Agrium Inc.'s (AGU) earnings from continuing operations for fourth-quarter 2013 dropped 69.3% year over year to $110 million or 74 cents per share from earnings from continuing operations of $358 million or $2.37 per share a year ago.
Excluding one-time items other than stock-based payment costs, adjusted earnings of 72 cents per share missed the Zacks Consensus Estimate of 88 cents. Adjusted earnings exclude purchase gain related to the acquisition of the Viterra Inc. and a pre-tax loss for the acquired Viterra operations, corporate legal and other costs associated with the Viterra acquisition and a goodwill impairment charge.
For 2013, net earnings from continuing operations were $1.08 billion or $7.31 per share, down from net earnings from continuing operations of $1.52 billion or $9.67 in 2012. For 2013, net earnings were $1.06 billion or $7.20 per share compared with $1.50 billion or $9.55 per share in 2012.
Agrium, which is among the prominent fertilizer companies along with Mosaic (MOS) and Potash Corp. (POT), logged revenues $2,867 million in the reported quarter, down roughly 7% year over year. Sales declined due to a 24% drop in Wholesale sales as a result of lower realized prices across all product lines and lower nitrogen volumes, partly offset by increased retail sales due to Viterra acquisition. Sales missed the Zacks Consensus Estimate of $3,037 million.
Segment Highlights
Revenues from the Retail segment rose 6% year over year to $2.1 billion in the reported quarter. Gross profit rose 15% year over year to $586 million due to the inclusion of results from Viterra coupled with favorable nutrient cost positions and higher seed rebates from suppliers.
The company reported EBITDA of $195 million, up 57.3% year over year. The fourth quarter results included a $257 million gain for the Viterra acquisition, a $220 million goodwill impairment for the Landmark business in Australia, and results from the Viterra business which included $8 million of integration costs. The strong results were due to increased margins for nutrients, seed and services and other product lines.
The Wholesale segment's sales dropped 24.4% to $963 million. Gross profit tumbled 62.5% year over year to $170 million mainly due to weaker realized sales prices across all product lines and lower urea sales volumes due to outages at its Redwater and Carseland nitrogen facilities. The segment reported EBITDA of $210 million in the quarter, down from the $495 million reported in the same period last year. The results were affected by significantly lower global crop nutrient prices.
The Advanced Technologies (AAT) segment reported a quarterly gross profit of $2 million in the quarter, a decrease of 91.3% year over year. EBITDA was $3 million, down 83.3% from the comparable year-ago period. The decline was mainly due to lower-than-expected sales resulting from the later than expected fall application window and weak urea markets that impacted ESN margins.
Discontinued Operations
Agrium conducted a strategic review of the AAT segment in 2013 to transition the Agriculture business (which includes Environmentally Smart Nitrogen/ESN and Micronutrient products) of AAT to its Wholesale business unit. The Agriculture business management has commenced a divestment process for the Turf and Ornamental and Direct Solutions businesses.
These businesses have been reported within discontinued operations. The company reported results for AAT which represent only the Agriculture business that will be within Wholesale in the results for 2014.
Acquisition
In Oct 2013, Agrium completed the acquisition of 100% of certain Retail Canadian and Australian agri-products assets of Viterra from Glencore International plc (Glencore). The acquired assets form a part of the company’s Retail business unit and include over 200 farm centers in Canada as well as distribution assets in Australia.
Financial Position
Agrium‘s cash and cash equivalent stood at $801 million as of Dec 31, 2013, compared with $658 million as of Dec 31, 2012. Long-term debt increased 48.2% year over year to $3,066 million.
Outlook
Agrium noted that lower and more stable crop prices have resulted in robust grain demand growth. Moreover, the United States Department of Agriculture (USDA) forecasts that global grain demand growth will be over 4% in 2013–2014 period.
North American spring crop area is expected to be near 2013 levels this year, which is expected to support crop input demand. Crop nutrient shipments are anticipated to be strong in the first half of 2014, due to a shorter fall application season in 2013.
North American nitrogen demand is projected to decline about 2% to 4% in 2013–2014 mainly due to reduced corn acreage, while global nitrogen demand is projected to increase by 1.5% to 2% in 2014 from 2013 levels.
North American potash demand is expected to be relatively flat to down 2% from 2012–2013 levels in 2013-2014. Agrium expects global potash shipments to increase from 54 million tons in 2013 to the range of 56 million to 58 million tons in 2014.
Indian di-ammonium phosphate (DAP) imports are expected to improve in 2014 from sluggish 2013 levels. However, the timing and scale of imports remains a source of uncertainty in the phosphate market. North American phosphate demand in 2013–2014 is projected to be flat to down 2% from 2012-2013 levels. Global demand in 2014 is expected to increase by 2% to 4% from 2013 levels.
Agrium currently carries a Zacks Rank #3 (Hold).
Another fertilizer company worth considering is The Scotts Miracle-Gro Co. (SMG) carrying a Zacks Rank #2 (Buy).
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