Diversity helps boost Agrium to record earnings

Agrium Inc. reported a record net income of $142 million ($1.06 per diluted share) for the second quarter ending June 30, compared to the year-ago $133 million ($.99 per share). The company said even without a non-cash future income tax recovery of $18 million, the second quarter was still the second highest earnings on record.

“We are very pleased with the performance of all our businesses, particularly in the face of the challenging environment this spring,” said Mike Wilson, Agrium president and CEO. “Our results this quarter highlight how we benefit from being the only fully-diversified, publicly traded agricultural retail and fertilizer company.”

The increase in second quarter earnings is largely attributable to strong retail results. Retail contributed about 40 percent of Agrium’s EBITDA in the quarter, up from just over 20 percent for the year-ago period. Net sales from the sector were $969 million, compared to the year-ago $513 million. Retail EBIT was $98 million, up $47 million from the year-ago period. Excluding Royster-Clark Inc. retail results, net sales, gross profit, and EBIT were up by $50 million, $11 million, and 5 million, respectively. In retail, fert sales volumes increased 7 percent as weather pushed first quarter sales into the second quarter in the West. Chemical gross profit was 6 percent. Seed sales were up 21 percent, with gross profit up 24 percent.

Retail helped offset declines for all three major nutrients within the wholesale division. Potash profits were off due to the lag in negotiations with the Chinese. Potash inventories as of June 30 were up compared to historically low levels at the same time last year. Wilson indicated that second half exports should be up over the year-ago period due to the conclusion of price talks with the Chinese, though he indicated those volumes may be up less than 25 percent. The company’s Vanscoy potash mine was in the process of coming up last week after a six-week turnaround. Agrium will be ready for extra demand, as it will be ramping up its additional 310,000 mt capacity during the remainder of the year.

Wholesale nitrogen profits were off due to higher fixed costs and the higher cost of carryover inventory. It also cited lower gas supply quantity to the Kenai facility, weaker farm economics, and weather conditions on a localized basis. In late August, Agrium expects to know whether it will find adequate gas to keep Kenai in operation beyond October. Also, on the nitrogen front, the company expects to make a decision on whether it will proceed with a new nitrogen plant in Egypt in the first quarter of 2007. Gas for that plant would be around $1.00/mmBtu, said Wilson. On the nitrogen front, Wilson cited demand and an estimated 1 million tons being idled overseas, particularly by Yara in Europe, that could help offset new supplies coming online. One wild card concern is how much urea China will export after it reduces its export tax this fall. Wilson estimated the Chinese could export up to 1 million tons in the fourth quarter.

On phosphate, profits continue to be negatively impacted by higher iron content in the phosphate rock at the Kapuskasing mine, as well as the strong Canadian dollar. Agrium’s U.S. phosphate facility had higher margins and helped offset those in Canada. Agrium said the key risk to the second half is the level of imports by China and Brazil.

Total Agrium net sales for the second quarter were $1.82 billion, up from the year-ago $1.18 billion. Six-month net income is $94 million ($.71 per share) on sales of $2.47 billion, versus the year-ago $157 million ($1.18 per share) on sales of $1.72 billion.

“As we look toward 2007, we see strong fundamentals for our retail and wholesale fertilizer businesses. The global grain situation is expected to continue to tighten due to the rapid growth in grain use for biofuel, a significant reduction in corn export availability from China and the ever growing demand for high quality food.” The company is giving second half guidance of $.65-$.75 per share.

Wilson told analysts Thursday that the company now expects to gain some $55 million in synergies from its acquisition of Royster-Clark Inc., up from the original projections of $30 million. The breakdown was listed as $45 million in retail and $10 million in wholesale.

* Dollar is U.S. millions