Thursday morning FC Stone (FCSX) reported earnings that surprised most of the street. While consensus numbers were for $0.34, the company blew away expectations reporting a profit of $0.43 on revenues of $64.4m (35% above the same quarter last year). The company cited strength in all four of their business segments and it was a great announcement for a firm that has been public for only a few months.
Concurrent with the earnings news was an announcement that the firm will authorize a three for two stock split this quarter. This will be paid in the form of a 50% stock dividend and is expected to take place on September 17.
Growth for the fiscal third quarter was partially a function of increasing prices and increasing volatility in the grain commodities as well as energy markets. Much of FCSX’s business comes from commodity producers who need to offset their risk to fluctuating prices as they plan for planting, harvesting, and distribution cycles. As government programs continue to push the use of ethanol and renewable fuel sources, millions of farm acres are being converted to corn production which increases the potential customer base for FCSX.
Another source of growth for the company is simply the addition of new clients both domestically and abroad. Brazil and China are targeted as the primary growth areas as Brazil is increasing their corn and soybean production, and China continues to attempt to meet rising demands of its ever growing economy. So far FCSX is in the process of setting up 20 Chinese clients who have authority to trade outside the country and these clients could represent dozens of indirect relationships with additional producers.
One of FC Stone’s goals is to bring on 20 new consultants in calendar year 2007. It appears they are on course to meet this goal as several new inductees are currently in training both in the U.S., and in China. This should allow the company to continue to meet rising demand and capitalize on their growth plans. Balance sheet items look healthy, and the company said it is keeping cash on hand for potential acquisitions or growth initiatives.
A point of concern was raised as the company registered a potential sale of 4.3 million shares next month. This represents a sale from pre-IPO shareholders and does not include any company executives, but it could still cause a short-term overhang in the stock price. I think this issue is minor compared to the growth prospects but it is still worth keeping on the radar.
Disclosure: The author has a long position in FCSX.
FCSX 3-mo chart: