Stock of the Day – Nufarm  (NUF)

Seasonal conditions have been adverse in North America as evidenced by recent profit warnings from FMC and DuPont with both companies warning that prolonged cold weather in North America reduced the application of pre-emergent products in the June Quarter. This broadly consistent Nufarm’s trading update at the beginning of June whereby the company advised that the adverse weather in North America reduced pre plant applications , turf  and specialty sales and seed treatment demand.





NUF Global Operations (Source – Company Reports)

The company has previously advised that Australia had good rainfalls in the key cropping regions. European demand was positive given the early spring and there are strong early orders from the nest South American season. The company is relying on the restructuring of the Australian operations to improve profitability towards $70-80m from around $35m in FY13 and FY14. After an extensive review of the business the company previously announced a range initiatives to reorganize its Australian operations which involves plant and regional service centre closures and headcount reductions resulting in benefits of $13m per annum.



NUF Sales Revenue (Source – Company Reports)

It is important to note that adverse North American weather impact will not be confined to North American segment. Intermediate products which are manufactured in Europe and exported to the U.S market will also be impacted. While European seasonal conditions are largely normal, weak North American demand will impact the European manufacturing business. Further the impact is unlikely to be confined to FY14. With difficult seasonal conditions in North America we see a risk that we exit the season with elevated channel inventories.


NUF Daily Chart (Source – Thomson Reuters)

NUF’s Australian business is emerging from a challenging series of plating seasons. Conversely however the North American Business has faced a particularly challenging season. The U.S has face a severe and prolonged winter. While conditions may have improved the delayed winter has narrowed the window for pre-plant crop protection demand. This represents a key selling period for NUF’s North American business. We put a HOLD recommendation on the stock at the current price.

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