Terra Industries Inc. (TRA), a producer of nitrogen and methanol products, on Monday, while announcing preliminary results for the third quarter ended September 30, said that it expects a fall in net income from the prior year, impacted by the overall economic slowdown on agricultural and industrial nitrogen demand. The company also sees third-quarter revenues to drop by about 56%, reflecting lower nitrogen products selling prices and sales volumes.
The Sioux City, Iowa-based company said it currently expects third-quarter net income attributable to the company to be about $45.9 million. Income available to common shareholders in the prior-year third quarter was $164.89 million.
In its second quarter, the company had posted net income attributable to shareholders of $80.46 million, down from $202.16 million in the year-ago quarter.
Terra Industries now expects revenues for the third quarter to drop by about 56% to $347 million from $790.2 million reported in the same quarter last year. Revenues are anticipated to be nearly 23% lower than the sequential second quarter. The company's revenues for the second quarter were $453.50 million, down from $843.10 million in the prior-year quarter.
According to the company, the decline in revenues during the third quarter were mainly due to lower nitrogen products selling prices and sales volumes, as a result of depressed UAN selling prices as well as reluctance of customers to replenish inventories.
On average, ten analysts polled by Thomson Reuters expect the company to report earnings of $0.56 per share, on revenues of $359.25 million for the third quarter. Analysts' estimates typically exclude special items.
Terra now expects third-quarter operating income to fall by about 74% to $54.2 million from $209.5 million posted in the prior-year quarter. The company sees nearly 59% decline in operating income from the immediately preceding second quarter. The company attributes the drop in operating income to lower gross profits from its major products, ammonia, UAN and ammonium nitrate.
The decrease in operating income was also due to the reduction of ammonia production at the company's Donaldsonville, Louisiana facility for the entire month of July 2009 as well as a three week periodically scheduled major maintenance at the Verdigris, Oklahoma plant and a two week maintenance-related outage at the Donaldsonville, Louisiana facility in September 2009.
The company said it now expects third-quarter equity earnings of GrowHow UK to be about $4.9 million during the third quarter and aggregate equity earnings from the North American and United Kingdom joint ventures to be nearly $11.1 million and aggregate cash distributions received from these joint ventures should approximate $15.3 million.
Further, the company said ammonia selling prices have strengthened over the past months, but UAN markets have remained flat. Terra expects UAN selling prices to rebound as demand returns late this year when the harvest is complete and its customers turn their attention to restocking inventories for next spring.
Terra also said it will actively manage production levels and inventories to match demand, especially in light of higher fourth quarter natural gas futures prices.
The company said it expects to finalize preliminary results and report third quarter financial results on October 22.
Agrium Inc. (AGU, AGU.TO) said today that it has entered into an agreement with Terra Industries to sell a portion of Agrium's Carseland nitrogen facility to Terra, conditional on the closing of Agrium's proposed acquisition of CF Industries Holdings, Inc. (CF).
Under the terms of the Carseland transaction, Terra said it will pay Agrium about $250 million in cash for 50% of the Carseland facility, or approximately 340,000 tonnes of urea and over 60,000 tonnes of net ammonia on an annual basis and certain U.S. assets. The purchase price for the 50% of Carseland is at a similar forward multiple to that which Agrium is offering for CF.
Terra Capital, Inc., a subsidiary of Terra Industries announced today that it intends to offer $600 million aggregate principal amount of Senior Notes due 2019 in a private offering. The Notes will be guaranteed on a senior unsecured basis by Terra and certain of its subsidiaries.
Terra Capital will use a portion of the net proceeds of the offering, together with available cash, to purchase its existing 7.00% Senior Notes due 2017 and to pay related premiums, fees and expenses, pursuant to a cash tender offer announced on September 24, 2009. Subject to certain conditions, Terra also intends to use a portion of the net proceeds of the offering, together with available cash, to pay a planned special cash dividend or consummate certain previously announced asset acquisitions.
TRA is currently trading at $36.10, down $0.26 or 0.72%, on a volume of 73 thousand shares.
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