Exiting commodity pectin business
FMC took another step in its move away from commodity ingredients with the sale of a standard grade pectin facility to Cargill. With the move, the Philadelphia, PA-based supplier of specialty chemicals and food and dietary supplement ingredients has moved away from supplying commodity grade pectin to concentrate on more specialized solutions.
The facility FMC sold was located in Milazzo, Italy. Cargill was already a big supplier of pectin.
.“We took this step so we can provide food companies around the world with a strong supply of high quality pectin available; a ‘label-friendly’ food ingredient for which we see a clear growing demand,” said Colleen May, president of Cargill’s texturizing solutions business. “With a direct access to fresh citrus peel, the facility is ideally located. It will be a perfect addition to our existing network of facilities in Europe and complement our supply chain.”
But FMC is not exiting the pectin business altogether, said Eric Norris, global business director for FMC Health and Nutrition. “We are re-allocating our resources away from the manufacture of standard grade pectin. . . Pectin remains an important product line in our broad portfolio of ingredients, including microcrystalline cellulose, alginates, carrageenan and natural colors,” he said.
FMC has pursued a strategy of moving up the value chain in its food and supplements ingredients businesses for several years. A big step along the way was the $345 million purchase of omega-3 fish oil concentrator Epax in 2012. While FMC had no omega-3 ingredients in its portfolio at the time, it did have considerable expertise in marine-sourced ingredients such as carrageenan and fucoidan and a presence in high-value ingredients for the food and pharma markets.
The company also presence in the nutraceuticals market with its MaQBerry antioxidants from maquiberries; Nutraesterol unesterified phytosterols; Nutricol HN glucomannan (soluble dietary fiber); and Protasea Fucoidan brown seaweed extract.
Omega-3 demand impacts results
In an earnings call with analysts, FMC president and CEO Pierre Brondreau said, “While sales volume trends have improved, we have yet to see a meaningful rebound in what would bring omega-3 growth rate back to historical levels. We believe excess production capacity in the omega-3 market will continue to be a headwind for prices, at least for the foreseeable future.”
Brondreau did leave open the possibility that FMC would exit the omega-3s market at some point in the future. The Epax acquisition has faced two significant hurdles, he said. First, after years of reliably strong growth, the market was slowing down for the first time in memory just as the acquisition was completed. And secondly, the competition in the supply end of the omega-3 picture has significantly increased. There were three players when FMC started the process of acquiring Epax, now Brondreau said there are 11.
“From a strategic standpoint, could we be out? Yes, we could be out. Is it time for us to get out? No, it is not time. I think we still have opportunities to participate in this market and see a return on our investment, but more challenging than what we were expecting. So we're going to keep on driving that business as well as we can through 2016,” he told analysts in an earnings call that was posted in transcript form on the site seekingalpha.com.
Earnings details
FMC, which has significant business in the agricultural chemicals sector, recorded $887 million in revenue in the quarter. Segment revenue in the Health and Nutrition division was $207 million, flat versus the prior-year quarter. Segment earnings of $51 million were up 3% compared to the prior-year quarter, as higher sales volumes and benefits of manufacturing excellence initiatives were partially offset by unfavorable foreign currency impacts. Excluding the impact of foreign currency, segment earnings for the second quarter of 2015 increased 8% compared to the prior-year quarter. Excluding the impact of the $700 million sale of its Alkalai Chemicals division, overall earnings came in a 70 cents a share, a 15% year-over-year decrease from the 87 cents a share recorded in the second quarter of 2014.