The Nufarm Limited (ASX: NUF) share price bucked the market downtrend at opening bell after the crop products supplier provided a trading update at its annual general meeting (AGM).
The Nufarm share price jumped 1.3% to $6.26 even as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) dipped 0.2% at the time of writing.
NUF's share price isn't the only one in the agriculture sector making gains today. The Elders Ltd (ASX: ELD) share price and Incitec Pivot Ltd (ASX: IPL) share price are also outperforming the broader marker.
Company Guidance
Nufarm told investors this morning that its first half underlying earnings before interest and tax (EBIT) for FY19 are expected to down from the same period last year but the full year results are likely to be ahead of FY18.
The expected return to earnings growth is predicated on a partial recovery in the Australian business and a full year contribution from its recent European acquisitions.
Underlying earnings before interest, tax, depreciation and amortisation is tipped to range between $500 million and $530 million.
That's a big jump from FY18's EBITDA of $385.7 million as last year's profits were severely hit by the drought in parts of New South Wales and Queensland, as well as write-downs and costs related to acquisitons.
But Nufarm is better placed to manage the weather this year as it is a more diversified business. Management pointed out that its North American business has made a solid start with good early orders while South America's soybean planting season is also off to a good start.
Conditions in Europe is tougher as much of the continent is also experiencing drier than normal conditions and Australia continues to struggle with the effects of the FY18 drought.
This means there is a big second half skew to Nufarm's earnings and investors will be keenly watching the commercialisation of the company's omega-3 enriched canola seeds.
Is the NUF share price cheap?
Nufarm has secured regulatory approvals for the seed in Australia and the US and has successfully planted and harvested 15,000 acres of the omega-3 canola under a trial in the US.
"Broader market conditions are expected to remain somewhat challenging, with soft commodity prices remaining low and price competition strong," said Nufarm's managing director Greg Hunt.
"We have demonstrated, however, that the Nufarm business model can generate consistent growth in a challenging industry environment."
The unpredictable weather means Nufarm isn't suited for those who can't stomach volatility and I don't think the stock will bounce strongly until early next year when the market can see signs of a break in the drought.
However, a lot of bad news is already priced into Nufarm's share price, which has collapsed close to 30% this calendar year.
The stock is cheap but given its unpredictable earnings track record, it might take some time before investors buy into this story.
