Agrium Inc. (AGU) reported record net earnings of $160 million or $1.02 per share in the first quarter of 2011, surpassing the Zacks Consensus Estimates of 90 cents per share. It also exceeded the prior-year loss of $1.0 million or 1 cent per share. Including one-time charges, Agrium recorded net earnings of $171 million or $1.09 per share in the first quarter of 2011.
The first-quarter results include a pre-tax share-based payment expense of $12 million or 5 cents diluted earnings per share and pre-tax gains of $9 million or 4 cents diluted earnings per share on natural gas and other commodity hedges.
Results benefited from record high crop prices and overall strong fundamentals for agriculture and the crop input market. Crop nutrient demand was strong in North America and globally, providing underlying support to crop nutrient prices.
Revenues in the quarter rose 59.8% year over year to $3.0 billion, which was above the Zacks Consensus Estimates of $2.1 billion. The company’s gross profit increased by $363 million to $725 million, primarily due to higher gross profit across all major products.
Segmental Performance
Retail:The segment’s net sales for the quarter was $1.8 billion, up $762 million from the comparable year-ago quarter.
Crop Nutrient net sales jumped significantly 90.6% year over year to $707 million driven by a combination of higher nutrient sales prices and volumes. Gross profit for crop nutrients was $115 million due to early harvest and favorable weather conditions, particularly for potash and phosphate products.
Crop protection products’ net sales increased 38% to $638 million, primarily due to a combination of the addition of the Australian Landmark business and generally higher sales volumes across much of North America. Crop protection product margins climbed $102.0 million from $69 million.
Net sales for seed and services were $230 million in the first quarter of 2011 compared with $191 million in the same period last year. North American sales accounted for over 75% of the increase. Gross profit this quarter was $35 million compared with $15 million in the first quarter of 2010.
Application services and other net sales were $103 million, up $88 million versus the prior-year quarter.
Wholesale:The wholesale segment posted strong net sales of $1.2 billion in the quarter, an increase of 45% from the comparable quarter last year. Wholesale delivered the highest first quarter ever with EBIT of $377 million, a considerable increase of 156.5% from the comparable quarter last year. The increase was attributable to combination of higher nutrient sales volumes, increased sales prices and lower potash production costs.
The cost of nitrogen products sold was higher at $244 per ton, down 6% year over year. The natural gas price in the first quarter of 2011 was $4.14/MMBtu, lower than $5.38/MMBtu in the prior-year quarter.
Potash gross profit was $125 million in the first quarter of 2011 versus $106 million in the comparable quarter of 2010. The average realized potash sales price was $147 per ton, down from $159 per ton for the same period last year. Potash sales volume totaled 265,000 tons, up 43% from the year-ago quarter.
Phosphate gross profit was $95 million compared with $18 million in the same quarter last year. The significant improvement was due to higher realized sales prices. Realized phosphate price was $778 per ton versus $506 per tonne for the same quarter last year.
Phosphate cost of product sold was $468 per ton, up 8% year over year. The increase in cost of product sold was due to a combination of higher cost of sulphur, phosphate rock, and the impact of the higher Canadian dollar at the Canadian phosphate operation.
Advanced Technologies:Advanced Technologies’ gross profit was $16 million, up from $15 million in the first quarter of 2010. This was due to higher prices and sales volumes for Environmentally Smart Nitrogen (“ESN”) and turf and ornamental products.
Discontinued Operations
On December 15, 2010, Agrium entered into a contract with Cargill to sell the majority of the Commodity Management business of AWB. Completion of the sale is expected in the first half of 2011. The purchase price to be paid by Cargill will be the net asset value of the businesses sold during the completion date of the transaction, plus a premium. In addition to the sale of the Commodity Management business, the pool management operations of AWB Harvest Finance Limited (“AWBHF”) will be transferred to Cargill.
Commodity Management operations included in the agreement with Cargill are reported as discontinued operations as their operations and cash flows will be eliminated from continuing operations due to disposal transaction. However, we will not have any significant continuing involvement in the operations after the disposal transaction. Assets and liabilities related to discontinued operations are presented separately on the consolidated balance sheets.
Net earnings from discontinued operations for the first quarter of 2011 were $11 million versus nil in the same period of 2010.
Financial Position
Cash provided by operating activities was $402 million in the first quarter of 2011 versus ($111) million in the prior-year quarter. Capital expenditure was $110 million versus $76 million in the prior-year quarter.
Cash and cash equivalent at the end of March 31, 2011 was $447 million versus $635 million at the end of March 31, 2010. Long-term debt at the end of March 31, 2011 was $2.1 billion versus $1.6 billion at the end of March 31, 2010.
Outlook
With the strength in markets across most products and services, Agrium expects a great second quarter and believes industry fundamentals will remain strong in 2011.
For the first half of 2011, Agrium expects EPS to be in the range of $4.40 to $4.90.
Agrium faces stiff competition from CF Industries Holdings Inc. (CF) and Potash Corp. of Saskatchewan Inc. (POT).
Currently, Agrium maintains a Zacks #3 Rank (short-term Hold recommendation) over the next one-to-three months.
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