers do not believe that their customers will keep up their pace of purchases in the quarters to come.

Agriculture is a notoriously cyclical business for both growers and their suppliers. It will likely take time for FMC to regain its momentum.