Cold Weather Pummels Agrium's Q1 Earnings - Analyst Blog

Agrium's AGU profit tumbled in first-quarter 2014 as unusually cold weather in North America hit its businesses in the quarter. Reduced railway availability and lower prices for nutrients in the wholesale business also weighed on the bottom line.

The Canada-based fertilizer maker posted profit from continuing operations of $12 million or 8 cents per share in the reported quarter, a roughly 92% fall from $146 million or 98 cents per share logged a year ago.

Agrium recorded a gain of $32 million (or 16 cents per share) on natural gas hedge positions in the quarter. Barring that impact (and treating stock-based compensation as a normal expense), loss from continuing operations came in at 8 cents per share. Analysts polled by Zacks were expecting earnings of 4 cents per share on an average.

Revenues edged down 2% year over year to $3,079 million in the reported quarter. The decline was due to a double-digit drop in wholesale sales as a result of lower realized prices. Sales, however, squeaked past the Zacks Consensus Estimate of $3,072 million.

Segment Highlights

Revenues from the Retail segment rose 4% year over year to $2.2 billion in the reported quarter. Gross profit moved up 3% year over year to $387 million. The improvement came on the heels of contributions from the acquisition of Viterra Inc.'s agri-products assets and better results in Australia. These factors also led to a roughly 12% rise in crop nutrient sales in the quarter.

Retail segment's EBITDA slid 32% year over year to $17 million, hurt by late start of the spring season due to bad weather and costs related to Viterra assets buyout. Inclement weather in North America hurt crop protection sales which fell 7% in the quarter.

The Wholesale segment's sales dropped 11% to roughly $1.1 billion. Gross profit slid 50% year over year to $171 million while EBITDA tumbled roughly 40% to $237 million. The results were impacted by lower sales prices across all major crop nutrients.

Within wholesale, Nitrogen sales volume rose 6% year over year to 876,000 tons in the quarter. Domestic potash sales volume jumped 47% to 292,000 tons while overseas volumes fell 24% to 136,000 tons. Phosphate sales volumes surged 33% to 308,000 tons in the quarter.

Financial Position

Agrium ended the quarter with cash and cash equivalent of $592 million, up 1% year over year. Long-term debt increased 47% year over year to $3,058 million. Cash flows from operations jumped more than two-fold year over year to a record $788 million in the quarter.

Outlook

Agrium, which is among the prominent fertilizer companies along with Mosaic MOS and Potash Corp. POT, sees adjusted earnings from continuing operations of $3.85 to $4.35 per share for the second quarter. Earnings for the quarter are expected to be affected by outage at the Carseland nitrogen facilitiy (an estimated 35 cents per share impact). The forecast falls below the current Zacks Consensus Estimate of $4.88.

Agrium noted that prices for major crops have strengthened from levels at the start of 2014, supported by strong demand and increased uncertainty over supply. Improved crop prices have triggered a rebound in farmer sentiment this spring season, supporting demand for crop nutrients. North American crop area is expected to be near record highs this year, which is expected to support crop input and seed demand.

However, harsh winter weather have challenged rail and port transportation logistics so far this year and the constrained logistic capacity is expected to contribute to tight supply and demand balances within regional markets this spring season.

Agrium currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the fertilizer space is CVR Partners, LP UAN, holding a Zacks Rank #1 (Strong Buy).