Agrium's (AGU) Q2 Earnings & Revenues Top on Retail Strength

Agrium's AGU earnings for second-quarter 2014 topped expectations on record results in its retail business, boosted by the acquisition of Viterra Inc.'s retail operations across Canada and Australia. The retail unit bounced back strongly after being hit by unusually cold weather in North America in the first quarter.

Agrium posted profit from continuing operations of $625 million or $4.34 per share in the reported quarter, an around 16% fall from $744 million or $5.00 per share registered a year ago.

Agrium recorded charges of $22 million (or 11 cents per share) related to environmental remediation activities in the quarter. Barring that impact (and treating stock-based payments recovery as a normal item), earnings from continuing operations came in at $4.45 per share, outstripping the Zacks Consensus Estimate of $4.10.

Revenues went up roughly 6% year over year to $7,338 million in the reported quarter as a healthy gain in the retail business more than offset sustained weakness in the wholesale franchise. Sales also topped the Zacks Consensus Estimate of $7,071 million.

The Canada-based fertilizer maker's shares were up around 2% in extended trading yesterday.

Segment Review

Revenues from the Retail segment moved up 15% year over year to a record $6.4 billion in the reported quarter. Gross profit rose 18% year over year to $1.3 billion. The results were driven by the contributions from the acquisition of Viterra's agri-products assets, better results in overseas operations and gains in the North American business.

Within the retail business, crop nutrient sales rose 8% to $2.7 billion in the quarter on higher volumes from acquired businesses and a rise in U.S. sales volumes. Crop protection revenues climbed 22% to $2.2 billion while seed sales shot up around 24% to $1 billion.

Retail segment's EBITDA jumped 28% year over year to a record $791 million with gains from Viterra assets buyout accounting for more than half of the rise.

The Wholesale segment remains affected by weak pricing with sales sliding 25% year over year to $1.2 billion. Gross profit tumbled 55% year over year to $227 million while EBITDA plummeting roughly 51% to $263 million. The results were hurt by lower pricing across all crop nutrients and a decline in nitrogen sales volumes due to plant outages.

Nitrogen sales volume dropped 18% year over year to 906,000 tons in the quarter. Potash sales volume moved up 4% to 566,000 tons on higher domestic demand. Phosphate sales volumes fell roughly 15% to 268,000 tons in the quarter.

Financial Position

Agrium exited the quarter with cash and cash equivalent of $759 million, a 53% year over year jump. Long-term debt remained essentially flat year over year at $3,060 million. Cash flows from operations were $37 million in the quarter versus cash used in operations of $65 million a year ago.

Outlook

Agrium noted that crop nutrient demand has been steady in the third quarter so far in a weak pricing environment. Prospects for global crop production have been driven by favorable growing conditions in a number of key agriculture regions.

Global nitrogen market has also been stable as prices are supported by Chinese urea costs and reduced availability out of Ukraine. The company expects lower Chinese urea exports in the second half of 2014 compared with the same period a year ago at existing international price levels.

Demand for potash in the second half will be backed by buyer confidence in the market. However, uncertainty will remain in the Indian phosphate market during the second half.

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

Better-ranked stocks in the fertilizer space are Potash Corp. POT, Chemical & Mining Co. of Chile Inc. SQM and Yara International ASA (YARIY), all holding a Zacks Rank #2 (Buy).