FMC Finds the Chemistry: Under the Radar

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BOSTON ( TheStreet) -- Philadelphia-based FMC ( FMC) weathered the recession better than most. The diversified chemical company posted a one-year growth rate of 3% for revenue and 5% for earnings per share. FMC is scheduled to report third-quarter results Oct. 29.

The company's second-quarter numbers were disappointing. Net income fell 18% to $69 million and earnings per share dropped 16% to $1.01. Revenue decreased 13% to $700 million. FMC's gross margin declined from 37% to 36% and its operating margin fell from 19% to 18%.

Of its three operating segments, specialty chemicals fared best, matching the $193 million of quarterly sales achieved in the year-earlier period. The segment was helped by improved prices and volumes of biopolymer, a component of food, pharmaceuticals and cosmetics. Agricultural sales fell 9%, and industrial sales plummeted 24%.

FMC forecasted an improvement in earnings from agricultural and specialty chemicals in its third quarter, but expects a 55% to 65% decline in profit from industrial products, a sign the recession is still crimping some areas of business.

The company has a strong liquidity position, with $67 million of cash reserves, translating into a quick ratio of 1.1. But cash reserves have halved since the year-earlier quarter and debt has grown 14% to $634 million. Still, FMC's debt-to-equity ratio of 0.6 is below the industry average, indicating conservative leverage.

Shares of FMC have risen 26% this year, beating the Dow Jones Industrial Average and S&P 500 Index. Over a one-year period, the stock has advanced 73%. Despite the impressive gains, FMC is still inexpensive in comparison to its diversified chemicals peer group.

FMC is 39% cheaper than its rivals based on trailing earnings and 57% cheaper based on projected earnings. The stock pays a 0.9% dividend yield, less than the S&P 500 average of 2.8%, and has a beta, a measure of market correlation, of 1.1. (One is a perfect correlation.) We rate FMC "buy."

-- Reported by Jake Lynch in Boston.

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