New acquisitions, fertilizer boost Viterra; seeks growth by buying independent retailers

New acquisitions, most notably in Australia, and strong fertilizer sales in the fourth quarter helped boost Viterra Inc.’s performance for fiscal year 2010, which ended Oct. 31, 2010. The company reported EBITDA of C$517.6 million, up from the prior year’s $323.7 million. Net earnings moved up to $145.3 million ($.97 per share) on sales of $8.25 billion from the prior year’s $113.1 million ($.89 per share) on sales of $6.63 billion.

Fiscal 2010 fertilizer sales were $791.1 million, down from the prior year’s $899.6 million. This was due to lower average fertilizer sales prices for the first nine months. Fertilizer volumes were up at 1.75 million mt with an average margin of $97.36/mt, versus the year-ago 1.53 million mt at $83.76/mt.

Viterra fourth-quarter net income was $52.7 million ($.24 per share) on sales of $1.95 billion, up from the year-ago net loss of $920,000 (negative $.05 per share) on sales of $1.42 billion. EBITDA was $137.9 million, up from the year-ago $40.2 million.

Fourth-quarter fertilizer sales were $163.5 million, with volumes of 370,000 mt and average fertilizer margins of $110.02/mt. This compares to the year-ago $106.1 million, 261,000 mt, and $72.02/mt. Fertilizer sales in Western Canada increased by $57.4 million or 54 percent due to favorable weather conditions. Viterra said fertilizer gross profits increased about $22 million during the quarter over the year-ago period. The company said above-normal temperatures in October allowed the completion of harvest, as well as significant applications of anhydrous ammonia. Fertilizer movements were predominately ammonia. The company experienced higher margins on ammonia as selling costs were consistent and natural gas costs were slightly lower. The majority of the product was sourced through co-owned Canadian Fertilizers Ltd., which provides significantly higher margins than purchased tons.

For fiscal 2011, Viterra expects demand and pricing to be strong due to high commodity prices and increased nutrient requirements due to excess moisture in 2010. Viterra estimates combined fertilizer margins of $100-$120/mt for the year, assuming strong spring fertilizer sales, typical fall sales volumes, natural gas prices of about $4.00/mmBtu, modest price erosion from mid-June to fall, and continued strong commodity prices.

Seed bookings and customer prepayments for crop inputs for the spring have been progressing well, with $313 million as of Dec. 31, 2010. The sales of equipment, in particular corrugated storage bins, are expected to remain strong into 2011 due to increased producer cash flow in recent years. However, management expects strong fundamentals will be somewhat tempered by an expected 5 percent reduction in Western Canadian seeded acreage to approximately 56-57 million acres from the 60 million average due to excess moisture. However, this is still up from about 52 million in 2010.

Viterra Agri-Products Senior Vice President Doug Wonnacott told analysts that prepays have been at historic levels in the first quarter of 2011, and have continued to increase since December. He said growers, reacting to higher grain prices, have been very keen to secure the appropriate seed and fertilizer. “And given the recent upward movement in fertilizer that we’ve seen down in the U.S., that’s provided further stimulus for growers to book and also take dry product to the farm. So, we see good healthy volumes. And on the margin side, as we’ve indicated, we’re looking at that $100-$120/mt level, which is above where we were last year at the $97/mt level.”

Wonnacott expects a 15-20 percent increase in canola seed sales, noting that last year there were some 8 million unseeded acres due to wet conditions. “We think a lot of that is going to come back as canola and our bookings on canola are up significantly.” Viterra put 2010 canola acreage at about 16.2 million acres, with 18-19 million acres expected in 2011.

Viterra told analysts it will grow its Agri-Products segment by acquiring more independent retailers. Since the third quarter of fiscal 2009, it said it has acquired seven retail locations in Western Canada. Viterra estimates that its Agri-Products segment currently represents 35 percent of the Western Canadian market, with the company targeting a 40 percent share.

On crop protection products, Wonnacott said the company has seen good volumes, though there has been a significant devaluation in prices. He said that in the glyphosate area, however, the company has a proprietary product that provides a 10 percent margin lift.