Nufarm Ltd (ASX: NUF) is an Australian-based agricultural chemical company with a global presence across crop protection, seed technology, and bioenergy solutions. The company operates in over 30 countries, supplying herbicides, insecticides, and proprietary seed technologies to support global food production. Despite a history of innovation in the omega-3 canola sector, Nufarm has faced mounting challenges over the past year due to market saturation, supply chain pressures, and margin compression. With a growing focus on streamlining its operations, the company is entering a critical strategic phase.

Seed Tech Struggles Drive Strategic Reset

Nufarm’s 1H25 results revealed deep cracks in its Seed Technologies business, once hailed as a future growth driver. EBITDA for the division halved to A$41 million, primarily due to global oversupply in the fish oil market, which depressed prices for omega-3 Canola a proprietary product line critical to Nuseed’s revenue. As a result, Nufarm initiated a comprehensive strategic review of the Nuseed division, evaluating structural options including the potential divestment of individual product platforms or the entire business unit.

This marks a significant shift in direction, as the Nuseed platform had been at the centre of the company’s long-term innovation and sustainability narrative. The decision to explore exit options signals a sharp pivot toward operational refocus and cost discipline. CEO Greg Hunt noted that the aim of the review is to simplify the business and unlock value from underperforming segments, particularly as Nufarm grapples with subdued demand and rising debt.

Revenue for the half came in at A$3.35 billion, roughly in line with consensus, but the sharp earnings miss and mounting leverage weighed on investor sentiment. The stock fell dramatically from $4.02 to $2.79 on the day of the earnings release and has yet to recover meaningfully.

The market response to the review will depend on its execution and whether Nufarm can streamline its product focus while preserving core strengths in crop protection and biotech innovation. For now, the sharp drop in earnings and cash burn from non-core segments remains a pressing concern for investors.

Capital Restraint and Cost Focus Take Priority

Nufarm has committed to aggressive cost control and balance sheet repair to navigate its current downturn. The company increased net debt by 12% in 1H25 to A$1.362 billion, pushing leverage to 4.5 times underlying EBITDA levels that require immediate corrective measures. Management responded by launching a cost-saving initiative projected to deliver A$50 million in annualised reductions by FY26.

Capex has also been pared back, and inventory levels were cut by the equivalent of 22 days of sales, with a further 3-day reduction targeted by year-end. These adjustments form the backbone of a broader push toward leaner operations. In the absence of a dividend, management has reiterated its goal to reinstate payouts in FY26, subject to earnings stabilisation and successful execution of its strategic review.

Despite near-term pressures, the underlying Crop Protection segment continues to generate stable demand, particularly across South America and Asia-Pacific, where Nufarm holds competitive positions. However, margin pressures and currency volatility remain headwinds in key emerging markets.

Investor confidence has been further challenged by Nufarm’s high P/E ratio of –23.09, reflective of the company’s negative earnings profile. Nevertheless, the 3.42% dividend yield while currently on hold and the sheer scale of recent trading volumes suggest institutional interest remains, albeit cautious.

The company’s acknowledgement of missteps in forecasting and communication around its omega-3 business has been welcomed, with Nufarm reaffirming its compliance with ASX listing obligations in its formal response on 27 May 2025.

The next earnings update and the outcome of the Nuseed strategic review will be key for investors evaluating the viability of a turnaround. Until then, Nufarm remains a high-volatility, high-scrutiny stock with significant upside or downside based on execution over the next two quarters.