Canada-based fertilizer producer Agrium Inc. (AGU, AGU.TO) on Wednesday raised its earnings outlook for the second quarter amid higher crop prices and unprecedented demand for crop inputs. Following the announcement, the company's stock is up more than 8% in the regular trading session.
The company now expects earnings for the second quarter in a range of US$2.80-US$3.00 per share compared to its prior outlook of US$1.92-US$2.22 per share. Last year, the company earned $1.70 per share for the second quarter. On average, eight analysts polled by First Call/Thomson Financial estimate the company to report earnings of US$2.50 per share.
For the first half of 2008, the company now expects earnings in a range of US$4.03-US$4.23 per share, up from US$3.15-US$3.45 per share expected earlier.
The quarterly and half yearly outlook excludes any additional impact from stock-based compensation expense or mark-to-market gains from its natural gas and currency hedging positions. The outlook also excludes any contribution from the company's recent acquisition of UAP Holding Corp.
Commenting on the revised outlook, Mike Wilson, President and CEO of Agrium said, "Our excellent results are due to strong performance from both our retail and wholesale operations, which is particularly impressive given that the North American spring application season has been hampered by excessively cold and wet weather this year."
Wilson added, "Continued strong global crop prices have created unprecedented demand for crop inputs and we foresee an extended demand-driven cycle."
The company's results have benefited from higher fertilizer prices. Record corn, soybean and wheat prices have prompted farmers to spend more on fertilizers and chemicals to boost yields. According to the U.S. Department of Agriculture, fertilizer prices have risen 117% since April 2000, rising faster than any other raw material used by farmers. The agency noted that farmers paid 65% more for fertilizers in April this year than they did a year ago. This compares to a 43% surge in the price of gas.
Agrium noted that construction at its Egyptian nitrogen facility site EAgrium has not yet resumed after work was stopped at the site in April due to permitting and other delays from the Egyptian Government. As a result, the syndicate of international and local banks providing the project financing has requested that the company suspend future draws under the credit facility for construction costs and equipment purchases, and has alleged a condition of default.
The company noted that Egyptian authorities were finalizing a comprehensive review of the project, including land use issues as well as environmental, health and safety compliance. The company said that although it expects a favorable review, it does not expect these issues to be resolved in the near term, in which event EAgrium's shareholders would be exposed to the loss of their total equity commitment.
Agrium's current investment in the project is US$165 million and its total equity commitment to the project is about US$280 million. The company said it is considering all options to mitigate any potential loss arising from these issues.
In Wednesday's regular trading session, AGU is trading at $100.08, up $7.92 or 8.59% on a volume of 5.22 million shares. The stock has been trading in a range of $34.62-$96.40 in the past 52 weeks.
On the Toronto stock exchange, AGU.TO is trading at C$101.64, up C$7.41 or 7.86% on a volume of 1.77 million shares. In the 52-week period, the stock has been trading in a range of C$37.21-C$98.48.
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