Agrium Inc. reported record quarterly net income, posting a seven-fold increase to $367 million ($2.31 per diluted share) for the third quarter ending Sept. 30, 2008, versus the year-ago $51 million ($.38 per share). Net sales for the third quarter were $3.1 billion, up from the year-ago $989 million.
“These impressive third quarter results demonstrate the strength of Agrium’s diverse product and asset mix and our ability to make and integrate strategic situations,” said Mike Wilson, Agrium president and CEO. “All three business units contributed record earnings with our recent acquisitions enhancing long-term fundamentals present in agriculture. Agrium continues to be in a strong financial position, providing us with the ability to take advantage of opportunities to enhance shareholder value.”
Noting the global financial crisis, Wilson said commodity prices have been hit almost without consideration for the underlying market fundamentals by product or sector. “Overall we believe that global crop fundamentals remain much more positive than current prices would indicate, we do not believe global food demand will be impacted by a downturn in the economy the way that other commodity and consumer products would, and any reduction in global fertilizer use or seeded acreage will only put more upward pressure on crop prices in the future. The late harvest and recent declines in crop prices are expected to result in North American growers deferring a higher proportion of their fertilizer application to early next year, placing that much more pressure on the distribution system next spring.” Wilson added that Agrium’s distribution system is well equipped to take advantage of any such delay.
Given these concerns, Agrium has widened its guidance for second half 2008 to $3.30-$4.00 per share.
Agrium is upbeat that volumes will be up in 2009 despite a downturn in the fourth quarter. “We believe the grain and oilseed outlook is stronger than current prices would indicate,” Wilson told analysts. “Even with increased crop production globally this year, global stocks-to-use ratios are forecast to increase by only 0.5 percent, to 16.8 percent, and remain well below the 30 year historic average of 24.4 percent.” Agrium said current forecasts suggest U.S. corn growers will be required to plant more corn next spring to maintain minimum stocks-to-use ratios for 2009-10. “?Ǫwe do believe corn prices will continue to strengthen as we head into 2009,” said Wilson.
Agrium Retail Chief Richard Gearheard was optimistic in citing farmer income. He said current predictions are for 2008 farmer income to top $95.8 billion, versus $58 billion just two years ago. “There’s a lot of money out in the agricultural community,” he said, adding this could mean more pre-pay business by the end of the year to save on taxes.
Agrium said retail ammonia volumes could be off 10 percent in the fourth quarter, with phosphate and potash off 25-40 percent. For the fertilizer year, it expects nitrogen to be flat and P&K off 10 percent.
Agrium said the Profertil facility in Argentina produced slightly more urea in the third quarter than the year-ago quarter, even though the facility was down 37 days during the quarter due to mechanical issues. Those issues are expected to be resolved beginning this Nov. 15 with a 40-day maintenance turnaround.
Agrium says current urea prices are at or below Western European cost of production and are getting close to Ukrainian production margins, suggesting further production reductions in the near term.
On the phosphate side, Agrium noted that Indian DAP imports are more than double year-ago levels, and overall DAP/MAP exports are up 5 percent. Indian inventories were called tight, and they may have to import more before the end of the year. However, the company noted that global demand has been off as buyers assess the potential for further price declines.
Agrium says the global potash market has been stable and supplies are tight. Agrium told analysts its own potash storage and pipeline is pretty empty, and that it has currently been buying potash to supplement its demand, which is how it will balance out its overall supply demand situation for the year. Wilson said he expects the China contract to be concluded by the end of the first quarter, with a round of negotiations to occur in late November.
Third-quarter results also included a natural gas and power hedge loss of $171 million ($.73 per diluted share), and a recovery in stock-based compensation of $99 million ($.42 per diluted share).
Nine-month net earnings were $1.2 billion ($7.54 per share) on sales of $8.1 billion, up from the year-ago $269 million ($2.01 per share) and $3.84 billion.
| Wholesale | Retail | AdvancedTech | ||||
| (millions) | 3Q-08 | 3Q-07 | 3Q-08 | 3Q-07 | 3Q-08 | 3Q-07 |
| Net Sales | 1,599 | 563 | 1,594 | 427 | 90 | 46 |
| Gross Profit | 653 | 158 | 416 | 134 | 25 | 11 |
| EBIT | 412 | 96 | 121 | 17 | 10 | 3 |
| Wholesale | Retail | AdvancedTech | ||||
| (millions) | 9M-08 | 9M-07 | 9M-08 | 9M-07 | 9M-08 | 9M-07 |
| Net Sales | 3,704 | 1,938 | 4,494 | 1,911 | 276 | 179 |
| Gross Profit | 1,508 | 531 | 1,198 | 497 | 62 | 40 |
| EBIT | 1,372 | 390 | 534 | 138 | 27 | 15 |
| Wholesale 3Q-08 | Net Sales | Gross Profit | Sales Vol. | Avg Price mt | Margin mt |
| Nitrogen | 498 | 204 | 838 | 594 | 243 |
| Potash | 249 | 202 | 380 | 655 | 532 |
| Phosphate | 317 | 195 | 240 | 1,321 | 813 |
| Wholesale 3Q-07 | Net Sales | Gross Profit | Sales Vol. | Avg Price mt | Margin mt |
| Nitrogen | 311 | 84 | 932 | 334 | 90 |
| Potash | 65 | 33 | 354 | 184 | 93 |
| Phosphate | 108 | 26 | 223 | 484 | 117 |
| Wholesale 9M-08 | Net Sales | Gross Profit | Sales Vol. | Avg Price mt | Margin mt |
| Nitrogen | 1,460 | 576 | 2,860 | 510 | 201 |
| Potash | 624 | 473 | 1,403 | 445 | 337 |
| Phosphate | 694 | 335 | 769 | 902 | 436 |
| Wholesale 9M-07 | Net Sales | Gross Profit | Sales Vol. | Avg Price mt | Margin mt |
| Nitrogen | 1,032 | 297 | 3,119 | 331 | 95 |
| Potash | 212 | 110 | 1,222 | 173 | 90 |
| Phosphate | 327 | 71 | 755 | 433 | 94 |
| Retail | 3Q-08 | 3Q-07 | 9M-08 | 9M-07 |
| Crop Nutrient Sales | 588 | 201 | 2,087 | 1,060 |
| Crop Nut. Gross Margin | 160 | 48 | 567 | 252 |
| Crop Prot. Sales | 874 | 161 | 1,827 | 532 |
| Crop Prot. Gross Margin | 191 | 50 | 443 | 125 |
| Seed/Other Sales | 132 | 65 | 580 | 319 |
| Seed/Other Gross Margin | 65 | 36 | 188 | 120 |
* Sales volumes in thousands mt.