However, the CEO of the fertilizer giant said the factors that dragged on its bottom line — a severe U.S. drought, longer-than-expected downtime at a Saskatchewan potash mine and global demand uncertainty — are short-term in nature and 2013 is looking to be a strong year.
"It's unfortunate that our potash turnaround had the impact and that the drought had the impact that it did, but there's nothing basically fundamental that's going to get in the way of a great 2013," Agrium CEO Mike Wilson said in an interview.
But Agrium's largest shareholder, Jana Partners, said the "surprise disappointment" underscores the New York hedge fund's push for major changes, including the spinoff of the company's retail segment and improved capital management.
Agrium (TSX:AGU), which keeps its books in U.S. dollars, said net income fell to $129 million, or 80 cents per share, from $293 million, or $1.85 per share, in the same period last year.
The quarter included expenses related to environmental liabilities and share-based payments resulting from an appreciation in the company's share price.
Excluding unusual items, the Calgary-based company's income was $215 million, or $1.34 per share. That was still well below a consensus analyst estimate of $1.76 per share compiled by Thomson Reuters.
Sales revenue for the quarter came in at $2.96 billion, down six per cent from $3.17 billion year-over-year.
Agrium shares dropped $10.14 or 9.5 per cent to C$96.26 on the Toronto Stock Exchange. The shares haven't been below $100 since Sept. 12.
Markets were broadly negative on Wednesday, which likely exacerbated Agrium's drop.
Agrium shut down its Vanscoy potash mine in Saskatchewan for eight weeks related to an expansion at the site, but the planned turnaround lasted a few weeks longer than expected, adding to costs and cutting output. Uncertainty around contract negotiations with Indian and Chinese potash customers also cast a pall on that part of the business.
One of the most severe droughts in U.S. history this summer also decreased how much farmers spend on products such as fungicide.
Agrium expects to post earnings per share of between $1.50 to $1.90 during the fourth quarter, which would be slightly lower than a year ago. The company projects it will see lower international potash demand for the time-being and to feel the impacts of an early snowfall across Western Canada.
But by early 2013, farmers will need to buy fertilizer, seeds and other products again in full-force, negotiations with Chinese and Indian customers should be settled and operations at Vanscoy will be back to normal, it said.
Agrium Inc. has been fending off activist investor Jana Partners, which believes its proposals for a restructuring of the company's operations could add as much as $50 to Agrium's share price.
"While the earnings weakness is disappointing — particularly in light of recent management comments promoting near term performance — the bigger disappointment is Agrium's continued refusal to even engage with shareholders in a real discussion about value maximization," said Jana founder Barry Rosenstein in an emailed statement.
"This is only one quarter, but today's results evidence the long-term operational, structural and governance deficiencies that have caused Agrium to underperform peers over the long term."
Among other things, Jana wants Agrium to split off its retail business — through which it sells fertilizer and other products to farmers — from its wholesale business that produces nutrients such as potash, nitrogen and phosphate.
Agrium has argued a split would expose shareholders to too much risk, while Jana has accused Agrium of playing down the true value of its retail segment in order to bolster its argument.
"Most notably, this quarter's performance, and today's share price reaction, highlight that Agrium's strong retail business remains subject to the cyclicality of its commodity-driven wholesale business, despite the absence of any quantifiable benefits to shareholders from this combination," said Rosenstein.
Wilson said he had a "cordial" phone conversation with his counterparts at Jana about three weeks ago, but it doesn't appear much progress was made.
"It's not that we're not willing to consider their ideas," said Wilson.
"It's that we think their analysis is flawed, and their analysis of spinning off retail would create significant risk and ultimately destroy value and the majority of our shareholders agree with that position. So yes, we've had discussions with them and unfortunately we agree to disagree."
Jana has said Agrium's stock could get a boost of $15 to $20 per share by eliminating what it describes as a "conglomerate discount," $10 per share by improving capital allocation and a further $20 if Agrium reduces costs in its retail arm and cuts corporate overhead.
Jana has praised Agrium's recent moves to buy back shares and boost its dividend.
Agrium is not the only big Calgary company to come under pressure from a New York hedge fund in the past year.
Pershing Square Capital Management waged a months-long battle and eventually replaced the CEO of Canadian Pacific Railway Ltd. (TSX:CP).