Agrium Inc. said May 6 that it had a net loss for the first quarter ending March 31, 2009, of $60 million ($.38 per diluted share) on sales of $1.795 billion, compared with the year-ago net earnings of $195 million ($1.23 per share) and $1.16 billion, respectively. The results include non-qualifying natural gas and power hedge losses of $69 million, and a $10 million expense in stock-based compensation in the quarter. The results also include an inventory write-down of $18 million associated with Wholesale purchase for resale business. Excluding these items, net earnings would have been $7 million.
“Spring applications have now commenced in all of our North American markets and the outlook for our business is strong. The first quarter is traditionally our weakest quarter, as we build inventories in preparation for the spring season. This year’s results were also impacted by the drop in potash demand, a short-term squeeze on retail nutrient margins, and the late spring. The decrease in potash volumes versus 2008 and the costs associated with production curtailments resulted in reduction in gross profit of approximately $180 million. We anticipate demand for potash to recover in the second half of 2009,” said Mike Wilson, Agrium president and CEO.
“Retail crop nutrient margins were impacted by the significant decline in nitrogen and phosphate prices in the fourth quarter of 2008, but we expect our margins will recover as we move through the spring season. The strength of our crop protection and seed sales will continue to be evident this year, and despite lower than average crop nutrient margins in the first half of 2009 we expect EBITDA from our Retail business to be close to one half billion dollars in 2009.”
Agrium expects North American retail nitrogen demand for the fertilizer year to be off 10 percent, phosphate 25-35 percent, and potash 30-40 percent. For its Wholesale unit, Agrium said potash movement may be off 40-50 percent.
Richard Gearheard, senior vice president and Retail president, told analysts that farmers are risking lower yields. He said they still have higher corn prices of $7.50 per bushel from last year in their minds, even though they can still make a profit at $4.25. “It’s put them in a bad mood more than anything else.”
As for actual corn acreage, so far Agrium does not see any slippage from USDA’s projected 85 million acres. “I might point out that through April 27 the corn plant progress was right on 2007,” said Wilson, “still below the five year average, but it was above last year, which was an extremely late spring last year. So we’re not in the danger zone yet of really losing a lot of acres. And at $4.25 there’s still encouragement to plant corn if they were planning on it.” Wilson noted that farmers can plant a lot of corn in a day.
Retail posted an EBIT loss for the quarter of $94 million while sales soared to $1.05 billion, versus a year-ago positive EBIT of $4 million on sales of $394 million. Retail gross profits were up, however, at $142 million versus the year-ago $115 million. Year-ago retail did not include UAP, which was acquired in May 2008. Within this business, crop nutrient sales were up, at $437 million from the year-ago $249 million. Crop nutrient margins sank to 4 percent in the first quarter, compared to 29 percent last year. Agrium said over the past ten years the margins have averaged 23 percent. Crop protection sales were $426 million, up from $93 million, and seeds and other services were $188 million, up from $52 million.
Agrium expects its retail business to sell down inventories by the end of the spring season, and does not anticipate any inventory write-down in retail business.
Wholesale results were largely offset by higher potash prices and increased product purchased for resale sales volumes, reflecting the CMF acquisition. Wholesale had an EBIT of $57 million on sales of $695 million, versus the year-ago $313 million and $708 million, respectively. Wholesale gross profits were $117 million, down from the year-ago $273 million.
Wholesale nitrogen sales were $229 million, down from $327 million a year ago. Nitrogen sales volumes were 673,000 mt with an average selling price of $340/mt, versus the year ago 768,000 mt and $426/mt, respectively. Agrium says there is a strong likelihood that nitrogen prices will see a seasonal decline this summer.
Wholesale phosphate sales decreased to $113 million from the year-ago $142 million. Sales volumes were 202,000 mt ($559/mt), versus the year-ago 232,000 mt ($612/mt). Agrium said its phosphate operations are currently running at 80 percent of capacity.
Wholesale potash sales were $42 million, down from $131 million a year ago. Potash sales volumes dropped by 373,000 mt, to 76,000 ($553/mt) from the year-ago 449,000 mt ($292/mt). Potash production capacity is currently put at 35 percent, up from 30 percent in the first quarter. Agrium suggested that the reason its own potash shipments may be down more in North America than its competitors is that it only sells agricultural grade potash. At the end of March, Agrium said it had about 400,000 tons of potash in inventory at its retail locations. It is projecting it will have about 50,000 tons left at the end of June, except for California, which is more of a year-round market, where 20,000 tons will be on hand.
Asked why potash barges are not moving at $600/st in the river, the company said the industry is awaiting late second quarter
contract completion with India and China. Agrium estimates India’s inventories are lower – less than 1 million mt, versus 3 million mt for China – so India is expected to conclude business first.
Also in the Wholesale division, products purchased for resale saw a big increase in sales, to $266 million from $51 million a year ago.
Advanced Technology EBIT was down to $1 million on sales of $67 million from the year-ago $6 million and $79 million, respectively. Gross profits dropped to $10 million from the year-ago $17 million.
And in case there was any doubt, Agrium reiterated last week that it remains committed to acquiring CF Industries Holding Inc.