Agrium Inc.’s (AGU) net earnings increased three fold to $293 million or $1.85 per share in the third quarter of 2011 from $61 million or 39 cents in the prior-year quarter.
The third-quarter results include a pre-tax gain of $1 million or nil diluted earnings per share on natural gas and other hedge positions and a pre-tax recovery of $46 million or $0.21 diluted earnings per share on share-based payments expense
Results benefited from record high crop prices and overall strong fundamentals for agriculture and the crop input market.
Revenues in the quarter rose 52.0% year over year to $3.1 billion. The company’s gross profit increased by $390 million to $888 million, primarily due to higher gross profit across all major products.
Segmental Performance
Retail: The segment’s net sale for the quarter was $2.0 billion, up 66.7% year over year, driven by robust demand for all crop inputs and related services globally, including strong benchmark prices for all major nutrients. Gross profit was $498 million versus $319 million in the prior-year quarter. EBIT also improved to $92 million versus $70 million in the third quarter of 2010.
Crop Nutrient net sales jumped significantly 68.4% year over year to $692 million driven by a combination of higher nutrient sales prices and volumes.
Crop protection products’ net sales increased 32% to $943 million, primarily due to a combination of the addition of the Australian Landmark business and generally higher sales volumes across major portions of North America.
Net sales for seed and services were $85 million in the third quarter of 2011 compared with $44 million in the same period last year. Higher sales were backed by late seeding in some regions this spring and re-planting of early flood areas.
Merchandise sales were $134 million in the third quarter of 2011 compared with $23 million in the third quarter of 2010.
Application services and other net sales were $157 million, up 3 times than the $54 million in the prior-year quarter.
Wholesale: The wholesale segment posted strong net sales of $1.2 billion in the quarter, an increase of 36% from the comparable quarter last year. Gross profit was a record $397 million, more than double of $177 million reported in the prior- year quarter. EBIT was $393 million, significantly higher than $151 million earned in the third quarter of 2010. The improvement in earnings was due to higher realized crop nutrient prices and margins, as well as excellent product demand, which occurred later in the spring season.
Nitrogen gross profit was $177 million this quarter, more than double $82 million reported in the same quarter last year due to higher realized prices, which more than offset lower sales volumes and higher production costs. Nitrogen cost of product sold was $280 per ton, higher than the $252 per ton in the third quarter of last year, partly due to the lower production volumes and slightly higher average natural gas costs.
The natural gas price in the third quarter of 2011 was $3.95/MMBtu compared with $3.73/MMBtu in the prior-year quarter.
Potash gross profit was $102 million compared with $60 million in the same quarter last year. The significant increase was due to the continued expansion in margins driven by stronger domestic and international prices on tight global supply/demand conditions. The cost of product sold was $188 per ton, slightly higher than $186 reported in the same period last year due to increased freight costs and higher labor and maintenance costs.
Realized phosphate price was $784 per ton versus $563 per ton for the same quarter last year. Phosphate cost of product sold was $487 per ton versus $481 per ton in the prior year quarter.
Advanced Technologies: Advanced Technologies’ gross profit was $24 million, up from $15 million in the third quarter of 2010. This was due to higher prices and sales volumes for Environmentally Smart Nitrogen ("ESN") and turf and ornamental products.
Acquisition
On July 7, 2011, Agrium acquired certain assets and liabilities of International Mineral Technologies (“Tetra Micronutrients”) for a total consideration of $44 million. Tetra Micronutrients is located in Nebraska and specializes in the production, marketing and distribution of custom liquid plant nutrition and dry micro nutrient products. The acquired net assets and related earnings are included in the Agrium Advanced Technologies and Retail operating segments.
On July 4, 2011, Agrium acquired certain assets and liabilities of Evergro Canada (“Evergro”) for total consideration of $52 million. Evergro is a manufacturer and distributor of horticulture and professional turf products in Western Canada and operates seven distribution facilities throughout British Columbia and Alberta. The acquired net assets and related earnings are included in the Agrium Advanced Technologies operating segment.
Discontinued Operations
Discontinued operations include the operation of Commodity Management businesses and AWB Harvest Finance Limited sold on May 11, 2011 along with the operations and assets. However, liabilities of the Commodity Management businesses were not included in the sale. Net loss from discontinued operations was nil for the third quarter of 2011 compared with nil in the same period of 2010.
Financial Position
Cash provided by operating activities was $173 million in the third quarter of 2011 versus $91 million in the prior-year quarter. Capital expenditure was $184 million versus $120 million in the prior-year quarter.
Cash and cash equivalent at the end of September 30, 2011 was $755 million versus $897 million at the end of September 30, 2010. Long-term debt at the end of September 30, 2011 was $2.1 billion versus $1.6 billion at the end of September 30, 2010.
Outlook
With the strength in markets across most products and services, Agrium expects a solid fourth quarter and believes industry fundamentals will remain strong in 2011. Agrium expects the fourth quarter 2011 EPS to be $1.80 to $2.30 diluted earnings per share. This excludes any estimates for hedging gains or losses or share-based payments expense in the fourth quarter.
Agrium faces stiff competition from CF Industries Holdings Inc. (CF) and Potash Corp. of Saskatchewan Inc. (POT).
Currently, Agrium maintains a Zacks #2 Rank (short-term Buy recommendation) over the next one-to-three months.
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