Shares of agricultural crop protection company FMC Corporation (FMC +0.63%) plunged on Monday, falling 5.8%.
FMC has seen its stock fall all year into distressed territory, as the agricultural down cycle, combined with increased generic competition for newly off-patent products, has caused a dramatic decline in profitability and cash flow. Notably, the company reduced its dividend by 86% in late October, coinciding with a disappointing third-quarter earnings report.
Late on Friday, FMC announced another major restructuring, fueling concerns about further trouble.
NYSE: FMC
Key Data Points
FMC's new "Project Foundation"
FMC's new plan is called Project Foundation, which essentially involves closing down more expensive manufacturing sites and consolidating operations at lower-cost sites.
The broader takeaway is that increased generic chemical competition is here to stay, FMC's differentiation on chemicals whose patents have expired has permanently diminished, and FMC will now have to compete more on price. This will, at least in the near-term, mean FMC's revenues and profit margins will remain depressed relative to recent history.
FMC announced that the restructuring plan will cost the company between $560 million and $635 million, comprising of $420 million to $440 million in non-cash accelerated depreciation, along with $140 million to $195 million in cash costs for severance, consulting, and other related expenses. However, these upfront costs are supposed to yield the company $175 million in ongoing cost savings by the end of 2027, when the closures take full effect.
Image source: Getty Images.
FMC's uncertainty will linger in 2026
$175 million in cost savings would be a significant positive, but the market is likely concerned about the upfront costs and what they may imply. After all, FMC only had $500 million in cash at the end of last quarter against $4.5 billion in debt, while this year's cash flow is also expected to be negative.
While FMC's stock may look cheap, at just 4.3 times this year's projected adjusted (non-GAAP) earnings per share, more of FMC's core chemical portfolio is set to come off-patent next year. Combined with cash collection issues in Brazil, investors should watch from the sidelines for now to ensure FMC isn't a value trap before attempting to time the bottom.
