A fertilizer inventory write-down of C$28.1 million helped move Viterra into the loss column for the first quarter ending Jan. 31, 2009. Viterra reported a net loss of $33 million ($.14 per diluted share) on sales of $1.4 billion, versus the year-ago net income of $41.2 million ($.20 per share) and $1.3 billion, respectively. Excluding the write-down, Viterra’s net loss was $13.6 million ($.06 per share). The loss also included a $3.2 million realized loss and $3.5 million marked-to-market unrealized loss on natural gas hedging, a reflection of lower gas prices during the period.
Viterra also took a $24 million fertilizer inventory write-down in the fourth quarter of fiscal 2008 ending Oct. 31, 2008 (GM Jan. 26, 2009, p. 1).
“It is not unusual to record an operating loss in the first quarter, particularly if fall fertilizer applications do not materialize,” said President and CEO Mayo Schmidt. “Even with the slow start this year, we expect a solid financial year in 2009. Farmers are now working closely with us to make sure they are positioned with the right products to plant a profitable crop in the spring. As such, we anticipate good demand for our agri-products and service offerings, particularly in our third quarter, which is the period in which we generate the bulk of our earnings.”
Due to higher prices, actual fertilizer sales were up in the first quarter, to $169.7 million from the year-ago $155.4 million. Other inputs sales were up as well: crop protection at $3 million versus $1.84 million; seed at $1.93 million versus $784,000; and equipment at $11.6 million versus $7.9 million.
Viterra said average pricing across all major fertilizer nutrients was up approximately 31 percent from the year-ago quarter and was the primary reason for the $14.3 million increase in fertilizer sales. Fertilizer volumes were down approximately 15.7 percent quarter-over-quarter.
Total sales for the Agri-Product segment were $186.2 million, up from the year-ago $165.9 million. The segment reported a gross loss of $8.6 million, versus the year-ago profit of $47.1 million. EBITDA and EBIT were also negative at $43.2 million and $54.5 million, compared to the year-ago positives of $18.2 million and $6.9 million, respectively.
Viterra said that seed bookings, prepayments, and discussions with customers across Western Canada indicate that the upcoming seeded acreage will likely be similar to the 2008 crop. Viterra retail customer prepayments totaled $242.2 million at Jan. 31, 2009, which compares to the year-ago $276.9 million. However, Schmidt noted to analysts that in the current year, a larger portion of this is devoted to seed, crop protection, and equipment than to fertilizer. He said the fertilizer portion is down significantly as a result of the high level of uncertainty seen in November and December.
Viterra told analysts that fertilizer volumes were off about 50,000 mt in the first quarter. “As we move into the second quarter, we certainly see an uptick in our volumes for February,” said Doug Wonnacott, Agri Products senior vice president. He expects nitrogen volumes to be relatively flat or slightly up in Western Canada, with one key factor being the soft fall. He said a significant amount of ammonia did not get down, which means that there’s probably going to be an extra couple 100,000 mt of urea that the market is going to have to move in season. Wonnacott expects phosphate movement to be off 10 percent, and potash about 30 percent. As for actual expected use, he put those as 70 percent nitrogen, 20 percent phosphate, and 10 percent potash. He said fertilizer prices have begun to stabilize and that Western Canadian urea prices have bottomed out at about C$600/mt.
Wonnacott added that there is still a significant amount of empty space at the farm gate, meaning there will be a tremendous amount of stress and strain on the logistics system this spring.
“Producers appear to be optimistic,” said Schmidt. “The expectation is that canola acreage, a heavy user of nitrogen fertilizer, will remain at least consistent with 2008 record levels. This is also a positive sign for Viterra as a large portion of our proprietary seed varieties are of canola.” Schmidt said the company has been getting tremendous feedback on canola bookings. “We’re about 92 percent of last year.”
Viterra noted that it quickly moved to assure that its customers would have access to some $1.4 billion in credit.
“I believe that certainly the volumes are going to be similar or higher for 2009,” said Schmidt. He said for seed, crop protection, and equipment, those numbers will be very strong. For fertilizer, he expects volumes overall will be up. He also thinks margins will be the same or a little higher in all four product areas.
Viterra operates 253 ag retail facilities in Western Canada and holds a 34 percent stake in Canadian Fertilizer Ltd., the nitrogen plant in Medicine Hat, Alberta. Viterra is entitled to 34 percent of the 1.5 million mt of merchantable product from the plant, split equally between granular urea and anhydrous ammonia. Viterra expects the plant, which has been running at 75 percent capacity, will soon resume full production.
Viterra said the plant provides it with about 40-50 percent of its nitrogen needs. Viterra said should CF Industries Holdings Inc. have to divest its stake in CFL due to an acquisition, that Viterra could use the additional capacity to move through its resale system.