Agrium Inc. reported third-quarter net earnings from continuing operations of $99 million ($0.72 per diluted share) on sales of $2.5 billion, compared to the year-ago $91 million ($0.63 per share) and $2.92 billion, respectively. The company exceeded most analysts’ expectations.
Agrium said the increase was due to higher sales volumes in its Wholesale unit, combined with lower production costs in the unit. In the meantime, Retail earnings were similar to the prior year period, despite weaker market conditions.
"Agrium’s performance this quarter is another demonstration of the resilience of our business model,” said Chuck Magro, president and CEO. “We focused on what we can control, improving our on-stream Wholesale performance and optimizing our distribution network and effectively managing costs in Retail, all of which helped drive a 9 percent increase in earnings over the same period last year despite prevailing market headwinds. We see strong crop input demand during the fall application season, which is now in full swing, and we are confident that our strategy and business structure can continue to deliver value to all our shareholders."
Agrium noted that it achieved a 94 percent ammonia capacity utilization rate during the quarter, exceeding its goal of 90 percent. Year-ago rates were problematic for the company. “The performance of our Nitrogen segment was particularly impressive with margins reaching $171/mt," added Magro, “reflecting both our regional price and natural gas cost advantages. Our Retail business unit also achieved solid results this quarter even against a backdrop of challenging market conditions in the U.S.”
Asked about acquisitions, Magro told analysts that Agrium needed to take this year to get its own house in order, such as improving reliability and shedding some assets. However, on that front he said the company has achieved 21 “tuck-ins” so far this year representing $14 million in EBITDA, with a solid pipeline of opportunities, including in Brazil. He said with the difficult situation there now a lot of facilities are for sale, though he said there is still quite a disconnect between buyer and seller valuations.
As for the fall season, Agrium said it is seeing good application across all three nutrients. It reports a very strong ammonia application season in Western Canada. In the U.S., it is predicting a slightly above-average season in the Cornbelt, and an average season outside the Cornbelt.
Going forward, the company is upbeat, saying that despite historically high crop production, the outlook for grains is more positive than it was a year ago, and as of October 2015 cash corn prices were more than 10 percent above 2014 levels. It said excluding China, the global grain stocks-to-use ratio is projected to decline to the lowest level since 2012-13, and the U.S. corn supply/demand balance is projected to tighten. As a result, U.S. 2016 corn acreage is expected to increase.
And while noting that farm income is down, Magro said that is primarily due to livestock returns. He also believes Chinese urea exports, which were up in the first half, are on the decline, saying they were off 30 percent in the third quarter as operating rates were pressured.
Agrium expects to achieve annual diluted EPS of $7.10-$7.40 compared to previous guidance of $7.00-$7.50. It has adjusted its potash production projections to 1.95-2.05 million mt from 1.9-2.2 million mt. Nitrogen remained between 3.5-3.7 million mt.
Third-quarter Wholesale gross profit was $218 million on sales of $673 million, up from the year-ago $127 million and $803 million, respectively. Total volumes were 1.67 million mt, down from 1.86 million mt, with this decrease reflecting mainly purchased tons for resale.
Nitrogen gross profit was $130 million, up from