The Incitec Pivot (ASX:IPL) share price has gained 20% in the last 12 months

Despite that, investors will still be vary after a disappointing first half in 2021.

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ASX industrial chemicals company Incitec Pivot Ltd (ASX:IPL) has been something of a surprise success story over the last 12 months. Despite a recent pullback, its share price has gained more than 20% over the past year, rising to $2.43 at the time of writing. However, after a disappointing first half FY21 result that was impacted by outages in some of its North American manufacturing facilities, investors will be watching the company intently over the next few months. 

Company Background

Incitec Pivot is a global company specialising in the manufacture and distribution of fertilisers, industrial chemicals, and explosives. It is the largest producer of fertiliser in Australia, supporting the grain, cotton, pasture, dairy, sugar and horticulture industries, mainly across the east coast of Australia.

Incitec also provides explosives to mining and construction companies (among others) across Australia and North America. The company has a global reach, with more than 20 wholly-owned manufacturing facilities located across the US, Canada, Australia, Mexico, Indonesia and Turkey, and several joint ventures operating in other countries.

Recent Financials

As mentioned earlier, Incitec recently released some underwhelming first half FY21 financial results. The company reported a 7% drop in revenue versus the prior comparative period (to a little over $1.7 billion), while earnings before interest and tax expenses (EBIT) declined by 31% to $110.2 million. The result was adversely impacted by planned (and unplanned) interruptions across its North American manufacturing facilities, offset by favourable commodity prices and a strengthening Australian dollar.

Outlook

Incitec is forecasting a significant turnaround over the second half of FY21. The company claims to have significant stores of ammonium phosphate on hand, enough to realise more than $25 million in profit if they were to be sold at current prices.

Incitec has also flagged that there will be fewer interruptions across its manufacturing facilities for the remainder of FY21. Three "turnarounds" of its manufacturing plants were completed in the first half of FY21 – this is where a company will take an entire process or facility offline in order to restore and improve its operations.

These turnarounds alone resulted in a $59 million drag on earnings during the first half of FY21. However, with Incitec only planning to conduct one plant turnaround over the second half, the company (and its shareholders) will be hoping for a swift rebound in earnings.

One lingering issue for Incitec is its Waggaman ammonia plant in Louisiana. This facility was included in the turnaround program, but some significant issues were uncovered and it was subsequently taken offline again for repairs. Incitec estimates that the additional impact to the company's FY21 EBIT stemming from the ongoing plant shutdown is a hit of between $33 million and $42 million. Getting this facility up and running again successfully will be a key short-term aim for Incitec.

Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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