Agrium Inc. on Oct. 20 revised guidance for the second half of 2006 to $0.20 to $0.25 earnings per share, down from $.65-$.75, which was given in August. The reduction is due to several issues, primarily in its wholesale business, including:
- a longer than expected start-up of the Vanscoy potash capacity expansion, lowering production volumes in the third quarter and the month of October by about 215,000 mt relative to previous expectations, thereby temporarily almost doubling average production costs in the third quarter over last year’s level. Agrium expects to be at the new full operating rate by mid-November;
- production interruptions at a number of facilities late in the third quarter and in the fourth quarter, including issues with equipment at the Fort Saskatchewan facility that resulted in an accelerated turnaround, as well as an expected accelerated turnaround at the Profertil facility, both previously scheduled in 2007. As a result, Agrium now expects to be able to run these facilities without interruption in 2007;
- weaker than expected phosphate margins resulting from continued high iron content ore from the Kapuskasing phosphate rock mine and poor phosphate demand. Agrium is focusing on new options to lower Canadian phosphate costs by early 2007;
- lower than forecasted domestic North American nitrogen results due to higher cost carryover of ammonia inventory and lower than expected North American nitrogen prices and volumes. Lower gas costs in the fourth quarter are not expected to be reflected in results until late in the fourth quarter and early 2007;
- the Kenai nitrogen facility is expected to shut down October 23, 2006, due to lack of gas supply and will not likely restart until some time in early 2007, resulting in higher fixed cost charges in the fourth quarter;
- second-half retail results are expected to be lower than previously forecasted across all product lines;
- approximately $11 million in additional charges expected in the fourth quarter, of which $6 million relates to undiscounted accruals for environmental remediation provisions.
Agrium said gas hedging is not expected to adversely impact gas costs or earnings in the second half of 2006 or early 2007. It does not expect Profertil S.A. to be impacted by the Argentine government’s recent imposition of an export tax on Argentine natural gas exports from the southern province of Tierra del Fuego to Chile, as Profertil S.A. has long-term gas contracts directly with domestic Argentine gas producers.
Agrium said it believes that the fundamentals for its wholesale and retail businesses in 2007 are very positive, despite these short-term items. It expects no significant synergies regarding its Royster-Clark purchase until 2007. More information will be provided at its third quarter conference call Nov. 2.