Why FMC Corporation Rallied Today
Key Points
FMC reported a bad-looking quarter, but much of it was due to an accounting adjustment.
The company forecast a profitable current quarter and even EBITDA growth in 2028.
Trading at a distressed valuation with high short interest, the stock popped on what was likely a short-covering rally.
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Shares of agricultural chemical company FMC Corporation (NYSE:FMC) rallied a whopping 30.4% on Friday.
FMC has been in a vicious downturn due to a combination of a difficult agricultural cycle and its products coming off patent. Combined with a substantial debt load, its deteriorating financial results have spurred fears over a potential bankruptcy.
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FMC reported third-quarter earnings today that looked terrible on the surface; however, much of that was due to one-time price cuts and an accounting adjustment. It appears the company's fourth-quarter guidance may be better than some had feared. That enabled the stock to jump off distressed levels. But is there any sort of real turnaround in the cards?
FMC has an ugly-looking quarter
In the third quarter, FMC saw its revenue decline by 80% to just $106 million, with an adjusted loss per share of ($4.41), down from $1.11 in the prior-year quarter. However, much of the lower revenue was due to an accounting change, in which FMC appeared to accept lower prices for higher-priced products it had already sold into the sales channel. Absent these odd accounting changes, revenue was down "only" 22%.
Meanwhile, the company's price cuts are expected to drive better fourth-quarter volume, with management guiding to $1.11 billion in revenue at the midpoint. That would be flat compared to the prior year's fourth quarter. Meanwhile, management also expects positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $220 million at the midpoint, with adjusted earnings per share forecast to be $0.63 at the midpoint. That would be a $0.48 decline from the prior-year quarter, but still in positive territory.
Image source: Getty Images.
A low bar to clear
In addition to next quarter, FMC also gave a longer-term outlook to generate at least $650 million in EBITDA next year and at least $760 million in 2028. FMC was already trading in distressed territory, potentially reflecting the anticipation of the price cuts announced on the call. Given that FMC predicted adjusted profits next quarter and at least positive EBITDA next year, with growth in the year after, that seemed enough to lift investors' spirits.
Still, investors should tread carefully; this could merely be a short-covering rally. FMC has also disappointed relative to its guidance in the recent past. The stock is only appropriate for high-risk investors who would be OK with potentially losing their entire investment.
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Billy Duberstein and/or his clients have the following options: short January 2027 $30 calls on FMC. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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