Agricultural products supplier Agrium Inc. (AGU, AGU.TO) reported Wednesday a sharp decline in third-quarter profit, as sales declined across all business segments hurt primarily by lower selling prices for most products and reduced potash sales volumes.
For the third quarter, the Canada-based company's net earnings were USUS$26 million or USUS$0.16 per share compared with USUS$367 million or USUS$2.31 per share in the prior year quarter. On an adjusted basis, net earnings for the quarter were USUS$46 million or USUS$0.29 per share.
Adjusted results exclude a gain of USUS$5 million or USUS$0.02 per share on derivative financial instruments and an expense of USUS$25 million in stock-based compensation. Adjusted results also exclude an inventory write-down totaling USUS$9 million in connection with the company's wholesale purchase for resale business.
On an average, nine analysts polled by Thomson Reuters expected Agrium to earn USUS$0.16 per share for the quarter. Analysts' estimates typically exclude special items.
The company's net sales for the quarter plunged to USUS$1.84 billion from USUS$3.11 billion in the third quarter of fiscal 2008. Analysts expected Agrium to generate revenues of USUS$2.07 billion for the quarter.
The company has three operating segments: Retail, wholesale and advance technologies.
In the retail segment, net sales was USUS$1.23 billion versus USUS$1.59 billion in the same quarter last year. Within this segment, crop nutrient sales plunged, affected by significant decline in prices as well as late harvest in the Midwest United States. Margins and profits were lower compared to last year due to lower overall crop nutrient prices, declining price environment for most products, and the liquidation of high cost positions.
The company anticipates crop nutrient margins to improve in the fourth quarter, as fertilizer pricing appears to have stabilized for nitrogen and phosphate, and higher cost inventories have been depleted.
Meanwhile, crop protection net sales decreased 12% due to lower volumes for fungicides and lower pricing for glyphosate products. Net sales for seed, services and other decreased by 14%, and application services revenues too declined from last year.
In the wholesale segment, net sales slumped to USUS$658 million from USUS$1.60 billion in the prior year. The main factor impacting the results were lower sales prices across all three nutrients: nitrogen, phosphate and potash, as well as lower potash sales volumes. Potash sales volumes were 273,000 tonnes, down 28% from the same period last year.
Net sales from advanced technologies segment was USUS$60 million as compared with USUS$90 million a year earlier. Net sales was impacted by reduced volumes and margins in turf and ornamental due to lower household expenditures and golf course budgetary cuts as a result of slower economic growth, the company said.
Commenting on the price declines, president and chief executive officer Mike Wilson said, "Corn prices were depressed through much of the summer period, due partly to excellent growing conditions across North America, which contributed to lower sales and application of crop protection products at the retail level. Uncertainty over global potash pricing continued to result in cautious buying patterns from all customers, although our sales volumes this quarter were more than four times higher than the previous quarter."
"As of mid-October, harvest progress for corn and soybean crops was 50 percent behind normal, one of the slowest harvests on record, which could significantly limit the crop nutrient application window," Wilson added.
In the preceding second quarter, Agrium had reported net earnings of US$370 million or US$2.35 per share, compared to US$636 million or US$4.00 per share in the same quarter of 2008. Net sales for the second quarter had increased to USUS$4.09 billion from US$3.87 billion in the second quarter of fiscal 2008.
For the nine-month period, the company's net income plummeted to US$336 million or US$2.13 per share from US$1.20 billion or US$7.54 per share in the previous year. Year-to-date net sales was US$7.69 billion versus US$8.09 billion in the comparable period prior year.
Looking ahead, Agrium expects fourth quarter earnings to be in the range of US$0.30 to US$0.60 per share. Excluding estimated hedging gains or losses and stock-based compensation expense, the company anticipates fourth quarter earnings to be between US$0.14 and US$0.44 per share. Analysts currently anticipate the company to earn US$0.60 per share on revenues of US$1.76 billion for the fourth quarter.
Agrium said its guidance is wider than normal given latest harvest on record in the US the current year, and that its final result will be highly dependent on weather.
Among peers, fertilizer giant Potash Corp. of Saskatchewan, Inc.(POT) on October 22 reported a profit decline of nearly 80% from the prior year, as sales plunged more than 64%, led by caution among fertilizer buyers. Potash Corp.'s third-quarter net earnings were US$248.8 million or US$0.82 per share versus US$1.236 billion or US$3.93 per share last year. The company's sales for the quarter plunged to US$1.10 billion from US$3.06 billion in the year ago quarter.
Another competitor Terra Industries Inc. (TRA) on October 22 reported a lower profit and revenue for the third quarter on price declines and drop in sales volume associated with lower demand due to economic uncertainty. The Sioux City, Iowa-based company's third-quarter net income attributable to shareholders dropped to US$45.9 million or US$0.46 per share from US$164.9 million or US$1.64 per share a year ago. Terra's revenues for the third quarter decreased to US$347 million from US$790.2 in the prior-year quarter.
In Tuesday's regular trading session, AGU closed trading on the New York Stock Exchange at US$48.01 per share. In the past 52-week period, the shares have been trading in a range of US$22.08 to US$57.63.
In Tuesday's regular trading session, AGU.TO closed trading on the Toronto Stock Exchange at C$51.31 per share. In the past 52-week period, the shares have been trading in a range of C$28.70 to C$61.30.
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