Agrium earnings hit skids in 3Q; company upbeat for 2007

Agrium Inc. was not fibbing a few weeks ago when it downgraded its projected earnings per share (GM Oct. 23, p. 11). Agrium third-quarter earnings dropped to $1 million ($.01 per diluted share) on net sales of $821 million, versus the year-ago $72 million ($.54 per share) and $807 million, respectively. Nine-month earnings were $95 million ($.72 per share) on sales of $3.3 billion, versus the year-ago $229 million ($1.71 per share) and $2.5 billion, respectively.

Ironically, Agrium reported record earnings during the second quarter (GM Aug. 7, p. 1).

Forewarned of the change in fortunes, Wall Street reacted well to the Agrium news, with the stock actually going up 1.25 percent to close at $28.40 on Nov. 2.

In the third quarter, all major Agrium businesses were off, except for South American wholesale. Agrium cited several reasons for the shift, most of which it said are short-term problems.

Agrium said it had operational challenges bringing the new Vanscoy potash capacity online. However, it expects to be consistently operating the new 310,000 mt expansion by mid-November.

Nitrogen prices were off 10-15 percent in the quarter, while natural gas prices were down only 4 percent. This, along with unplanned outages, increased production costs.

Phosphate sales were low in the quarter, and profitability continued to be impacted by production and mining issues at the Kapuskasing phosphate rock mine, a strong Canadian dollar, and weak demand across North America.

On the retail side, Agrium said it had a reduction in fertilizer volumes as a result of a two-week delay in the start of the fall harvest and a six percent decline in chemical revenues, since the relatively high levels of disease and insect pressure in the U.S. in 2005 did not recur in 2006. Retail also reflected the inclusion of Royster-Clark losses, as that company traditionally reported a third quarter EBIT loss.

Agrium does expect to see more benefits from the R-C deal in 2007, citing synergies achieved in the last six months, including: consolidation of offices, resulting in the elimination of 140 positions; closure of 25 underperforming retail locations; identification and implementation of a new field organization structure; re-branding of R-C stores as Crop Production Services; and migration of administration office and most retail facilities to Agrium’s retail corporate accounting and point-of-sales systems.

Agrium began reporting its specialty products business as an earnings segment during the third quarter, including its existing ESN and Duration businesses, along with new acquisitions of Nu-Gro and Pursell. The unit had an EBIT loss of $3 million during the quarter, on sales of $25 million. Gross profits were $4 million.

Agrium is very upbeat about 2007, citing several factors: high corn and wheat prices; expectations of 4-6 million more acres of corn; strong nitrogen demand in India and Iran; high energy prices in Eastern and Western Europe; settled potash negotiations with major potash buyers; and tightened supplies due to the flooding problem at Uralkali.