UAP 2Q fertilizer sales up 27 percent, YTD 38 percent; two new projects, $300 M in acquisitions on the way

Fertilizer sales at UAP Holdings Corp. were up 27 percent for the second quarter ending Aug. 26, 2007 (fiscal 2008), to $198.7 million from the year-ago $156.5 million, just passing seed sales, which were up 25 percent. Six-month fertilizer sales were up 38.3 percent, to $678.8 million from the year-ago $490.8 million, while seed’s percentage increase was less dramatic at 12.1 percent.

Company-wide, UAP posted net income of $35.0 million ($.66 per diluted share) on sales of $862.5 million for the second quarter, versus a year-ago loss of $4.3 million ($.08 per share) on sales of $767.8 million. Six-month net income was more favorable at $122.7 million ($2.32 per share) on sales of $2.47 billion, up from the year-ago $54.0 million ($1.03 per share) and $2.16 billion, respectively.

UAP said second-quarter improvements were driven by acquisition activity and higher fertilizer prices. UAP noted that 75 percent of its annual net sales occur in the first half. It is standing by annual guidance of $1.60-$1.75 per diluted share, excluding any dilution from potential acquisitions.

As for those potential acquisitions, UAP President and CEO Kenny Cordell told analysts that he expects the company to add at least $300 million in new acquisitions by the end of the fiscal year, matching those of the previous year. Questioned as to whether UAP would consider the remaining retail assets of Agriliance LLC, Cordell said yes, though he noted a deal is in the works for another to buy those assets. He said the company has made three small acquisitions so far this year and that the pipeline is rich.

As the company continues to invest in fertilizer, it will aggressively hire more sales people, according to Cordell. He said hiring these people is the cheapest, most efficient way to grow the business.

Cordell also related that the UAP board has given approval to two new projects that are expected to be up within a year. He said the land has already been purchased, but declined to give more specifics until the next quarter. He likened the new projects to those reported earlier this year in Alabama, Ohio, and Washington (GM June 18, p. 10; July 16, p. 11), which increased dry and liquid fertilizer storage capacity. The combined cost of those was approximately $4 million for the quarter ending in May, though another phase to the Alabama project was expected this fall.

Cordell also noted that UAP has separated its retail and wholesale businesses into two groups; though he said it was not decided if this would be reflected in earnings statements. The reorganization occurred within the past month. Heading up wholesale is Dan Tretter, retail Dean Williams and retail operations Dave Bullock.

Cordell said that the company’s first half could not have been better if it had been planned. He said major movement in fertilizer for the rest of this year will occur November through December and he is optimistic, though he cautioned that the company has been burned the past two years by fall fertilizer sales.

This time around Cordell noted robust prices for all the major agricultural crops, saying he expects a tremendous wheat crop and a stable corn crop next year, in the neighborhood of 90 million acres. He was not concerned about an oversupply of ethanol causing a significant decrease in corn acreage. He does not foresee any major shifts between crops, as occurred this year when some 14 million acres were pulled from soybeans and cotton to corn. As for cotton, he said he would bet that it would more likely drop another 5 percent in acreage than increase. He said that this year Southerners discovered that they could grow corn, and would likely continue to do so.

On the fertilizer market, he said phosphates and potash are tight and that nitrogen imports are yet to arrive.

Going into next year, Cordell said farmers’ income is at an all time record high, and that they are looking to invest that money. As a result, he expects a big fall prepay season.