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Agrium Q2 profits down from a year ago, sees strong demand for rest of 2013

08/08/2013 11:02 EDT | Updated 10/08/2013 05:12 EDT
CALGARY - Agrium Inc. expects demand for the crop nutrients it makes and sells to be strong in the second half of this year following less-than-ideal spring conditions, the fertilizer company said Thursday as it reported a lower second-quarter profit.

The company, which keeps its books in U.S. dollars, said net earnings during the quarter were $747 million, or $5.02 per share, down from $860 million, or $5.44 per share, during the same 2012 period.

Excluding one-time items such as a share-based payment recovery, costs related to a proxy fight with one of its U.S. shareholders and hedging, Agrium earned $736 million or $4.94 per share.

The average analyst estimate had been for a profit of $5.04 per share, according to data compiled by Thomson Reuters.

Sales were $7 billion, up from $6.8 billion a year earlier.

CEO Mike Wilson said Agrium delivered its second-best quarterly results.

"We achieved this despite less-than-ideal conditions for the spring season in a number of our key markets," he told a conference call.

"A reality of our business is that weather can have a significant impact on the timing and total sales volumes of crop inputs for a given region."

Across the U.S. Corn Belt, a late-wet spring meant farmers had less time to get their crops in the ground. As of mid-May, corn growers were 60 per cent last year's seeding pace and 40 per cent behind the five-year average.

"This had a proportionally greater impact on our retail business results than those of our wholesale business for the first half," Wilson said.

"Our geographic and product diversity helped offset this, with excellent demand from Western Canada where the timing of the spring application season was closer to normal."

Agrium said it expects "solid demand" for the rest of the year "given positive grower sentiment, strong nutrient removal this year and the affordability of crop nutrients."

Agrium produces the three main types of fertilizer: nitrogen, phosphates and potash. It also sells crop nutrients, seeds and other products at retail centres in North America, Australia and South America.

The potash market has been in turmoil in recent weeks following Russian producer Uralkali's decision to pull out of European cartel Belarusian Potash Company.

The breakup of the cartel was taken as a sign that Uralkali will be able to drive down the price of potash by as much as 25 per cent, affecting producers in Canada and the United States.

The move could have a big impact on the economy of Saskatchewan, home to one of the world's largest deposits of the mineral.

"It's going to take some time to evaluate how global producers and customers are likely to respond and what the implications are for the short-to-long term," Agrium chief operating officer Chuck Magro said.

On Wednesday, the CEO of fellow Canadian fertilizer giant Potash Corp. of Saskatchewan (TSX:POT) said the reaction to Uralkali's move was overdone, and urged people to "take a deep breath" and "relax."

Bill Doyle told a webcast that he expects BPC and Uralkali to mend fences sooner rather than later and that he doubts the Russian producer has the ability to single handedly drive down the price of potash.

Agrium and PotashCorp, along with U.S. company Mosaic Co., market their product abroad through a cartel called Canpotex. Wilson said he doesn't see the breakup of rival BPC having an impact on Canpotex.

"It's still uncertain as to what actually is happening out there and the market does tend to over-react a little," Wilson said.

"So we're sitting and watching, but given Canpotex's strength with customers and cost position, I don't see any change."

Earlier this year, Agrium fended off a boardroom challenge from its largest shareholder, New York activist hedge fund Jana Partners LLC.

Jana had aimed to get five of its directors elected to Agrium's board as a means to pressure the company into splitting up its retail and wholesale businesses, among other things.

The bitter proxy fight ended with Jana's slate losing the vote.

On a conference call with analysts Thursday, Wilson said he had a "good meeting" with Jana representatives in June, in which the two firms discussed the fundamentals of the fertilizer industry.

Agrium (TSX:AGU) shares — which have been under pressure because of concerns about the global price of potash — closed up $3.71 or about 4.3 per cent at $90.18 on the Toronto Stock Exchange.

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