Commodities & Metals

Fertilizer Maker Agrium Busts Estimates

Agrium Inc. (NYSE: AGU) reported second-quarter adjusted earnings per share (EPS) of $5.47 and $6.83 billion in revenue before markets opened today. EPS for the same period a year ago came to $4.60, and last year’s revenue totaled $6.2 billion. The results compare to the Thomson Reuters consensus estimates for EPS of $5.22 and $6.6 billion in revenue.

The company’s president and CEO said:

The impact of the severe drought in the U.S. has resulted in very strong grain and oilseed prices, and we believe crop yields are likely to be revised downward again. We expect high crop prices and tight grain inventories to create significant support for international nutrient demand in the coming year, as growers globally are expected to expand acreage and optimize application rates. Inventories for most crop nutrients remain tight in North America as retailers have ended the season largely empty. The combination of these factors and an expected early start to the fall harvest and application season is expected to result in solid crop input demand in the back half of 2012 …

While the company did not offer specific guidance, it did provide some analysis of the fertilizer market going forward:

U.S. crop nutrient demand has historically increased in years following droughts, in part due to higher crop prices the following year and the resulting increase in acreage. We do not expect soil test results to alter historical recommendations on nitrogen, phosphate and potash application rates for 2013, especially given the long-term trend of declining phosphate and potash levels in many soils and the fact that a large portion of crop nutrient uptake occurs in early plant development.

The consensus estimate for Agrium’s third quarter calls for EPS of $1.84 on revenues of $3.15 billion. For the full year, EPS is forecast at $10.08 on revenues of $16.4 billion. Given the company’s second-quarter performance, those numbers likely will be revised upwards.

Like Mosaic Co. (NYSE: MOS) and Potash Corp. of Saskatchewan Inc. (NYSE: POT), Agrium sees demand for nitrogen fertilizer to remain high for the rest of this year and into next. Demand for phosphates is also expected to remain strong, while potash inventories are currently high in North America, though lower in other parts of the world. Overall, the demand for fertilizer should increase in the second half of 2012.

Shares are up about 1.9% in premarket trading today, at $96.00. The current 52-week range is $60.15 to $97.64. Thomson Reuters had a consensus analyst price target of $108.56 before today’s results were announced.

Paul Ausick