Agrium Misses Estimates - Analyst Blog

Agrium Inc. (AGU) recorded net earnings of $111 million or 70 cents per share in the third quarter of 2010, missing the Zacks Consensus Estimates by 19 cents per share. However, it exceeded the prior-year profit of $26 million or 16 cents per share. Including one-time charges, Agrium recorded net earnings of $57 million or 37 cents per share in the third quarter of 2010.

Revenues in the quarter rose 8.9% to $2.01 billion, which was lower than the Zacks Consensus Estimates of $2.08 billion. The company's gross profit increased by $103 million to $500 million, driven by higher gross profit from nutrients, phosphate and products for resale.

Segmental Performance

Retail: Net sales in the segment for the quarter was $1.24 billion versus $1.23 billion in the comparable year-ago quarter.

Crop Nutrient net sales jumped 19.1% year over year to $411 million driven by higher volumes and higher nutrient prices. Gross profit for crop nutrients more than doubled to $86 million due to a rise in crop and nutrient prices. Agrium expects crop input markets to become stronger in the fourth quarter of 2010.

Crop protection products' net sales decreased 7% to $711 million, primarily due to unusually low pest pressure as well as price devaluation in glyphosate. Crop protection product margins inched up 2 percentage points to 24% in the third quarter due to the lower cost of product per unit.

Net sales for seed and services surged 19% to $44 million. Gross profit increased three fold to $24 million compared with the third quarter of 2009 resulting from fewer private label seed returns and higher supplier rebate programs in the reported quarter. Application services and other net sales were $77 million, flat versus the prior-year quarter.

Agrium continued with its strategy to grow the retail segment through acquisitions. The vote on the pending acquisition of Australian Wheat Board (AWB) is scheduled for November 16, 2010 and financial closure of the transaction is expected to be in early to mid December 2010.

The company made a series of smaller retail acquisitions across U.S., Canada and Argentina in 2010.

Agrium also plans to acquire 88 farm centers across North and South America in 2010 with combined annualized retail revenues of approximately $440 million. As a result of these acquisitions, the selling expenses accelerated 10% to $220 million primarily due to increased hiring procedures carried out by the company.

Wholesale: The wholesale segment posted strong net sales of $799 million in the quarter, an increase of 21.4% from $658 million in the comparable quarter last year. Wholesale delivered the second best quarter ever with EBIT of $135 million, a considerable increase of 62.7% from the comparable quarter last year based on higher sales prices and volumes, as well as improved results in phosphate and purchase of Resale businesses.

The cost of nitrogen products sold was higher at $221 per tonne versus $196 per tonne in the year-ago quarter, due to higher natural gas prices and higher costs associated with the extended planned turnaround at the South American facility.  The natural gas price in the third quarter of 2010 was 4.41/MMBtu lower than $3.41/MMBtu in the prior-year quarter.

Potash sales increased by 16.5% to $127 million in the quarter leading to an increase in gross profit by $3 million to $59 million. The average realized potash sales price was $327 per ton, down from $399 per ton for the same period last year. Potash sales volume totaled 115,000 tons, up significantly by 42% from the year-ago quarter.

Phosphate sales jumped 36.8% to $156 million in the quarter. Gross profit increased to $24 million versus a loss of $1 million in the prior year quarter. Realized sales prices for phosphate jumped $517 per ton, significantly up 40.5% from $368 per ton in the same quarter last year due to increased phosphate demand resulting in tight inventory levels.

Advanced Technologies: Advanced Technologies' quarterly net sales were $92 million, up from $60 million in the third quarter of 2009. This was primarily attributable to higher sales volumes for Environmentally Smart Nitrogen and gross profit from the turf and ornamental retail business transferred to Advanced Technologies from Retail in late 2009, which contributed $6 million to gross profit in the reported quarter.

Outlook

Agrium provided EPS guidance in the range of $1.00 to $1.30 for the fourth quarter of 2010. The company expects a strong demand for crop nutrients and other crop inputs in the spring of 2011.

Zacks Recommendation

Currently, Agrium has a (1 to 3 months) Zacks #2 Rank (Buy) for the short term.