Agrium Inc. said June 11 that it expects to earn between $2.80 to $3.00 diluted earnings per share in the second quarter of 2008, or $4.03 to $4.23 for the first half of 2008. The significant increase from the previous guidance of $1.92 to $2.22 diluted earnings per share for the second quarter is due to very strong results from both the Retail and Wholesale operations, with Retail expected to account for half of the increase. This guidance excludes any additional impact from stock-based compensation expense or mark to market gains from natural gas and currency hedging positions.
The guidance also excludes any contribution from the recent UAP retail acquisition. The contribution from UAP’s business is expected to be significant this quarter. For example, UAP’s EBIT for May and June of 2007 was $138 million. Given the strong results demonstrated by Agrium’s base retail operations, UAP’s earnings could also be higher in 2008 pending the finalizing of purchase accounting and any other potential adjustments.
“Our excellent results are due to strong performance from both our Retail and Wholesale operations, which is particularly impressive given that the North American spring application season has been hampered by excessively cold and wet weather this year. Continued strong global crop prices have created unprecedented demand for crop inputs, and we foresee an extended demand-driven cycle,” said Mike Wilson, Agrium President and CEO.
Agrium also gave an update on recent events in Egypt that have stalled the new nitrogen plant being constructed in Damietta (GM April 28, p. 13). Agrium said that construction at the EAgrium site has not yet resumed. Work was stopped at the site on April 21, 2008, due to permitting and other delays created by the Egyptian Government. As a result, the syndicate of international and local banks providing the project financing has requested that Agrium suspend future draws under the credit facility for construction costs and equipment purchases, and has alleged a condition of default.
Agrium said a Committee of the Egyptian Peoples’ Assembly is finalizing a comprehensive review of the project, including land use issues and environmental, health, and safety compliance. Agrium expects that the review will be favorable to the project given that EAgrium is constructing the project to the highest health, safety, and environmental standards, consistent with its other operations. However, the support of the Egyptian Government, in accordance with their commitment and obligations, will be critical to allowing resumption of all on-site and off-site construction activities in a timely manner in order for the project to continue.
Agrium says it has concerns these issues may not be resolved in the near term, in which event EAgrium’s shareholders would be exposed to the loss of their total equity commitment. Agrium’s current investment in the project is $165 million, while their total equity commitment to the project totals approximately $280 million. Agrium is considering all options to mitigate any potential loss arising from these issues.
Agrium announced the Egyptian project just over a year ago (GM May 7, 2007, p. 1). It consists of two ammonia and urea trains with a combined capacity of 1.3 million mt of urea and 100,000 mt of net ammonia. The complex was expected to be up and running in 2010. Agrium told analysts that costs were fixed at $1.2 billion.