Examining how FMC Corporation (NYSE:FMC) is performing as a company requires looking at more than just a years’ earnings. Below, I will run you through a simple sense check to build perspective on how FMC is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its chemicals industry peers.
Were FMC’s earnings stronger than its past performances and the industry?
FMC’s trailing twelve-month earnings (from 30 June 2018) of US$216.5m has jumped 44.7% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -26.7%, indicating the rate at which FMC is growing has accelerated. What’s the driver of this growth? Well, let’s take a look at whether it is merely owing to industry tailwinds, or if FMC has experienced some company-specific growth.
Even though both top-line and bottom-line growth rates in the past couple of years were on average negative, earnings were more so. While this resulted in a margin contraction, it has lessened FMC’s earnings contraction.
Scanning growth from a sector-level, the US chemicals industry has been growing its average earnings by double-digit 23.5% over the prior year, and a less exciting 5.3% over the last five years. This growth is a median of profitable companies of 25 Chemicals companies in US including W. R. Grace, ADM Tronics Unlimited and Flexible Solutions International. This means that whatever uplift the industry is profiting from, FMC is capable of leveraging this to its advantage.
In terms of returns from investment, FMC has fallen short of achieving a 20% return on equity (ROE), recording 7.4% instead. Furthermore, its return on assets (ROA) of 3.4% is below the US Chemicals industry of 7.7%, indicating FMC’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for FMC’s debt level, has increased over the past 3 years from 10.4% to 12.2%.
What does this mean?
FMC’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Recent positive growth isn’t always indicative of a continued optimistic outlook. There may be variables that are affecting the entire industry thus the high industry growth rate over the same period of time.